Prior to the ‘surprise’ victory of Donald Trump in last week’s US Presidential poll, there was an article (September 28, 2016) in the Financial Times – Trump is right to take aim at the ‘political’ Fed – arguing that Trump had “broken a cardinal rule in US presidential campaigning by openly questioning the effectiveness of the Federal Reserve”. In the Presidential debates, Trump had claimed that the US Federal Reserve banks had been “doing political things” as a result of their low interest rate policy and creating a “false economy”. The central bank governor responded by saying the bank did not take politics into account when changing monetary policy.
Apparently, Trump was echoing conservative economists who think the low interest rates have pushed investors into riskier financial investments, which will crash if rates rise. It has to be said that history tells us that Republican party politicians regularly lambast the US central bank along conspiratorial lines (for example, 2011 Rick Perry’s “treasonous” allegations against Bernanke; George W Bush, Richard Nixon). What does it all mean?
There was an interesting article in the Financial Times today (November 14, 2016) by Wolfgang Münchau – The end of the era of central bank independence – that claims the tide is shifting and more political interference in monetary policy is to be expected. My conclusion: if so, good. Democracy requires the elected polity takes responsibility for economic policy rather than an unelected, largely unaccountable, group of ‘economists’. But, I also add, the idea of central bank ‘independence’ is one of those neo-liberal myths that allow the elected polity to disassociate themselves from bad economic policy.
So the mainstream economists and many financial commentators are up in arms about the inroads into central bank independence (whatever that is!) as a result of Donald Trump’s ridiculous elevation to President-elect (not to be read as an implicit vote for his opponent – never!).
Wolfgang Münchau also notes that the British Prime Minister ahs also impugned the integrity of the Bank of England’s independence since she took over from Cameron following the Brexit vote.…Bill Mitchell – billy blog
Trump might do us a favour – expose the myth of central bank independence
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia