Policy Bullshit Bingo: Robert Rubin in the @FT edition

I wanted an early night. But Nooooooo. Robert Rubin had to publish something stupid and now I’ve had to stay up to mock it. Scheduled to land at 9am. I hope you’re all feeling bitter this morning.

Debates persist in the US and eurozone about growth and job creation versus fiscal discipline. This false choice diverts fiscal focus away from a balanced approach that could achieve both imperatives.

Yes, it’s a false choice and that is why literally nobody on earth is proposing it.

The US recovery remains slow by historical standards – even if recent signs of improvement are borne out. One reason is that our unsound fiscal trajectory undermines business confidence, and thus job creation, by creating uncertainty about future policy and exacerbating concerns about the will of Congress to govern. Business leaders frequently cite our fiscal outlook as a deterrent to hiring and investment.

Actually, in the US policy uncertainty has come from Republic malfeasance in the legislature. It has nothing to do with fiscal policy.

A sound fiscal trajectory is also a prerequisite for interest rates conducive to growth.

Interest rates are zero, and are low a long way out. I don’t think its the 1990s anymore Mr Rubin. Although your glasses are!


Continued unsound fiscal conditions will almost surely destabilise markets at some future point.

Oh, it will “will almost surely destabilise markets at some future point”? That’s a concrete foundation on which to make policy decisions…


Recent reductions in deficit projections do not change the basic structural picture – except that healthcare cost increases are slowing – and are partly based on sequestration, a terrible policy that already looks too onerous to stick.

Policy successes which address exactly what I worry about do not count. For no specific reason.

In the eurozone, the threat is more immediate. Bond markets in troubled countries were in dire conditions until the European Central Bank’s famous – and as yet unimplemented – 2012 promise to do “whatever it takes”.

The promise was the action. You want to bet against the ECB? No? Then it worked, the plan was implemented.

The right criterion for action, however, is not the absence of alternatives, but an assessment of costs and benefits.

This sentence stands apart as a magnificent example of self-parody.

In the US, there are widely posed questions about the benefits of QE3, but the risks are significant. One is that central bank action will reduce market pressure on political leaders to act.

You read that right. The danger is this policy might work. Then people won’t listen to Robert Rubin’s terrible advice. Never waste a good crisis eh Robert?

Yet waiting too long to tighten heightens the risk of inflation at some point. The Fed’s dramatic expansion of bank reserves could feed excessive credit growth. Along with the possible erosion of Fed credibility on inflation, that could also feed inflationary expectations.

If they are feed inflationary expectations nobody is doing much about it. The TIPS spreads on US debt doesn’t show anything. You can lend money to the US government and get a nominal return guaranteed, or an inflation protected return guaranteed. The difference tells you a lot about expected inflation. If inflation was coming you could sell one and buy the other. But that hasn’t happened. Look at expected inflation from 5 year bonds:

fredgraph (1)

Such a regime should be enacted now to stabilise, or preferably reduce, the ratio of debt-to-gross domestic product over 10 years, and protect discretionary spending. Implementation, designed in ways difficult to undo, should be deferred for a limited period to allow for recovery. Fiscal discipline could provide room for reasonable stimulus to create jobs. The partially cancelled sequestration should be fully rescinded to eliminate its fiscal drag. Fiscal funding should come largely from revenue increases and beginning the entitlement reforms necessary for long-term sustainability – as President Barack Obama has proposed.


Structural deficit reduction would address growing deficits in the decades beyond the next 10 years. The eurozone, too, should reject false choices. Instead, it should strike the right balance between fiscal discipline to win market and business confidence, and macroeconomic room for growth.

Unconventional monetary policy and stimulus can be part of a successful economic programme for a period of time. But they are no substitute for fiscal discipline, public investment and structural reform.

Welcome to your policy elite, they’ve literally learned nothing in the last 15 years. They’ve especially learned nothing in the last 5.