Nothing will persuade me that the Bank of England should be in control of the largest part of our current economic policy within this country. But if we did take the powers of the Monetary Policy Committee away from the Bank of England and transferred them to where they belong, in the Treasury, where these monetary policies can be coordinated with the fiscal policy that the Treasury runs in a way that might be highly beneficial to the overall effectiveness of the management of the UK economy what would there be left for the Bank of England to do?
The entire point is to keep monetary policy out of the hands of the politicians. That’s the whole and entire of the very idea itself.
He’d be right if politicians were trustworthy.
Mind you, given that even the courts give the impression of being untrustworthy, why should we assume that the BoE should be trusted?
Answer: we shouldn’t. But even then splitting power up and making it operate with some openness is probably better than just shrugging.
Trouble is, independence from politicians assumes that 1. technocrats are objective, 2. they have our interests at heart rather than theirs, 3. that they always get their decisions right, or 4. when they don’t they don’t hide behind institutional infallibility and groupthink, but are subject to effective feedback and change their decisions, and 5. they’re neither ideological nor political.
Oooh look, there’s a flying pig.
The Bank of England torpedoed Truss and welcomed Hunt and is hardly unpolitical – a trend that started under the loathesome Canadian ‘remainer’ Carney.
The BoE has been screwing up monetary policy for most of the last two decades. Why should we assume politicians are going to be any worse?
@Rupert: experience?
What Norman and TMB said. The BoE is already in the politics business, just one that we the people don’t get to have any say in, ever.
Better have the pols in charge, if they f*ck it up we vote them out. We can’t vote Piggy Bailey out can we?
Yes, there does seem to be an assumption that economists & bankers can manage the economy better than politicians. I’d like to see Tim’s workings out.
When politicians had control of monetary policy there was a great temptation to run it by hte electoral cycle. Lower interest, rates, losen the reins, 18 months before an election. The good times would be there at the election time, the bad times – the inflation, the recession necessary to rein that in – would arrive after it. Everyone knew this too. So, government had to pay a high interest rate because everyone knoew the incentives were to have loose policy and inflation.
That’s why cb independence has led to power borrowing rates on the national debt. Because lenders know that monetary policy at least has a chance of being run for the sake of monetary policy, not for electoral gain.
My take on this is that it’s true so far. Might continue to remain true too. But there’re lots of things that work for a fwe decades until people work out how to screw with them….
“When politicians had control of monetary policy there was a great temptation to run it by hte electoral cycle. Lower interest, rates, losen the reins, 18 months before an election. The good times would be there at the election time, the bad times – the inflation, the recession necessary to rein that in – would arrive after it. Everyone knew this too. So, government had to pay a high interest rate because everyone knoew the incentives were to have loose policy and inflation.”
The point is that the period 1970-97 (the period where the pols had control of the money supply etc, pre-1970 being still the remnants of the post war dollar Gold Standard system that meant they couldn’t do as they pleased) is VERY different to the 97-date period. We have had 2 massive deflationary forces at work over the last 25 years, globalisation and the movement of manufacturing to the far east, and the mass movement of cheap labour into the West. Thus IMO a chimpanzee could have run central banks in that second period, and done a better job than the pols did 1970-97, because all they had to do was reduce interest rates lower and lower every time there was a crisis (the so called Greenspan Put). Inflation had been slain by factors entirely out of their control. My theory being backed up by the fact that the first time the grey suited brigade in the central banks were really tested (the post covid money printing surge and the post Ukraine invasion spike in energy costs, a very 1970s economic scenario) they f*cked it up royally.
Jim,
I’m not disagreeing with you because we just don’t know the counter factual, unless someone can point to a country that doesn’t have an independent central bank that performed better in similar circumstances.
What I will say is that looking at the way Boris caved in to the lock down and mask crowds I think we’d be a lot worse off now if he’d been pulling those strings as well, but that’s only gut feeling.
Wildly O/T, but;
https://www.theguardian.com/environment/2024/sep/28/cows-help-farms-capture-more-carbon-in-soil-study-shows
Twats.
“unless someone can point to a country that doesn’t have an independent central bank that performed better in similar circumstances.”
I do think its odd that so many countries and monetary blocs decided to go to non-democratic control of their monetary systems at about the same time. It has a whiff of ‘We can’t let these plebs have control of such things, we the Establishment must stitch it up for our benefit instead’. Same as with all the other supra-national anti-democratic bodies that have been given far more power over national governments in recent years. Everything is designed to keep power away from the people.
What we in the US have learned from our own “independent” Federal Reserve system is that you’ll never find an independent body free from its own venalities, but at least you get some different venal goals that conflict with government’s venal goals.
Sort of a “the enemy of my enemy is my friend” way of thinking, with all of its oversimplifications.
Jim: “Everything is designed to keep power away from the people.”
Well, yes… And it has always been thus. That’s why the occasional good shake-up of the Establishment is necessary.
Guillotines may not always be required. Sure are effective though.
I think one service Murphy does provide is that we can consider what Hayek described in the ‘Road to Serfdom’ – specifically the chapter ‘Why the worst get on top’.
Imagine Richard Murphy having untrammelled control of the economy – that in of itself is an argument in favour of the control (however nominal) being separated.
I do think its odd that so many countries and monetary blocs decided to go to non-democratic control of their monetary systems at about the same time. It has a whiff of ‘We can’t let these plebs have control of such things, we the Establishment must stitch it up for our benefit instead’.
I tend towards the view that Politicians are bone idle sheep who follow the consensus rather than take risks. That’s why when one does something that looks good on paper, like Brown’s CB independence, many others followed suit just in case.
So we end up with a club of politicians who just feed off each other and live inside their own bubble believing that what they’re doing its the only way to do things, which is why they’re going after Milei so viscously, because he might show the cosy consensus is the problem and then we’ll be demanding change as well.
Its the same with climate change, being in the EU, trans, net zero and just about every subject, politicians are lazy and just want an easy life rather than do the intellectual heavy lifting to understand what’s going on and argue their case.
It’s simpler than this. Before c. 1970 the gold or Bretton Woods systems kept the politicians under a thumb. Byhaving fixed FX rates you were not, domestically, fully in charge of monetary policy. Having to maintain the FX rate limited your courses of action in anything beyond the short term (18 months or so). Floating FX rates lifted this. And the politicians made a right mess of it. So, 15 years later intellectual opinion had turned to needing some other limitation. Thus W Bank, OECD, IMF and all the rest started arguing for CB independence. Which started happeing in late 80s and onwards….
I’d not want to have to defend that in detail largely because I don;t know the detail. But that’s the general run of the idea.
Well OK, then. Independent Central Banks. Who guards the guardians? At least Bretton Woods locked all of these guardians together like a push me-pull you. Now they run about like headless chickens, pretending that their current orthodoxy is actual reality.
When elected politicians do politics, you can see them do it. They’re called to the dispatch box to explain it, they face hostile cross questioning, they’re interviewed on TV, they’re ridiculed by their political opponents and so on. When unelected politicians in the Civil Service, the Bank of England, the OBR or the ECHR do politics under the pretence that they’re doing something non-political, you can’t see them do it. The people making decisions which massively affect our lives remain largely unknown, and we can’t vote them out. The Tony Benn question, “how do we get rid of you?”, is important.
Guillotines may not always be required. Sure are effective though.
Guillotines are expensive, piano wire is cheap.
“The Tony Benn question, “how do we get rid of you?”, is important.”
Precisely. TB was a rampant loon when it came to economics, but he did put his finger very succinctly on to the whole ‘who rules’ thing. His 5 questions (“What power have you got? Where did you get it from? In whose interests do you exercise it? To whom are you accountable? And how can we get rid of you?”) are the very nub of democratic control of Government and State Bureaucracy. We know the answer to 1 and 2 regarding the head of the BoE, but 3-5 are completely unanswered, which IMO is totally wrong.
@Jim – ” non-democratic control ”
Democratic does not mean doing what you want. Deciding to have an independent central bank is just as democratic as every other decision made by the elected government. Of course, you could take the position that no decisionis democratic unless taken in a referendum, but that leads to paradox.