Spud wants the Bank of England to lose its independence so that government can determine monetary policy. More democratic that way. The Observer on why this isn’t a good idea:
That The Don is in favour of it should give Spud thought, obvs.
Inflation – thus interest rates – would be higher over time without CB independence. Further, for any given monetary stance interest rates would be higher. Because everyone and their Granny will assume that the politicians will run interest rates too low, inflation too high. Just because that’s what everyone will, logically, think the politicians will do.
As ever, it’s not that Spud is wrong, the task is only ever to work out why.
There’s a good discussion on a recent Capitalisn’t podcast about CB independence. Yes, it is a good thing as long as it has public legitimacy and political accountability.
Something I hadn’t taken in is that the US and UK models for CB independence are completely different with the US model being completely independent.
What is it with these Powells? Our very own Jonathan Powell absolutely wants stringing for treason.
Central Bank independence turns the Bank into a local autocracy ripe for takeover by interest groups. This is an abomination in a democracy.
Why do we cling to the myths that the current technocracy is always correct, and by definition apolitical? It very obviously isn’t. Simple empiricism confirms this, and if an economist is anything, it ought to be empiricist first.
I think empirism shows that the outcomes are better than the alternative. (Which doesn’t mean perfect or that it can’t be improved)
We could be paraphrasing going down the Churchill route: central bank independence is flawed, but it’s better than anything else.
To add nuance to Spud’s view: central bank independence is wrong, just wrong. Democratic control is essential. Unless a FASCIST wins the election, in which case he has no right to do what he’s doing. And interest rates are always, always too high. Unless the FASCIST wants to reduce them, because he’s only doing it to helps out his fellow conspirators. In that singular circumstance the rate shouldn’t be lower.
“Inflation – thus interest rates – would be higher over time without CB independence. “
Whats the evidence for this? And don’t say the period of politicians being in charge vs the period of central bankers being in charge, because a) its not that long a period in both cases (c. 1970 to 1997 for the former and 1997 to date for the latter), and b) those two time periods are VERY different in the nature of the economic shocks Western economies had to deal with. A monkey could have headed the BoE between 1997 and 2007 and managed to keep inflation under control and interest rates low. There was the double headed bonus of a) cheap Chinese tat coming into the country reducing inflation and b) cheap Eastern European labour coming in keeping wages down as well. Thus the usual UK economic boom and bust cycle was postponed by global factors that have nothing to do with central bank independence (and definitely not abolished by Brown, G), until the banks decided to start eating their own sh*t in the mid 00s. And then its pretty easy to keep inflation and interest rates low in the post GFC up to Covid period because inflation isn’t going to take off when the economy is flatlining, and they were buying all their own debt anyway (something the politicians never actually did when they were in change either). The BoE’s record post covid shows they are just as prone as the politicians to making mistakes. Inflation has been above its target for nearly 5 years now, still is and shows no great sign of coming down any time soon.
‘Central bank independence is great, say the central bankers’ is about the level of the argument as far as I can see.
“Whats the evidence for this?”
People trust the promises even less than they do those of central bankers.
BTW, that is not a joke, that’s actually what the argument really is.
Pre-1970 is different, that was fixed FX rates, which means you cannot actually have a monetary policy anyway.