By Mohamed El-Erian
FORTUNE -- In Happy Feet, one of my 9-year-old daughter's favorite movies a few years ago, a young penguin (Mumble) takes on the colony's wise elders and finds a way to solve his community's hunger problem. Curiosity and innovative thinking, together with conviction and persistence, enable him to overturn conventional wisdom and the active inertia that had solidified malaise and lost potential.
Over the last five years, central banks have stumbled into the role of wise elders for western economies -- not out of desire or choice, but out of necessity. Assessing a system that persistently failed to deliver jobs and growth, the Federal Reserve has led a growing number of central banks in anchoring a new reality; that of pursuing macroeconomic objectives by pursuing the trio of very low policy interest rates, aggressive forward policy guidance, and seemingly limitless use of the balance sheet to buy securities.
This approach has evolved into a North Star for the western central banking community. Today, they are even guiding institutions, such as the Bank of Japan and the European Central Bank, who had to overcome deeply entrenched resistance to an approach that my former PIMCO colleague, Paul McCulley, described as "responsible irresponsibility." It is also influencing policies in the emerging world.
As hard and as long as they try, central bankers have yet to deliver. Indeed, outcomes have persistently fallen short of their own declared expectations. In response, they have done more of the same (active inertia).
Similar to Happy Feet, the collective seems to have no problem believing in the wise elders even though results consistently disappoint.
Equity investors respond enthusiastically to every central bank action, investing even more at higher prices. Politicians outsource, believing that their economic governance responsibilities can be left to central bankers. Facing hyperactive institutions with printing presses in their basements, bond vigilantes have been subdued into following central banks.
It is possible that the collective belief in central bankers will be validated by cumulative economic healing, the engagement of healthy balance sheets, some exciting innovations, and a more constructive politics. I sure hopes this happens. But it is certainly not a certainty as monetary policy is insufficiently supported by other policy measures. Moreover, the longer the dependence on central banks, the greater the erosion in the eventual effectiveness of their hyperactive policy stance.
Fortunately, a few have stepped up to perform the brave role of Mumble.
Some advocate correcting deficient aggregate demand by using aggressive fiscal stimulus to supplement the current monetary stance. Others are pushing deregulation and the shrinkage of government to "make room" for the private sector. And a third group favors structural reforms to increase productivity, fix market failures, and thus improve growth and employment responsiveness.
To date, and despite an active debate, none is gaining material traction. Even when they do not contradict each other, they are viewed as too partial and certainly not overwhelming enough to overcome political polarization.
In today's world, the role of disruptor needs to be approached in a different way. Rather than focus on the immediate next steps, Mumble should invert the logic, focusing first and foremost on a desirable and feasible three- to five-year vision for the western economies. This would be followed by specifying the first few steps of the journey (rather than every step, which is virtually impossible to do so with sufficient confidence in this "unusually uncertain," fluid and realigning global economy) and the milestones along the way (to ensure accountability and facilitate course corrections as needed).
Such a logic inversion increases the probability of political convergence on a common framework and, as important, popular buy-in. In the process it provides for the leadership needed to spearhead time-consistent policy responses, institutional strengthening, and global policy coordination.
Timing is, of course, as important as content. Here I am less optimistic. It may well be that the system will wait for more serious economic and social disorder before tipping into the required logic inversion.
As bad as things are -- especially for the poor, the young, the unemployed, and other vulnerable segments of the economy -- things need to get worse to overcome the enormous active inertia that is now embedded in the political systems and institutions. This is a dreadful situation. And in the meantime, we will continue to rely on central bankers using imperfect tools and raising hope.
Mohamed A. El-Erian is the CEO and co-chief investment officer of PIMCO. He also chairs the U.S. president's global development council.
Bernanke & Co. have some options left to try and spur the economy, but the reality is that nothing will work without action by Congress.
FORTUNE -- Over the last few years, the Federal Reserve's unprecedented monetary policies have conditioned financial markets to step in whenever the economy took a turn for the worse.
So with GDP barely growing during the first half of this year, it should come as no surprise MORENin-Hai Tseng, Writer - Sep 12, 2011 11:08 AM ET
The most anticipated announcement from the Federal Reserve in months was most notable for its same old messaging: The economy is in the dumps. Borrow cheaply.
FORTUNE – In a bid to reboot the economic recovery following a global stock rout, the Federal Reserve is sticking by its old toolbox.
The Federal Open Market Committee today signaled plans to keep interest rates exceptionally low. Officials have resorted to this policy prescription since MORENin-Hai Tseng, Writer - Aug 9, 2011 3:58 PM ET
Don't blame the Fed for $100 oil.
That's Ben Bernanke's message at the International Monetary Conference in Atlanta Tuesday. Bernanke said little about the outlook for Fed policy, other than to say he'll need to see "a sustained period of stronger job creation" to believe the economic recovery is fully under way. Join the crowd on that one.
So, surprise surprise, the Federal Reserve will be keeping interest rates low and its balance MOREColin Barr - Jun 7, 2011 4:00 PM ET
Commodity inflation is about as transitory as our Chairman Bernanke's economic policies. When they change, so too will the price of oil.
By Daryl Jones, Hedgeye
FORTUNE -- In his press conference last week, Federal Reserve Chairman Ben Bernanke highlighted his belief that high commodity prices are simply transitory in nature. He pegged the current rise in oil prices to both supply and demand. On the supply side of the equation, he MOREMay 2, 2011 8:00 AM ET
The erstwhile presidential candidate and soon to be head of Congressional oversight of the Federal Reserve talks gold, jobs and the presidency with Fortune.
If there's anything to be said about U.S. Congressman Ron Paul, he sure is persistent. And lately, that inner flame that's helped him gain the reputation for sometimes being the "G.O.P. loner" appears to be paying off.
The soft-spoken obstetrician has represented the 14th District of Texas on MORENin-Hai Tseng, Writer - Dec 14, 2010 11:48 AM ET
While many academic economists promote their pet theories on financial stability, the U.S. financial system continues to suffer on account of its monetary policy. And the Dodd-Frank Act is just another piece of timber on the pile.
By Keith R. McCullough, contributor
Since its passage in July, many have offered their two cents on the benefits (or lack thereof) of the financial reform bill, but I had a chance to hear MORESep 16, 2010 12:56 PM ET
|Yahoo to buy Tumblr for $1.1 billion: Report|
|Stocks on a roll: Yahoo, Microsoft stoke appetite|
|5 reasons why Yahoo is making a $1.1 billion mistake|
|Prison exclusive: Bernie Madoff can't sleep|
|The Winklevoss twins are Bitcoin bulls|