Hold those hagiographies of Mario Draghi as ECB chief

V Anantha Nageshwaran in his new piece cautions against praising Mario Draghi, who would soon retire as ECB head:

There is something very strange about journalists, living in the “here and now” and covering events as they unfold, trying to write judgements of history. That is what, in recent days, journalists writing for the Financial Times have been doing with respect to Mario Draghi. The president of the European Central Bank (ECB) is due to retire by November 2019. Many appear to be showing undue haste in cementing his place in history. Anxious to establish facts on the ground and to claim the “first-mover advantage”, journalist Claire Jones wrote (The ECB After Draghi: ‘You Need An Actor Who Can Act Fast’) in the Financial Times on 13 March that the Eurozone needed a leader who could act fast, with the subtext being that Draghi did just that in 2012. He is credited with having acted boldly to save the Eurozone.

The reason it is strange to find journalists attempting historic judgements is that their assessment could be too transient. They risk being overtaken by events sooner than they think. In February 1999, Time magazine featured on its cover Robert Rubin, Larry Summers and Alan Greenspan, calling them the “Committee to save the world”. One year later, information technology stocks peaked and the bubble of the Nasdaq Composite index burst. Both ended the much-touted American productivity miracle which has not made a reappearance since then.

Robert Rubin came from Goldman Sachs to the US Treasury and, from there, he went to Citigroup and lost much of his credibility. Larry Summers did not really set the Potomac on fire with policy decisions but nonetheless found himself on the Time cover. Alan Greenspan admitted a flaw in his model after the 2008 financial crisis and then retracted some of his admission. Therefore, based on the Draghi hagiographies that are appearing, it might be a good long-term decision to “sell” Draghi.

By misjudging the secular decline in potential growth as a secular stagnation or deficient aggregate demand, monetary policy has exacerbated the problem. The former requires acceptance of lower growth, some redistribution through higher taxation and targeted relief for bottom quintiles of the population. Instead, monetary policy has damaged the economy’s ability to generate and sustain spontaneous growth and has made it permanently dependent on monetary medicine. Draghi’s monetary policy is thus part of the problem. Documenting history serves a useful purpose for the future. Writing hagiographies, however, does a disservice to both the present and the future.

Celebrate and dump has long been the case of financial media judging central bankers…

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