By Mark St. Cyr
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Many times when I’m speaking with others and make reference to “Ivory Tower” types I can tell the reference either gets lost or, is not fully appreciated for what it actually means in today’s world of monetary policy, and its direct correlation to business in general. Some take it as just some reference to a certain crowd acting aloof from the realities of such interventionist policies. In other words, i.e., They understand the concept where many a business professor in today’s academia may hold that title having never run a business themselves. However, what I refer to as the “Ivory Tower” types is something far more pernicious in today’s economic climate, as well as, malaise.
Nowhere was this more on display than what I witnessed on Bloomberg™ television this morning. On one of their morning shows called Bloomberg <GO>™ a discussion took place on what is now the topic de jure – negative interest rates.
The guest was editor in chief emeritus of Bloomberg News™ Matthew Winkler. The discussion revolved around the efficacy, as well as, why they (negative rates) should not be feared. The reasoning? (I’m paraphrasing) “Plenty of people (e.g., Larry Summers et al) would argue negative rates are a segue or an extension of QE such as former Fed. Chair Ben Bernanke.”
As scary as that rationale is knowing what we know now of the former Chairman having left his indelible mark on U.S. monetary policy, and the resulting mess we are all trying to get out from under. It was his follow-up argument that caught me broadside just when (which seems more common with every passing day) I had taken a mouthful of coffee. Luckily this time – I was near the sink. Ready?
In defense of negative interest rates he stated, “Keep in mind for historical perspective the United States had negative rates in the 1930’s, OK. That was the best time to buy stocks, OK.”
It was after this statement I felt even one of the hosts understood just how tone-deaf this statement appeared and tried to step in with “Well we don’t really want to go back through that. (i.e. The 30’s is when the Great Depression happened remember?) However, he wasn’t through. He went on to finish with, “The point is, we’ve lived through this before.”
All I’ll say is – Yeah, no kidding. And it seems far too many think it’s just the thing we should go through again! Absolutely mind-boggling.
However, here’s the real issue: This is the type of group think that is running rampant within the circles of the very people in charge of conducting, then implementing, monetary policies that you, me, and everyone else has to try to circumvent, navigate, and at the very least – survive. This was exactly the point I was trying to make when I wrote the article “Too Many Think Tanks Are Just Kool-Aid Fueled Group Think.”
Too my eyes and ears this was a stunning example why this form of group-think is able to be fostered and perpetuated. After all, if the financial media “Ivory Towered” are hosting or moderating many of these conferences and other venues – then they all must be right. Right?
These “Ivory Towered” types wax and wane about economic theories that you and I must deal with in the cold harsh reality of business. That’s the real issue at hand. Like I said before, I believe the economic malaise we are currently in is a direct result on the continuation of the central bankers of the world, continuing to tinker and subjugate the economy through interventionist policies that are choking the life out of capitalism at its very core. Unlike Mr. Summers who likes to argue in reference to whether monetary policy does more harm than good, e.g., “Monetary policy is a response, not a cause.” Sorry, I do not agree.
If I had to sum up how the “Ivory Tower” archetypes are arguing monetary policy, and their “fixes” today here’s my analogy…
Imagine the economy as someone laying on the ground, while another has their foot placed squarely on that person’s neck choking the very life out of them.
Today’s version of monetary policy and the “fix” it can bring being argued within the halls of academia and Ivory Towers is not that “the foot on the neck” is what’s causing the issue. Rather, what type of shoe are the central banks wearing?
Their rational and arguments as to what they should employ next in policy measures runs akin to:
Should they raise being less accommodating? i.e., Adorn a boot?
Should they stand pat at simply accommodating? i.e., Switch to maybe a sandal?
Or, go full easing in negative territory? i.e., Go barefoot?
After all, as the thinking goes – It’s not like we haven’t drummed up policies historically and lived through them that nearly choked the life out of the economy before.
Well, yes we have. But no, I personally don’t think that would be very smart. No matter how many Ph.D’s tell me otherwise.
Personally, I take the complete opposite view of those who hold or ague the view held by people such as Mr. Summers, Ben Bernanke, Matthew Winkler, et al.
I believe current monetary response is the root cause of much of our economy’s current malaise. And if one wants to prove me wrong, all they have to do is get their foot off the economy’s throat. For it’s the foot that’s the problem – not what it’s shod with. Period.