Opinion

Miracle economy gives 'pilot' lessons

(China Daily)
Updated: 2010-04-13 08:19

Here's something you may not know about Glenn Stevens: When he's bored, he draws jet engines.

I witnessed it first-hand a year ago in Kuala Lumpur. I was chairing a panel discussion and the Reserve Bank of Australia governor was one of our speakers.

He reacted with a kind of faux embarrassment that I'd busted him doodling.

Stevens has little to be embarrassed about these days; he's the toast of the central-banking community as Australia enters its 19th consecutive year of economic growth after avoiding a recession.

Over the last 12 months, I've come to find his jet-engine-sketching hobby quite appropriate. His job, like the machinery attached to an airplane wing, is to keep things aloft.

It's also about not flying too high, too fast or too recklessly. It's about keeping your eyes on the horizon in times of turbulence and, when needed, flying blind with the help of instruments - in this case, economic data.

Stevens is as able a pilot as any central bank has had in decades. Were he to open a monetary flight school, here are lessons he might share with peers around the globe.

Central banks can recognize bubbles and head them off. Somehow, former US Federal Reserve Chairman Alan Greenspan still keeps a straight face arguing he didn't screw up. The Greenspan Fed kept rates too low for too long, causing market excesses.

Stevens is getting grief in Australia for his hawkish stance. Last week, he raised the benchmark interest rate to 4.25 percent and signaled further increases.

Central bankers forgot their jobs over the last decade.

They viewed themselves as cheerleaders of market booms and then protectors of asset prices. Things came crashing down in 2008, prompting the Fed, the Bank of Japan and the European Central Bank to cut rates toward zero.

It will take years to restore monetary normalcy. Stevens is already on the case, having tightened at five of the RBA's last six policy meetings. Talk about taking away the punchbowl.

Upside shocks are a problem, too. Policymakers understandably focus on what might pull economies into crisis. It's always possible for economies to enjoy too much of a good thing - like a modern-day mining boom that could accelerate inflation.

Monetary officials often say they must "lean against the wind" to contain future risks.

This is more than a rhetorical device to explain politically unpopular decisions. It's exactly what central banks should be doing - always.

William Pesek is a Bloomberg News columnist. The opinions expressed are his own.