How likely is it that an entire country—one of the world’s most advanced countries—would forego trillions of dollars of real economic growth because their monetary controllers—not politicians, but appointees from the professional elite—were doing something so wrong that even a non-professional could tell? How likely is it that a non-professional could not just suspect that the Bank of Japan was doing something badly wrong, but be confident in that assessment?
and later he says,
Roughly, the civilizational inadequacy thesis states that in situations where the central bank of a major developed democracy is carrying out a policy, and a number of highly regarded economists like Ben Bernanke have written papers about what that central bank is doing wrong, and there are widely accepted macroeconomic theories for understanding what that central bank is doing wrong, and the government of the country has tried to put pressure on the central bank to stop doing it wrong, and literally trillions of dollars in real wealth are at stake, then the overall competence of human civilization is such that we shouldn’t be surprised to find the professional economists at the Bank of Japan doing it wrong.
It seems like he’s talking about trillions of dollars of economic growth to Japan in these passages, especially the first passage.
It’s noteworthy that he also says,
It doesn’t make much difference to my life whether I understand monetary policy better than, say, the European Central Bank, which as of late 2015 was repeating the same textbook mistake as the Bank of Japan and causing trillions of euros of damage to the European economy.
I agree it’s not worldwide. An alternative read is that Japan’s GDP in 2013 was ~5 trillion US dollars, and so there were trillions of dollars “at stake” in monetary policy, but that doesn’t mean that any particular good policy decision has an expected value in the trillions. If the total difference between good policy and typical policy is +1% GDP growth then these are billion dollar decisions, not trillion dollar decisions.
By contrast “trillions of euros of damage” is wrong (or hyperbole). The EU’s GDP is about 5x Japan’s but the ECB has stronger constraints on its actions, including its scope for quantitative easing. I expect those also to be billion dollar decisions in general.
Eliezer seems to be talking about trillions of dollars at stake worldwide. That’s more plausible than trillions in Japan.
I disagree. Elsewhere in the chapter he says,
and later he says,
It seems like he’s talking about trillions of dollars of economic growth to Japan in these passages, especially the first passage.
It’s noteworthy that he also says,
I agree it’s not worldwide. An alternative read is that Japan’s GDP in 2013 was ~5 trillion US dollars, and so there were trillions of dollars “at stake” in monetary policy, but that doesn’t mean that any particular good policy decision has an expected value in the trillions. If the total difference between good policy and typical policy is +1% GDP growth then these are billion dollar decisions, not trillion dollar decisions.
By contrast “trillions of euros of damage” is wrong (or hyperbole). The EU’s GDP is about 5x Japan’s but the ECB has stronger constraints on its actions, including its scope for quantitative easing. I expect those also to be billion dollar decisions in general.