If the US approach is “best practice”, why has the Fed been so heavily criticized for being slow to react to a surge in inflation?
But frankly.censored strong criticism of reserves It’s that it’s too insular, too reserved and inbred. Governors are always promoted internally unless a treasury secretary gets the job. The current president has been with the bank since high school. external appointment Senior economic positions are rare.
If the US approach is “best practice”, why has the Fed been so heavily criticized for being slow to react to a surge in inflation?
As the critique of the comment suggests, Reserve is a one-man band. The governor’s word is the law, and there is limited tolerance for debate. He hosts as much of the show as he can, leaving the boring parts to his lieutenants.
Having a board of business people suits the governor well because they are not economists and their misgivings are easily reassured. Employees will never disagree with their bosses in front of the board, while any reservations the treasurer may have are raised in private.
There used to be a union leader on the board, but he was sacked because of John Howard’s efforts to legitimize the union movement, which he saw as colluding with his Labor opponents.
This largely explains the current governor’s ignorance of labor market realities. Dr Philip Lowe Talk about wages incessantly, but exclude unions from wide-ranging consultations between the reserve and business and even welfare groups. I don’t recall ever hearing the expletive “union” come out of his mouth.
Former Bank of Canada Governor Caroline Wilkins is leading the review of the Reserve Bank.Credit: Bloomberg
There has always been an academic economist on the board, but they are not qualified to take the institution seriously. The board rarely votes on anything. Instead, the chairman-governor “summed up the feelings” of the meeting.
Note that the Reserve has always worked this way in the four decades I have watched it. But under Lowe, it does appear to have become more insular and, as censorship charges, more susceptible to “groupthink.”
The survey heard from young former Reserve economists who had been warned that being skeptical of the house line would hurt their promotion prospects. I’ve heard that too recently.
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It is insane for the Reserve Bank to recruit the best of the economists who graduate every year and then tell them not to speak unless someone speaks. There are but three ways to train the next governor.
So, an end to groupthink in sanctuaries? certainly. More heated debate around the board before rates are decided? certainly.
But that’s the joke. While the Reserve is rightly criticized for encouraging groupthink, the report itself is a huge case of groupthink. It unquestionably accepts the conventional wisdom of recent decades that there is really only one way to manage the economy through the ebb and flow of the business cycle, and that is by manipulating interest rates.
Any role for ‘fiscal policy’ – changing taxes and government spending? Didn’t expect that, but, no, not really. Just make sure it doesn’t get in the way of central banks.
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We fiddled with rates so much that we dropped them to zero. Should we stop? God, no. Just trying to find a way to keep going. The review acknowledges the central bank’s misadventure to “unconventional monetary policy” – the UMP – which was hailed as an “additional monetary policy tool” and is now part of “best practice”.
Really? Are Competitive Currency Devaluations the Solution to Global Economic Illness? can you hear yourself
Apparently, slowing spending growth by directly punishing a small number of households that are young and foolish enough to take on mortgage debt is “best practice”.
No, this is not right. It’s just a sign that the review board was so caught up in the global collectivethink that it never occurred to it that there might be a better way.
Ross Gittins is the Economics Editor.
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