ROGOFF: There's One Big Story At Davos, And Markets Around The World Are Getting Central Banks Wrong

Ken rogoffBloomberg TVKenneth Rogoff

According to economist Ken Rogoff, there’s no question that at Davos the big story is the presence of the Iranian president.

That President Rouhani came to the event is a major reason for optimism.

As for what’s going on in the economy, Rogoff sees two things. One is he thinks that we can finally start to imagine good things happening. He’s not euphoric yet — though he thinks the folks at the World Economic Forum are — but the good times might finally be about to arrive.

And on policy, he thinks that markets are misinterpreting the central banks. The markets see “taper” and assume that means “tighten” but instead he thinks, the Fed and other central banks are just trying to shift the tools of monetary policy, rather than actually tighten.

Here’s our super-brief Q&A


What is the big story at Davos?

I don’t think there’s any doubt the big story is that the Iranian president came. And if it means something it would be really fantastic. It’s hard to know. But that’s clearly the big thing. Other than that, it’s hard to point at a single thing. Certainly my message here would be I of course see some more balance in the global economy than there’s been. People are euphoric here, they think everything is going to be fantastic. But I think it’d be more accurate to say we finally can start imagining good things happening. And there are lots of nuances on the policy issues, but other than that, that’s the broad picture.

Central banks trying to get back to normal, taper, etc. Do you think the world’s central banks are on the right track?

I would actually say that the world’s central banks are trying to change the modality of policy and not the tightness of policy. They’ve become somewhat disenchanted with the more experimental measures that they’ve taken, feeling that the benefits might not be so great and the cost might be greater than they thought.

The trouble is, the markets are just hearing “tighten” when that isn’t necessarily what they mean, which might be “change.”

Do you still see public debt as a policy issue and concern?

What we actually said was that’s something you need to address over 15-20 years during the crisis. When your economy is really weak, you need to have stimulus, you need to use very aggressive policies. You can’t think about dealing with debt. It’s very typical that your debt goes way up and you deal with it in the financial crisis and then later you bring it down.

Obviously, it’s not a great thing that your debt is going up, but there’s not a lot you can do about it when unemployment is really high, when the financial system is weak, when private banks are failing. That remains true: It’s a concern, but it’s something that has to be addressed over a very long period.

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