53: Why We Stopped Trusting Experts

editor at Bloomberg Markets. Joe, can I just say I'm glad to have you back because I missed you for two episodes. That is really sweet of you to say, and I am very glad to be back. Uh. I had some interesting travels around the world, but glad to be getting back in the routine. And I have to say I really enjoyed. Uh. I really enjoyed the episodes that I listened to the episodes, I really enjoyed them. So I was glad to see my substitutes did great.

I'm glad we could provide you with listening material on the plane. Very I appreciate it all right. Well as a welcome back gift today, I think I have a guess that you're going to really enjoy because one of the things we've been talking about for I guess the past few months now, when we've been dealing with things like globalization, Brexit, US politics, things like that, is the idea of the world distrusting people in authority and in

particular experts and technocrats. Yeah, I think this seems like such a big theme that pervades all aspects of life, from the media, which is the industry, obviously that we're directly into finance, which we cover, and obviously politics, which we have a a certain election on our plates right now. So um, yeah, I agree. This sort of whole idea of distrust of experts and the erosion of traditional structures of a worthy is about is a big of a

theme as you can get right now exactly. And you and I both know that in finance and economics and markets there is an overabundance of experts, let's put it that way. And perhaps one of the I guess the most stereotypical expert in the field would have to be the central banker. You're sort of ivory tower technocrat, uh, you know at the e c B or the FED or the Bank of Japan sitting in their sort of

ivory tower and guess pronouncing monetary policy. Yeah, I would say the central banker probably has a unique role in our society and it's hard to uh think of any other position quite like it because they're not really accountable to anyone. There's no obvious checks and balances except over time. With them, they can implement policy without dealing with the political ramifications, at least in the short term. There incredibly

INFLUENTI choll absolutely that was well put. So our guest for today is actually the author of a new biography on Alan Greenspan, who's one of the most famous central bankers of all time. I guess you would say, uh, it's Sebastian Malaby. He's a long time journalist. He's also penned a bunch of really good books, many of them to do with the economics and finance. And we are going to be looking at this phenomenon of the world falling in and then out of love with experts with

technocrafts through the prison of Alan Greenspan. So I think it'll be good. Yeah, I'm looking forward to that. I mean, I think, you know, I remember the nineties economy pretty well and the degree of reverence towards Ellen Greenspan at the time was absolutely extraordinary, and it's pretty hard to imagine in anyone quite achieving that level of love and the popular culture and the popular press ever again, or at least anytime soon. All right, let's bring Sebastian in. Hi, Sebastian,

thanks for joining us today. Hi Ty, al right, so should we maybe start with green spans role as the ultimate technocrat? Can you walk us through how he got to that position and what made him different to other technocraphs. Green Span was the ultimate central banker partly because of the length of time that he survived in office. If we think of other sort of big names we associate with the Federal Reserve, this Ben Bananke, who survived there

for eight years. This Paul Volka also eight years. Green Span, in contrast, survived in office for eighteen and a half years, more than twice as long. And if we add in the two and a half years he spent as the Chairman of the Council of Economic Advisors in the Ford White House, you get twenty one year. So by ship didn't of longevity. Green Span is the ultimate technocrat, the ultimate central banker. What's interesting, though, is that he actually

created the reverence for central bankers. It did not exist before he got there. He was appointed at a time when it was perfectly normal for elected leaders to beat up on the technocrats, to belittle the central bank, twist its arm. And it was really by dint of green SPAN's force of character that he was able to stand up to pressure from the Bush administration. That's the first

George H. W. Bush administration. And then when Bill Clinton came into office, these attacks on central banks stopped, and instead you had the deference towards the technocrats that we have come to take for granted recently. So, you know, I remember the green Span era, I think pretty well.

I mean I was only in high school, but I was very interested, and I remember people referring him as like the author of the Great Economy, and that it was sort of all back to his brilliance, that unemployment was so low, and everyone was making a fortune in the stock market and all kinds. You know, everything just seemed to be going great in America. You know, when you went back and looked at his life, how much

was him and how much was just lucky timing? And why were people so quick to give him all the credit? There was certainly so lucky timing. Two things happened. Globalization was rapidly progressing, and in particular, China was integrating into the world economy, and that drove down import prices in the United States and made it easier to control inflation. So that's piece of number one. Piece of lack. Number two was technological advance driving out productivity. Again, that took

pressure off prices. So if you were a central banker whose mission it was to stabilize prices been fashioned down, it was easier in that period than in other periods. But I think even when you acknowledge, you know, these two pieces of good fortune, it still remains the case that green Span stood out for his skill, a particular kind of skill, which was essentially to resist politicians who

were trying to push him around. If they took the fight to him, he took the fight to them, and politicians backed off from trying to bully the Federal Reserve because they were essentially scared of being bullied back. Well, Joe alluded to this earlier, but one of the things that makes central bankers different to other types of experts is the independence that they have um or are supposed to have from politicians. So how does that kind of

play into greenspans rise. Yeah, well, that idea of independence of central banks from politicians is something that was really established in the nineties and did not exist much before. Um, you know, you go back to nine when Arthur Burns, who had served as FED chairman for much of the nineteen seventies, gave a kind of retrospective speech on his tenure. It was all about the fact that central banks were inevitably in a political system, in a democratic system, going

to be pushed around by the elected leaders. I mean, those guys have been elected, they had a mandate, they had power, and they were going to beat up on the technocrats if the technocrats did not cut interest rates

ahead of elections and deliver other things they wanted. I think it's so fastly because right now the idea that central bank independent is a really important aspect of a functioning economy and an important and functioning central bank just seems to be absolutely taken for granted, and people really bristle anytime politicians tried to muscle their way in on policy. But it's fast thing to think that that's really a

fairly new concept. Absolutely. I mean even Paul Volker, who we think of as this sort of rumpled eggheaded Church Chilean Old Testament scourge that nobody could possibly mess with. I mean, the reality is that the Reagan administration appointed people to be governors of the Fed who would be loyal to the Reagan Treasury and not to Volca, and so Volca was outvoted by his own committee on interest

rates once and on regulation at least twice. So you know, the Central Bank was a long way from being independent. So in retrospect, and just to play devil's advocate a bit here, is it odd that we have people who wield incredible power through monetary policy who don't really have a democratic mandate, like no one voted them into office, um, and we don't have a sort of checks and balances system like we do for the rest of US politics,

at least on them. Is that odd in a transpect? Well, I think the way to avoid it being owed is for the democratically accountable elected leaders to come to a sort of settled understanding of what central banks are supposed to do, so that the goal is set democratically, but then the means of achieving that goal left to the technocrats. To figure out. All right, let's so let's move it.

Let's move it forward a little bit, because I remember, obviously and then as I was saying, people called, you know, Greenspan was the maestro and the one behind the great economy,

and the entire world hung on his every word. Uh. And now thinking about the kind of attacks that say, Jenny Yellen comes under, or Ben Berneggi came under during at least the post crisis era, you know, two thousand and eight on, it's just hard to imagine any central banker ever again having the being held in as high esteem as Greenspan was, even if even if the economy were doing well. Do you think, uh, we'll ever get

that back. Well, I think that the inflation targeting consensus, which as I said, underpinned central bank independence um, is itself coming under attack. I mean, these days there's all this argument about whether negative interest rates are productive or kind of productive. There's some debate as to whether, you know, you should switch from an inflation target to a normal GDP target, Should there maybe even be targeting of asset prices at least, as you know, an additional thing to

keep an eye on. All these debates mean that the goal of central bank because it is less clearly defined, and then for politicians are inevitably going to run away in. That's exactly what's happened in the last month. For those of our listeners who have followed the UK debate around

the central bank. Mark Kearney, the governor of the Bank of England, was under a lot of political pressure because the Prime Minister, to reason May had made a comment on qualitative easing and said well, QUEI has bad distributional consequences that we should be mindful of. That was interpreted, of course as being an attack on the QUEI pursued by the Bank of England. It wouldn't have happened if there had been no experimental tools in the first place.

Once you get into this you know, dangerous and sort of difficult and disputed arena of new tools, you're band to get politicians waiting in. I mean this gets back to the point that I was sort of trying to make earlier, which is how do we hold central bankers and other types of technocrats into account or to account like when they introduce new monetary policy tools, things like quantitative easing, how do we judge the success of those tools and judge the success of the people who are

implementing them. I think in an ideal world, the politicians need to set the objectives and let the central bankers decide the tools. And so quantitative easing is a tool, not an objective, and so politicians ought to bite their tongues and not speak out about quantitative easing. Now that's easy for me to say and harder for a political

culture to deliver. But I think, you know, we've gone through a bit of a learning experience actually in Britain just recently with the Prime Minister sort of regretting that she spoke out about quantitative easing, and um, I suspect

that we'll find the same in other societies. There's a reason why politicians decided to give central banks um some independence, because the credibility of the central bank is actually good for the elected government and makes the economy work better, and it makes the politicians look better and more likely to be reelected. So UM, I think this is a

lesson that has to be relearned from time of time. UM. But the basic contours of the bugging politicians just set the goal and if the goal is you know, stable inflation or it could be stable nominal GDP growth. That's I think a legitimate political debate. But then when you've had that debate, whether you use negative interest rates or quaditative easing, or the purchase of assets other than government bonds,

that should be up to the central bank. We have to take a quick break for a word from our sponsor. But knowledge to work and grow your business with c i T from transportation to healthcare to manufacturing. C i T offers commercial lending, leasing, and treasury management services for small and middle market businesses. Learn more at c i T dot com put Knowledge to Work. And we're back

with Sebastian mail Be. He's the author of a new book about Alan Greenspan, and we're talking about the role of experts in a modern public life and the sort of decline of prestige of the central banker. Prior to the break, you were talking about, how is the FED has undertaken new endeavors. Naturally, it invites some sort of a degree of political involvement that wasn't there before when

it was just as simple as targeting inflation um. But it feels like something that this my probem there is it feels like this is a story that goes beyond central banking. So this is a clear example. The decline and prestige of the central banker is obvious, but it's being echoed elsewhere. And whether we see it in the

media whose prestige is down, or politicians in general. Um, is there a sort of grand, unified explanation for why experts in any field, even beyond central banking, are just not taking as seriously as maybe they were twenty years ago. I think there's a basic rule which is that when experts appear to be delivering results, then you're happy to trust them, and when life does not seem to be improving, then you get mad at the experts and you say,

wait a second, who elected those guys? UM? And I think that has happened, you know, across more areas than just central banking. And so the sense of stagnating middle class living standards UM and an uncertain future means that people are more skeptical about, for example, technological advance in the nineties. As I recall those years, UM, people had nothing but good things to say about Silicon Valley, personal computers, you know, fiber optic cable and so forth. Now, if

you look at books about technology coming out. They're more to be about artificial intelligence gobbling up to a job. The negative side of the fruits of expertise is emphasized

when people just feel insecure. One other factor that I think a lot about and that I think it's kind of relevant here, is just sort of the changing nature of media and the sort of horizontal peer to peer media social media, and the role that that has in sort of breaking down traditional hierarchical ways of conveying in form. We did a whole podcast about this. We did a whole podcast, and I'm thinking back to like in the nineties.

I remember the one place that I saw criticism of Greenspan regularly was not on CNBC or Bloomberg and not on uh in the Wall Street Journal, but on stock message boards, uh like the Raging Bull message board, and people would rage at him when the stock market went down or whatever that they were unhappy. And now, of course that's the norm. I mean, we're all on sort

of like a permanent message board. And I wonder to what extent that has something to do with it that there's just an infinite number of sources and people can construct their own realities or at least their own narratives to describe reality, and that the people that we held up as experts in the media prior to this era, they just don't have the institutional support that maybe they had before. Yeah, I mean, jo, I think that's a very smart point, and I've thought about it slightly in

the context of um presidential politics in the past. It seems to me that in the roughly speaking, the first sort of seventy five or so years of the twentieth century, technology tended to build up the power of the presidency. You know, you had radio, which allowed FDR to do his fist side chats. You had television that was exploited to great effect by John F. Kennedy and his successes.

But then, all of a sudden, in the second term of Ronald Reagan, he was the first president ever to request a prime time slot on TV to do an announcement and to be refused. And the reason that the network TV people refused is that they were by then competing with cable, and as cable competed, you know, there

was more of a cacophony. But then, as you say, after cable came blogs, and you know, after blog comes social media, and the more you democratize the channels of communication, the more the bully pulpit of the presidency becomes the bullied pulpit. And I think the more you know, that same point can be applied more generally to experts and

figures of authority overall. Well, going back to Greenspan, you write in your book that one of the reasons he enjoyed such success in Washington was the way he courted the media and maintained relationships with some prominent journalists. If you're a tech a technocrat now trying to regain the public's trust, how do you actually mount that outreach program if going to traditional media sources is no longer as powerful as it once was. I think it's incredibly difficult, Tracy.

I mean, I think you know that's what we're all struggling with. And UM I was actually part of a UM start up company in London UM at the at the beginning of this year, which which put it would put together a website to sort of try to do fact checking on the Brexit referendum. And the notion was, you know, people were going to spread all kinds of fake information and we would try to correct those mistakes quickly and we did that, but the problem is, you know,

people can invent their own reality. They could you know, ignore the facts, even when the facts were distributed with great energy by our team, and we used all the social media techniques that everyone else uses to distribute and make sure, you know, keep people understood what the real facts were. But you know, if somebody else is going to ignore that and persist in making stuff up, what do you do. So on that note, here's the big

question for me. I guess, is this distrust and experts that we're seeing now is it a cyclical phenomenon that's going to go away at some point or has something structural happened? Um that's a permanent state, either because of new technology or because of the way the media works now. Well, I think it's a good question, precisely because there's a bit of both. The stuff that we're talking about with the media feels like a secular trend. You can never

put that genie back in the bottle. On the other hand, I do think that you know, populism comes in waves. People succumbed to it, and then they elect a populist, and then the populist messes up and bad things happen, and that's what happened in Latin America, and then people learn a lesson and they actually go back to value doing experts and people who know what they're talking about. UM, So I think that bit of it is cyclical. So let's talk about the ramific, the real world ramifications of

this decline in a reverence for experts. Whoever is the central bank chief now these days? Obviously right now is Janet Yell and at some point shall have a successor how much harder is their job because they don't have the level of standing and trust that someone like Ellen Greenspan had, That they have all these blogs and social media who are always going to be slamming them. What is uh, what does it turn into? How do these how does this become a practical roadblock for them to

execute policy? Well? I mean, I do think that Janet Yellen faces a tougher landscape because of the cacophony of criticism, just in the nature of the cacophonists social media world. But I also think that Greenspan's model of how he ran the FED teaches some lessons that Janet Yellen could

well pay attention to. For example, if you thought about the FED in the nineteen nineties, at the height of Greenspan's power, and you ask yourself the question, what proportion of sort of messages coming out of the FED are really Alan Greenspan? Like, does Alan Greenspan account for of my consciousness about what the FED thinks? Or no? The answer would have been, I mean, he dominated the institution, and he spoke for it, and when somebody else tried

to speak for it, he shut them up. I mean, he was pretty ruthless about controlling other members of the Federal Open Market Committee UM and making sure they didn't speak too much and too openly and too sort of interestingly to the media. Janet Yell, on the other hand, has a kind of more democratic approach. She lets her colleagues say what they want, and the result is we just, you know, we have no ideas. Particularly, I don't think,

you know. I mean, well, I would say that Janet Yellen's voice is less than fifty of what we're hearing from the FED today, And I think that's a mistake. I think, particularly because the social media landscape is cacophonists. An institution night the FED needs to speak with one powerful voice, otherwise it will just get ignored. That's really fascinating. I mean, I think there's this uh so much love

for transparency and openness and so forth. But it feels like maybe we're coming to the end of that, and maybe people will realize that you can have too much of a good thing, or that we haven't really seen many tangible benefits from people always speaking and everybody having their dot and everyone having their even their own economic outlook. I think it does feel as though people are wondering

what we've really got from all that. I mean, I am grew up in Britain, as you can tell from my voice, but I spent eighteen years in Washington, d C. And while I was there for a long time working as a journalist, I is to love teasing my my friends by saying that the U. S. Constitution was a very good idea in the eighteenth century when you were revolting against absolutist monarchy, right, um, But it was quite a bad idea in the twenty one century when there

were checks and balances everywhere, and you know, the media was attacking you and you had you know, emptying think tanks and lobbies second guessing everything you did, and that actually you needed to unify power in government more and divide it and check it less, because the nature of society has become more pluralistic. And I think the same thing applies to experts, to central bankers and so forth.

The more that the world out there becomes a sea of argument, the more in order to break through you need to have one powerful message. That's a great that is a I think that is a perfect point to end it on, and that is something really fascinating to think about, and I think that is a a compelling and interesting argument Sebastian to be thank you very much for joining us this week on the podcast. Thank you Tracy, and thank you Joe. So Joe, uh, welcome back? Was that?

Was that a good welcome back episode for you? Yeah? I really like that one because I you know, obviously we've talked on this episode on this show Prime multiple times about this idea of the decline of the expert and the decline of expertise and the way the Internet

changes the way we get information. But I like the concrete application of it here that is not theoretical that you can look at the central banker now and you can look at who was running the Fed twenty years ago and see pretty clear differences in how they're seen in the world. That, Um, you know, it's a nice, crisp example of what we've been talking about. Yeah, it's

a prism through which to view it. One of the things that struck me was just Sebastian's last comment about the idea of having more of a unified voice coming out of not just the FED, but out of UM politics in general. At a time when opinions are quite disparate, just having a sort of strong voice to unify them. Um,

that's an interesting idea. Yeah, I think it's probably controversial, but there's the logic that to it that, you know, at a time when there's so much and everybody has an opinion, everyone can broadcast it, that perhaps the only way to break through is to be really disciplined and have one viewpoint. The other thing that just strikes me and I just the degree to which we were people

revered Alan Greenspan at the time. I don't think unless you're paying attention, I just think it's it's so unimaginable now I just can't. I mean, maybe one day there'll be enough shifts and we'll have new institution and there will be someone that could achieve that. But it's really hard for me to imagine us ever having that. Again, the idea of a singular figure that everyone in the media just accepts is a genius and that we owe so much of our wealth and prosperity to this one person,

I can't even fathom it. Well, this gets back to the cyclical versus structural question, right, like, are we just in a big populist upswing or are we experiencing, um something more significant that's going to be with us for a while. I feel like we might shift back towards the experts and the technocrats and the politicians at some point. But but I agree with you, I don't think it's

ever ever going to be quite the same. We didn't even get into this so much, but Alan Greenspan, you know, experienced his own spectacular fall from grace in the form of the financial crisis um, which was pretty illustrative of the pitfalls of being revered as an expert. No, that's totally true, and you know, may be we will one day go through another phase where the role of experts is uh built up again, but it might be a really long time, Like it might be decades before that happened,

because these swings don't just happen overnight. And you know, we might still be at the early years. We might look back at the yen to say, oh wow, we really respected experts a lot more back then. Like you know, maybe in twenty years. I mean, you never know, like we we don't know where we are in the pendulum. So maybe it'll swing back, but maybe it's still swinging in this current direction for ways to go. Yeah, all right, um, shall we leave it there? That sounds great and uh,

it's great to be back. Excellent. Okay. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway and I'm Joe wi Isn't Thought. You can follow me on Twitter at the Stalwart. And you can follow Sebastian Mallaby on Twitter. He is at sc Malaby. Thanks for listening. Put knowledge to work and grow your business with c i T. From transportation to healthcare to manufacturing. C i T offers commercial lending, leasing, and treasury management services for

small and middle market businesses. Learn more at c i T dot com. Put Knowledge to Work