Politician accuses central banker of profligate policies – man bites dog!

This month UK Prime Minister Theresa May warned the Bank of England that its policies had damaged the interests of savers, pensioners and the young.  The Governor, fresh from campaigning against Brexit, fired back

‘The objectives are what are set by the politicians. The policies are done by technocrats. We are not going to take instruction on our policies from the political side.’

It may be a good idea to have an independent central bank.  Such a body existed in previous times – it was called gold.  But once politicians learned how to avoid the disciplines of this global regulator they had to replace it with something else that would prevent them cutting the corners off rounded coins, requiring all citizens to accept the currency they thereby debased and causing economic stagnation.

Central banks offered a buffer against the natural proclivities for theft that seem to be part of the DNA of all but a handful of those seeking political office (sadly with the resignation of Senator Bob Day we have just lost a rare exception).  But, as always seems to be the case, governments started appointing people to these positions who they thought could craftily re-organise the operations of the economy to their own advantage.  Central bankers would therefore inject funds into the economy by selling government paper to target some inflation rate greater than zero.  This allowed money illusion to be used to fortify politicians’ wherewithal to spend on programs they said were in the public interest.  Whether or not they were in the public interest, such policies were clearly in politicians’ own interests because it is less obviously painful to get funding to bribe voters surreptitiously rather than demanding it up-front.

But that program of gentle theft has long since gotten out of hand culminating in the great monetary injections to counteract the 2008 recession, itself stemming from the gradual effects of monetary growth.  As a result, governments have doubled down, progressing beyond having central bankers conspire in small scale larceny.  They have come to see “positive” policies by central banks as being the key to reigniting economies that are stagnating as a result of the failure of previous monetary and fiscal injections.  Janet Yellen at the Fed is just the worst of a line of predecessors and of her counterparts’ policies in other countries.

The UK has done relatively well among OECD countries in spite of having one of the most wasteful green energy policies.  Its success, in no small measure, was due to a halting of money growth for the five years up until the end of 2015.  There was no US style quantitative easing, until the present Governor had settled himself into the job; in 2016, he used the excuse of counteracting Brexit, to engineer a money expansion at 15 per cent plus.  And, judging by the decline in the value of sterling, he did not succeed in his own objective (doubtless, like other monetary and fiscal stimulators he will argue that the counterfactual would have been even worse).

May’s needling of the Governor of the BoE is unusual in that it criticises him for being too lax rather than being insufficiently “accommodating”.

The best solution for spending and monetary policy is to have democracy corralled so that it does not give free goods to voter alliances or to those who’d furnish support for particular political coalitions. We have not discovered how to do this.

This entry was posted in Uncategorized. Bookmark the permalink.

18 Responses to Politician accuses central banker of profligate policies – man bites dog!

  1. Alex Davidson

    The best solution for spending and monetary policy is to have democracy corralled so that it does not give free goods to voter alliances or to those who’d furnish support for particular political coalitions. We have not discovered how to do this.

    The inescapable conclusion is that democracy itself is fatally flawed. Not even constitutions prevent its eventual degeneration into two wolves and a sheep deciding on what to have for dinner. It’s merely another flavour of collectivism.

    One interesting alternative is Hoppe’s ‘private law society’.

  2. dalai lama

    Carney is just another one in a long line of Keynesian central bankers, whose only reflective reaction to everything is to keep hitting the Ctrl+P combination on their keyboard.
    The various asset bubbles he left behind after his “successful” tenure at the Bank of Canada is something that will yet come to haunt his successor. Now he continues along the same lines in Britain.
    As I have stated on numerous occasions here, I cannot understand why we in the West continue to put up with the snake oil merchants that are the monetary central planners. The central banks are profoundly anti-market organisations, who use money created out of thin air to distort markets and asset prices across the globe and to steal as much as possible from the less well off via zero interest rates and inflation, while, as Alan says above, providing politicians with the smokescreen they need to spend money they don’t have on promises that can’t be delivered upon.
    The whole system is entirely corrupt and must collapse sooner or later.

  3. Dave

    Thank you Alan. Beautifully put. This site is a hidden gem. What is your Bitcoin address?

  4. JC

    This month UK Prime Minister Theresa May warned the Bank of England that its policies had damaged the interests of savers, pensioners and the young. The Governor, fresh from campaigning against Brexit, fired back

    ‘The objectives are what are set by the politicians. The policies are done by technocrats. We are not going to take instruction on our policies from the political side.’

    The old Lady Gov gets it exactly right. May can bullshit all she wants. The BOE currently has a legislated policy remit of maintaining inflation and 2% and full employment. If May wants to change the BOE target and introduce a pensioners savings account target, the young or the infirm with savings accounts target, she ought to put it to parliament and change the law.

    Jim Carney is the best central bank gov in the world. He’s running monetary policy like he’s playing a Stradivarius. Good on him.

    May is a moron.

  5. Empire GTHO Phase III

    The best solution for spending and monetary policy is to have democracy corralled so that it does not give free goods to voter alliances or to those who’d furnish support for particular political coalitions. We have not discovered how

    Sure we have, but it’s likely to be bloody and Jon Faine sleeps in a box under a bridge when we’re done. There’s also the question as to how JC resources the lefty suicide hotline to deal with the unprecedented spike in demand.

  6. Lem

    Nothing is as dangerous to the wellbeing of citizens than government.

  7. Roger

    The best solution for spending and monetary policy is to have democracy corralled so that it does not give free goods to voter alliances or to those who’d furnish support for particular political coalitions. We have not discovered how to do this.

    I am happy to announce that I have the solution:

    No representation without taxation!

    Citizens must be net tax payers (in the case of pensioners, net tax payers over their lives) in order to have a vote on who occupies the Treasury benches. Exceptions could be made for serving defence force personnel and incapacitated war veterans.

    The franchise is a privilege that must be earned.

  8. Tel

    The BOE currently has a legislated policy remit of maintaining inflation and 2% and full employment.

    Bullshit. Page 50, Bank of England Act 1998:

    PART II
    MONETARY POLICY
    Role of the Bank


    11 Objectives
    In relation to monetary policy, the objectives of the Bank of England shall be –
    (a) to maintain price stability, and
    (b) subject to that, to support the economic policy of Her Majesty’s Government,
    including its objectives for growth and employment.

    There’s no mention of any 2% nor is there anything about “full employment” whatever that means. What’s more May is entirely within her rights to impose executive privilege in this situation in terms of imposing her objectives (if she has support of Treasury, which I presume she does, relevant page is 34):

    9E Recommendations by Treasury
    (1) The Treasury may at any time by notice in writing to the Financial Policy Committee make recommendations to the Committee about –
    (a) matters that the Committee should regard as relevant to the Committee’s understanding of the Bank’s Financial Stability Objective;
    (b) the responsibility of the Committee in relation to the achievement of that objective;
    (c) the responsibility of the Committee in relation to support for the economic policy of Her Majesty’s Government, including its objectives for growth and employment;
    (d) matters to which the Committee should have regard in exercising its functions.

    The Governor is right that government only sets objectives, but what happens if those objectives are not being met? The Governor has a fixed 8 year term and it might be difficult to remove him. At any rate, if May (and her Treasury) declares that BOE objective is to protect “savers, pensioners and the young” then that’s what they have to do. There’s an Oversight Committee to report on them if they don’t do it (although the consequence of failure seems rather insignificant, other than a public declaration of failure which could matter to some people I suppose).

  9. Lem

    if May (and her Treasury) declares that BOE objective is to protect “savers, pensioners and the young” then that’s what they have to do.

    Sure, but you only here desperate phrases like this from government when their arses are on the line.

    Any other time, it’s “meh?”

  10. Alan Moran

    Roger,

    We have to start a new country up to get there (and rather than one taxpayer one vote why not weight it by the amount of tax?)- we’ve had such countries in the past but the pressures to extend the franchise have proven unstoppable. Even now there is a push for 16 year olds to vote – a pressure promoted like all other extensions by political parties which see it as an advantage.

  11. Tim Neilson

    How is a central bank going to “protect savers”? Organising mobs of right wing vigilantes to storm Parliament and beat the shit out of politicians any time they’re about to legislate a tax increase or spending increase might help, but that doesn’t seem to be on any central bank’s agenda.

  12. Joe

    Alex Davidson:

    The inescapable conclusion is that democracy itself is fatally flawed.

    Roger:

    No representation without taxation!

    The franchise is a privilege that must be earned.

    Alex is right. Representation implies giving up your rights to a “representative” which is the major failing of democratic systems, be they republic, direct or representational.

    Some of us here prefer a voluntary sortition form of government.

  13. Gardez Bien

    I’ve often thought that having large tax-free thresholds is a mistake. Everyone should pay tax at a flat rate. Even benefit recipients. It wouldn’t affect incomes to begin with, but if folks vote for free stuff their tax will go up. A bit like Mrs T’s Community Charge. A citizen contribution?

  14. Paul Farmer

    The latest academic thought gaining traction in a lot of US academies is moving explicitly to GDP targeting for central bank policy and forgetting inflation targeting, so I cant see this bureaucratic central bank madness going away anytime soon.

    If Hillary wins and their economy keeps drifting down the shit tubes, which is far more likely than less likely, very likely we will see this rabbit pulled out of the hat by Yellen in the coming years to try and save Hillary’s ass. If that occurs our own RBA as will the BOE, will find it a too convenient philosophy not to adopt here to to justify even more intervention. I used to think investing in gold was a bit for the crackpots………..but with each passing year it is sounding more and more reasonable as an eventual point of reckoning with all this madness in terms of how overpriced just about every asset category is has to occur……….some black swan event which will involve Russia or China will bring it all to a head.

  15. JC

    Tel
    #2175470, posted on October 17, 2016 at 6:52 pm

    The BOE currently has a legislated policy remit of maintaining inflation and 2% and full employment.

    Bullshit. Page 50, Bank of England Act 1998:

    Thanks for making my point, Tel.

    2% inflation is considered price stability and full employment is considered part of the remit as you indicated.

  16. 1234

    Alan Moran, proto fascist and enemy of democracy. He knows the price of everything and the value of nothing. Just to show how silly an idea a link to tax and the franchise is – pensioners, a lifetime of paying taxes and now no franchise – won’t that go down well. Moran should just simply state that he supports plutocracy.

  17. .

    1234 – aren’t you being ironic? Don’t you actually believe that plutocrats actually pay no tax?

  18. Tator

    Roger,
    Starship Troopers, Service equals citizenship and suffrage is only earned after 2 years of Federal Service.

Comments are closed.