The Futility of Policy (CB) critique

As you wade through - or better yet, ignore - an ocean of post FOMC commentary, perhaps you might consider the following.

There is an important role in policy played not by pure economic reasoning or understanding, but by personalities and their responses to the political, social and bureaucratic contexts in which they find themselves.

Once in a generation (c.f. Volcker, Draghi) a great leader for monetary policy will emerge.

That person will be differentiated not especially by economic sophistication, but by his or her ability to perceive when social and political limits can be pushed to make space for a significant, paradigmatic change in the approach to policy should it be required.

As well as by the courage and bureaucratic moxie to pull it off.

So what?

Well in the place of value add, too many analysts and market participants in general have resorted to policy making on a surrogate basis.

Many years ago I came to recognize the futility of the routine criticism which policy makers are subjected to.

The criticism tends to take two forms.

First is normative criticism of those in charge, or the policy directions in which they are heading. It is difficult to resist this sometimes, but it interferes with the positive tasks of analysis and prediction.

Second is an underappreciation or misapprehension of the constraints which policy makers face in making decisions.

In my experience policy makers are generally hard working, well intentioned, talented people.

The constraints they face are often formidable, whereas market participants rarely see the full picture.

This can present opportunities at times: for if you listen, markets always tell you what to do.

Avoid the normative criticism of central banks. It won't improve your returns.

Focus instead on the positive tasks of analysis & prediction.

JA