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The sham of central bank independence

Mitchell, B. (2014) “The sham of central bank independence“, Bill Mitchell Blog: Modern Monetary Theory – Macroeconomic Reality, 23 December.


Let it be noted that the Japanese government 10-year bond yield hit 0.33 per cent overnight. That tells you that all the scaremongering that has been going on over the last twenty years about hyperinflation, the Japanese government running out of money, the bond markets dumping the yen, and the rest of it were self-serving lies designed to advance a particular ideological position at the expense of the broader social well-being. A year ago, the yields were 0.88 per cent – so they are going in the opposite direction to that predicted by many mainstream economists, blinded by their irrelevant textbook theories about how markets work. In that neo-liberal textbook fairyland, the yields should be sky high now, inflation accelerating out of control and the government forced to admit it had run out of money. Get over it, it won’t happen because the real world doesn’t operate like that. Students of macroeconomics are continually being taught a myth, which is detrimental to their education and life experiences. Many turn into the future doomsayers and sociopaths in organisations such as the IMF, the European Commission and other like policy making institutions. They always rave on about the need for more central bank independence to insulate monetary policy from political decision-making as if that will foster the well-being of the population. The idea of central bank independence is a sham and in the last week there has been stark evidence to support that view.

Bloomberg carried an Editorial yesterday (December 22, 2014) – Central Bankers Weren’t Meant to be Heroes – which carried a nuance to the normal arguments about monetary policy.

Essentially, the article rehearses the claims that the difference between the current economic fortunes of Europe and the US come down to the capacity of the central banks in each jurisdiction to introduce unorthodox expansionary policy measures.

I touched on this topic last week in this blog – Central banks can sometimes generate higher inflation.

They certainly do not understate their claim:

When the history is written, though, one theme will be paramount: It was the world’s central bankers, not its elected politicians, who had to deal with the crisis — a task for which they weren’t adequately equipped (and still aren’t). Some rose to the challenge; others didn’t.

They clearly implicate the lax central bank oversight before the crisis as a problem as governments around the world deregulated financial markets and introduced labour market policies that constrained the capacity of workers to enjoy real wages growth in line with productivity growth and thus facilitated a massive redistribution of real income to profits.


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