« Paul Krugman: The Health Care Racket | Main | FRBSF: The Outlook for the Economy »

Friday, February 16, 2007

Should Central Bankers "Stick to Their Knitting"?

I wondered the same thing as Willem Buiter. Should the Federal Reserve Chair talk only about matters directly related to monetary policy, or is it okay to discuss broader issues such as inequality, minimum wages, and Social Security without making the direct connection to monetary policy evident? This is from Martin Wolf's Economists' Forum:

Willem Buiter: Martin's Column "Why America will need some elements of a welfare state", refers extensively to a recent speech by Ben Bernanke...

I believe it is a serious mistake for central bankers to express public views on politically contentious issues outside their mandates. The mistake is no less serious for being made so commonly by central bankers all over the world.

Central bank Governors have a lengthy and unfortunate track record of holding forth in public on matters that are outside the domains of their mandate (in the case of the Fed, monetary policy and financial stability)... With the exception of the Governors of the Bank of England and the Reserve Bank of New Zealand, every Governor on the block appears to want to share his or her views on necessary or desirable fiscal, structural and social reforms. Examples are social security reform and the minimum wage, subjects on which Alan Greenspan liked to pontificate when he was Chairman of the Board of Governors of the Federal Reserve System. Jean-Claude Trichet cannot open his mouth without some exhortation for fiscal restraint or structural reform rolling out. In the case of Chairman Bernanke's speech, equality of opportunity, income distribution, teenage pregnancy and welfare dependency are clearly not part of the (admittedly broad) three-headed mandate of the Fed: maximum employment, stable prices and moderate long-term interest rates. ...

When the Head of a central bank becomes a participant, often a partisan participant, in public policy debates on matters beyond the central bank's mandate..., the institution of the central bank itself is politicised and put at risk of becoming a partisan-political football. This puts at risk the central bank's operational independence in the management of monetary policy and in securing financial stability.

Central bankers, Mr. Bernanke included, should 'stick to their knitting' (if I may borrow Alan Blinder's phrase). Being the head of an institution with the national and global visibility of the Fed or the ECB gives one an unparalleled platform for addressing whatever one considers the great issues of the time. The temptation to climb that unique pulpit must be near-irresistible. Nevertheless, unless the text for the sermon concerns monetary policy or financial stability, that temptation is to be resisted in the interest of the institutional integrity and independence of the central bank.

As I've said before, I agree.

    Posted by on Friday, February 16, 2007 at 12:22 PM in Economics, Monetary Policy | Permalink  TrackBack (0)  Comments (19)

    TrackBack

    TrackBack URL for this entry:
    https://www.typepad.com/services/trackback/6a00d83451b33869e200d8351a5f4169e2

    Listed below are links to weblogs that reference Should Central Bankers "Stick to Their Knitting"?:


    Comments

    Feed You can follow this conversation by subscribing to the comment feed for this post.