"More stimulus is not the solution" - They're Right, From Their Myopic View of Things

commentary by Roger Erickson

Yet just how freaking myopic is that view?

(An open letter to Australian Bill Mitchell, about the following article.)

More stimulus is not the solution
THE AUSTRALIAN FINANCIAL REVIEW

Hello Bill,
Hope things are well down there in what was once the world's largest penal colony. I saw this article first thing this morning, and thought of you - as well as prison colonies - while wondering where on earth one finds "financial" experts able to come up with such views, and how they do it.

After reading the article, one has to ask what the "problem" is that such experts claim to know which solutions will not work for, and how they come by their particular view of that problem and that problem alone?  They implicitly answer that very question themselves, even though they don't even ask it.  It's so obvious that I'll also leave it implicit.

Ironically, it is Labor Day here, where Ben Bernanke opines that "US workers don’t have the skills to match job openings." If that's the case, then why wouldn't a populous consider some stimulus specifically targeted to rapidly retraining and re-applying available human capital?

Meanwhile, the Bundesbank & ECB are arguing over whether non-sovereign "bond buying is the equivalent of monetary financing." Well, of course it is. To hear two CB economists arguing, in effect, over who is & isn't allowed to finance the organized efforts of native populations is, to put it mildly, surreal. Surely the member populations of the euro-zone could consider some stimulus in order to utilize their under-utilized compatriots within their own financial union?

As a physiologist, this immediately makes me imagine a liver cell and brain cell arguing over whether they should let the lungs "stimulate" the heart cells. Mercy! Aesop was aware of this conundrum, over 2000 years ago, and the cell types in question had solved the operational issue well over a million years before that!

Yet the same experts opining above, also warn of another problem. "Waning exports have exposed vulnerabilities in China’s growth model, but the PBOC fears that cutting rates may reignite overborrowing and overinvestment." 

BMHOTK! Is it not within the paradigm of Aussie financiers to consider that China may simply choose to export less and itself consume more of what it produces? If that's the case, then the PBOC may have no real fears at all, and it is foreign populations who should be considering different patterns of stimulus, in order to protect their own living standards from the loss of cheap imports from China. If anything, the PBOC might be fearful that the authors of this article might wake from their stupor before China finishes successfully engineering a global realignment of realities on the ground!

Finally, there's this real kicker. "There is still lack of confidence that global policymakers can engineer a recovery." Really? After the stellar job these self-styled owner-managers have done the last 4, nay 8, nay 12, nay 20 years? Perhaps they could consider loosening the stimulus constrictures a wee bit, so that the rest of humanity could, say, stimulate themselves, through stimulating thinking leading to novel forms of coordination and the returns which that always brings?

The foregone conclusion of the whole article is that any action whatsoever "could" lower the present, unused buying power of that tiny fraction of people who have hoarded a significant cache of fiat currency - by means they would prefer not to discuss at this time. They're right, of course, in theory. In addition, the sky could fall at any moment.  In addition, the consequences of the sky falling could, in theory, matter to human populations. One question that financial experts and the rest of us ought to be pondering and monitoring is probability, not just possibility.  Of course there are endless other options to explore as well, but those are clearly beyond the intellect of the authors at THE AUSTRALIAN FINANCIAL REVIEW.

All this begs the question of how economics and finance training went so far off track in Australia, as it has in other countries. Back to my analogy, at this time - upon hearing liver & brain cells argue so idiotically over the future of all cells - all the other cells in a "body" should be triggering alarm bells, and desperately reviewing contingency plans to:

1) relieve current policy staff of their duties (for abject failure to perform those duties; surely those duties are spelled out somewhere?);
[in my mind, that would do much to remedy the "deeply embedded structural problems" in these countries!]

2) reorganize the training, education and tolerance limits for selecting future replacements, so such abject failure doesn't occur again soon;

3) initiate sizable & rapid stimulus in a search for replacement policy staff specifically NOT suffering from the same myopia or delusions, which are clearly not appropriate for the existing situation.

Perhaps then, we could all return to not only having a heart and a brain, but a breath of life as well! If that's what it takes, then our populations should take on the role of irregular but timely messages to the "financial" interests, something on the order of "inflate, deflate, .... inflate, deflate" ..., with a periodicity and depth matching whatever situations arise. Similar tapes for proverbial blondes are supposedly available, reminding similarly myopic people to "breathe in and breathe out" regularly.  Hence, it wouldn't be so outlandish to consider the same remedy for the financial community.