Whenever Robert Pringle publishes a new article on his blog, I try to feature it here. Mr. Pringle brings a unique perspective to the issues we try to follow here because he has spent a lifetime working with central bankers all around the world. He can provide insights that I don't think you find very often in most mainstream media publications.
In this new article on his blog, he asks if central bankers rely too much on the views of economists and then reflects on the question in a somewhat philosophical way. Below are a few excerpts from his article.
"If economics is likened to a religion it is easy to see how it may be viewed as dangerous. It may blind its devotees to the claims of competing world-views. If economists arrogantly claim that their special insight gives them the right to prescribe policy, it may provide spurious legitimacy for harmful actions. It may lead them to ignore the fact that differences in values may lead people to prefer different outcomes to that which appears economically “efficient”..
. . . . .
It may surprise people to know that, in my experience, central bankers do not like money – I mean, they do not like to see their job as handling money. They hardly ever mention money in their communications. An authoritative review of central banks’ inflation targeting regimes and communications strategies does not once mention the word “money”.
Andy Haldane of the Bank (BOE) believes that money is a subject dear to the hearts of central bankers. I don’t agree. Of course, they are only human; they do not decline a decent salary. But professionally, they tend either to dismiss it or run away from it. Especially in the UK and US – continental Europeans and Japanese have somewhat different historical experiences and different cultural attitudes.
Ever since I can remember, the Bank of England has distanced itself from both the word and the idea. Post World War II, up to and including the 1960s, it left such matters to the Treasury. In the 1970s, its executives thought that inflation was the result of cost-push pressures, conflict over the distribution of incomes and government sfiscal policy- i.e. nothing to do with money or with the Bank. In the 1980s it fought a bitter battle with Margaret Thatcher’s government to avoid being saddled with targets for money."
What the Bank hated most
"The Bank (BOE) hated, above all, being told to target the money base. It won the struggle. It thus avoided being held accountable for the only thing it could, without any doubt, control – its own balance sheet. It later dropped all monetary aggregates with indecent haste. As Charles Goodhart among others has often pointed out, money does not feature in the models central banks use to – well – manage money. Just look at any Inflation Report. They are all about output gaps, prices, etc.
It is ironic that only since the collapse of all central bankers’ dreams of financial stability – only since the Great Crash – have they openly turned to money itself. Indeed, they have tried to create as much of it as possible. They even admit to it. They embrace it as the cure for so-called deflation (which is more myth than reality) while turning their eyes away in distaste. But society has not returned the embrace. Private money has shrunk in the face of the tsunami of official money.
Some central bankers were so cross about this they propose to nationalise money creation once and for all.
What really went wrong was that their failure to understand what money is meant that when the central banks finally embraced it, they did so at the wrong time and in the wrong way."
. . . . .
New waves of credit
"Headlines again proclaim that we are “awash in a sea of easy credit” (The Times, July 26).
Our defences are weak. We have money but no true standard. Yes, some central bankers have started to warn about the risks of credit expansion. But the system forces central banks to go on misusing money. They see it as a technique of social engineering. That is to mistake its nature.
. . . .