Saturday, January 22, 2022

From independent central bankers to central bank politicians

The theory says that Independent Central Banks are an institutional innovation that facilitates commitment to make the fight against inflation credible, in democratic contexts where there is constant pressure to run expansionary policies. Complemented with arguments that have to do with expertise, the idea of setting up technocratic agencies insulated form day-to-day politics has expanded its field of influence to reach regulatory institutions, fiscal authorities and other agencies.

The political scientist Marver Bernstein introduced some decades ago a number of qualifications to the virtues of the institution of "independent" authorities, one of them being that unpopular but necessary policies in democracies require political skills.

Some recent developments show that Bernstein was correct, and they show it in a way that was perhaps not anticipated by Bernstein and other critics. These developments have to do with the transition from Central Banks (CBs) to governments by some prominent central bankers.

Mario Draghi, the former Chaiman of the European Central Bank, is now the Italian Prime Minister (and will soon perhaps be the President). Admittedly, this is in an Italian tradition, since it is not the first central banker to become Prime Minister in times of crisis in that country, except that Draghi comes from the European CB, and not from the Banca d'Italia.

Janet Yellen in the US used to be the Governor of the Federal Reserve and is now the Treasury Secretary, and a prominent member of President Biden's cabinet. Finally, it was yesterday announced that the current Governor of the Central Bank of Chile (appointed by the Socialist Michelle Bachelet and confirmed by the conservative Sebastián Piñera), Mario Marcel, will soon become the new Finance Minister, a key position in the government of the newly elected progressive President, Gabriel Boric.

These are not extravagant examples from hidden countries, but cases from very important economies: the US, the European Union (and one of its largest and more economically problematic countries, Italy), and Chile (for many years the poster child of the Washington Consensus).

These are not exaclty conservative central bankers, but they have self-defined themselves as center-left (although Draghi presides over a very broad coalition). Yellen is part of the Democratic Party government of President Biden, and Marcel is an independent close to the Socialist Party, that will be part of the leftist coalition of Boric.

Can this trend be extended to authorities in other fields becoming politicians? That is the case of the Spanish José Luis Escrivá, the current minister for Social Security and Inclusion in the progressive coalition government. Escrivá was the first Chair of the Independent Fiscal Authority, set up by Spain under the recommendation of the European institutions after the Euro Crisis, where he was appointed by the then conservative government.

All these individuals have the credentials of well-trained and experienced economists, some of them with academic experience at the highest level. It will be interesting to see how they develop their role now as political and technical managers to keep populists (from the left and right) at bay.

But faced with this kind of revolving doors, now when we see an "independent" authority, perhaps we don't have to think of him o her as an apolitical technocrat, but as a technocratic politician.

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