Nine years from the start of the great financial crisis, Wolf reported, economies had still not returned to “normal”. Capitalism was perceived by many to be failing to deliver; globalisation a con trick. The political situation in many countries was deteriorating. Bill White commented that QE had had little traction on the real economy. After so many monetary experiments, negative rates looked like “the last refuge of the scoundrel” .
Mervyn King pointed out that in 2008 nobody expected low interest rates to last so long. “We have thrown an enormous stimulus at the economy, with mediocre results”, said White. Evidence of the harm done by unconventional policies – such as keeping zombie companies and banks alive – was accumulating.”
. . . .
“For many of the people Wolf interviewed, the diagnosis was clearly lack of demand. If that diagnosis was right, Adair Turner asserted, then there was an answer – governments/central banks could create demand and inject it directly into the bloodstream of the economy. Others pointed out that the regime of low/zero or negative rates punished savers. Future pensions were at risk, as was banking profitability, so that bank lending was crippled.
Meanwhile, the lucky few at the top of the pyramid were benefitting from asset bubbles. Charles Goodhart pointed out that central banks could drive rates down much further into negative territory, but would need “political cover”: politicians would have to inform the public that such a policy would reduce the value of their savings. Would “ordinary people” get scared, Mervyn King asked? “We have to do radical things”, said Turner, climbing into the seat of his money helicopter. “Stop”, shouted Otmar Issing: “Once you let politicians get their hands on the money printing machine, you are lost”. 1923 all over again. “He is German” said Wolf ominously. Gutenberg and the printing press….
Others likened central bankers to the God Atlas, carrying the world on his shoulders. Andy Haldane pondered whether the whole “meaning of money” was in question. Let’s talk about digital cash, that might cheer people up. Digital cash might be used to give users a return, a yield, on their money (as suggested, by the way, in The Money Trap); but equally, as others said, it could be used to deny money to depositors (“curb access to cash”).” . . . . .
“The current debate about monetary policies reminds me of the 1970s.
Keynesian policies as then understood involved adjusting the fiscal “stance” of policy to ensure sufficient, but not excessive, effective demand. But these policies no longer had “traction”. The world was changing in ways that economists at the time struggled to understand. Money was becoming more fluid. Cross-border flows were rising rapidly. The move to flexible exchange rates and vast increase in the scope of international money markets had created a new world. Bankers rushed to exploit new lending opportunities from Africa to Latin America to Asia. Real interest rates turned negative.. Expected inflation rose.
Then as now, people were not responding to policy stimuli as policy-makers expected. Businesses and consumers started to “see through” policies; there was a loss of “money illusion”. In short, people refused to be treated as guinea pigs. In the search for growth, monetary policies became uniformly stimulative. Thus money, which itself should be the chief regulator of the economy, became a pawn in the hands of policy makers.”
. . . .
“The underlying issue with most of the bankers and economists Martin Wolf interviewed is that, just like their Keynesian predecessors in the 1970s, they are trying to manipulate people through policy levers to do what they, the monetary mandarins, want. They think they know what is in the people’s interests. But people are not like that. They rebel, as they did in the Brexit vote. The monetary mechanism seizes up. This is because they, the mandarins, are using a bad concept of money.
Nobody in the BBC programme (reported in the following note, the Wolf of the City
) argued for an alternative concept of money. Nobody expressed the idea of money that was taken for granted by all the great classical economists and by all central bankers up to the 1970s. Some doubtless could have done, but were not asked.
As in the 1970s, current monetary policies and arrangements strike people as immoral as well as ineffective.
As in the 1970s, we need a monetary counter-revolution.
There will doubtless be further crises before we re-learn the old truth
. Money fulfills its crucial social functions only when it is held to an inflexible standard – one that is expected to endure for generations
. Yes, money is a social convention but it only works well when that convention becomes part of nature. That is the thesis of The Money Trap.
Oh for a central banker to stand up and protest against this madness!”
(use of bold emphasis in the excerpts above is mine)
My added comments: This is a powerful challenge to the status quo from Robert Pringle. He has summed up in one sentence what I see over and over as I do research for this blog:
“As in the 1970s, current monetary policies and arrangements strike people as immoral as well as ineffective.”
I will add that I can find a fair number of people in the central banking community who will acknowledge that current monetary policies we see being tried have been ineffective. It’s much harder to find those with the courage to suggest that they may also beimmoral. I tip my hat to Robert Pringle for the willingness to point this out and challenge his peers to think seriously about how the policies they are implementing are perceived by the public they are supposed to be serving.
I reached out to Mr. Pringle to see if he wanted to expand on why he feels curreny monetary policies are immoral. Here is the powerful quote he gave me to use for this article:
“Current monetary policies are immoral because….
….they weaken the institution of money, the crucial coordinating mechanism of each and every society. Following the inequitable allocation of losses from the great financial crisis, policy-makers are also knowingly further widening inequalities and divisions in society. The monetary mandarins treat people as tools to the realisation of ends that they, not the people, have chosen. They also view people as so stupid they will not understand what is going on.”
Robert Pringle is a high credibility voice who is warning us that the present system is not sustainable. I appreciate his willingness to share these thoughts and concerns with readers here.
Note what he says in his blog article above:
“There will doubtless be further crises before we re-learn the old truth. Money fulfills its crucial social functions only when it is held to an inflexible standard – one that is expected to endure for generations.”
When someone with decades of experience inside the central banking community tells us to expect further crises before we re-learn an old truth, we need to listen. When he implores his peers to work towards a monetary system that places the highest priority on a stable value for the currencies we all use, we need to hope they will listen.
Added note: When I showed the powerful quote from Mr. Pringle above to another expert I talk to that works inside the present system, I got this reply:
“Quite brilliant. I agree with him!!”