In a the latest postI took what might be considered a “high-level” view of monetary policy. Decisions should be made by people with knowledge in the subject area. Today, I will take what might be considered an anti-elitist perspective. Central banks should evaluate the views of various financial economists, including those with heterodox views. Am I contradicting myself? Not at all.
Here it is Financial Timesin an opinion that can only be described as extreme:
Since 1997, members of the Institute of Economic Affairs’ shadowy “monetary policy committee” have met once a quarter somewhere off Tufton Street, Westminster, to play their favorite Bank of England raters. As much as scientists are still puzzled by these mysteries of bird migration, no one knows exactly why they get into all these problems.
SMPC meetings however follow a regular pattern. After an overview of global economic conditions, members discussed the outlook for inflation and growth in the UK before debating the appropriate level of borrowing costs. Votes are counted, policy standards are recommended and the world continues to spin. . . .
Eclectic members include former Invesco chief economist John Greenwood (who thinks “interest rates don’t matter”), non-executive director of Capital Economics Roger Bootle (who thinks “interest rates do matter”) and several card-carrying fund managers. (Ever cynical, Louis wonders if perhaps the SMPC really exists “so that every ten years it can pat itself on the back when the M4 and inflation charts stack up nicely”.)
The SMPC criticizes a man – all 14 members are boys – and towards Wales – four, including “Brexit economist” professor Patrick Minford, who works at Cardiff Business School. Juan Castañeda and Tim Congdon both split their time between the Institute of International Monetary Research and the University of Buckingham while Lilico shares the position of chairman with professor Trevor Williams of Derby University and TW Consultancy while he is not working at the firm -European Economics.
Obviously, the author thinks it is a huge joke that these types of people would have the audacity to give advice on monetary policy to the infallible experts at the BoE.
If I wanted a sly reaction, I could point to the UK inflation rate over the past 3 years. In the event that that price rise was due to a supply shock such as the Ukraine War, let’s look at wage inflation, a variable closely related to demand conditions:
That doesn’t look like sound fiscal policy. Money was very tight in 2008 and it was very easy in 2021. I don’t always agree with Tim Congdon, but as I recall he made both of those criticisms. in the middle real time.
In contrast to FT, The Economist recognizes the value of having a diverse range of views when formulating policy:
In the 2000s researchers conducted experiments on economics students at the London School of Economics, Princeton University and the University of California. They used a simple computer-driven economic model, which dealt with random shocks. Students had to answer by moving interest rates, and score points on how well they kept unemployment at 5% and inflation at 2% across 20 currency areas. In all cases the committees trumped the individuals. Indeed, a large body of empirical work suggests that well-run committees facilitate the smoothing of extremist views, discourage poor judgment and provide greater receptivity to both political and personal pressure.
I suggested (in chapter 5) to expand the FOMC from 12 members to 8.2 billion (potential) members. Let anyone bet that NGDP will rise below 3% or above 5%, and the Fed takes the other side of the bet.
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