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Nice article by Randy Ray, but his thinking is a bit muddled. His main point is his praise for Argentina’s central bank (CB) for it’s attempt to target not just inflation, but also “financial stability, employment creation, and economic development with social equity.”
As to “financial stability”, most CBs are already deeply involved in that issue, so not much new there.
Re “employment creation” CBs are also implicitly concerned with that because if inflation is below target, CBs cut interest rates which raises employment. As to other employment creating measures (like JG), that’s the job of parliaments rather than CBs isn’t it?
As to “economic development”, that’s a great sounding phrase, but what does it mean?
As to “social equity”, most countries already spend vast sums on this (e.g. on graduated income tax, unemployment benefits and other benefits, minimum wage laws, etc). As to the exact details of how “social equity systems” are to work, that’s the job of democratically elected politicians, i.e. parliaments, not CBs.
The takeaway for me was not the relative importance (or lack thereof) of central bankers but the overall policy focus not being lashed to the mast of low inflation:
Argentina’s Vice President Amado Boudou joined the Governor to defend the maverick approach taken by Argentina’s government. He insisted that the Governor at the helm had brought a “breath of fresh air” to the central bank. He recounted his recent attendance at a G20 conference on “new ideas” at which he proclaimed there were no new ideas. He also ridiculed the currently fashionable view that central banks must focus only on preserving the “value of the currency” through inflation targets: a money anchored to the bottom of the sea will cause the boat to sink in the first serious storm. What really counts, he rightly insisted, is unemployment: with higher unemployment you get more debt, more poverty and less economic growth. That is why you need jobs, not single-minded devotion to stable prices.
Commodity speculation is just a small part of the problem. The fundamental issue in Argentina is flawed government policy. Letting inflation run this high for so long (years) is a very bad idea in my opinion.
I think Wray's article should have been more balanced and critical.
I think the solution in Argentina is for it to issue Argentinian cow bonds to the public. Pay the price of one cow now to get a guarantee of two cows in the future, after the bubble collapses. The carnivores' savings desire for meat will be increased and satisfied, inflation lowered. Argentines will be able to proudly say of other states' inferior monies: "Where's the Beef?"
Nice article by Randy Ray, but his thinking is a bit muddled. His main point is his praise for Argentina’s central bank (CB) for it’s attempt to target not just inflation, but also “financial stability, employment creation, and economic development with social equity.”
ReplyDeleteAs to “financial stability”, most CBs are already deeply involved in that issue, so not much new there.
Re “employment creation” CBs are also implicitly concerned with that because if inflation is below target, CBs cut interest rates which raises employment. As to other employment creating measures (like JG), that’s the job of parliaments rather than CBs isn’t it?
As to “economic development”, that’s a great sounding phrase, but what does it mean?
As to “social equity”, most countries already spend vast sums on this (e.g. on graduated income tax, unemployment benefits and other benefits, minimum wage laws, etc). As to the exact details of how “social equity systems” are to work, that’s the job of democratically elected politicians, i.e. parliaments, not CBs.
I think often Central Bankers over estimate their own importance.
ReplyDeleteThey are glorified accountants; although of course they are blind to this fact.
rsp,
The takeaway for me was not the relative importance (or lack thereof) of central bankers but the overall policy focus not being lashed to the mast of low inflation:
ReplyDeleteArgentina’s Vice President Amado Boudou joined the Governor to defend the maverick approach taken by Argentina’s government. He insisted that the Governor at the helm had brought a “breath of fresh air” to the central bank. He recounted his recent attendance at a G20 conference on “new ideas” at which he proclaimed there were no new ideas. He also ridiculed the currently fashionable view that central banks must focus only on preserving the “value of the currency” through inflation targets: a money anchored to the bottom of the sea will cause the boat to sink in the first serious storm. What really counts, he rightly insisted, is unemployment: with higher unemployment you get more debt, more poverty and less economic growth. That is why you need jobs, not single-minded devotion to stable prices.
Commodity speculation is just a small part of the problem. The fundamental issue in Argentina is flawed government policy. Letting inflation run this high for so long (years) is a very bad idea in my opinion.
ReplyDeleteI think Wray's article should have been more balanced and critical.
Can someone check to see if Mercedes Marco del Pont is descended from our own Marriner Eccles? They sound so much alike!
ReplyDeleteMarriner S. Eccles and the Federal Reserve Policy, 1934-1951
http://www.econ.utah.edu/activities/papers/2006_04.pdf
Marriner Eccles - HEARINGS BEFORE THE 1933 Senate COMMITTEE ON FINANCE
http://fraser.stlouisfed.org/docs/meltzer/ecctes33.pdf
Y, you think that the govt should have allowed higher UE to get lower CPI? Based on what criterion of management effectiveness?
ReplyDeleteThere isn't a simple tradeoff between unemployment and inflation in the case of Argentina.
ReplyDeleteRoger, that first link doesn't work for some reason
ReplyDeleteY, it's been published, so you have to use the wayback machine.
ReplyDeleteA Hands-off Central Banker?: Marriner S. Eccles and the Federal Reserve Policy, 1934-1951
I think the solution in Argentina is for it to issue Argentinian cow bonds to the public. Pay the price of one cow now to get a guarantee of two cows in the future, after the bubble collapses. The carnivores' savings desire for meat will be increased and satisfied, inflation lowered. Argentines will be able to proudly say of other states' inferior monies: "Where's the Beef?"
ReplyDelete