Bernankeology

Why so much is read into the words of the Fed chairman.

Following Fed chairman Ben Bernanke's speech yesterday, the usual bout of trying to understand quite how much we can read in to his words has begun. Yet unlike the normally perjorative "Kremlinology" – attempting to infer things from the most minuscule turns of phrase – this Bernankeology is understandable and quite useful.

Central bankers have a strange job. They don't actually have many tools at their disposal; largely just the tripartite decision to raise, lower, or maintain interest rates. Yet many of the outcomes they create come, not from actually using this power, but from creating expectations as to their future use.

Suppose Bernanke knows he is likely to raise interest rates in the first quarter of 2013. Even though his actual power is relatively limited, he can create a wide spectrum of outcomes depending on how he announces this. The market reaction will be extremely different if Bernanke says now that he will raise rates in a years time, compared to if he maintains right up until the day that a rate rise would be inappropriate.

But this power to persuade brings with it its own problems. Just like a legislature, a central bank is fundamentally unable to constrain itself; it can make promises, but everyone knows that it is free to break them at any point.

All of this means that every speech Bernanke gives is likely to be very carefully aimed at creating just the right set of expectations. On the one hand, he can't ever gain a reputation for untrustworthiness, so they have to be scrupulously honest; on the other, actually saying what he believes may create the wrong impression.

Last week, Ryan Avent provided a detailed breakdown of exactly what the benefits of Bernankeology can be, focusing on the Fed's "forward guidance" where it hinted that it would keep interest rates low until at least 2013. He writes:

On the one hand, a pure focus on the language of the Fed's statement indicates that rates are likely to remain low through that period based on the state of the economy... On the other hand, the Fed may be hinting that it will be willing to keep rates low through late 2014 even if the trajectory of the economy warrants a rate increase.

In other words, the Fed might be attempting to commit itself to a deviation from its normal policy rules of the sort that might generate more rapid growth and inflation.

The problem the Fed has is that it needs to generate growth, but that growth is likely to come with relatively high inflation, of the sort which Bernanke has historically fought against. In order to help the economy, he needs to convince "the markets" that interest rates will be kept low even if inflation spirals out of control. The problem is that this, from an inflationary hawk like Bernanke, is unbelievable.

Avent points to a paper (pdf) which breaks down the distinction into two categories:

Delphic, corresponding to the first category above, and Odyssean, corresponding to the second, in which the central bank attempts to commit itself to deviations from typical rules.

Matt Yglesias offers a less refined version of the same strategy, breaking Bernanke's possible responses into an Eeyore response and a Tigger one. Either the Fed chief can "avoid optimistic forecasts as a way of signaling that rates will stay low for a long time," or he "can say we're climbing out of a steep hole so rates will stay low for the next 18 months come what may".

The test for Bernankeologists is to work out whether yesterday's gloomy speech is Odyssean-Eeyore, using gloominess as a mast to bind himself to, or simply Delphic, with the chairman making his most honest predictions and still being pessimistic.

Occupy LA activists march against the Fed in November. Credit: Getty

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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“Stop treating antibiotics like sweets”: the threat we face from antibioitic resistance

Currently, 700,000 people die per year from the resistance of microbes to medicine, and it is predicted that 10 million people will die per year by 2050.

Got a cold? Take some antibiotics. Feeling under the weather? Penicillin will patch you up. Or so the common advice goes. However, unless we start to rethink our dependency on antibiotics, a death every three seconds is the threat we potentially face from evolving resistance by microorganisms to the drugs. The stark warning was issued following a review which analysed the consequences we could face from needless administering of antibiotics.

The antimicrobial resistance (AMR) review was led by economist Jim O’Neill, who was tasked by the prime minister in 2014 with investigating the impact of growing resistance. Currently, 700,000 people die per year from the resistance of microbes to medicine, and the report predicts that 10 million people will die per year by 2050. An overwhelming global expense of $100trn will be the price to pay unless incisive, collaborative action is taken.

Antimicrobial resistance (as referred to in the title of the report) is an umbrella term for the resistance developed by microorganisms to drugs specifically designed to combat the infections they cause. Microorganisms include things such as bacteria, fungi, viruses and parasites. The report especially focused on the ramifications of increased resistance of microorganisms to anitbiotics.

Many medical procedures are dependent on the effectiveness of drugs such as antibiotics: treatments for cancer patients and antibiotic prophylaxis during surgeries, for example. All could be under threat by increased resistance. The continuing rise of resistant superbugs and the impotence of antibiotics would pose “as big a risk as terrorism”. A post-antibiotic world would spell dystopia.

Bacterial microbes develop resistance through evolutionary-based natural selection. Mutations to their genetic makeup are passed on to other bacteria through an exchange of plasmid DNA. Unnecessary prescriptions by doctors and inappropriate antibiotic usage by patients (such as half-finishing a course) also contribute. Over the years, a number of bacteria and viruses have found a way to counteract antibiotics used against them: E. Coli, malaria, tuberculosis and Staphylococcus aureus, to name a few.

The report employed the consultancy firms KPMG and Rand to undertake the analyses, and O’Neill outlines 10 different measures to tackle the issue. Key areas of focus include: global campaigns to expand public awareness, the upholding of financial and economic measures by pharmaceutical companies in the development of new medicines and vaccines as alternatives, greater sanitation to prevent infections spreading, and the creation of a Global Innovation Fund which will enable collective research.

O’Neill told the BBC:

“We need to inform in different ways, all over the world, why it’s crucial we stop treating our antibiotics like sweets. If we don’t solve the problem we are heading to the dark ages; we will have a lot of people dying. We have made some pretty challenging recommendations which require everybody to get out of the comfort zone, because if we don’t then we aren’t going to be able to solve this problem.”

In the foreword of the report, O’Neill states that over 1 million people have died from developing resistance since 2014. The urgency in tackling this issue is clear, which is why he has offered an incentive to companies to develop new treatments - a reward of more than $1 billion will be given to those who bring a successful new treatment to the market.

According to the report, the cost of successful global action would equate to $40bn over the next decade, which could result in the development of 15 new antibiotics. Small cuts to health budgets and a tax on antibiotics have been proposed as ways of achieving the financial quota for drug research.

Though the report has highlighted the severity of antibiotic resistance, some believe that the full extent of the matter isn’t sufficiently explored. O’Neill mentions that there are some secondary effects which haven’t been taken into account “such as the risks in carrying out caesarean sections, hip replacements, or gut surgery”. This suggests that alternative remedies should be found for non-surgical procedures, so that antibiotics aren’t made redundant in environments where they are most needed.

Since the analysis began in 2014, new types of resistance have surfaced, including a resistance to colistin, a drug which is currently used as a last-resort. Its affordability resulted in increased use, particularly as a component of animal feed, meaning greater opportunity for superbugs to develop resistance to even our most dependable of antibiotics.

Widespread drug resistance would prove to be a big issue for many charities tackling infections around the world. Dr Grania Bridgen from Médecins Sans Frontières told the BBC that the report addresses a “broad market failure”, which is important but isn’t enough.

Despite the mixed response to the report, it has had a seal of approval from the Wellcome Trust and the Department of Health. Speaking earlier this year, Chancellor George Osborne stated this issue “is not just a health problem but an economic one, too. The cost of doing nothing, both in terms of lives lost and money wasted, is too great, and the world needs to come together to agree a common approach.”

If antibiotics are to remain potent antidotes to infectious diseases in the future, we need to put a plan in motion now.