Sunday, September 18, 2022

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

2 comments:

NeilW said...

Good article from Adam Tooze about all the central banks and fiscal authorities doing the same thing at the same time - causing a coordinated collapse.

https://adamtooze.substack.com/p/chartbook-152-the-anti-inflation

This is the problem with the groupthink around 'inflation targeting'. Increased prices on discretionary imports is precisely where you want to move all the prices rises to. That way you get internal substitution.

Matt Franko said...

“ the central bankers give politicians cover for policy for which voters would otherwise hold them to account.”

That’s not what Trump does…. Trump in Ohio Saturday said he’d still have rates near zero… would address any potential inflation via supply side…

But this deferring to the unelected Fed is exactly what Brandon is attempting and doing now….

And you support Brandon?

Paradox?