Does It Always Have To Begin In Farce?

Imagine you live in a terrific neighborhood backed right up to a large wilderness. This heavily forested area has inside of it grown up a tremendous amount of underbrush. The local government, concerned for your property as well as those of you neighbors, starts making noises about taking care of the issue before it dries out and a wildfire starts and gets out of control.

Intending on undertaking a controlled burn at some point, residents become more and more nervous. Their unease is not about the brush behind their houses, they think it’s nowhere near much of a problem, more so about how the local government has tended to mishandle fires in the past.

What keeps them from doing so is continuation of clouds and the occasional rain. So long as it is cloudy, they have been content if agitated to let things stay as they are. The government’s forecasters, however, see the faint glimmer of sun way off in the distance and are convinced much drier and hotter conditions are surely coming. They constantly recommend immediate and even forceful mitigation before it is too late. Waiting for all the clouds to part, they say, risks allowing the worst conditions to develop.

The local insurance salesman is about the only happy person in the area, doing a robust business the more it looks like the government will take action. People are buying home owner’s insurance and adding to existing policies not because they agree with government forecasters about sunny days ahead; rather, they buy it out of fear that a few cloudless days in a row might be enough to convince the government to carry out its woolgathering plans.

This is what passes for hawkishness in 2018. This crude analogy is the bond market (neighbors) selling off (insurance) over the Fed (local government) acting on dubious information without obvious negatives (clouds) that have kept them reluctantly on hold. The central banker is predisposed to the positive because that’s in the modern age his whole evaluation. Bernanke was lucky in that someone came up with “jobs saved” so as to allow a much-reduced standard for success.