Thursday, January 2, 2020

Robert Pringle ( Talks About Central Banks, Money, and Where We Might Be Going in the Future

Readers here may recall that we have featured some articles by Robert Pringle (The Money Trap Blog) from time to time. Mr. Pringle has had a long and distinguished career working with central bankers from around the world. Here are a couple of  extracts from his background information:

"In 1990 he founded  Central Banking Publications, a financial publisher specialising in public policy and financial markets. Central Banking journal, which he edited for 20 years, has subscribers in 120 countries including the great majority of the world’s central banks."  . . . .

"From 1979 to 1986  he was the first executive director of the Group of 30, an influential think tank based at the time in the World Trade Centre, New York (it has since moved to Washington, DC). For the G30, Robert co-authored pioneering studies of the foreign exchange and interbank markets, and on IMF borrowing from the private markets, and the emerging profession of official reserve management."

Recently, Robert Pringle released a new book that I think many readers here would find interesting. The Power of Money is an in depth look at the past, present, and potential future of money and its impact on society. His observations in the book come from decades of directly observing the impact of money on society from the inside of the monetary system we use today.

Obviously, Mr. Pringle is one of the leading experts in the world on central banking and the issues faced by central banks. In addition, he has kindly shared his experience and knowledge with me from time to time providing input on the kinds of issues I attempt to follow on this blog. 

I asked him if he would like to participate in a Q&A style interview to discuss his thoughts on some of these issues based on his decades of experience inside the system. He agreed, and therefore readers here will get the opportunity to benefit from his knowledge and personal experiences working alongside some of the most well known central bankers from around the world.

Robert Pringle

Q: What got you started into a career that would take you to the point where you would be working with central bankers from around the world?

A: "Ever since my teens I wanted to do something with international reach. At the same time, I  had an aversion to large organisations, especially governmental organisations such as the United Nations. This aversion extended even to universities. So when I received an offer from Berkeley, University of California, as an assistant to a professor with prospects of research and secure employment, I rejected it after I got impatient with the ton of forms they expected me to fill in. Yet, it was the leading academic centre for sociology, the subject I was interested in, in a stunning location as well as the world centre of radical thought. My whole life would have taken a different course if I had accepted the offer. Instead, after graduating in economics at Cambridge, I went to the London School of Economics to study sociological theory and the implications for economics. But I dreaded the prospect of another three years study to obtain a PhD so I applied for and got a post where I could learn the craft of economic and financial journalism. I liked it - especially the opportunity to get to know leading figures from the worlds of economics, banking, central banking and politics - and to write about what they were doing. The 1970s and 1980s were exciting, pivotal times for anybody interested in the character and fate of our societies and the drivers of social and economic change. Soon I found my vocation as an editor and travelled the world meeting and exchanging views with influential people without being part of some awful bureaucracy like a central bank, inter-governmental organisation - or university!"

Q: How have your views about policy evolved over time?

A:  "I was educated into Keynesianism - I studied Keynes at King’s, his own college, with some of his great disciples  such as Nicholas Kaldor and Joan Robinson. Ironically, however, though Keynes was a monetary economist, I was taught little about money and banking at Cambridge. All that came when I had to start writing about it. In the 1970's as editor of The Banker (a monthly journal) I became a passionate monetarist, as traditional stop-go ‘demand management’ policies were failing, and was privileged to be one of a close circle in a group started by Karl Brunner and Allan Meltzer that tried to disseminate monetarist thought in Europe. This was a time when leading economists and commentators believed you could raise the long-term rate of growth by keeping the pressure of aggregate monetary demand continuously  at a high level - complete nonsense. When I went to the United States to set up the Groupof 30, I was shocked to find many unreconstructed Keynesians on the group. They let their aversion to President Reagan infect their economics; they basically missed the whole point of the Volcker revolution in monetary policy. 

I disliked the way that governments, central bankers and mainstream academics then in the 1990's turned the insights of monetarism into the doctrine of inflation targeting - an effort to do without money in the models used to frame policy choices. This would leave too much room for discretion, which I thought would be abused. I also objected to Alan Greenspan's use of Fed powers to support the banking system in the crash of October 1987 - it started the era of extreme moral hazard.

We live with the results of the use of excess discretion and lack of rules in these two fields of policy-making. They are not good results."

Q: You have some interesting thoughts on money and how it may change over time. Can you share some of your thoughts on that topic? (see The Power of Money for an in depth exploration of this topic).

A: "Certainly - they have evolved in response to influences and pressures such as those mentioned already. Now I shall indicate a few of my conclusions.

Money has to change to reflect the needs of a changing society;  at its best, it embodies and projects the best aspirations of that society. Money is part of the effort to better the human condition. True, it is foolish to expect too much from it. It cannot eliminate the business cycle. It often needs to be left to take its natural course. There are worse evils than a gradual, long drawn-out deflation. People adjust as long as they have confidence in the long term stability of the monetary unit.

The state should define the monetary unit - what counts as money in a given territory  or monetary space and let the private sector create money - as much as society needs - to the standard. There is no such thing as a perfect money, ideal for all times and places; the search to realise such a dream can do more harm than good."

Q: Central banks have played a huge role in guiding the present monetary system for many years now. Can you discuss some of the pros and cons you have seen over time of the role central banks have played?

A: "The central bankers I have known have been decent, honourable and conscientious. Events thrust their institutions into positions of high authority and status. Even the smallest central bank makes decisions of crucial importance for its country and people. Their elevated position exposes them to high risks and what they often call ‘headwinds’. This is an understatement. 

If central banking were classed as an Olympic event, it would join such sports as surfing, skateboarding, karate, and rock climbing, at the extreme end of the sporting spectrum. 

Central banks served as midwives of our current monetary and economic regime. They helped to shape its present form.

Now they service and maintain critical financial networks that span the globe. Far from being detached bystanders, they have facilitated revolutionary changes - changes that affect the life chances of men and women everywhere. We are all inter-connected through this intricate and ever-expanding monetary spider-web. 

They have managed multiple crises as agents of governments. The costs have been high, but not catastrophic - not yet.

What central bankers evidently do not know is how to prevent crises from happening in the first place. They claim to have learnt from experience, but the public is rightly skeptical. To what extent their policies are actually responsible for social ills such as rising inequality, stagnant real living standards in many countries, sluggish investment, growing monopoly power (notably of Big Tech) rising popular anger and disrespect for elites and ‘experts’ is arguable. I suspect they have been a significant factor. President Trump plays a “Punch and Judy” show with Fed chair Powell  but that’s what it is - a show. Sound money is as far away as ever."

Q: Those comments about President Trump and Chairman Powell are fascinating. My take is that you are saying that while they argue over relatively more minor issues in a media headline grabbing way, the big picture of the need for major monetary system reform continues to be ignored. Is that an accurate take away from your thoughts above on this?

A: "The President’s attacks on his own appointee at the Fed for keeping interest rates "too high" raise the whole question of the policy latitude given to the Fed by custom - an important issue. But yes, while this media circus goes on, the underlying problem of the faulty apparatus of policy making, indeed the whole way that current monetary arrangements operate - at the international as well as domestic national levels - and how they generate crises,  is overlooked.

In this context, I hope that President Trump will send his nomination of Dr Shelton to the Fed’s Board of Governors to Congress and that the nomination will receive Congressional approval.  Dr Shelton would bring a much-needed breath of fresh air to the Fed’s decision-making bodies. While I do not favour a return to a gold standard it is time for a proper debate about the anchor for money. There is no effective anchor at present. In other words,  if given the opportunity, Judy Shelton would open up the whole issue of the future of the monetary regime." (see this added news note 1-16-2020)

Q: In 2008, central banks had to face one their greatest challenges ever to the present monetary system when the GFC (Great Financial Crisis) hit. They responded with new policies that are still being debated today. How would you assess what central banks did to respond to the crisis?

A: "Their policies contributed to it and then helped to control it. They emerged with greater power over the financial system - a retrograde step. To give public officials wide discretionary powers not only over monetary policies but over the operation, structure, and functioning of the financial system is fraught with danger."

Q: Central bank critics say that the "easy money" policies used in the last few years have not solved our ongoing systemic problems. What are your thoughts on that?

A: "I agree with such criticisms. It has been business as usual - in the sense that the overall design of the policy response to the crisis follows an established pattern: bail outs, large-scale monetary and fiscal stimulus, more detailed and extensive regulation, interference in market determination of interest rates, long as well as short, resulting in the suspension of market signals normally deemed essential to the functioning of capitalism. This leads to more political pressure on the state to move in and undertake investments. The ultra low interest rates have in effect replaced inflation as a tax on the public - a tax that governments have taken full advantage of. The inevitably sluggish response of the economy then is used to justify further state borrowing - because it is thought to be “free” money. This crowds out the private sector.

This is more than a debt trap; it is, as I argued in my book of 2012, a ‘money trap’. The nature of our money is at the root of the problem. 

At a time when everybody expects another crisis, it is absurd to suggest policies have solved your systemic problem."

Q: Your comment that ultra low interest rates have replaced inflation as a tax on the public catches my attention. Is this because governments get to fund their borrowing with ultra low interest rates which are heavily borne by a middle class that in the past counted on higher interest rates to supplement income as they retired? So the interest income money that used to go to savers now subsidizes the government allowing it to avoid the unpleasant fiscal policy choices of raising taxes or cutting expenses?

A: "Yup, in effect, something like that seems to be happening. But under the current, flawed system, the central bankers may have little option: it’s wrong to blame individuals or even individual central banks, when events drive policy in this direction.  Under the present so-called ‘system’ they have little choice - they are doing their best in adverse cicumstances."

Q: One thing we have seen arise out of the crisis is cryptocurrencies along with a variety of efforts to create private sector alternative forms of money and even alternative monetary systems. What are your thoughts on these kinds of initiatives?

A: "Setting the fraudsters and snake-oil salesmen aside, who always flourish in such a permissive monetary environment, monetary innovations such as cryptocurrencies  are bright lights in a gloomy picture."

Q: Do you think they will eventually disrupt the present monetary system that is based on officially sanctioned state issued currencies?

A: "Let's hope so."

Q: You have had a long and distinguished career. Based on your experiences, what message would you like to convey to readers as to what you see happening in the future with money and our monetary system?

A: "More of the same, which is such a pity. The way forward should be clear - most of all for the United States:

Let the state and its agencies revert to their classical role - holding the ring, maintaining laws, protecting property rights, breaking up trusts and monopolies of all kinds, protecting the weak and vulnerable members of society, defending the community and providing a reliable monetary anchor. Let private initiative and enterprise do the rest."
My added comments: This article is certainly one of the most important ever published on this blog. The insights shared above come from someone with a long and distinguished career working inside the monetary system that has prevailed during our lifetimes. 

In my view, you will not find this kind of inside look into the monetary system in most mainstream media which tend to focus on the more superficial aspects of the system (minor tweaks to interest rates, etc). They also tend to more or less ignore the big picture question of whether our present system is sustainable and how it might evolve in the future. Of course, that is the primary topic of interest of this blog.

A thank you to Robert Pringle for taking valuable time to give readers here this fascinating peek under the hood of our monetary system! This article will be added to our Marketplace of ideas for monetary system reform so that readers may more easily find it as time goes by.

The late Paul Volcker in conversation with Robert Pringle in 2014
(see full interview here)

Was Paul Volcker a central bank skeptic?

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