Pedro Molina

Pity the Policymakers

Today’s Western policymakers face unusually difficult challenges with abnormally ineffective tools. But pity is not a free pass: We should demand that policymakers shift from their traditional cyclical mindset to one that comprehends and addresses the more complicated, yet critically important, structural issues that underlie today’s malaise.

NEWPORT BEACH – I don’t know about you, but whenever I am in an airplane experiencing turbulence, I draw comfort from the belief that the pilots sitting behind the cockpit’s closed door know what to do. I would feel very differently if, through an open door, I observed pilots who were frustrated at the poor responsiveness of the plane’s controls, arguing about their next step, and getting no help whatsoever from the operator’s manuals.

So it is unsettling that policymakers in many Western economies today resemble the second group of pilots. This perception reflects not only the contradictory pronouncements and behavior of policymakers, but also the extent to which economic outcomes have consistently fallen short of their expectations.

This perception is evident in Europe, the United States, and Japan, where indicators of economic sentiment are deteriorating again, already-weak recoveries are stalling, and over-stretched balance sheets are becoming even more precarious. Understandably, companies and households are becoming even more cautious – inevitably making a difficult job for policymakers that much harder.

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