Strictly Come Dancing star calls for curbs on Bank independence

Strictly Come Dancing star Ed Balls was the chief architect of UK central bank independence. Now, taking a break from learning the cha-cha-cha, he has called for the Bank of England's independence to be reined in.

The paper he has written two colleagues at the Kennedy School of Government at Harvard makes a key distinction between operational and political independence. The former has brought benefits in terms of price stability, but the latter does not bring any such benefits, and there is a need for greater political accountability: Bank independence

It is argued that the assumption that the more independence given to a central bank the better no long holds.

Of course, there are limits to the Bank of England's independence. The Chancellor sets the inflation target and appoints the Governor and key personnel.

The paper from Balls is very much in line with the political wind with prime minister Theresa May making implicit criticisms of the Bank's monetary policy and Donald Trump's criticisms of the Federal Reserve.

The grant of operational independence to the Bank of England formed a central underpinning of academic depoliticisation narratives, but recent political developments favour repolitcisation.

No depoliticisation strategy

Yesterday I went to the inaugural lecture of Professor Peter Burnham at Birmingham University. He is one of the main exponents of the depoliticisation thesis: in summary, the argument that governments place difficult decisions at one remove to avoid turning an economic crisis into a political crisis.

Sometimes they do this by adopting an external decision rule that can take the strain and the blame: examples include the Gold Standard, the Bretton Woods system and British membership of the ERM. Another option is a domestic rule of some kind such as the Thatcher Government's Medium Term Financial Strategy or possibly Gordon Brown's fiscal rules.

Pete Burnham's observation about the Coalition Government was that they have neither of these stratgies, domestic or external.

Quantitative easing

If reports in The Australian are to be believed, the Bank of England is poised to introduce quantitative easing. Electronically created money will be transferred to the accounts of banks to buy up bonds.

Against the background of ever more gloomy financial news, not least bad results from HSBC, this is the last shot in the locker. It effectively undermines the authority of the Monetary Policy Committee which in many ways has been the central economic-policy making institution since 1997.

Is this the end of depoliticisation as a fashionable academic concept? Those who would defend its value would point to its cyclical character. The preferred default position for a capitalist system is an automatic decision rule not tainted by poltical intervention.