Dear Reader,
This weekend, let’s ditch the customary navel-gazing on the economy and markets, and consider an important topic broached by none other than Reserve Bank of India’s Deputy Governor Michael Patra. At the SBI Banking and Economics Conclave in Mumbai last week, Patra made a speech titled ‘The Lighter Side of Monetary Policy’. He said, “The theme of my talk is the humour that is an integral part of monetary policy making. This has not received attention either among economists or among the lay public.” With the next Monetary Policy Committee (MPC) meet to be held next week, the lay public would like to know how hilarious these meetings are.
The transcripts of the Federal Open Market Committee (FOMC) meetings show that a member’s statement is sometimes followed by the word [laughter] in square brackets, enabling serious research on humour in monetary policy. Patra refers to a research paper titled ‘What’s so funny about monetary policy?’ which finds that “a member elicits more laughter if he or she expects higher inflation, other things being equal”. That would suggest monetary policy committee meetings this year have been occasions for unbridled hilarity.
Unfortunately, the minutes of the MPC meetings in India make no reference to laughter, so we have no means of knowing whether their missing the inflation target led to members rolling on the floor laughing their guts out.
Fed meetings appear to be riotously funny—the paper examined transcripts of FOMC meetings between 1992 and 2000 and found laughter was elicited 372 times across 18 meetings. That’s an average of 20.7 laughs per meeting, which is no joke. You would think the members had a rollicking time, until you realise that Alan Greenspan, the Fed chair, elicited 31 percent of the laughter. Almost a third of the laughs were therefore at jokes cracked by the boss, at which of course the members had to laugh if they didn’t want an invisible hand to ease them out of the monetary policy committee, with a resultant loss of personal liquidity.
In fact, the examples of central bankers’ humour given in the paper are rather disappointing. Here’s one: “MR. JORDAN. Turning to the Greenbook forecasts of the national economy, it is a good news, bad news story. The good news is that I really like this Greenbook forecast for 1998. The bad news is that I simply do not believe it. [Laughter].” And here’s another one: “MR. MEYER. Growth must now slow or the risk to inflation will become unacceptable. True, I came with this message last July, but now I really mean it. [Laughter].” These examples suggest that it doesn’t take much to make central bankers laugh. Maybe, their animal spirits are naturally high. Or it could just be sheer complacency. Paul Krugman, Nobel-prize winning economist, commenting on the laughter of Fed economists in 2006 before the Global Financial Crisis erupted, prefaced his remarks with ‘Hahahaheehee!’.
In his speech, Patra cracks a few jokes himself. He said, “As regards forecasts, monetary policy makers were created to make weather forecasters look good, to draw on an analogy on economists. In fact, it is said that monetary policy makers do have a sense of humour – that is why they put a decimal point on their forecasts.” And he describes the penchant for ex post explanations of economic events as “after the horse has bolted from the stable”. Ben Bernanke, former Fed chief, had a similar line in a speech at Princeton, where he said, “Economics is a highly sophisticated field of thought that is superb at explaining to policymakers precisely why the choices they made in the past were wrong. About the future, not so much.”
Indian central bankers have proved to be rather humorous. YV Reddy’s remark that while the future is always uncertain, in India even the past is uncertain, given how often the government revises economic data, was a sly dig. Duvvuri Subbarao joked that crisis dogged his heels. He said, “When I was first appointed as RBI Governor on September 6, 2008, American company JP Morgan collapsed. When I was given a two-year extension in August 2010, Europe slipped into crisis.”
But it’s not too difficult to imagine what led to central banker laughter in recent years. Here are some likely instances of what may have happened:
Alan Greenspan (in a Fed meeting before the Global Financial Crisis): See what a global boom we have unleashed by the tsunami of liquidity caused by our cheap money policies. What can possibly go wrong? [Laughter]
Alan Greenspan: Is my expectation of wealth trickling down to the masses an example of irrational exuberance? [LOUD CACKLING]
Ben Bernanke: Folks, I propose that as an answer to the debt crisis, we should keep interest rates permanently low so that people can take on even more debt. [GUFFAWS]
Ben Bernanke: This asset price bubble doesn’t look big enough. Should we unleash yet another round of quantitative easing? [ROFLMAO]
European Central Bank chief: Friends, we badly need a tool to help the indebted southern countries like Italy and Greece. So, we’ll buy their debt, but instead of calling it Quantitative Easing, let’s call it something new and innocuous, like ‘Transmission Protection Instrument’? [CHORTLES AND CHEERS]
Turkish central bank chief: Folks, inflation is above 80 percent. So, I propose to follow the advice of the economic wizard Recep Tayyip Erdogan to slash interest rates by yet another 150 basis points. [NERVOUS GIGGLES]
Head, Peoples Bank of China: Let’s cut the policy rate by three and a half basis points as part of Xi Jinping Thought to usher in Socialism with Chinese Characteristics [SNIGGERING]
Bank of England chief: Ladies and gentlemen, we’ve missed our inflation target again and I have to send another report to the government. What story do we tell them? [TEEHEE]
Jerome Powell: Congratulations, folks. We have been able to manage expectations so well that a hike of 50 basis points is now seen as dovish [HOWLS OF LAUGHTER]
Jerome Powell: Guys we better get our inflation call right this time or we’ll all lose our jobs [HARHARHAR]
In his speech, Patra also talked about a 2007 research study titled “What if the leader of the central bank told hilarious jokes and did card tricks?” Well, it sure looks as if central banks in the advanced economies have been conducting monetary policy in the last couple of decades on precisely those lines.
Here are some of the stories and insights we published this week, apart from our technical picks in the equity, forex and commodity markets:
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GDP rose well above pre-COVID levels, but external headwinds intensifying
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The Eastern Window: COVID protests singe China, rulers look for scapegoats
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Unified tariffs will aid gas buyers
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The political implications of BJP’s Muslim outreach
Start-up Street: When does a start-up stop being one?
Marketing Musings: The multibillion dollar political branding industry
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