This is my kind of macroeconomics:
The abstract says:
The case for central bank independence is built on an intellectual two-step. Step one argues there is a problem of inflation prone government. Step two argues independence is the solution to that problem. This paper challenges that case and shows it is based on false politics and economics. The paper argues central bank independence is a product of neoliberal economics and aims to institutionalize neoliberal interests. As regards economics, independence rests on a controversial construction of macroeconomics and also fails according to its own microeconomic logic. That failure applies to both goal independence and operational independence. It is a myth to think a government can set goals for the central bank and then leave it to the bank to impartially and neutrally operationalize those goals. Democratic countries may still decide to implement central bank independence, but that decision is a political one with non-neutral economic and political consequences. It is a grave misrepresentation to claim independence solves a fundamental public interest economic problem, and economists make themselves accomplices by claiming it does.
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How an earth can people ignore inflation from poor private sector valuations of assets, the availability of privately produced credit, predatory lending, lax regulation that all contribute to inflation but still insist that the Government causes it alone?
Honestly!
Easy: Public sector bad, Private sector good!
PSR,
Because those with the loudest voices only dislike certain types of inflation – specifically wage increases that might interfere with their desire to control workers, indebt them and seize their assets or make them accept worse conditions whenever any workers hit hard times.
Inflation of the asset classes the loud mouths hold is a positive thing (for them) because it makes them richer and more powerful while effectively sneaking a pay cut on workers without the workers realising it – till they try to buy a house or get a pension…
Adam
I know, I know…………………
PSR,
I know you know 😉
Just spelling it out for any neophytes landing here.
Of course Palley’s right ; it’s a chimera. As Polyani points out correctly on page 205 of The Great Transformation ‘ No market economy separated from the political sphere is possible ; yet it was such a construction which underlay classical economics since David Ricardo and apart from which its concepts and assumptions were incomprehensible. ‘ The very notion of ‘ interference ‘ by the central bank, supported as it was, from the outset, by the ruling classes, is to manage the currency to their advantage. ‘ Independence ‘ does nothing to alter this situation.
Well said
Great stuff again. Independent CBs is, as claimed in the FMM Working Paper (thanks), an essential part of the neoliberal framework and enabler of market efficiency and removes accountability and action from Government, which is never held responsible for the consequences of its actions.
Questions: Does/would an independent CB easily be able to fulfil MMT? Obviously, a CBs role in money-creation would be restored/strengthened under MMT, would this present any *practical* difficulties for an independent CB?
MMT requires integration of the thinking between fiscal and monetary policy
I cannot see how that can be reconciled with an independent central bank
I have seen two Central Banks go down this route in my life. First in New Zealand then here in the UK. I remained unconvinced by all of the political reasonings for it and thought it was pretty much enforced by commercial banks, IMF etc.
Mind you considering the caliber of some Finance ministers in my time and how in NZ some with control of the Central Bank acted in the buildup to general elections I’m not sure either Independence or political control are ideal. Note the franchise is only 3 years in NZ so they are in electoral mode for about half the time.
Having sober experts set interest rates rather than a politician with one eye on their party’s electoral chances and another one on their personal career seems to me to be not a bad thing. But then as a scientist I’m conditioned to respect other experts unless given good reasons not to.
It seems to me that if there is a problem here in the UK it’s with the Establishment appointing Establishment people to such roles and the solution is thus to reform the Establishment before we tinker too much.
“Having sober experts set interest rates rather than a politician with one eye on their party’s electoral chances and another one on their personal career seems to me to be not a bad thing. But then as a scientist I’m conditioned to respect other experts unless given good reasons not to.”
Yes Peter, but expertise can be part of the scam. Experts still pursue objectives and have interests, including self-interest. Being an economist/central banker does not remove interest or self-interest, but,being financially literate possibly makes it very difficult not to trade on it and benefit from the trade materially. There’s a good chance such appointees would use their expertise/judgement to facilitate the commercial interests of financial capitalism – even when a backhander doesn’t feature.
Intentionality and Accountability matter more than expertise I would say.
Politics and economics are not seperate and distinct entities, totally unrelated and antithetical to the well-being of the other. They are just different sides of the same coin.
Your last point (the establishment appointing establishment people), other than mandating the appointment of trade unions or left-leaning economists, I don’t see how it could be countered, so perhaps making a CB the direct agent of an elected Chancellor is an elegant as well as democratic solution.
Quite so
Would it be OK to suggest that another part of the puzzle missing at the moment is the lack of a constitutional objective in the relationship between a central bank and the Chancellor/Government?
A proper constitution worded to ensure/enshrine that any Government must purse fiscal policy ‘for the good of all people of the nation’ would not in my book be a bad idea thus enabling Parliamentary select committees for one to have real teeth in tackling ideological parties who like hurting the people by putting vested interests first.
The need is fro co-ordinated policy and the Bank cannot deliver that
It must be subordinate
This sort of stuff needs far more attention than it receives, I fail to see how the micro can ever deliver until the macro is correctly understood and all levers made available. MMT, much as I dislike the name, theory, what were they thinking?, has the required descriptive properties. Our reliance on monetarism is nonsensical unless you alter your perspective to see who, what and how it best serves. Fiscal is a far more agile and responsive tool, spend in and tax out, both can be achieved instantly via a few keystrokes.
Richard I know you have your views on the need for bond markets etc but I still favour the majority of state spending as being direct and interest free. We know turning the hoses on at the top, quantative easing, relies upon the imaginary trickle down. It’s about time we turned the hoses on at the bottom and the middle. My preference would be directed by an overarching Green New Deal concept.
Finally isn’t it about time that the term neoliberalism was changed to reflect what it actually does, I think neofeudalism fits the bill.
I have to disagree: hoses are not required
There is better fiscal policy than that
There is and the more refined fiscal approach would be for the longer term. But I really think that people need, and deserve, a short term boost. Even to the point of a bit extra inflation to ease the private debt burden. Done well it could even assuage the anguish some would feel at us staying in the EU…there’s hopeful for you.
But then I’d also ration property and treat the surplus as a national resource again.
This is certainly an interesting analysis, mainly aimed at the economics viewpoint. I view it through my own lense of business studies and MBA and put a greater emphasis on the commercial aspects required in the central banks in order to achieve the required targets.
Whether control lies with the Chancellor /Treasury or the CB Governor, the chances are that the individual will have passed through the same university courses then the Goldman Sachs finishing school, so the line of thinking will already have been established.
At least BoE is considered to be nationalised, where the US Fed operates on a much freer private basis and we have all seen where that led in 2008.
I note that there is still a fear of upsetting the “international markets” and by this I assume they mean the international bankers who may well choose to manipulate exchange rates when their wrath has been incurred.
Richard, I imagine your lectures offer a very refreshing view when tackling these matters.