PIMCO Metaphors

Reuters published an item on a PIMCO report predicting a 2 - 2.5% increase in gross domestic product during 2017. I didn’t read the report (the item doesn’t have a link), as I was put off by the following excerpt:

Pimco, a unit of Allianz SE (ALVG.DE), characterized the world as "stable but not secure."

"The only certainty in our view is that the tails of the distribution of potential macro outcomes have become fatter. Left-tail risks are defined by rising debt, monetary policy exhaustion and the populism-powered transition from globalization to de-globalization," Balls and Fels wrote.

"By contrast, right-tail opportunities may emerge from potential deregulation, awakening animal spirits and the accelerating transition from exhausted monetary to growth-supportive fiscal policies."

How can one be certain about something one can only express in metaphors?

Balls and Fels, PIMCO investment officials, are “certain” about the tails. Well, if “tails” is not a metaphor, “fatter tails” surely is. My cat has a tail. “The distribution of potential macro outcomes” has one only metaphorically. And how would the tail of “potential macro outcomes” ever become fatter? To answer that, you’d have to know what a “distribution of potential macro outcomes” is. It’s a very impressive phrase. Perhaps that is what is intended, as it conveys very little unambiguous meaning – at least to someone like me, who can only suspect what it is supposed to mean.

It just gets worse. A fatter “left-tail risk” is something my cat, having only one tail, will never have to worry about. “Monetary policy exhaustion” might be worrisome; maybe they mean the policy will cease to be effective. But policies don’t get tired, people do, and the members of the Federal Reserve Board seem very vigorous to me. 

At least we know for sure who makes monetary policy. Who is behind the “populism-powered transition from globalization to de-globalization”? Why is that a left-tail risk?

It gets a little less vague when you find out what the “right-tail opportunities” are. They “emerge from potential deregulation” (and now we begin to suspect they are talking about the policies of President-Elect Trump) “and the accelerating transition … to growth-supportive fiscal policies” (and now we are pretty sure, as they are talking about infrastructure spending without saying so). Why don’t they just say the growth of GDP depends on whether the contradictory left and right policies Mr. Trump has announced work themselves out?

Not to mention the “animal spirits” these contradictions may arouse. This is not a very flattering metaphor to use of the boards of directors who are supposed to be allocating the capital of their shareholders rationally. But maybe it’s apt for the personalities of billionaires who have their own money to spend.

I guess it’s okay to be vague if you’re trying to make a statement about the economy without mentioning politics. But really, there’s a place for metaphor – in poetry and propaganda, at any rate.

Speaking of propaganda, why are there “risks” only on the left tail and “opportunities” on the right? Plainly the metaphor has a subtext. The populists may turn out to be socialists; maybe the Fed already are; and we all know debt spending is a cornerstone of left-economic policy.

Mr. Balls and Mr. Fels ought to figure out a better way to serve PIMCO’s fund holders (which don’t include me and my family). Clear and direct language in their reports on the economy would be a start.

Originally posted in Economic Populist, A Community Site for Economics Freaks and Geeks, on December 17, 2016.