In his case, he has a rare condition requiring an application of treatments so strong that one wonders about the knife-edged balance he has where the medicine is powerful enough to kill the patient or debilitate the patient to such an extent that they are severely compromised from engaging in normal activities.
He absolutely trusts and respects his medical team and so he should, they are doing the best they can based on the knowledge and subject matter expertise they have accumulated over years of experience.
They also rely heavily on access to global data sourcing and research. My friend has said to me he owes his life to the forward-looking attitudes and immediacy of the medical team’s response to near real-time data and cause-effect relationships with respect to the application of his ongoing medical treatment.
His doctors know they cannot wait three months to monitor Boris’ response to their heavy cocktail of chemotherapy and radiology medicine, and they need to watch, nearer real time that they don’t over-medicate him.
Boris’ current experience and my conversations with him, have motivated me to use his analogy to write this article, “Are central banks good doctors?”.
If we look back over the past 50 years at the evolution of central banking, we observe two distinct periods where the economic cancer we know as inflation materially flared up to be potentially debilitating for the economic patients. These were the 80s and 2022, when US and NZ inflation rose above 6%.
The RBNZ led the charge in the early 90s as a curious, brave and forward-thinking independent central bank through its innovative development of monetary policies and actions to ensure the inflation of the 80s never repeated.
Let’s look at the RBNZ’s management of New Zealand’s inflation through the comparatively benign period of low inflation between 1990 and 2022.
Along the way, our inflation had mini flare-ups to 4 and 5%, but nothing like the debilitating inflation of the 70s and 80s. The RBNZ has acted like an overprotective and cautious doctor administrating more, rather than less monetary policy medicine in the form of high interest rates.
It is also apparent the RBNZ has administered the medicine with little or no real-time data to support the effectiveness of the treatment. In hindsight, the RBNZ has probably “over-treated the patient”, no doubt because it has been unsure how responsive the New Zealand economic patient was going to be with the treatment. This has not been helped by having to wait for quarterly inflation data.
The RBNZ continues to make monetary policy decisions despite inadequate and dated historical data research support. I would have thought 34 years of enduring this constraint would have motivated the RBNZ to demand a minimum of monthly inflation data.
The US has had monthly inflation data since 2014. What can be the excuse for a digitally savvy, 5 million populated economy such as New Zealand to not be spearheading real-time access to economic data?
This is already being tooled with the world-class work undertaken by professors Chistoph Schumacher and Teo Susnjack at Massey University’s Knowledge Exchange Hub in producing the GDP and inflation trackers. Surely, we can manage a monthly inflation data series with this kind of academic firepower.
The following charts illustrate the relationship between US and New Zealand central banker administration of monetary policy medicine to inflation since 1990. Inflation is on the right axis.
At the time the RBNZ became independent in 1990, the US Fed was somewhat cautious in its application of interest rate medicine and reduced interest rates too soon, and it experienced a resurgence in inflation.
By contrast, the newly unshackled RBNZ applied the medicine longer, ultimately getting the patient up and running quicker as a result.
However, as the following chart hints, the RBNZ appears to have habitually over-treated the New Zealand patient. Inflation is on the right axis. Look for the overreactions to inflation.
Coming back to Boris and his current fight with cancer. Do you think Boris would be thrilled if his team of doctors was waiting for life-saving data that existed in fragmented research centres where no one was taking the collective responsibility of channelling these important findings to his medical field team in a timely fashion?
Should the RBNZ be more responsible for its own research data hub and be directly funded by central government to achieve this?
Are central bankers good doctors? Some appear to be better than others, certainly, the ones with access to timely data, as they seem enabled with more socially responsive and nimble doctoring skillsets.
