Bill Mitchell — Central bank priorities are not the priorities of working people

I remember a conversation I had when I was picked up hitch hiking to Melbourne from where I was living down the coast. It was during the 1970s inflationary period, which had morphed into stagflation as a result of deliberate government policy to create unemployment and discipline the wage-price spiral. The driver was a manual worker and during a conversation about the state of the economy (I was studying economics at the time) he said “the government should care about employment because at least then everyone has a job even if prices are rising”. That conversation stuck with me because it summed up what research shows in more sophisticated ways – the costs of inflation are minimal when compared to the devastating costs of unemployment. At present, our policy makers are unwilling to recognise that reality because it is not them that bear the costs.

The is what central bank independence is really about. Being unelected and therefore unaccountable, the central bankers give politicians cover for policy for which voters would otherwise hold them to account. The system is designed this way for a political purpose while the reason for central bank independence is advertised as taking the politics out of it. That is exactly the problem. It is a centralized command system.

Compounding the problem is the fact that central bankers don't understand the institutional basis of the monetary system adequately. In addition, they not only don't understand it, they misunderstand it and use an approach based on monetarism, which fundamentally flawed.

Bill Mitchell – billy blog
Central bank priorities are not the priorities of working people
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia