Today, the spectacle of Donald Trump, competing for the Republican nomination in the 2016 US Presidential election, accusing Janet Yellen’s Fed of skewing monetary policy deliberately to help out President Obama.
Or John McDonnell, expressing the view that the Bank of England should be taken back under ‘democratic control’, and the many implicit critiques of the BoE’s quantitative easing program contained in the proposal to supersede it with QE ‘for the people’ [unlike its predecessor, which was judged simply to help the better off].
I’ve blogged many times over about how I thought Carney should have stayed out of political issues [and in fact Janet Yellen’s comments on inequality were overstepping]. Is it likewise taboo for politicians to criticise independent central bankers?
No. That’s their job. Running or holding electoral office, they must be entitled to comment on whether all levers of policy are being used appropriately, whether the lever-pulling is delegated to highly paid nerds or not.
I don’t agree with the substance of Trump or McDonnell’s criticisms of their respective central bank’s monetary policies. But they have every right to make them.
Monetary stability depends, I think, on continued central bank independence. And that in turn depends on a collective agreement across the parties not to fire warning shots at the central bank for political gain only, for fear that that would make observers expect the central bank to tilt policy to placate its critics. Trump’s comments tonight could be read in this way.
But I don’t see a way to legislate in favour of this kind of monetary-stability encouraging collective agreement. Not without unacceptably impinging on the freedom of action of actual or would be political representatives. And since both Trump and McDonnell’s points, even if not right, are at least in principle conceivable, and arguable, they would anyway be admissible.
What about politicians part of the current government? They are operating the ultimate lever of monetary policy, which is the monetary policy framework itself. Whose custodians ought to follow due process. Which should mean abstaining, in my view, from making speeches criticising central bank policymakers, or encouraging monetary policy in a particular direction.
Personal conduct and policy issues would be dealt with by the accountability framework. In the UK that would mean Treasury Committee, the BoE’s court of Governors.
However, there’s nothing stopping participants of the Government from making such interventions, except good sense.
Codifying this further would infringe on the same freedoms we welcome the opposition having. Participating in a government is a nebulous concept, as collective responsibility waxes and wanes. Government members have – and ought to have – the freedom to oppose their own ’employer’ from time to time to a greater or lesser extent, by speaking out, rebelling in Parliamentary votes, or even resigning their party whip. By the same token, this means the freedom in principle to oppose the Government’s stance on monetary policy.
In short then, monetary policy adventurism is fine. We just have to hope it’s done in the right spirit, and acts as a positive discipline on monetary policy and the monetary policy framework, and is not something that undermines them.