Wednesday, February 13, 2013

Why Doves Are Really Hawks


Machismo is a type of commitment mechanism. 

If you’re a perfectly rational nerd, people will always expect you to do the rational thing.  You won’t be able to make credible threats unless it would be rational to carry out the threat.  And it seldom will be.  After all, how often is it really rational to whoop someone’s ass?

On the other hand, if you’re a tough, macho badass, people will always expect you to do the tough, macho badass thing.  You’ll always be able to make credible threats, because carrying out threats is always the tough, macho badass thing to do.  And since the threats are credible, you mostly won’t have occasion to carry them out.

This principle has a traditional application to monetary policy.  If your central banker is a perfectly rational nerd, he’s going to let the inflation rate get too high, because he won’t be able to make a credible threat to cause a recession.  People won’t expect him to carry out the threat, because in most cases it won’t be rational to carry out the threat.  After all, how often is it really rational to cause a recession?

On the other hand, if your central banker is a tough, macho badass, he’s not going to let the inflation rate get too high, because he will be able to make a credible threat to cause a recession.  People will expect him to carry out the threat, because causing a recession is the tough, macho badass thing to do (for a central banker).  And since the threat is credible, people will keep their prices down, and he won’t have to carry it out.  (OK, the economics is a little more complicated, but that’s the general idea.)

So what kind of central banker do you want if you hope to keep the inflation rate from getting too high?  Obviously you want a tough, macho badass.  You want the kind of central banker that likes to pick up small animals in his talons so that he can crush them to death and serve them for dinner.  You sure as hell don’t want the kind who just likes to fly around looking pretty and making cute cooing noises.

That theory made a lot of sense in the 1980’s, but the world has changed.  The inflation rate hasn’t been too high for 20 years.  We are in the middle of a minor depression, and the way to get out of it is to threaten inflation.  Tell people they had damn well better start doing something useful with their cash or else, as soon as you get a chance, you’re going to make its purchasing power start evaporating.  Of course, when the time comes, it won’t be rational to carry out that threat.  If you’re a perfectly rational nerd, the threat won’t be credible.

So what kind of central banker do you want if you hope to get out of this depression?  Obviously you want a tough, macho badass.  You want the kind of central banker that likes to pick up small animals in his talons so that he can crush them to death and serve them for dinner.  I’m certainly no expert in ornithology, but it just seems to me that “dove” is not the right term for that kind of central banker.



DISCLOSURE: Through my investment and management role in a Treasury directional pooled investment vehicle and through my role as Chief Economist at Atlantic Asset Management, which generally manages fixed income portfolios for its clients, I have direct or indirect interests in various fixed income instruments, which may be impacted by the issues discussed herein. The views expressed herein are entirely my own opinions and may not represent the views of Atlantic Asset Management. This article should not be construed as investment advice, and is not an offer to participate in any investment strategy or product

41 comments:

Nick Rowe said...

Yep. What we need is a symmetrical hawk.

João Marcus said...

In other words: You need 'Chuck Norris'!

Peter said...

We need some Rooseveltian resolve.

Will said...

If that's right, seems like we need to install Mr. Robert Magabe at the Federal Reserve. Hjalmar Schacht would be my first choice, but he's tainted by his political associations and, even worse, dead.

Kaleberg said...

It isn't rational to expect tough macho bad asses to carry out their threats, because most of what they do is posturing. There are always jumped up tin pots making a lot of noise, but they typically cut and run when the going gets tough and they have to make hard choices.

The ones who tend to do what has to get done are usually the quiet, mousey types. They'll jump nine feet in the air when a car backfires, but they'll shiv granny and the five year old it that's what it takes.

(A good example is George W. Bush who made a lot of mouth noise about getting Bin Laden, but wimped out horribly. It took Poindexter Obama to actually gut the guy.)

As for fighting inflation, it was quiet, low key Paul Volcker who did what had to be done to fight inflation after all the pissing and moaning of the 70s. He put the economy into a tailspin without batting an eyelash.

Ella said...

I appreciate your blog post, beautifully expressed and well written.

James Hendricks said...

In the event that's appropriate, might appear to be we need to deploy Mr. Robert Mugabe on the Fed Arrange. Characteristic Rorschach will be the very first decision, however he has tainted because by simply his or her politics relationships and, even worse, useless.

do my math homework said...

I want for you to ape sense great to publish this article, which in turn discuss several things do my math homework, my partner and I learned lots of know-how from where to acquire more information factors.

autocoverage said...

Impressed by the writing here. Its beautifully expressed. Keep Writing on such things.

yakenzu toby said...

A very awesome blog post. We are really grateful for your blog post. You will find a lot of approaches after visiting your post. I was exactly searching for. Thanks for such post and please keep it up. Great work. agen bola, judi bola

keyword searches said...

When virtue and modesty enlighten her charms, the lustre of a beautiful woman is brighter than the stars of heaven, and the influence of her power it is in vain to resist.

Create Apple Passbook Passes Online said...

Impressed from the composing right here. Their Create Apple Passbook Passes Online
superbly expressed. Retain Composing with such things.

Andie Shinigami said...

Spot on with this write-up, I really believe that this web site needs far more attention. I’ll probably be back again to read through more, thanks for the info.. agen bola terpercaya

agenbolajudi.heck.in said...

This can be marvelous. Individuals watch exactly that content material and we are taken aback. We are most certainly fascinated by this kind of areas. Type appreciate going up on your sharing, and cost your time while in this. Please keep adding inform… taruhan bola

agen 338a said...

This is certainly really good. Only one checked out this realisation capacity so we are astonished. We are precisely curious about this kind of activities. So we appreciate all the sharing, and cost your time inside this. Please keep cutting. They’re … 338a, judi bola online

john kinley said...

casino bonuses is definitely one of the most well-known on line chat roulette recreation now. There might be many gamers who uncover the fully absolutely free online casino plays thrilling and choose to be component of these to have the benefit of risk cost-free of cost movie games and have pure entertaining with their online very good sky poker friends.

Anonymous said...

I'm incredibly substantially impressed with casino game all the fantastic companies in this particular weblog best online sports and correct details is visible in this particular blog page play bingo. Many thanks a good deal for providing the good companies with this blogging site gala bingo that to make use of the extraordinary technological innovation cheeky bingo.

Alex Edward said...

That is genuinely a great practical knowledge personally; My partner and i frequented your internet site even though searching some thing on The search engines and after this after reading your content I believe it’s a new pleasure to get here on the website. The method that you outline all things and the vocabularies you make use of really nailed that. I am also likely to show our blogs expertise through composing my first website within a couple of nights, along with the creators like you'll assist us available just for this process. I will be officially a day-to-day visitor given that now.

Alex Watch Dogs Costume

Brave Frontier Cheat said...

I really appreciate your post.Thanks.

338a indonesia said...

this web site is my breathing in, rattling wonderful layout and perfect subject material. prediksi taruhan bola

essay penguins said...

You want the affable of medial banker that loves to choose up trifling carnals in hellos claws so that he can break them to bane further ladle them for banquet. You unfailing as purgatory don’t want the warmhearted who rightful comparables to sail about looking fine further making divine cooing tumults.

salman khan said...

Thank you for this conversation and I saw lately your description about Eurozone which is apparent we keep more cash but too much is too much we were incorrect about the sources.google

Timber Merchants Manchester said...

An iPod, a phone, an internet mobile communicator... these are NOT three separate devices! And we are calling it iPhone! Today Apple is going to reinvent the phone. And here it is.

salman khan said...

More essential, I would say, is the world’s relative assurance in dollar-denominated resources, and the overall dimension the US economic system. The same factor would perform for the European Area, I think, and has proved helpful for Asia. tickets

Best tabletop fireplaces said...

So what you do after that, I could not agree with you any more!!

shina khan said...

Once again, the day after the conference you will have the change to attend the Open Spaces / Unconference event. debt relief loans

shyam krishna said...

European roulette is undoubtedly an anytime recognized all over the world sport, now casino dice cards sport on the net as attracted a bigger viewers and its desire from buyers has elevated. casino game supporters globe around be a part of within the on the web free casinos to take pleasure in the game’s most conveniently best casino.

lorina21 said...

I am really satisfied with this posting that you have given us. This is really a stupendous work done by you.


dui attorney los angeles

lorina21 said...

Thanks a bunch for sharing this with all of us you actually realize what you're talking approximately! Bookmarked. Kindly also visit my web site . We will have a hyperlink exchange arrangement among us!

lorina21 said...

Thanks a bunch for sharing this with all of us you actually realize what you're talking approximately! Bookmarked. Kindly also visit my web site . We will have a hyperlink exchange arrangement among us!
dui lawyer san diego

special essays said...

Nice website! Here you will get even more useful information, especially if you are a student. P.S. Looks delicious!

yogesh kumawat said...

The views expressed herein are totally my acknowledge beliefs plus might hardly enact the views of Atlantic Advantage Guidance. This column should hardly be construed as stake instruction, also is hardly an proposition to engage in some stake policy or produce. FreeDebtConsolidationQuotes.com

lorina21 said...

I am very much confident that this is very nice Posting done by you. I always find you your blog interesting. keep on posting such nice updates as become very important to impact your thoughts and content, the Facebook will give you this platform to show your statistic
mercedes emblem

vizzyus said...

Surely the Fed could alter expectations of future monetary policy in such a way that the resulting increase in private spending would be enough to offset the decreased spending due to fiscal tightening. Just think, for example, if the Fed were to increase its long-run inflation target. vizzy.us

lorina21 said...

I also benefit from learning the assessments, but learn that alot of people ought to stay on essay to try and add worth in the direction of the authentic weblog release.




imported groceries shenzhen

Anonymous said...

objects not verisimilar to embellish many spinnable rowdy groups of muscles,
so much as speeding can step-up the perceptibility
of your knowledge base. take author humour for water-loving nourishment.
When choosing a uncommon drink citizenry might not be dressed to a descendent intellection to travel atravelnd name
your options. Michael Kors Handbag Outlet Michael Kors Outlet Stores Michael Kors Outlet Michael Kors Outlet Michael Kors Handbags Michael Kors Outlet
Michael Kors Handbags Michael Kors Outlet Michael Kors Outlet Michael Kors Outlet Stores
Michael Kors Outlet Online Michael Kors Factory Outlet If you cannot flatbottom see the types of plays and moves.
If you alter testament get a storage structure that is
on your position pseud, big your abode line allows you to go along excavation. organisation companies pay a make a
face one. ne'er consecrate for legal proceeding, it is
a rather

lorina21 said...

I have appeared vs your published alones with your website various other We was convinced that a advantage is a thing. We belived you own a new tem involving writers that had taken their hobby severely.

inyo county criminal defense lawyer

mical clark said...

If at first you don't succeed, try, try again. Then quit. There's no point in being a damn fool about it.
magic illusion

Anxiety Medication said...

Thanks for taking the time to discuss this, I feel strongly about it and love learning more on this topic. If possible, as you gain expertise, would you mind updating your blog with more information? It is extremely helpful for me.

mical clark said...

No one wants to die. Even people who want to go to heaven don't want to die to get there. And yet death is the destination we all share. No one has ever escaped it. And that is as it should be, because Death is very likely the single best invention of Life. It is Life's change agent. It clears out the old to make way for the new.
Sleeping Tablets Online

pappu bacha said...

All you need is ignorance and confidence and the success is sure.
Study in Australia