Re: Re: Much ado about nothing?

Trond suggests:

>our position in this discussion rests upon one crucial
>assumption: That the central bank is wholly controlled by the government
>(f.inst.
>through the treasury). Then you must be against all institutional
>arrangements where there ar barriers against gvt. influence on the CB, no?

It is nonsense to have the two parts of the consolidated public sector
balance sheet
separated by some legal dictate. so in that sense I agree that the CB and
the Treasury
should conduct macroeconomic policy together.

But really the only two things that are required are:

(a) the government is the issuer of sovereign currency in a flexible
exchange rate environment, and
(b) the CB does not bounce the cheques of the Treasury.

the legal arrangements are secondary if (a) and (b) hold.
the ultimate sanction in Australia is that the parliament can if it comes
to an impasse overrule
andy RBA decision. and the government of the day appoints the Board of the RBA.

I think the European Bank is totally separate and cannot be sacked by any
government, is that
right?

>At the same time the bank received a revised instruction on what should be
>the prime goal of its operations: To curb inflation (earlier it was to keep
>the exchange rate stable). This has been used very effectively as an
>instrument to put downward pressure on wage demands, and on the budgets
>in municipalities for education, childcare, schools, care for the elderly,
>public transport, culture and similar unimportant things. The majority
>politicians and gvt. ministers simply say "we can't use more money or allow
>higher wages because then interest rates will increase and also the exchange
>rate." They talk about this as if it was the weather, earthquakes or other
>non-controllable natural events. By this the neoliberal board of the CB
>has now
>effectively been given the role of economic policy dictator in Norway.

but that doesn't mean that I think it sensible for fiscal policy to be
pursuing surpluses and creating
an on-going fiscal drag and then the CB chasing down inflation by varying
the unemployment rate.
The CB should manage the currency and the settlements system and just
forget the rest.
Then let fiscal policy maintain demand levels such that full employment is
sustained.

>To conclude, I seems to me that Randy, Bill and Warren's recipes can only be
>implemented in countries that are not too big, and not too split up in
>autonomous
>sub-units. This is an extra argument against confederate-type superstates.

i don't think this follows. back to (a) and (b) above..... big or small
country.

best wishes
bill

William F. Mitchell
Professor of Economics
Director, Centre of Full Employment and Equity
University of Newcastle, NSW, Australia
E-mail: ecwfm@alinga.newcastle.edu.au
Phone: +61-2-4921 5065
Fax: +61-2-4921 6919
Mobile: 0419 422 410

http://e1.newcastle.edu.au/economics/bill/billeco.html
http://www.billmitchell.org
Received on Fri Feb 7 12:55:29 2003