Central Banker Heaven

Commentary by Bob McTeer

Source: Forbes

I have finally reached the point where people are quoting me from the old days, but they have no idea they are doing so. They don’t know who I am (or was) so they don’t know it’s me they are quoting. Ten years after retiring from the Federal Reserve, I have reached exalted status of Anonymous.

This happened on CNBC—last Monday, I believe—when a guest said something to the effect that only hawks go to central banker heaven. I believe he was suggesting that at some point Janet Yellen would have to turn more hawkish because she knew that doves don’t go to central banker heaven. The host asked him to elaborate on the central banker heaven thing, and he said something like it was just an old saying.

Background:  In June and August 1999, I dissented from the Greenspan majority when they decided to bump up the Fed Funds rate based on projections that inflation would increase even though there was very little evidence of that in the real world, in my opinion. (I was fond back then of quoting Richard Pryor’s line, ‘Who are you going to believe, me or your own lying eyes?)

My dissents, which were less common back then than they are now, led one publication to call me the ‘Lone Star Loner.’ Shortly thereafter that phrase morphed into the “Lonesome Dove.” I didn’t like my budding reputation as a dove (‘soft on inflation’). Instead, I thought of myself as a kinder, gentler hawk. However, as a Texan by Choice, I liked the association with Larry McMurtry’s, Lonesome Dove, so I didn’t fight it very hard. In many, many speeches back then I discussed the hawk/dove issue and acknowledged that “doves don’t go to central banker heaven; only hawks need apply.” I also used it in a couple of poems, including one that follows.

First, a little background: The economy of the second half of the 1990s was extraordinary. A lasting surge in productivity growth made all the numbers better. Growth in output and employment was faster, and inflation was lower. The U.S. was leaving Europe in the dust. I felt that one reason for that was that the ECB was being too restrictive—too hawkish. I raised that question in an FOMC meeting, but it got no traction. After the meeting, as a couple other Reserve Bank Presidents and I were being driven to the airport (in a Grand Marquis—no Town Cars) they ribbed me. In response, I wrote the following poem in July 2001. Note the last line.

Give Growth A Chance

From the backseat of a Grand Marquis

My colleagues laughed at me

For having the temerity

To suggest the possibility

That Europe might have a new economy

If only the ECB

Would set it free.

What I’d asked was so naïve,

They could hardly believe

That I could conceive

Of such a policy reprieve.

And they really looked askance

When I suggested giving growth a chance.

I understand that monetary policy

Is not the main villain of the European odyssey.

A good diagnosis

Of Euro-sclerosis

Would place more responsibility

On labor market inflexibility.

Laws against firing

Discourage hiring.

And too high a safety net

Is sure to snare and abet

Those dead set

On avoiding sweat.

When it comes to the ECB

I understand it to be

Their single goal to protect the Euro nations

From Inflations.

They said, ‘Rapid growth and low unemployment, Bob,

Is not the ECB’s job.’

But I wonder if Europe really got a bargain in

Its inflation targeting.

I ask my questions anyway

To see what the experts would say.

But they’ve learned their lesson well:

To avoid central banker hell,

Dodge rhetorical questions

That lead in that direction.

The lesson is, don’t run an economy hot

Or you will surely not

Go to central banker heaven.