Monday, April 1, 2019

Bill Mitchell — The effectiveness and primacy of fiscal policy – Part 3

The objections to an independent fiscal authority – continued...
Who needs more technocracy when "democracy" is already a shambles?

Bill Mitchell – billy blog
The effectiveness and primacy of fiscal policy – Part 3
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia


Ralph Musgrave said...

Bill Mitchell doesn’t have a clue on this subject: that is, he is convinced that because an independent monetary or fiscal body decides on how much stimulus there shall be (monetary or fiscal) that therefor such a body is necessarily “partisan”, to quote him.

Perhaps he’d like to explain how giving interest rate decisions to the Fed stops Congress passing any law it likes? E.g. if Congress votes for a full scale health care system for the US along the lines of the UK National Health Service, what exactly can the Fed do to stop that? Absolutely nothing!!! And if Congress votes to double or half spending on the military, what can the Fed do about that? Again: absolutely nothing!

André said...

1) The Fed uses its neoliberal agenda (and not the agenda of voters or the common good) to define the interest rate. And the Fed officials who do that do not need to answer to the population. Depending on the level of the independence, the officials do not even need to answer to the people who put them there. They probably have more to answer to Goldman Sachs, who will give a high paying position to those who conform with its interest. If that isn't democracy deficit, them I don't know what is.

2) "And if Congress votes to double or half spending on the military, what can the Fed do about that?" Well, I don't know what "independent fiscal authority" means exactly, but I guess it means that such authority would have some (or much) power to influence this kind of decision, vetoing the Congress if it wants to spend more than what they find interesting. And, depending on how this independent is implemented, the officials wouldn't have to answer to the voter or to the people who put them there...

Ralph Musgrave said...


You claim the Fed has a neoliberal agenda. In exactly what way? Neoliberalism is the idea that market forces should dominate, or an excessive reliance on market forces, depending on your exact definition. But it's widely accepted that the US economy actually is a free market economy, so I don't see what the Fed is doing wrong when it assumes the US is a free market economy.

Re Wall St banks having an excessive influence on the Fed, I fully agree that that's true. However, they use that influence mainly to get the Fed (surprise surprise) to back bank favourable policies, like watering down the new bank regulations implemented since the 2007 crisis. I.e. I just don't see how a slighly higher or lower interest rate is neo-liberal or anti neo-liberal.

Re your claim in your point No.2 that an independent fiscal authority would be able to influence spending on the military, that is exactly the mistake that Bill Mitchell makes. The job of an independent fiscal or monetary authority is simply to decide on the size of the deficit or interest rates respectively. That's all. If politicians want to collect an extra $Xbn in tax and spend that on the military, there is nothing to stop them. And there is nothing the independent fiscal authority could do to stop that.

André said...

Fed follows the neoliberal doctrine in the sense that it believes that interests rates are the main tool to control inflation. Hence, they are always raising or reducing the nominal interest rate depending on their expectation of inflation. In most countries they do believe that, by reducing the interest rate to 0% or lower (negative), inflation would be a consequence. That is the wrong way of managing the interest rate. If you want to promote the interests of voters or the society, you would choose the nominal interest rate to supply them with the desired savings' remuneration, which could be 0%, or maybe higher, or maybe it could even be somehow indexed to the inflation rate, but for sure it wouldn’t follow the rule that Fed applies now.

“The job of an independent fiscal or monetary authority is simply to decide on the size of the deficit or interest rates respectively”. Simply? That is the main decision of fiscal policy. The person who decides the size of the deficit should answer directly to the voters and population, and not to Goldman Sachs or any vested interest. Independence is synonym of “shield against the population’s interest”. Governments should not be independent of the population. On the contrary, they should represent and answer to the population.

Ryan Harris said...
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André said...

"Congress could explicitly set priorities for the Fed as with all exec agencies"

Yes, they could.

Or they could set general priorities (like keep price stability and low unemployment rates) and create a law that prohibits the executive from removing the Fed officials from office after they were appointed, for a period of 4 years, except in the case o crimes. Then such officials could do whatever they want, like setting the interest rates at the level that Goldman Sachs desires (in exchange for a good CFO position at GS in the future) and no one would be able to do anything about it. Such officials wouldn't be accountable to anyone but themselves, which is not good democracy governance.

The thing is that, in a real democracy, public officials should represent the interests of their constituency, and should be accountable to them. When you introduce "independency", you are actually covering those officials with an opaque defense against the constituents.