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Now is the time for complacency: RBA v Bank of England edition

December 30, 2017 - 19:51 -- Admin

“Independence” is one of those words that it’s good to be. Other words from the same stable include ‘appropriate’, ‘modernise’, ‘reform’, ‘enhance’, ‘principled’ 1 It’s a Good Thing – or arguably so – for instance if the Productivity Commission is to do its job well – which is to fearlessly analyse policy options.

But independence is not sufficient. For it to be what we want, that independence needs to be seized by the agency and the agency has to be worthy of it – the quality of its output needs to be high. And yet most government agencies with their own statutory independence are nevertheless tethered to the career public service. Their officers enjoy the privileges of the Commonwealth public service career structure. So we should not be so surprised that those in such independent agencies think like bureaucrats. And there are few things more important to bureaucrats than appearing to be in control. To be thought of as sound chaps.

That means that what independence has beens successfully cultivated is both highly specific and highly acculturated. Gradually from the 1960s on initially under the bureaucratic leadership of Alf Rattigan a new orthodoxy grew in favour of freer trade, then free trade and then freer markets. The PC’s ‘independence’ was built around this. That meant that the PC (and its predecessors, the late Rattigan Tarrif Board, the IAC and the IC) had carved out a well understood role for themselves. If you were a career public servant and you ended up in the PC, you knew what role to play. If you were critical of the government or even the bureaucracy in some form that fitted the institutional role that had been carved out for you, you could expect that to play well for your career.

Likewise the RBA’s independence to set interest rates. You’d occasionally annoy the politicians in power and sometimes even those in the bureaucracy, but if you hiked rates when it was inconvenient, you were still a sound chap – indeed, this was evidence that you were the soundest of all chaps, answering to the institutional logic of your institution – and its role read within the intellectual orthodoxy.

But this independence is heavily prescribed – the institution itself will be playing a role that we acknowledge will require some independence, but that role itself can be largely intellectually comprehended in advance – it will mainly be about being ‘tough’ when the imperatives of day-to-day political and bureaucratic management might favour sweeping some things under the carpet. Any intellectual leadership that one might hope for from this independence seems largely confined to the terrain that’s already been marked out in advance for the institution.

I can adapt terminology associated with Thomas Kuhn’s  to put it another way. Just as Kuhn distinguishes between normal science and paradigm shifts in science, 2 independence is usually used for normal purposes – setting interest rates (RBA), tariffs (Tariff Board and IAC), making weather forecasts (BOM) or economic predictions on the fiscal cost of alternatives in the case of the PBO. But there will come times when, to do it’s job well an independent agency will need to be bolder. The PC is seeking to rise to the challenge in a number of its inquiries such as its recent report on Data Availability and Use.

Still, expecting ‘paradigm change’ from government agencies somehow reminds me of the cartoon of a man playing chess with a dog with the man saying “he’s not that smart. I usually beat him”. What we should hope for I think is an independence which is more humble – less preoccupied with the bureaucratic ‘steady-as-she-goes, the adults are in charge’ role-playing – and more prepared to lead the process of intellectual search. Certainly that’s what I’d expect from a central bank given how little we understand the macro-economy or what a healthy monetary and banking system look like or what course the great micro-economic trends of the coming decades will take and how we could influence them for the better – like the impact of AI, the path of productivity growth and the distribution of the dividends from the same.

And there’s only one institution I know of that’s like this. The Bank of England. Here’s a list of some of the more interesting recent research it’s published.

Our RBA’s discussion papers seem a lot less exploratory. Here’s the full list for 2017.

Bank of England Speeches are often a lot classier, more educated and urbane that I’m used to from most Australian policy makers. That’s true of virtually all speeches by Andy Haldane my favourite public servant in all the world, but also for instance with this speech likening the Financial Policy Committee to Robespierre’s notorious Committee for Public Safety.

Though in some ways perhaps not an ideal model, the Committee of Public Safety showed in its short life – two hectic years from foundation to collapse – that policy committees can make a difference.

Then there’s the Bank of England blog which explores all sorts of interesting questions with the usual disclaimers about them not expressing the views of the Bank itself. Indeed, though it was in the context of the Government 2.0 Taskforce, my own modelling of and support for blogs for public sector agencies was inspired far more by my view of what it is to think effectively than it was for the greater good of ‘transparency’ in government. Or to put it differently, transparency in thinking is as fundamental to thinking itself – as we’ve seen from the rise of science which is predicated on transparency. Indeed in government while the right kind and level of transparency is necessary for good government – it is not an absolute value. There are limits arising from the inevitable dilemmas and conundrums. 4

It’s been as source of great disappointment to me how timid the public sector has been in embracing blogs to report and further the lines of inquiry public servants, particularly those in policy research positions. Though line departments have some excuse, I can’t see any excuse for the many agencies that have independence and research departments. Still even the Grattan Institute doesn’t seem to have a blog, preferring to ‘publish’ its minor outputs as op eds in newspapers – but this serves a quite different function. Blogs can engage with the wider community about tentative lines of inquiry and concern without necessarily proposing or even discussing proposed policy proposals.  The Bank of England blog is both a record of, and I have little doubt an engine of a more engaged intellectual life than exists in most similar policy shops.

Quite a few of the posts are digests of research papers – some of which are very interesting as I’ve suggested above. Others are more exploratory. Whether the crisis of attention is harming the economy, the importance of second order preferences (introducing some ethical or aspirational and changing aspect into our preferences) which seems to me to be about the most important ‘meta-question’ in micro-economics but which is more or less invisible in the neoclassical which wilfully ignores it because it blows up the whole edifice. 5 Beyond blockchain: what are the technology requirements for a Central Bank Digital Currency? is another.

 

 

  1.  It’s sobering to realise how rhetorical we are. There’s usually a way of saying something to make it sound very positive or very negative. Today debates between the Government and Oppositions of the day often get down to a war of adjectives of choice. Is the Minister being Strong and Principled, or Inflexible and Stubborn. And on it goes.
  2. OK, Kuhn didn’t coin the term “paradigm shift” but it was, presumably coined in response to his reference to ‘scientific revolutions’ and I think he did talk about ‘paradigms’.
  3. (which is very relevant to contemporary debates about how we responded to, and how we should have responded to the crisis.)
  4.  In any kind of deliberation under our system there needs to be some forum in which people can deliberate privately, such privacy being inherent in deliberation. Without defending the breadth of the way in which the rule is expressed and/or implemented, this is rightly embodied in the secrecy of cabinet papers which I support. Secrets might arise as part of science. However, though they’re the upshot of normal competition between scholars, they’re far from logically necessary to the endeavour.
  5. I greatly lament the choice to lump this discussion in with ‘mindfulness’ which is pretty directly related to Buddhism and meditation, when the considerations in the piece would be recognised by Marshall, Pigou or Keynes and when I last looked none of them were Buddhists or mediated.