Of late, these secret talks have focused on global economic troubles and the aggressive measures by central banks to manage their national economies. Since 2007, central banks have flooded the world financial system with more than $11 trillion. Faced with weak recoveries and Europe's churning economic problems, the effort has accelerated. The biggest central banks plan to pump billions more into government bonds, mortgages and business loans.Their monetary strategy isn't found in standard textbooks. The central bankers are, in effect, conducting a high-stakes experiment, drawing in part on academic work by some of the men who studied and taught at the Massachusetts Institute of Technology in the 1970s and 1980s.
Central bankers themselves are among the most isolated people in government. If they confer too closely with private bankers, they risk unsettling markets or giving traders an unfair advantage. And to maintain their independence, they try to keep politicians at a distance.Since the financial crisis erupted in late 2007, they have relied on each other for counsel. Together, they helped arrest the downward spiral of the world economy, pushing down interest rates to historic lows while pumping trillions of dollars, euros, pounds and yen into ailing banks and markets.Three of the world's most powerful central bankers launched their careers in a building known as "E52," home to the MIT economics department. Fed Chairman Ben Bernanke and ECB President Mario Draghi earned their Ph.D.s there in the late 1970s. Bank of England Governor Mervyn King taught briefly there in the 1980s, sharing an office with Mr. Bernanke.Many economists emerged from MIT with a belief that government could help to smooth out economic downturns. Central banks play a particularly important role in this view, not only by setting interest rates but also by influencing public expectations through carefully worded statements.While at MIT, the central bankers dreamed up mathematical models and discussed their ideas in seminar rooms and at cheap food joints in a rundown Boston-area neighborhood on the Charles River.
Academics are only useful when they try to be useless (say, as in mathematics and philosophy) and dangerous when they try to be useful.