“It’s not what you don’t know that kills you, it’s what you know for sure that ain’t true.”
Mark Twain, disputed/apocryphal. Later paraphrased by Reagan referencing his liberal friends.
“There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don’t know. But there are also unknown unknowns. There are things we don’t know we don’t know.”
Donald Rumsfeld, arguably the worst Secretary and best epistemologist in the Defense department’s storied history.
I have been out of commission for only about a week, so it would be an exaggeration to say I am returning with fresh eyes. And yet I am astounded that people are still referring to the “normal” level of interest rates, as though it were some sort of known physical parameter.
Check, for example, Carola Binder blithely tossing out the concept here, which is particularly unforgivable, as she can’t even claim the old fogey excuse. When I was a boy and men were men, the funds rate was at least 5%!
Actually, Carola Binder did not say anything about interest rates returning to “normal.” The blurber just mistook her. Her article was entirely about how to manage in a world where interest rates remain so low that that movements of them do not attract attention from currently young people. She is applying the concept of limited attention from behavioral finance, I think. And she worries that it will weaken the efficacy of monetary policy, which seems plausible.
If rates went back to “normal”, her whole article would be pointless. She is talking about the OPPOSITE of what the blurb claims she is talking about. I find this amazing. At least the blurber had the good sense to throw in “historically considered”. That shows some doubt — and progress.
Separately, check out the full image of the Millennials. A bunch of self-satisfied white people on the beach. You can tell the journamalist is going deep here, to underlying causes, and picturing something that has nothing to do with Binder’s thesis.
Or how about Mark Whitehouse of Bloomberg View losing me with his very first sentence?
The Federal Reserve might be doing the right thing for the U.S. economy by moving to bring interest rates back up to normal.
In fairness to Whitehouse, his thesis is that raising rates to choose-your-adjective levels might not be such a great idea, because of the global knock-ons.
But there is apparently some sort of rule among naifs that people who don’t even believe practically in the concept of “normal” interest rates have nevertheless to show deference to it — or, in Binder’s case, to be mischaracterized as showing deference to it.
Among all the things that have wrong-footed analysts on the path of the funds rate over the past decade, the idea that “normal” is known and higher probably ranks number one.
This is a recording.
And it is not like the futures markets have not been acting like they’re listening. For a dove, there is not much to do here, then. I refer more to the numerous naifs, who seem to talk more than trade.
Oops. That could be me.