Insufficiently conservative central bankers

Simon Wren Lewis writes thoughtfully about my post arguing that Andrew Haldane should keep his views on matters outside the BoE’s remit to himself.  It’s socially wasteful to clip the wings of visionary thinkers, he points out.

However, a few points.

First, a hypothetical, ruthlessly-remit-focused Haldane isn’t all waste.  It frees him [and the groups of the best analysts picked to support him] up to focus on… stuff that is within the BoE remit.  And for which he’s paid circa £250k a year in total compensation.

Second, visionary thinkers command many outside options, and they are free to take up posts whose remit isn’t so narrow, in academia, think tanks, or some other policy institution.   There’s no reason all those thoughts should go to waste even if the Bank chose not to fund them.

Third, remember that the reason for wind-clipping has its roots in the principal-agent problem in monetary policy.  That was the issue that governments could not be trusted to keep interest rate decisions untainted from considerations about what would win the next General Election.  Delegating to the central bank, a bunch of people with no stake in politics, and hired only to crank the tedious handle of monetary policy, was the solution.  For everyone to be convinced that this separation is being stuck to requires that it is stuck to.  So the central bankers have to be evidently without any stake in politics.  And the government has to be seen to have no reason to select on the basis of political favour.

The central banker not having any stake in politics is not consistent with them speaking out on matters that are political.   And neither is a politically-intrusive central banker consistent with the government having no interest in that central banker’s politics.  It’s possible that there was no problem in the first place, so wing-clipping is just bad.  However, there’s a fair amount of historical and theoretical experience that suggests that politics does make for worse monetary policy.  And even if this is not conclusive, I would prefer to err on the side of caution.


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1 Response to Insufficiently conservative central bankers

  1. am says:

    Your third point is so correct. Politics and interest rates should be separated. Professor Krugman has said that elections are decided by the state of the economy six months prior to the election. I paraphrase without a link. The ruling party has much to gain if it can manipulate interest rates in the run up to an election whether the rates need changing or not.

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