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Central Bankers Aren’t Superheroes

Illustration: Steve Epting

No heart is immune from the uplifting tale of the Little Engine That Could—that plucky optimist who, against the odds, saved the day by chugging a stranded train over a mountain. In the world of economics, our central bankers have become this storybook overachiever. Ever since the 2008 Wall Street meltdown, they have tried, tried, and tried again to pull the broken global economy into happier times, undaunted by setbacks, criticism, or the sheer weight of their burden. At times that unstinting effort has made them heroes, too. The now-legendary 2012 pledge by Mario Draghi, president of the European Central Bank, to do “whatever it takes” to save the euro quelled the market turbulence that threatened to tear apart Europe’s monetary union.

Today, though, central banks look more and more like the Engines That Couldn’t. Despite all their tireless persistence, the world economy remains stuck on the tracks, short of its ultimate destination—a real recovery. The value of the often highly unorthodox methods central banks have employed along the route will be hotly contested by economists for years, even decades. What’s beyond question is that the institutions just don’t possess the horsepower to rescue the global economy.

That hasn’t stopped economists and investors from pressing central banks to do even more. Draghi in early March dropped the ECB’s interest rates to record lows and expanded an unconventional bond-buying program—called quantitative easing, or QE—aimed at tamping down rates even further. The Bank of Japan is widely expected to take more measures to boost that slumbering economy. In the U.S., the December decision by Federal Reserve Chair Janet Yellen to raise the benchmark interest rate, after seven years near zero, has been criticized by some analysts as a mistake, and she’s recently signaled that interest rates would be raised more slowly than previously anticipated.

The pleas for more central bank action seem to make perfect sense. Markets in the U.S. have been in turmoil, and the economy, though stronger than most others in the developed world, is definitely not roaring. Europe and Japan, struggling to grow and combat deflation, are in far worse shape. Under such circumstances, central banks usually ease monetary policy, making money cheaper to stimulate economic growth and prices. In the case of Japan, Marcel Thieliant, senior Japan economist at research firm Capital Economics, insists that “more easing is surely needed.”

Yet the fact that the world’s advanced economies are in such feeble condition argues that easier money won’t solve their problems. After all, central banks have already been gunning their engines at full...