Well, it seems that the Fed has finally decided to initiate the much talked about ‘taper’ of the QE program. The proposed taper will wind down asset purchases by $10bn a month. That means that they won’t actually stop or reverse purchases, rather they will just slow the rate at which they make said purchases.
For those who don’t follow the financial news tapering has been talked about on literally a daily basis in the press. And yet it is widely assumed to make no difference to most markets, as can be seen by the stock market rally that accompanied the Fed’s announcement.
There are two things that are particularly odd about all the tapering talk — two things that are tied up with one another. The first is that there is talk at all. If tapering evidently makes rather little difference to the markets and the economy then why do the press and financial analysts talk about it endlessly? The answer to this is rather simple: it is the nature of the press and wider society to talk about people and institutions that are perceived to wield power.
Human beings have a fascination with power, prestige and hierarchy. People basically exist within a system of symbols and these symbols are hierarchically organised — these symbols may be rather obvious, as in the case of the King’s throne and crown, or they may be more subtle, as in the case of Bernanke’s ‘Chairman’ title, but no matter what form they take they always operate in the same fashion.
The people living in such symbolic systems must reinforce them by constantly introducing and reintroducing them in day-to-day discourse; if the King’s subjects stopped talking about the King he would lose his power rather quickly. Authority must be given constant support in and through daily discourse. The Marxist philosopher Louis Althusser claimed that Blaise Pascal once said of religious belief: “Kneel down, move your lips in prayer, and you will believe”. I have never been able to source this quote but regardless of whether Pascal said it or not the logic is perfectly true. It is through the perpetuation of the discourse of power and authority that power and authority are enforced and reinforced.
Our modern day press basically functions in the same way; to a very large extent the press is an institution that reinforces the power dynamics of broader society by constantly introducing and reintroducing the names and titles of those in power. This is why, for example, politicians can basically make stuff up and the press will report it in an acritical way: such statements are not subject to verification because they have a different ‘truth value’ to normal statements in that it is their very utterance from a position of authority that lends them weight.
The second thing that was rather odd about all the tapering talk was the constant reference to the supposed fact that it had never been done before, that we were entering uncharted waters and that it was hard to predict what effect such tapering might have. This was just complete and utter rubbish.
In actual fact, as I noted on FT Alphaville back in April, a far more extreme version of tapering was undertaken by the Japanese central bank (JCB) in early 2006. In this period the central bank didn’t just slow the rate of purchases as the Fed are now doing but instead shrank their balance sheet. And what were the effects? I cannot find any serious effects in the data.
As I noted in that post there was no obvious correlation between QE and inflation or the exchange rate or GDP growth. The shrinking of the JCB’s balance sheet also appears to have had no effect on the stock market which continued to rally until the onset of the financial crisis in late-2007/early-2008.
So, why is no one reporting on this? Surely this should be a worthy news item. Given that barrels upon barrels of ink that are expended daily reflecting on the significance of the taper surely the press should be interested in considering a far more substantial move away from QE. Not really. That would be the equivalent of revealing that the emperor has no clothes.
Imagine if every day Bernanke was asked by the press something like: “Chairman, the Japanese central bank reversed their QE program in 2005-2006 and it appears not to have had very much effect on the economy or the market. Isn’t it reasonable to assume that your far less substantial tapering program will not make any difference?” Bernanke, being a rational person, would have to agree and this would then shut down the whole dog and pony show. The press would have nothing to report on, the power structure would not be reinforced and the tedious chatter that constitutes the markets would crawl to a stop.
It’s not just that power and hierarchy are reliant upon discourse but also that discourse is reliant upon power and hierarchy. Without power and hierarchy people would have to think for themselves — a terrifying prospect. It’s far, far easier for people to fall back on handed down truths — even if these handed down truths are not truths in the factual sense. As a wise man once said: “Welcome to the human race.”