What do you do when the necessary is impossible? Rethink the impossible.
The three levers of government public policy are monetary, fiscal, and structural policy. At present, only one is functioning at a level that remotely resembles normality: monetary policy. Yet, I would argue that central bankers exercising their monetary policy has now gone way beyond their core mandate and have, in effect, become enablers of bad behavior of others. Allow me to explain.
In discussing the current and recent economic condition as it relates to the three stooges, Nouriel Roubini writes, “…the policy mix was suboptimal. While monetary policy can play an important role in boosting growth and inflation, structural policies are needed to increase potential growth and keep firms, households, banks, and government from turning into zombies, chronically unable to spend because of too much debt. And fiscal policies were also necessary to support aggregate demand.” Mr. Roubini goes on to state, “…in view of persistent lackluster growth and deflation risk in most advanced economies, monetary policymakers will have to continue their lonely fight with a new set of “unconventional unconventional” monetary policies.”1
In making such an argument, Mr. Roubini is excluding the fact that such actions have a major consequence: It gives those who are responsible for pulling the other levers of government intervention – they being fiscal and structural – a pass. This is wrong. By continuing to embrace extraordinary monetary policies and succumb to the fears and spasms of the financial markets, central bankers around the world are now acting as an enabler.
If you look up the definition of enabler, the first definition is this: “a person or thing that makes something possible”. However, it is the second definition that more correctly applies to current central banker actions” “a person who encourages or enables negative or self-destructive behavior in another”.
