Rules vs central bank superheros
I have a new piece in today's City AM on central bankers as (pretend) superheros versus rules based monetary policy:
LARRY Summers is out of the race to succeed Ben Bernanke as Fed chair. After months of debate, with politicians and media picking over Summers’s personality and background, the spotlight has returned to Janet Yellen, deputy Fed chairwoman. Is she now a certainty? Or is another monetary superhero about to emerge? All of this recalls the moment when George Osborne announced that Mark Carney would be governor of the Bank of England. Carney was described by both the chancellor and the media as a superstar. It’s hard to miss the parallel with the hubbub around Gareth Bale’s £85.3m switch to Real Madrid. But it’s a problem when monetary policy becomes viewed as uniquely dependent on a single “personality”. Central bankers should not be seen as star footballers. At best, they are referees. This is partly a problem of job description. What should the governor do? Should he or she fly about, putting out fires as they erupt in the economy? Or should he or she follow clearly defined monetary policy rules? Over the past five years, we have grown increasingly used to the idea of the fire-fighting central banker. Even in 1999, Time magazine described Alan Greenspan, Robert Rubin and Summers as “The Committee to Save the World” for their role in the Asian crisis, the Russian crisis and the collapse of long-term capital management. Summers’s reputation nearly landed him the top job at the Fed.Read the rest here.