Alan Greenspan “has a legitimate claim to being the greatest central banker
who ever lived”. Alan Blinder and Ricardo Reis of Princeton University said
that at the 2005 Jackson Hole symposium for the world’s central bankers.
It is a depressing precedent for this year’s event, which starts on Friday.
Ben Bernanke
Many investors hope that Ben Bernanke, Mr Greenspan’s successor at the Federal
Reserve, will use the event to announce more quantitative easing. He might
want to hesitate, since the last round pushed up asset prices without
clearly doing much for employment or production.
In any case, the Wyoming get-together is supposed to be a forum for
longer-term thinking. And Mr Bernanke and his peers could profit from
reflection on the limits of monetary policy.
As recently as last year, Eric Leeper of Indiana University used the symposium
to compare the “science” of monetary policy with “fiscal alchemy”. But if
there is a monetary science, the leading practitioners have not mastered it.
Central bankers may know how to control consumer price inflation (although
cheap Asian imports contributed to the recent success). They have shown they
can keep financial institutions from failing (after a bad start in 2008).
Unresolved topics
But there are many unresolved topics: whether asset prices, private sector
leverage, and international trade imbalances should be controlled (and how
that can be done); the dangers of mild deflation; the risks and gains from
letting the inflation rate rise to 5 per cent; the reasons for low long-term
interest rates; techniques for keeping central bankers calm in the midst of
reckless financial markets; and, the importance of banks’ political
independence, which was largely abandoned during the crisis.
Intellectual humility should be the symposium’s dominant tone. But that is
much less likely than a new policy from Mr Bernanke.
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