The mainstream economic model grew out of physics envy says Bill Miller in this must watch video about the difference between economics on a personal level and economic systems, i.e. the US. Plus former Pimco Fed maven Paul Mculley on why standing up at a concert doesn’t get you a better view.
Seriously though you will never get a better explanation (in terms everyone can understand) of why standard monetary and fiscal policy don’t work in the current era, if it ever did.
Watch this 26 minute video and you will understand more about today’s economy… and how to fix it than 98% of the jabbering know-it-alls on TV- including 99.99% of the politicians and good chunk of the so-called experts. This is your opportunity to access top level outside-the-box talent that you would have to write a (very) big check to access any other way. And to get them both at once without having to attend the Paris conference of the Global Interdependence Center’s Society of Fellows last month.
McCulley presented a paper called:
Does Central Bank Independence Frustrate the Optimal Fiscal-Monetary Policy Mix in a Liquidity Trap?
By Paul McCulley, Chair, GIC Global Society of Fellows
and Zoltan Pozsar, Visiting Scholar, GIC Global Society of Fellows
Paper to be presented at the Inaugural Meeting of the Global Interdependence Center’s
Society of Fellows on March 26, 2012 at the Banque de France, Paris
Abstract
“[T]he role of an independent central bank is different in inflationary and deflationary environments. In the face of inflation, which is often associated with excessive [government borrowing and] monetization of government debt, the virtue of an independence central bank is its ability to say “no” to the government. [In a liquidity trap], however, excessive [government borrowing] and money creation is unlikely to be the problem, and a more cooperative stance on the part of the central bank may be called for. Under the current circumstances [of a liquidity trap], greater cooperation for a time between the [monetary] and the fiscal authorities is in no way inconsistent with the independence of […] central bank[s], any more than cooperation between two independent nations in pursuit of a common objective [or, for that matter, cooperation between central banks and fiscal authorities to facilitate war finance] is consistent with the principle of national sovereignty.” – Governor Ben S. Bernanke
Here’s Paul’s cut to the chase conclusion; agree or read the paper here to find out where you diverge. “Unless fiscal stimulus is deployed with force to offset the loss of demand from private deleveraging in a liquidity trap, enduring economic slack, deflationary pressures and the risk of depression may arise. In the topsy-turvy world of liquidity traps, adherence to fiscal and monetary orthodoxies can be costly, and acting irresponsibly relative to orthodoxy can work.”
Plus Bill Miller, legendary fund manager from Legg, Mason explains the difference between Newtonian Physics, Einsteinian Relativity and Quantum Mechanics… and how the economic mainstream has confined itself to a model that grew out its physics envy of the early industrial age.
Big thanks to Barry Ritholtz, @ritholtz on Twitter and author of The Big Picture blog for posting.
