I suspect the standard view among economists about what monetary policy makers should and should not say in public is set out clearly in this talk by Willem Buiter. (The paper is worth reading for other reasons as well. I wish I had called an earlier discussion of mine on German macro myths the ‘Triad of Teutonic Fallacies’.) He gives what I think is the standard view among economists. Put simply, it says that monetary policy makers should stick to talking about monetary policy: ‘sticking to their knitting’ to use an Alan Blinder phrase. They should talk about other things only in terms of how it influences their ability to fulfill their remit.
Why should they be so coy? Because they have been given a privileged position to take decisions that would otherwise be taken by a democratically elected government, and they should not use that platform to get additional publicity for their views on issues beyond their remit. A strong exponent of this view is Tony Yates, whose latest complaint about Mark Carney straying beyond his remit related to his public position on the benefits of UK membership of the EU.
I also used to take this position, and my instinctive reaction was similar to Tony’s. But I now think the situation is much more nuanced. Of course there should be restraints on what central bankers should say in public: if one of them told you which political party would be ‘best for the country’ that would be way out of line. However I think it is possible to construct a number of defences for monetary policy makers when they do stray beyond their knitting.
1. It influences the outlook for monetary policy defence
1. It influences the outlook for monetary policy defence
This may seem obvious, but I think it goes further than some people think. For example Willem goes too far in criticising Bernanke’s support for fiscal stimulus in 2009. It is a great pity that more central bankers did not say in 2009 and later that hitting the zero bound for interest rates seriously compromised their ability to do their job, and that fiscal stimulus would have been effective in increasing output. Saying that this was political, and therefore out of bounds for monetary policy makers, is a bad argument. Anything can be labelled political. Some people think global warming is political. But is also a fact, and therefore central bankers are quite right to treat it as a fact when discussing its implications for financial sector stability, for example.
2. I know about this stuff defence
In an earlier post I defended Andy Haldane talking about corporate governance because it would be socially harmful not to hear his views on these issues, given his considerable talents and expertise. It would be a great shame if becoming a member of a monetary policy committee meant that you had to keep quiet about other issues where you had - prior to that appointment - considerable expertise. Of course MPC members could abuse this by talking about issues on which they have no expertise or insights, but that surely suggests we should judge each of these cases on their merits.
3. Improving the influence of economic expertise in the public debate
Neither of the two defences so far would cover Mark Carney making statements about the past benefits of EU membership. The first defence would cover a discussion of how Brexit might influence the ability of the MPC to do their job, or how UK exit might impact on activity and inflation, but those are different issues. Nor am I aware that Carney has some personal expertise in assessing the benefits of membership, which would be the second defence.
However even Tony acknowledges that the report Carney was speaking to is very good. It contains a summary of existing analysis of the economic benefits of membership. If analysis of this kind was widely discussed or acknowledged in the media as part of the Brexit debate, then we might legitimately question what the Bank is doing spending public money repeating them. In reality we have exaggerated claims from either side, with little use made of more reputable academic analysis. In short, the Bank is helping raise the quality of the political debate. The fact that its conclusions are uncomfortable reading for one side is irrelevant.
It is true that the Bank was not established to do this kind of thing. If there was some institution set up by UK universities that routinely pooled economic knowledge in this way, then they would be the people to write a report of this kind. Perhaps such an institution should exist, but it does not. Note that this defence relies crucially on the analysis being fair and comprehensive.
The example that clearly exercised Willem the most, and which I initially focused on, was the behaviour of the ECB. But the real scandal at the ECB is what was done behind the scenes (some of which Willem discusses), rather than what was said in public. Are we not better off knowing what they were saying in private because they also said it in public? There are clearly costs and benefits here.
This raises a further thought, which as far as I know is never discussed. Should central banks ever give private advice to governments about matters that are not financially sensitive? For example, it was said that in the UK in 2010 the coalition partners were given briefing from the Bank, which may have helped persuade the minority party in that coalition to back austerity. Why should that advice have remained secret?
I have in mind here the position that I believe is adopted by the OBR, the UK’s fiscal council. All its work is made public. The government does not commission the OBR to produce reports for its eyes only. The OBR adopts this position because it is concerned to establish its independence from government. Some questions were recently raised about the government trying to influence what the OBR writes. An obvious way to avoid such concerns is for the OBR to make public all such ‘advice’ from government.