The Post–Thatcher/Reagan Economy, 2008–09
The Thatcher/Reagan era was one of the greatest triumphs of mutual accommodation in history. It was achieved through a combination of free markets, globalization, and, in a time of economic crisis, global policy coordination. It rested on a foundation of the rule of law and freedom. The mutual accommodation was not, however, inclusive enough. Its primary focus on only one of the five stakeholders, the shareholders and shareholder value, has proved to be increasingly inadequate.
This chapter underlines how the post-war global macroeconomic policy environment has radically and importantly changed and provides a basis for exploring needed changes in policy and behaviour. In addition to fiscal/monetary policy imbalances, there are issues such as the general slowdown in productivity and the increase in global imbalances and in income and wealth inequality. Together, these issues are fostering extremism and populism. The world of economic policy prevalent under Thatcher/Reagan (and in previous decades, where demand persistently exceeded supply) has run its course. No “silver bullet” changes in policy will be able to bring about more economic dynamism. What must now be explored are five main areas of potential structural change beyond monetary and fiscal policy. To succeed, all five need to be mutually accommodated.
The Thatcher and Reagan era is behind us. The world has experienced a “regime shift” in economic conditions (as James Bullard, CEO and president of the St Louis Federal Reserve Bank, said at the “Challenge for Monetary Policy” symposium in Jackson Hole, Wyoming, in August 2019). Right now we need reduced expectations and better explanations from central bankers about the world they face. Central bankers seem to be slowly getting a better understanding of the new dimensions of the post-Thatcher/Reagan era. The public needs a greater understanding of monetary policy and the potential role of other policy, but the central bankers have not met this need. They find it difficult to explain the limits of what they are doing because it moves them away from their vital political independence and toward the dangerous world of the partisan politics of policy change. Nonetheless, they need to find a way to educate the public about the new monetary policy world.
Right now the global economy faces the consequences of a huge rise in savings at the same time that there are fewer available private-sector investment opportunities. I discuss later what I think are the four main factors that have brought this situation about. Unless and until some or all of them are adequately addressed, the current unsustainable underlying economic conditions will persist, and central banks will be largely powerless. Fiscal policy will be needed, but to be fully effective, sources of the current “savings glut” must be addressed.
Something new is definitely going on. Byron Wien, the veteran Morgan Stanley strategist, wrote a September 2019 piece headed “Plenty to worry about, not much to do.” In its summary of the Jackson Hole symposium, the Financial Times concluded that “there was a sense that things will never be the same again.” Bullard added that yes, “something is going on, and that is causing a total rethink of central banking and all our cherished notions about what we think we are doing” – something I have been saying for several years now. The blog ZeroHedge stated that “there has never been so much hostility to central bankers – even among other central bankers – in the past decade as over the past month. Something is about to snap.” Ray Dalio, “in an ominous warning,” compared the current period to the years 1935–45. He pointed to three big issues:
• the end of the long-term debt cycle (when central banks are no longer effective);
• the large (US) wealth gap and political polarity; and
• China as a rising world power, challenging the existing world power (the United States).
Mark Carney, the governor of the Bank of England, has also sent a warning “that extended periods of low interest rates effectively become self-reinforcing and lead to catastrophic results.” Very low interest rates, he said, tend “to coincide with high risk events such as wars, financial crises, and breaks in the monetary regime.”
What is significant is that all these comments are coming at the same time. The current US economic expansion is the longest ever. It likely still has enough strength to go another year – perhaps more. The Thatcher/Reagan era has ended, and no one knows what will happen when the inevitable recession comes. Monetary and fiscal policy can no longer do all the tasks needed to guide and support Western economies in a savings glut/low to flat interest-rate world.
This challenging situation will not change until there is an underlying shift in the structural imbalances among consumption, savings, and investment within and between countries. No country is addressing these issues – and none is likely to do so until after the US and global economic expansions come to an end. The reason is partly because they are politically challenging, and partly because the central banks and the policymakers failed to understand that different ills – cyclical or structural – require different cures. These structural challenges are likely to be addressed only when the political costs of not addressing them come to be seen by governments as greater than those of addressing them – and when voters accept that fact. Pain is often necessary to get needed change. Central banks and politicians are generally averse to pain.
So the big economic ideas floated during the era of Prime Minister Margaret Thatcher in Britain and President Ronald Reagan in the United States are no longer as effective in promoting economic growth. They did good work, and they still matter, but they are not enough for a balanced and sustainable future. The West now needs to move on from the world of Thatcher and Reagan. The initial thirty-five to fifty years of the post-Second World War period were a time when demand (which had been suppressed by a fifteen-year global depression and war) recovered and consistently moved above supply. When necessary to curb demand and/or wage and other inflation pressures, the central banks intervened with higher interest rates to counter them and bring the early post-war business cycles to an end. That, however, is no longer the central economic policy challenge.
The Thatcher/Reagan economic policy was based on several ideas which were mostly good, though limited: expanding free markets at home and abroad; making little distinction, mistakenly, between financial and goods-and-services markets; and regarding shareholder value as the underlying driver of fair and successful economies (which was true only to a certain point). Strong corporate profits are always essential: shareholders are not only wealthy individuals but include pension funds. It is true that shareholders are owners of the company, but ownership is not the sole story. Shareholders are only one of five corporate stakeholders, alongside employees, customers, suppliers, and communities. All of them matter, not just for business but for society too (as populism is teaching us).
Honda, whom I worked with closely for twenty years in Canada, the United States and the United Kingdom, is the company I know well that has best understood the importance of all five stakeholders right from its beginning in 1948 (as a motorcycle manufacturer, before it later became a top-of-the-class global motor vehicle manufacturer). It also knew something else: the need for respect for them all. That is why, as I explained in Chapter 1, when Brazil asked the company to locate its motor vehicle manufacturing assembly plant among illiterate workers in the Amazon Valley, the company found a way to get around that shortcoming.
US business leaders have recently started a “business rethink” by proposing to ditch the creed of shareholders first. The US Business Roundtable adopted, in its mid-August 2019 announcement, the same five stakeholders Honda has espoused from its very beginning. As Mohamed A. El-Erian explained, “it reflects an emerging consensus about the importance of more inclusive capitalism” (in my language, more both/and, less either/or).
Inequality, alongside fears arising from excessive threatening change in relation to culture and identity, are the fuel of populism and rising centrifugal forces. Globalization is not the primary reason for the rise in inequality. The main post-2000 economic management policy mistakes have been to rely excessively on monetary policy and insufficiently on fiscal policy; and to blur the differences between what structural and cyclical policy requires and how best to achieve the former. Since 1980, the policy focus has increasingly been on cyclical remedies for structural ills.
Central banks are not what they used to be, for two main reasons. First, the economic conditions between 1945 and 1990 no longer prevail. Second, cyclical economic management needs the right balance between monetary and fiscal policy in a better balanced consumption/savings/investment world. Mainly because of politically driven and ideology based fear of government deficits, monetary policy was asked to do too much. Today, central banks do not face the serious cyclical inflation pressures of the five decades after the end of the war. In fact, these pressures have largely gone. Monetary policy has failed to address the now post-2008–09 structural challenge of a savings glut alongside a lack of sufficient available good investment opportunities – simply because it does not have the right tools.
The post-war level of all forms of US debt (consumer, business, and government) as a percentage of GDP was flat from 1945 to 1980. It then took off under the so-called financially conservative Reagan Republicans. That first big “fake news” moment of post-war America is now being repeated by President Donald Trump on both the fiscal and the monetary fronts. President Barack Obama faced a global balance-sheet recession, which Reagan did not. Reagan, however, initially had his own challenges in a deep 1980–82 cyclical recession caused by Federal Reserve chair Paul Volcker pushing the federal funds rate to 20 percent in June 1981. That crisis passed, but the Reagan government economic policy, which expanded all forms of debt, continued – the opposite to the fiscal/financial conservatives they claimed to be.
The post-war era was inflation prone until the 1990s. Since then, inflation has not been the primary problem for the United States and other major Western economies. Nonetheless, central bank talk has continued to focus on an inflation threat that has not been seen in the West for some thirty years. Today, central banks are looking to get minimum inflation, not to counter it. We can only assume that is because all central banks have failed to understand two things: the nature of the post-1990 structural imbalances; and their own contribution to them as they wrongly used cyclical remedies to address the consequences of structural imbalances.
In the fall of 2019, some ten years after the beginning of the recovery/expansion that followed the global financial crisis in 2008, both real and nominal interest rates in G7 countries are very low throughout the West, and available private-sector investment opportunities are well below the level of savings. One important consequence is the rise in corporate share buybacks. If there were enough good investment opportunities, that would not be happening.
The working assumption of the Thatcher/Reagan era was that there would be a broad, automatic and ongoing structural balance among consumption, savings, and investment. Instead, there have been persistent and growing gaps between them. Between 1945 and 1980, supply shortages and rising real wages led to inflationary pressures and higher interest-rate interventions by central banks, followed by lower central bank interest-rate interventions. Today, there is a gap between the amount of global savings and the availability of good global private-sector investment opportunities – a situation that continues not to improve. With extremely low interest rates, alongside a lack of enough available private investment opportunities, savings are in effect being hoarded – largely used for private and public consumption, not investment. Persistent low rates mean that investors such as pension funds have actuarial assumptions that can’t be met by current bond yields. This threat will bring pressure on them to continue to shift their asset mixes increasingly into riskier, higher yielding assets – Forced Buyers of Risk (FOBOR). The assets are also being used for high-risk, high-return investment in emerging markets – a reaching for return strategy that can be dangerous.
Ultra-low to negative interest rates, nominal and real, are likely to remain until private-sector investment demand, together with more new public-sector investment, better matches levels of savings. When rates finally increase, there will be major policy, marketplace, and asset price changes throughout the world.
There appear to be four main reasons for the persistent and growing gaps among consumption, savings, and investment over the last two or three decades. Ben Bernanke, the former chair of the Federal Reserve, called attention in 2005 to a global “savings glut” – which produced the pressures that brought today’s ultra-low to negative interest-rate environment:
• the shift in income distribution away from the less well-off, who spend a high percentage of their income on consumption, to the better-off, who spend a lower percentage of their income on consumption;
• the shift from manufacturing to hi-tech and digital products and services, which require less physical investment;
• the fact that public infrastructure, education, and research – which have fallen behind needs in the United States, as well as in many other countries – will require more private-sector investment; and
• the trend in too many countries (the European Union [especially Germany], China, and Japan) to structure their economies so that they spend less than they earn (export-led economies) and to use the resulting excess savings to lend to countries (such as the United States, the United Kingdom, and Canada, who are running current account deficits) that persist in consuming more than they earn and borrowing from other countries that do the reverse.
These issues need to be addressed over time by policy changes (which means challenging political discussions) to get a more sustainable global economic and financial structural balance. Better economic performance, as well as a reduction in populism and other centrifugal political and societal forces, requires this attention. Free markets in goods and services are always subject to the limits of the real world. Not so financial markets. They can get too much central bank liquidity and provide so-called financial products removed from economic reality. Real limits exact pain, which is informative. Inadequate financial limits led by central banks are an effort (often at high cost) to escape the pain that comes from real world limits.
Central banks drive money and credit creation. The system goes wrong when the results cushion too much of the pain of real economy limits. Since 2000, the world has seen too much money/credit creation overall in attempts to avoid too much pain, alongside too tight fiscal policies since the financial crises almost everywhere (but, fortunately for the global economy, not in the United States under Obama). The numbers reported a while ago from Richard Koo make the post-2008–09 monetary overreach case:
• the US monetary base was expanded by the Federal Reserve by 357 percent from the end of 2008 to 2015; and
• credit to the private sector increased only 19 percent over seven and a half years.
In other words, an elephant effort for a mouse outcome.
In the 1980s, Paul Volcker at the Federal Reserve and the Bank of England ran very tight monetary policy to bring inflation down – the last decades of real inflation in G7 countries. Canada’s moment came at the end of the 1980s under John Crow, governor of the Bank of Canada. Volcker raised the federal funds rate, which had averaged 11.2 percent in 1979, to a peak of 20 percent in June 1981. He switched Fed policy from targeting interest rates to targeting the money supply. He stood Wall Street down – a rare accomplishment. (The traders always want low interest rates and lots of liquidity – which are good for share prices until they are not.) He also killed US inflation (it has never really come back), for which, not surprisingly, the US economy paid an unavoidable real cost.
More productive public investment will undoubtedly be needed to sustain productivity growth. The United States still does not adequately understand the degree to which post-war US federal public-sector spending on the space program and the military provided the foundation for the huge post-war US private-sector innovation drive. That, not tax cuts largely unrelated to encouraging new risk private-sector investment, is what is needed now to get a more sustainable balance in the United States among consumption, savings, and investment.
The new world of consumer rather than producer dominance, alongside the new world of globalization, have together structurally altered the cost-price environment by putting consistent downward pressure on prices. First, the shift of a lot of lower-end manufacturing from advanced to low-wage newly emerging economies has also reduced prices for many manufactured goods, as has technology, including robots. Second, the shift from producer to consumer dominance led to price-based costing (getting your costs down below the price you can get) in place of cost-based pricing (adding up costs to get the price). That pushed consumer prices down, driven by the downward price pressures from the new consumer-dominant world. Together, these pressures for lower prices seem much more structural than cyclical. That could also mean more of the improvements in standard of living will now come from non-deflationary falling prices.
The private sector has reduced its investment borrowing for two main reasons: the persistent consumption, savings, and investment imbalances within and among countries; and the slow recovery from the global balance-sheet recession of 2007–08. The private sector will start serious levels of borrowing again only when the impact of the 2007–08 global balance-sheet recession is fully behind us and when the structural consumption, savings, and investment imbalances within and among countries are adequately addressed by policy. It could turn out that the next recession awaits an excess on the investment front (balance sheets/asset bubbles), not the earlier post-war excess of too much consumer demand for available supply (cyclical). Or the recession could come from interest rates suddenly increasing and the resulting downward impact on asset prices.
Since the 1990s, Western central banks have talked the inflation talk, but there has been no real inflation walk to walk. What central banks and fiscal authorities need to better understand is that structural imbalances (as opposed to cyclical ones) cannot be successfully addressed by monetary policy, and only partially by fiscal policy. Each can make the structural imbalances worse over time.
Monetary policy, in particular, does not work to fix structural trade imbalances, but it can be a big contributor to them. It did not work for Japan in the 1980s, and it will not work for China (or Japan or Germany) today. What sort of monetary policy is required at a time when private-sector demand for investment funds is relatively weak? The answer is that monetary policy cannot accomplish a structural change. To fix the problem, a different policy path will be needed.
The current Federal Reserve chair, Jerome Powell, said in a speech in June 2019 that the last two recessions were caused by financial imbalances (the Information Technology [IT] and the housing bubbles). They were not caused by rising real economy costs and prices or by Federal Reserve rate hikes aimed at curbing inflation. Households in developed nations continue to save for the future. In the absence of sufficient available opportunities for private-sector investment, those savings can only be used by consumers ready to borrow to increase consumption or for existing, not new, business investment assets – which, over time, can themselves foster asset bubbles.
Some new “out-of-the-box” policy thinking for a different world is needed from economists, governments, and central bankers. Each needs to move on from its post-1980 thinking, which seemed to suggest they have the tools for everything. Instead, they need to refocus what they say and take a much more limited and better disciplined role. They need to concentrate on the long overdue and harder political challenge of structural rebalancing through changes in government policy, and move away from the short-term focus and politically easier monetary or fiscal loosening.
It will primarily take events, along with leaders and followers who are willing to accept the needed economic and political adjustment pain, to get from here to there. The moment of truth will likely come after the end of the current US and global economic expansions. Cyclical remedies between now and then will only postpone the moment of structural truth. Unconventional monetary policy does not offset the economic drag from structural imbalances. Structural change in the consumption, savings, and investment imbalances is the only lasting and stable way forward. In the meantime, the end of the current expansion may come still later than many have expected. Recovery takes longer after an asset bubble gets out of hand. There are still no signs the post-2008–09 US expansion will end – or that rising inflation will need to be cut back by higher central bank interest rates. Nor is there any sign that negative interest rates are a sustainable way forward.
The cyclical economic policy management tools – fiscal and monetary – are not suited to address the structural imbalances outlined above. The lack of attention to the rising structural imbalances is part of why all Western economies are being held hostage to the centrifugal/populist forces that have been rising so strongly. This also partly underlies the rising trade wars. Too tight fiscal policy after 2008–09 in the European Union (unlike the United States) contributed to higher EU unemployment, and probably contributed to Brexit and rising EU and UK populism too.
Structural policy change (with its potential political divisiveness) will now be needed in five areas, but the required political consensus will not be easy to get, especially in a polarized/divided United States.
• The big current-account surplus countries will have to implement policy change that leads to a structurally sustainable increase in domestic demand and a reduction in their excessive reliance on export demand.
• The massive shift of wealth within many Western countries from the spenders (the less well-off) to the non-spenders/savers (the better-off) needs to be reversed through balanced, more progressive, structural policy.
• American public infrastructure increasingly needs major new investment.
• Just as post-war America benefited from the influx of the publicly supported education of GIs, so a stronger US educational performance is again needed. In particular, the United States needs post-secondary vocational education, which will require more public funding.
• Renewed US government publicly funded support for research/innovation is needed. The Pentagon-financed innovation research after 1945 not only built the world’s strongest military but also laid the groundwork for the superior post-war US private-sector innovation strengths.
The first forty-five post-war years addressed cyclical challenges with cyclical cures (monetary and fiscal). That strategy worked, though not always smoothly, because it suited the prevailing economic conditions. Since then, the structural ills brought by the end of the Thatcher/Reagan era have almost solely been addressed by cyclical cures. That has not worked well. Instead, we now have a world with ultra-low interest rates and too much debt. The growing amount of low-interest debt has become a hostage to the future. This debt has been brought on by persistent consumption, savings and investment structural imbalances that are the accumulated fallout from the misguided cyclical cures for the structural imbalances that first emerged in the 1980s.
This situation will not change until there is an underlying shift by less structural imbalance among consumption, savings, and investment within and between countries. No country is addressing these structural challenges. No country is likely to do so until after the current US and global economic expansions come to an end. The reason they have not been addressed is partly because they are politically challenging, and partly because the central banks seem to have failed to understand that different ills – cyclical or structural – require different cures. These structural challenges are likely to be addressed only when the political costs of not addressing them come to be seen by governments as greater than those of addressing them and voters accept it.
Today’s unsustainable low to flat interest rates are for a different world, and they will not be sustainable until they return to more realistic higher levels. Institutions are mostly more about the past than prescient about the future. Central banks are no exception. Western central banks still publicly frame events primarily in inflation terms, although there has been no inflation for some thirty years. They are now even seeking (promoting?) inflation – as something to be wanted, not cured. Milton Friedman, the great American economist, wrote in 1966 that “inflation is always and everywhere a monetary phenomenon.” Today’s non-inflationary environment suggests it is well to keep in mind that no one thing is ever everything. Understanding that can avoid lot of wrong turns.
The economies in the West have seen several big changes. So far, we have no well-thought-out policy approach to address them. The period from 1930 to 1980 was primarily about demand management: seeking to expand demand in the 30s, and to expand or contain demand (as required) from 1945 to 1980. Then came the US supply-side economics from 1980 to 2007–08. Now we are looking at savings/private-sector investment structural imbalances that cannot be successfully addressed by cyclical loosening or tightening of monetary or fiscal policy.
These issues need to be addressed if the immediate and unsustainable negative (flat/low) real and nominal interest-rate environment is to be overcome. Central banks are on the wrong track looking for (wanting) inflation – a response more akin to looking at symptoms rather than real causes. The central banks will find it hard to get what they will need in a world of consistently too much savings and not enough investment. Today, these two issues – excessive savings and not enough investment opportunities – are the biggest structural challenges.
The most significant changes since the arrival of the Thatcher/Reagan economic policy era of globalization, free markets, and supply-side tax cuts are as follows. They have driven us to where we are today:
• Before the Thatcher/Reagan era (1980), there was never in all recorded history more “savings” than available investment opportunities for any length of time. The result of this massive change is the growing structural imbalances today among consumption, savings, and investment. They are undoubtedly a factor – possibly the biggest single one – in the current low to negative normal and real interest rates and in the socio-political rise of centrifugal (populist) forces in the West.
• We cannot properly evaluate the consumption/savings/investment structure of any economy, and how it is affecting the economy, unless we see the total level of savings (both domestic and foreign) and where the savings are used (both consumption and investment). Savings used for investment and savings used for domestic consumption have a fundamentally different long-term economic impact. For this discussion, we need to see the total of savings before it is reduced by borrowers for consumption or investment. At some point there will be a limit to how much borrowing can be done for consumption. Recent Canadian data suggest that in Canada, given its very high household-sector debt, this limit may soon be reached.
• The relative shift from manufacturing to hi-tech economic growth has required less physical investment, thereby reducing investment demand relative to the level of available savings.
• Income distribution has shifted in favour of higher rates of personal savings and the overall share of national income going to investment relative to wages. This trend has shifted income away from spenders to savers. The spenders may then feel they have to borrow to maintain their level of consumption.
• Globalization has enabled countries such as Germany, China, and Japan to structure their domestic economies so that they can arrange to export more than they import – forcing the net importers to borrow from the net exporters to finance their consumption. This imbalance has become one of the major contributors to populism.
• Around the beginning of the Thatcher/Reagan era, another never-before-in-history event took place. Until then, the economic world had always been producer dominant. In the years since, it has become increasingly consumer dominant for more and more people. That has put downward pressure on consumer prices, and thus on inflation (and interest rates), resulting in rising excess savings being used increasingly for consumption. At some point, consumers will not be able to manage more and more consumption beyond what they have earned – even at very low interest rates.
• Low interest rates, because of excessive savings, are not good for the overall economy and, moreover, cannot last. Banks cannot stay safe or remain able to lend without adequate earnings from interest; and pension funds cannot pay adequate pensions in a flat or negative interest-rate world. Low interest rates can result from the different factors that reflect a deep structural imbalance in the consumption/savings/investment system – and that is happening now. It is unlike any previous world, and it could bring stagnation (low interest rates, low inflation, low investment, low productivity gains, and weakened financial institutions). Larry Summers, the former president of Harvard and former secretary of the US Treasury, has recently expressed his fears that a stagnation era could be at hand. Today’s low interest rates are not sending the same message as low interest rates did during years 1930–80. It could be that an inverted yield curve may not be enough in today’s changed environment to bring a recession, as it has done for the last forty years. Time will now tell.
The current state of economic policy thinking is that it is too narrow and over-focused on the short term. It is too often about what to do now to minimize short-term political and economic pain, and not enough about what has gone wrong and how best to address the problems. In economics, as in medicine, you never get the right cure if you don’t have the right diagnosis of what is wrong. I know of no credible policymakers anywhere who really seem to know how we got here or have any diagnosis helpful to a cure. It is hard not to conclude that Western policymakers have for some time now been conducting macroeconomic policy management from an out-of-date diagnosis. Wrong or incomplete diagnosis unavoidably leads to mistakes – sometimes very serious ones – especially if they become cumulative.
The savings and investment structural imbalances are both an effect and a cause. Yesterday’s cause becomes today’s effect and tomorrow’s cause – and so on. The world is more complicated than Reagonomics understood. It is easier said than done for both current and capital flows between countries to fit in with each other comfortably. In his book The Other Half of Macroeconomics and the Fate of Globalization (2018), Richard Koo has delved deeply into the related issues of exchangerates misalignment and what he calls the “pursued phase” of economic development (where manufacturing in advanced economies loses competitiveness to emerging economies that pursue them). Exchange rates determined by capital flows and those determined by current flows will often differ substantially, making macroeconomic policy far less simple than is presumed by the Thatcher/Reagan model.
Three striking developments have taken place since this chapter was initially drafted. First, the acknowledgment at the Jackson Hole meeting of central bankers in August 2019 of how much more limited the reach of monetary policy has been than they thought. Monetary policy needs a deeper, more thoughtful look than the anti-inflation simplicities of the last thirty years. Second, the acknowledgment at the US Business Roundtable that if capitalism is to work, all five corporate stakeholders must be taken into account. Third, the launch by the Financial Times in early September 2019 of The New Agenda with Martin Wolf’s article on saving capitalism; there he made the point that for the economy to work, it has to work for everybody. I can sum all this new thinking up by asking one simple question: “Where has Henry Ford been when we needed him?” Ford understood from the beginning that he needed his workers to earn enough in order to afford his cars. So, today, capitalism needs to work for all five stakeholders. It is good news that central bankers, the US Business Roundtable, and the Financial Times are starting to get that.
Finally, there are two overarching themes that should be mentioned. First, there is a demographic dimension to the savings glut. People are living longer and need savings for a longer period when they are not working. Second, populism, alongside monetary policy that is less effective in the post-Thatcher/Reagan era low/no interest, savings glut world, leaves monetary policy facing a world where what it can do is not enough. Together, they risk loss of central bank political independence. Governments and central bankers will have to find a way to engage in publis discussion of monetary policy limits and direct public discussion to where politically fragile policy changes need to be thought about – not easy in today’s populist world.
Mohamed A. El-Erian, The Only Game in Town (2016).*
Richard C. Koo, Escape from Balance Sheet Recession and the QE Trap (2014).
Richard C. Koo, The Other Half of Macroeconomics and the Fate of Globalization (2018), especially Chapters 3 and 4.
Richard Koo, “Time for a Plaza II,” The International Economy Magazine, Summer 2019.
Gillian Tett, “Does Capitalism Need Saving from Itself,” Financial Times, August 31/September 1, 2019.
Martin Wolf, “Big Read, Global Economy,” Financial Times, September 18, 2019.
Martin Wolf, Escaping the Trap: Secular Stagnation, Monetary Policy and Financial Fragility (SUERF Policy Note, Issue No. 94, September 2019).
* El-Erian identifies central bank overreach as the primary source of current instability. He sees another big collapse within the next three years if reliance on central banks is not reduced. I agree that the central banks overreached. While they did, their monetary policies helped structural imbalances to grow. See my essays in Chapter 10.