From EuroIntelligence, January 12:
We are amazed at the capacity some people have for outrage about Donald Trump. If you accept, as we have, that he is dismantling the world of multilateralism and of independent technocracy, none of this should really come as a surprise. Not all of the mud he throws out will stick. But some of it will. This is a battle on which he will prevail. We are exiting the world, in which central banks were run by economists. Once it’s gone, our prediction is that it won’t come back.
We should remember why societies accepted central bank independence in the first place. Until the 1990s, central bank independence was the exception. Monetary policy is part of economic policy. Like any economic policy, it has distributional consequences. It is not a natural state of affairs for monetary policy to be independent. The reason why societies adopted central bank independence since the 1990s was a high degree of consensus that the primary goal of monetary policy should be to preserve price stability – after the experience of the 1970s and 1980s. Since monetary policy acts over the medium-term, a central bank that did not have to worry about electoral cycles would be in a position to deliver a more consistent policy.
Trump himself is evidence of the fact that the consensus is over. It’s not just central bank. During the age of financial globalisation, the governance of economic affairs was delegated to independent national and international institutions. Economics was progressively taken out of the democratic process. Fiscal policy has become subject to rules and rule by fiscal councils like Britain’s OBR. Some countries accepted private-sector kangaroo courts to adjudicate in trade and investments disputes.
Central bank independence was the epitome of a world run by experts. The Fed and the regional reserve banks employ some 700-800 PhD level economists. If you take the ECB and the national central banks together, you will probably also arrive at a number of approximately several hundreds as well. Careers are at stake. Add to this the PhD economists employed by banks and the financial media to engage in the dark art of central bank watching.
The FT carried an article recently according to which the economics profession is facing a recession. To us this looks more like a structural slump, rather than a cyclical downturn. Employment opportunities are becoming scarcer. And younger people are more likely to study economics. We would expect macroeconomic models, whose forecasting recording has been generally appalling, to be replaced with modern-era machine learning models....
....MUCH MORE
