Centralbanking.com - Email Exchanges Between Allan Meltzer & Robert Pringle

Earlier this year, we ran a two part article featuring a series of email exchanges between Centralbanking.com Founder Robert Pringle and economist Allan Meltzer where they talked about monetary system reform. 

Now Centralbanking.com has published a new more time extended version of their email exchanges that I think readers would find fascinating. Below is a just a brief excerpt. You can read the full article here on Centralbanking.com. They discuss a wide variety of issues related to monetary policy and the need for reforms.

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Robert Pringle 

"Allan Meltzer was a mentor and friend for more than 40 years. We met in 1974, when I was editing The Banker, and angrily trying to draw attention to the link between monetary growth and inflation – a link denied by the Bank of England (BoE), UK Treasury, all politicians except Keith Joseph and many commentators. Allan and Karl Brunner, a fellow monetarist, invited me to participate in a new venture, the Interlaken Seminar on Analysis and Ideology – an early effort to apply individualistic, economic reasoning to broad sociological and political issues. The mornings were spent discussing academic papers and the afternoons walking in the Alps – the best format for a week-long seminar ever developed! I attended several of these annual get-togethers in the 1970s, and we kept in touch subsequently. Allan was a strong supporter of Central Banking Publications from the start and a natural choice to be a founder member of our editorial advisory board. I believe he was pleased with the way it has developed. “It’s where I go to learn about the people and the policies” of the central banking world, he said. 

Apart from the formal interviews that he gave to Central Banking and numerous contributed articles, he and I also kept up a lively private email correspondence. I would often bounce ideas off him. He would invariably respond. The following is a selection of our exchanges. It covers, among other topics, the markets, the US Federal Reserve Board, central bank independence, money and banking." 

Please click here to read the series of email exchanges on Centralbanking.com

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Added note: Robert Pringle gave us this additional comment by email to use in an article here on this blog about Allan Meltzer written by John Taylor:

"I first met Allan when he was looking for people with a wide range of interests to invite to a seminar series that he was setting up with Karl Brunner. It was called officially the Interlaken Seminar on Analysis and Ideology that met annually from 1974 to the late 1980s. The aim of the Seminar ( as he put it in his own tribute to Brunner ) was to extend economic analysis into many areas of social policy. As he described it, the conference organization was as unusual as the topics discussed: "We met only in the morning. Afternoons were given over to hiking in the Swiss Alps, or for a few playing golf. The idea was to have informal discussions while hiking. We reassembled for dinner."

You can imagine how much I, as a young financial writer with an interest in economic history and sociology , leapt at the chance of participating. It was a top rate group with future nobel laureates such as Jim Buchanan and others participating - only about 25 of us in all.  I was privileged to attend for several years - every year in fact until  I joined the G30 in New York in 1980.

We have remained in touch ever since. He was a tremendous supporter of Central Banking and a founding member of our editorial advisory board from 1990. 

By the way, he wanted John Taylor to be the next Fed chair."           

All best,

Robert

Robert Pringle - Allan Meltzer Email Exchanges on Monetary System Reform - Part I

Recently I ran this article on the blog that featured a tribute to Allan Meltzer from John Taylor. Mr. Meltzer was a highly respected economist around the world. While working on that article I was alerted by Robert Pringle to a series of email exchanges between himself and Allan Meltzer that are published on his blog (The Money Trap). 

Since their discussion directly relates to what we watch for here (potential monetary system change), I decided to present unedited the full set of their email exchanges below. I think they are a fascinating look at how this topic is discussed by experts. Part II is presented just below Part I (just scroll down below Part I to find it).

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Robert Pringle

A Debate With Allan Meltzer - Part I

Professor Allan Meltzer debates international monetary issues and The Money Trap with Robert Pringle

On 3/14/2014 12:57 PM, Robert Pringle wrote: 

Allan,

Thinking further about the international monetary system, I now find it difficult to conceive monetary stability being established in one country alone – even if that country is the US. This is to me the main lesson of the crisis and why I have changed my mind. I would welcome your view. 

Robert

Allan replied:

Yes, international stability would be a big improvement.  But it isn’t possible without better domestic policy–limits on budget deficits and money growth.  If forced to choose, I would choose limits on deficits.

Notice, please, that Germany chugs along year after year without world currency stability.And Japan has for decades gone its own way, remaining stable while growing very slowly.

Allan

On 3/15/2014 9:30 AM, Robert Pringle wrote:

Glad we agree on need for international stability. I feel it is a prior condition of domestic stability in any country. Interestingly, Paul Volcker and Jacques de Larosiere understand this – in the past two weeks both of them have endorsed the thesis of my book in public. Yet few economists do.

I would say Germany and Japan have been among the chief victims of the international monetary anti-system having been repeatedly destabilised by huge swings in exchange rates, political pressure from a profligate US, and inability to impose discipline on deficit countries, leading to accumulation of depreciating dollars.

Robert

On 15 Mar 2014, at 16:24, Allan  Meltzer wrote:

You know that I favor an international agreement.  But no agreement can work without fiscal restrictions.  That should be obvious from the ECB, where the countries had an international agreement that failed to enforce fiscal discipline on the participants.  Unlike the gold standard, the ECB treaty did not permit suspension in a crisis.  It may survive, but it has not worked satisfactorily.  The only major question now is how much additional Germany will agree to pay in order to make the system survive.

A common currency works in the US because we have fiscal transfers.  The gold standard worked for a long time because it permitted suspension during troubled times.

No international agreement on currencies can work satisfactorily if there is not a PRIOR fiscal agreement.

Allan

On 15 March 2014 at 1:07 PM, Robert Pringle wrote:

Yes, fiscal rules plus – I would add – a credible no  bail-out rule. My argument is that fiscal rules may be easier to impose and adhere to if part of an international agreement to preserve free trade and free capital flows and capture the gains from globalisation. Fixed exchange rates can be again part of the mechanism to enforce fiscal discipline. It is hopeless to try to “coordinate” national policies ex post – there has to be something in place that governments know they will have to defend/stick to ex ante. Countries lack the political capacity/incentive to observe fiscal discipline on their own. We have discussed this before.

Further, the US would get a good deal if it negotiated a deal now. If it waits 20 years, it will be (I expect) in a weaker position. 

On EMU, remember the poor experience many had with floating – there was a strong desire for more stability.

 Robert

 On 15 Mar 2014, at 19:14, Allan Meltzer wrote:

We agree on many things.  Recall that I have had a proposal for increased exchange rate stability since the mid 1980s.  It depends on markets to enforce the agreement, as the gold standard did.

 The big change from the gold standard, as Bretton Woods demonstrated, is that voters have learned that monetary authorities can increase employment.  I see much evidence that most publics will trade off exchange rate stability for more employment, even if the latter proves to be only temporary.   That is the hard fact that you or I or any proposal has to overcome. In your words “governments lack the capacity.”  I say the voters want governments to put “full employment” ahead of any other objective.   Alas, that remains true even when governments do a poor job of providing full employment.

 My proposal would be voluntary for each government.  The markets could punish them by devaluing if the government expands too much to maintain the exchange rate.  Do you think  governments would choose to restore the exchange rate?  Or do you agree with me that they would welcome devaluation as a way of increasing employment?

 Your proposal ignores the public’s demand for more jobs.  That’s why Bretton Woods failed.  That’s why the ECB failed.  People can see that Sweden, Britain and others outside the fixed exchange rate system can do better at increasing employment than those in France, Italy, et al. inside the system.

 I, too, would like greater international stability.  But I can see that central banks seem determined to respond to very short period data,  Any program emphasizing stability requires them to act according to medium- or long-term objectives.  They are unwilling to do that.  They may assert their independence, but an independent central bank does not finance a large part of the government deficit.

 Everyone who knows anything about data knows that the monthly unemployment rate is a noisy number subject to very large revisions.  Yet, the Federal Reserve responds to it almost slavishly.   Are they stupid?  Or politically driven?

 Should we have this discussion in public?

 Allan

 The debate continues in Part II….