Sunday, November 29, 2020

Bill Mitchell — ECB operations are like the wild west and beyond democratic legitimacy

I read a very interesting study by two Dutch academics last week – The ECB, the courts and the issue of democratic legitimacy after Weiss – which will be published in the Common Market Law Review (Vol 57, No 6, 2020). It examines the way in which the ECB operations and policy interventions have gone way beyond their original conception in the Maastricht Treaty and now conflict with democratic accountability. While the authors propose ways to address the democratic deficit, I am sceptical. Essentially, there needs to be a fundamental change in the Treaty and the establishment of a federal fiscal capacity embedded into a genuine European government. But then pigs might fly!
Bill Mitchell – billy blog
ECB operations are like the wild west and beyond democratic legitimacy
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia


Jerry Brown said...

Tom, this is completely unrelated, but what do you think?

(It is not a long read and I promise I won't digress often)

Ryan Harris said...

LaGarde has proposed directly using ECB to promote fiscal policy priorities with green new deal type spending specifically where there is broad consensus and a need for extraordinary spending. Several Fed heads have also proposed ways that Fed could engage in fiscal policy using the progressives terminology of "investment" to provide cover. This is an important power play to slowly move power of purse from inefficient legislative branches and give it to competent bureaucracy that could enact MMT counter cyclical policy and direct fiscal policy without all the constraints of lobbyists and elected officials. If they don't overplay their hand and they wait until congress/parliaments are in a pickle, they can force government to permanently transfer power. I don't know how they get changes to Article 1, section 8 and 9 but something always happens that brings changes. This is essentially how parliament took power from Charles II and from there slowly all regulatory powers, defense and all else followed.

Matt Franko said...

I think they are already doing some of that with the ECB earnings... iow they buy the bonds based on the deficits but then redistribute the earnings based on population... it’s something like a fiscal redistribution in effect... so you see the perennial deficit nations doing a lot better...

Tom Hickey said...

@ Jerry Brown

I would have guessed that some occupations would see increased hours and others decreased owing to the pandemic as some sectors play a greater role and others less, based on shifting demand, but I was surprised at the data on some sectors.

What I found most provocative is this

This is likely to matter not just for the immediate future when the pandemic limits employment in large areas of the economy, but also in the longer term, as we adjust to the work structures that have been permanently altered as a result of the recession.

I am somewhat skeptical about this trend extending when things settle down, based on data collected now in the throes of the pandemic — assuming a vaccine is coming that will change the picture markedly. But maybe that is wishful thinking.

Over time one would expect the economy to adjust to changed circumstances with employment shifting from areas of decreased demand to areas of increased demand. The there is probably a time lag, too.

I was talking to my physician recently and she said that at this point there is a huge amount we still don't know about this disease so it is difficult to design a strategy, which is why things have shifted with new knowledge emerging. She said that until we have more studies and longer term studies, we are guessing about a lot. While those guesses are educated guesses, they are still guesses without comprehensive studies (which is what modern medicine is based on).

Since the pandemic is the major influence on the national and global economies now, I would say the same about economic prospects. It really depends on how things shake out, and we don't have a very clear view of that yet.

From what I can tell, the world is not going to return to the status quo ante, but what the new normal will be is yet to be determined.


Tom Hickey said...


One thing seems clear though. The digital economy has benefited enormously not only because of the circumstances but also because it likely has established new trends now that people are used to doing things differently. This will affect work, too. Exactly how is unclear. Online is likely to replace commuting more and more, for instance, and one effect of this is that employees are available pretty much all the time, whereas that was not the case with office workers after they left the office, although cell phones changed this somewhat already. I would also expect automation and robotics to be benefited too since machines don't get sick. Supply chains may be revisited, too.

In addition, the world is realigning, and what the effects of that realignment will be is also uncertain. We are dealing not only with the pandemic but effects of climate change that cannot be ignored any longer and are already being factored in. The transition away from carbon is already in the works. And in economics energy is the bottom line from the point of view of the real.

I try to view the world as a system with many factors influencing it. Right now the entire system appears to be in flux in major ways. One effect of this is the concepts of work and "a job" have to be rethought. Hysteresis is a factor, or course, but the times they are a-changin'.

This is also affecting "capitalism," which broadly speaking is about capital accumulation through profit-taking. Profit-taking is highly dependent on the wage bill in relation to surplus value extracted. Controlling the cost of labor is a foundation of markup. What happens to "work" in the future is therefore key in how "capitalism" adapts to emerging conditions.

So I don't know how useful existing data will be projecting future trends socially, politically and economically in an interactive system where each influences the other, hysteresis notwithstanding. The pandemic just catalyzed a reaction that was already in the works and waiting to happen.

Peter Turchin's research that projects a coming age of disorder is not encouraging either. Neither the Trump nor the Biden administrations appear to be anywhere near on top of this.


Jerry Brown said...

Thank you Tom.