HAVE CENTRAL BANKS AND INDEPENDENT REGULATORS

Transcript:HAVE CENTRAL BANKS AND INDEPENDENT REGULATORS:
HAVE CENTRAL BANKS AND INDEPENDENT REGULATORS REPLACED CONSTITUTIONAL DEMOCRACY? HOW TECHNOCRACY SHOULD RETREAT TO PRESERVE OUR SYSTEM OF GOVERNMENT (& ITS OWN CONTRIBUTION TO WELFARE) PAUL TUCKER, HKS PUBLIC LECTURE AT KINGS COLLEGE LONDON 27 NOVEMBER 2018 STRUCTURE OF TALK Background: welfare, legitimacy, values, and credible commitment Principles for Delegation Two examples: prudential supervision, and securities regulation Two central banking issues: Emergencies Multiple-mission agencies: combining monetary policy and financial stability BACKGROUND BASIC PROBLEM AND THESIS Too much government power for comfort lies in the hands of unelected regulators and activist judges Government no longer designed in a principled way gap in constitutionalism bequeathed by Locke, Montesquieu, Madison Solution: a political norm comprising Principles for Delegation to independent agencies POWER OF THE POST-CRISIS CENTRAL BANKS Poster boys and girls of today’s Unelected Power New third pillar alongside Judiciary and Military Balance-sheet powers used like never before: QE; steering supply of credit; lender of last resort; market maker of last resort Latent fiscal powers And new regulatory powers (Fed, ECB, BofE) So part of regulatory state as well as fiscal state What constraints needed for legitimacy in a constitutional democracy? STANDARD ARGUMENT FOR CBI INCOMPLETE Time-inconsistency problem: standard solutions incomplete Rules (Kydland/Prescott): But why would ‘they’ stick to the declared rule? Conservative central bankers who hate inflation (Rogoff): But why would govt (re)appoint such a person, and what if they are only pretending to be conservative? Contract allowing govt to punish CB for missing target (Walsh): But what if missing the target suits the govt? An infinite regress problem? MONETARY INDEPENDENCE: A CURRENT CRITIQUE “Central bank independence had a specific justification. Monetary policy was thought to have major dynamic consistency issues and did not have much non-technical political content. In today’s world where the dominant problem is too little not too much inflation the dynamic consistency argument loses its force. And the greater salience of exchange rate issues, fiscal monetary cooperation and credit allocation aspects of monetary policy draws it closer to policy normally delegated to democratic institutions. So at a minimum central bank independence needs reconsideration and it’s possible that it can no longer be justified in its current form.” Larry Summers, exchange with the author, 2017 BEYOND THE STANDARD ARGUMENT Arguments for Fed following a monetary-policy rule call upon values of the rule of law So any useful rebuttal must engage with rule-of-law values Criticisms of a democratic deficit deploy