Friday, June 01, 2012

Contra a independência dos bancos centrais

 TIME TO ADMIT IT: Independent Central Banking Has Been A Failure, por Pascal-Emmanuel Gobry (Business Insider):

The idea of central bank independence was that it would guarantee good monetary policy. During the Great Moderation it certainly seemed that way. But now it's no longer the case.
During the crisis, small, sovereign and open countries like Israel, Switzerland, Iceland and Sweden devalued their currencies and bounced back. Meanwhile the central banks of the US and Eurozone are refusing to pursue expansionary policies, which is driving millions to be unemployed.

The obvious takeaway is that independent central banks don't work.

But the more subtle, and more important, point is that the choice between inflation and unemployment is a political, not a technical choice. What's "better"? To screw debtors or creditors? To make millions unemployed or to "debase the currency"? Those are very important questions. More important, they're questions that cannot be solved by economics. They can be informed by them, but at the end of the day what you prefer is going to come down to your own moral value system. In other words, it's a political choice. And the way we make political choices in modern countries is through the democratic process, not through unelected, unaccountable technocrats. (...)

If you said that national security was too important to be left to politicians and that the military and security services shouldn't have to answer to anyone because they're so competent, everyone would immediately see why that's an absurd and very dangerous idea. Instead we see civilian leadership of the military as a cornerstone of democratic governance even though we know democratic leaders screw up all the time because a) we view democratic accountability as an important principle and b) it's not at all obvious that political leaders will screw up more than military leaders.

The military can kill lots of people and engineer coups, but monetary policy can drive millions to the unemployment line and affect the political process. But as we've seen monetary policy is just as important, and central bankers are just as prone to "fighting the last war" and being prisoners of their own biases as generals.

Do lado oposto, Has independent central banking jumped the shark?, por Daniel W. Drezner (Foreign Policy):
 Well.... before I answer, I want to object to Gobry's framing of the issue in two ways.  First, he sets up a too-simple dichotomy between "independence" and "political control."  The devil is in the details here.  Political scientists have done a lot of research into how legislatures exert influence over supposedly "independent" institutions like courts and regulatory agencies, and this logic applies to central banks as well.  Or, to put it another way, I suspect that Ben Bernanke would be pumping more money into the economy were it not for a fear of Congressional blowback.  Furthermore, "political control" is unclear here -- which politicians have control?  Would central bankers be directly elected?  Appointed by the legislature?  Appointed by the executive subject to recall?  And so forth. 

Second, the notion that central banking decisions are strictly political seems as wrong as characterizing them as strictly technical.  It is overly cynical to believe that either technocrats or politicians gin up any old theory to justify the policy ends they seek.  As with Supreme Court disputes, there are genuine disagreements in economics on the theory side.  At this very moment, different central bankers disagree over the best way to reduce unemployment in part because of different economic theories.  Expertise is kinda important in these moments.  

OK, these contestations aside, I still have a basic problem with Gobry's argument.  For Gobry's process to work better, voters have to punish politicians for poor monetary policy and reward them for wise and prudent monetary policies.  I see little evidence that voters would have the necessary knowledge and attention span to do this.  Instead, they would likely vote on other considerations, or vote based on short-term considerations such as the unemployment rate and GDP growth without considering whether short-term pump-priming is occurring or long-term sustainable growth.  Furthermore, politicians would rig the game just a bit.  Political scientists have extensively discussed the existence of "political business cycles" due to fiscal policy. I have every confidence that political control over monetary policy would simply extend the phenomenon to that policy lever as well. 

The fact that politicians still control the fiscal lever is what leads me to think that central banking should still be independent.  A diversification of political controls over the economy seems like the best minimax strategy over the long run.  Thinking back to how U.S. politicians would have handled the last 20 years of central banking, I suspect that they simply would have exacerbated the boom-bust dot-com and housing bubbles.  It's not clear at all that the added democratic gain outweighs the loss in policy competence. 
E a resposta de Gobry, What's The Difference Between Ben Bernanke And David Petraeus?
But none of that is actually why Dan disagrees with me!

Here's why:

For Gobry's process to work better, voters have to punish politicians for poor monetary policy and reward them for wise and prudent monetary policies. I see little evidence that voters would have the necessary knowledge and attention span to do this.

Well, sure. This is why I (probably) don't support direct election of central bankers. But how does this look to Dan:

For Gobry's foreign policy process to work better, voters have to punish politicians for poor foreign policy and reward them for wise and prudent foreign policies. I see little evidence that voters would have the necessary knowledge and attention span to do this.

Of course, as political science & foreign policy expert Dan knows, nobody in the history of the world has ever voted based on foreign policy. (Well, ok, maybe a couple people.) And the overwhelming majority of voters are utterly clueless about foreign policy. And yet we don't think foreign policy should be handled by an unelected clerisy. We think it's totally normal that the President can fire the Secretary of State and that he's the one who decides on the country's foreign policy strategy.

But maybe that's why the world is still an unstable and dangerous place. Maybe if the Secretary of State were appointed for life by a vote of the faculty of the Kennedy School, Afghanistan would have the governance of Norway by now. But I doubt it.

So that's one thing.

But more importantly, of course voters will punish and reward politicians for poor/good monetary policy. There's overwhelming evidence that voters are affected by economics. (Swing) voters basically vote on the basis of "Do I feel better or worse about my economic outlook, that of my family and that of my community?" Monetary policy is extremely relevant to that. Much more than foreign policy or the zillion other very important things that we leave up to the political process, certainly. (...)

But Dan never gets to the core of my own post, (...)

Or, to put it another way: what's the difference between Ben Bernanke and David Petraeus? (Petraeus in his previous incarnation as military head of the War on Terror.)

Both of them are extremely smart, extremely credentialed, extremely capable public servants. No one doesn't think the world of them personally. No one doubts that they are extremely dedicated to the higher interests of the nation. For both of them, their actions can directly or indirectly affect the lives of millions of people, as well as the political process. Both of them embody, in a sense, a pillar of state sovereignty as we've understood it for millennia: minting the currency and fighting wars.

We think it's utterly obvious that one of them should never be held accountable to politicians for his decisions. We think it's utterly obvious that one of them should be fired at will and should only carry out the decisions of politicians.

Nobody thinks politicians don't make awful decisions once in a while. Politicians gave us the War in Iraq, which was a mess of world-historical proportions, but nobody took that to mean that warmaking power should rest in the Pentagon and not Congress anymore.

Why is that? What's the key difference? I'm genuinely curious.

1 comment:

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