Thursday, 7 October 2021

Waffle and hot air from Grace Blakeley on central banks.

That's a recent article of hers in Tribune entitled “Democratise Central Banks.”

“Democratise” is of course a favourite word with think-tank wonks and other PC air-heads. It sounds soooo loving and caring doesn't it? But normally those using the word have no idea EXACTLY WHAT form their “democratisation” should take. And Blakeley is equally vague on that point.

But presumably she means putting CB decisions into the hands of democratically elected politicians. But therein lies a HUGE problem, which is that one of the main purposes of CB independence (as indeed she herself rightly says) is to keep politicians AWAY FROM the printing press!!! Blakeley totally fails, in fact doesn't even TRY to square that circle.

But never mind: if you aim to be an economics commentator, spewing out lots of meaningful sounding words which don't actually mean anything won't harm your career.

The natural rate of interest.

Next, she claims one of the main objectives of central bank is to get CB interest rates to keep close to the “natural rate of interest”. As she puts it, “ The idea behind central bank independence is that there exists a natural long-term rate of interest—the rate at which supply and demand for money are in equilibrium, prices are stable, and full employment is maintained—and the job of central bankers is to ensure that short-term interest rates in the real economy hover around this natural interest rate.”

Well Google something like “central banks” and “objectives” and you'll find no references to “the natural rate of interest”, though obviously if you read an entire book on the subject, doubtless you'll find references to “the natural rate of interest”.

But in the next para, she says “there is no natural’ long-term rate of interest.”

Well, seems central banks are making an almighty c*ck up there. Or is it Grace Blakely that has no idea what she's talking about? I think I know the answer to that.

Then in the same passage, she says “When central banks started to buy long-dated government bonds, they revealed their intention to influence long-term interest rates, turning the long-term rate into a policy variable rather than a macroeconomic constant. “ Well quite: as MMTers have repeated till they are blue in the face, the rate of interest (certainly on government liabilities) is a “policy variable”.

Next in the three or four paras starting “In other words, quantitative easing has proven that the decisions central banks make about monetary policy are political choices”. Well clearly there are important political implications involved in QE, e.g. (as she says) the rise in asset prices, and hence rise in inequality it causes. But what else are Cbs supposed to do given near zero rates of interest and failure of “democratically elected governments” to implement enough fiscal stimulus? She doesn't tell us.

Instead, her conclusion, as mentioned above, is the fatuous claim that CBs need to be “democratised”.



Looking for a job as an economics commentator? Well all you need do (especially if you're female and have a pretty face) is spew out meaningful sounding, but essentially meaning less hot air: especially when it comes to impressing the editors of left wing publications like Tribune. As Frances Coppola said about Blakeley, “If you don’t understand banks, you shouldn’t write about them.”

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