Where calling is not an option
Aug. 20th, 2008 11:51 am![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
peterbirksI see that there was another three-way-split on the best move for interest rates in the UK - 1 up, 1 down, seven the same. The committee noted that "The minutes showed most wanted to hold rates because although inflation was rising, growth prospects had worsened."
This reminded me of one of the several insane rules implemented in the Dungeon way back in the day that Roy Houghton ran it -- this being that, if you were considered to have taken too long to make a decision, you were barred from raising, although not from calling or folding.
The comparison works because it's a common assumption that, if you have two extremes, then the "compromise" is, by default, the "middle way". It's a fatuous viewpoint that has no basis in logic, but it dominates our life.
One reason is dominates our life is that we have too many meetings where compromises are reached, and too few people willing to make executive decisions that might go wrong.
In poker, it's often a close call between raising or folding, with calling being by far the worst option.
The same line could perhaps be applied to interest rates. It might be right to raise them (to choke off inflation) and it might be right to cut them (to boost the economy), but these too extremes do not "balance out" in a middle way of keeping interest rates unchanged. Doing nothing might well be the worst action of all.
The US and the ECB tend to take diametrically opposite views on the right thing to do - the ECB will go to keep inflation down, while the US will move to stimulate the economy. The UK perversely feels virtuous in taking a "compromise" solution. In fact, it's probably the silliest solution of the three.
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This reminded me of one of the several insane rules implemented in the Dungeon way back in the day that Roy Houghton ran it -- this being that, if you were considered to have taken too long to make a decision, you were barred from raising, although not from calling or folding.
The comparison works because it's a common assumption that, if you have two extremes, then the "compromise" is, by default, the "middle way". It's a fatuous viewpoint that has no basis in logic, but it dominates our life.
One reason is dominates our life is that we have too many meetings where compromises are reached, and too few people willing to make executive decisions that might go wrong.
In poker, it's often a close call between raising or folding, with calling being by far the worst option.
The same line could perhaps be applied to interest rates. It might be right to raise them (to choke off inflation) and it might be right to cut them (to boost the economy), but these too extremes do not "balance out" in a middle way of keeping interest rates unchanged. Doing nothing might well be the worst action of all.
The US and the ECB tend to take diametrically opposite views on the right thing to do - the ECB will go to keep inflation down, while the US will move to stimulate the economy. The UK perversely feels virtuous in taking a "compromise" solution. In fact, it's probably the silliest solution of the three.
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Silly Billies, 1694, and all that
Date: 2008-08-22 11:19 pm (UTC)Taking a Keynesian "swimsuit" view of monetary policy committees, it's interesting that you can extend your points of reference one stage further. One has long ago forsaken the idle hope that British financial directives might have some bearing on the real economy -- for James, it would be the ditching of the gold standard; for me as a Brummie, it would be the meretricious worship of M3 in the 1980s (well, at least it's notionally a trinity), and for you, it would probably be something horribly complicated down the Walthamstow dog tracks.
Your point about the insensate bias towards "the median" (ie compromise), is well made and well taken.
Let us, however, consider the two contrarian blocs: the US and the EU. We might as well limit the discussion to those two, because China is about to set fire to itself, and Japan is still as weird as ever.
What's interesting to me is that their central banks came to the same conclusion, which is to reflate on Keynesian/Rooseveltian principles and sod inflation. What's interesting is that they came to the same conclusion at more or less the same time. What's even more interesting is that they came to this conclusion for entirely unconnected reasons. Possibly even polar opposites.
The EU is a multi-layered thing; even more so than the US. At the ECB and governmental layer, they're in a bit of a pickle. Spain is imploding because 99% of economic growth seems to be based on either dodgy banks or even dodgier construction companies. Italy is imploding because ... well, there are several reasons. I'll sum them up as "Berlusconi." Greece is imploding because the Greeks spend more days on strike or celebrating an Orthodox holiday or going on a protest march than they do working -- it's a bit like India, except without the commercial acumen.
The only thing to do with these people, in a crisis (which is what we have now), is to pump money in. Which is what the ECB is going to do. Interest rates, whatever. State funding of failed banks is a given.
Which brings me to the other end of the ECB scale: Germany. Now, sadly, in recession. (I do mean sadly, because they actually make things, unlike the toss-pots over here.) I note that Germany's current response to the problem is to (a) whine a lot about financial leeches and (b) sell off IKB to one of the leeches so that the embarrassment of pouring money into an open sewer will disappear.
In other words, the ECB can deal with the problems of south Europe and the problems of north Europe in much the same way. God knows what the German Federeal Bank will say, but it doesn't matter. It just makes sense.
In America, of course, they don't need to worry about this sort of stuff. They've got a fairly simple equation to solve: pissed-off domestic voters < non pissed-off domestic voters.
Of course, with a two year electoral cycle, they have a certain amount of leeway; but not much.
Interesting how Milt Friedman, beyond the grave, is still screwing a tiny little country that he'd never even considered, other than for academic reasons, whilst the US and the EU come to the same conclusion as each other for totally opposite reasons.