Sunday, 15 March 2015

Central bankers

A speech by Alice Rivlin on rethinking the role of central banks.

Should central banks be concerned with inequality? Traditionally, that is the domain of elected politicians. In fact, the crisis has seen a further blurring of the responsibilities of central bankers. Since the 1970s, monetary policy had been seen a highly technical area with a single instrument (the interest rate) and a single goal (controlling inflation). So it was natural to hand it over to officials.

The crisis has forced central bankers to expand their toolkit, and to make a much wider range of decisions – some of which have distributional effects. (So did interest rate hikes, but this used to be quietly ignored.)

Many Renaissance Italian city-states had a form of democracy. This democracy declined when the states began to hire experts as “city managers” - signori or capitani del popolo. Often these managers were from outside the city itself, rather as central bankers like Mark Carney are hired on a global market. As outsiders they could get things done in a way the squabbling democratic parties could not. But their rise hollowed out democratic power. Eventually, democracy became the “dignified”, not the “efficient” part of government.