Fischer and the Fed

An interesting coincidence that barely hours after I had read an interesting critique of Stan Fischer’ remarks on the financial de-regulation proposals being considered by the Trump administration, came the announcement that he would step down. The critique was penned by Howard Davies, the first chairman of the United Kingdom’s Financial Services Authority (1997-2003) and currently the Chairman of the Royal Bank of Scotland. He was Director of the London School of Economics (2003-11) and served as Deputy Governor of the Bank of England and Director-General of the Confederation of British Industry.

His critique was that financial regulation, post-crisis, was a heavy-barrelled military tank and aspects of it needed to be amended. He called the Treasury’s discussion note on the topic of rolling back some regulations a thoughtful one.

The only concrete proposals to emerge from the administration so far are in a thoughtful paper published in June by the US Treasury. It is true that the paper’s title, “A Financial System that Creates Economic Opportunities,” has a political flavor; but the specific ideas it floats are not exactly those found on the wilder shores where “free banking” advocates roam….

…..It is, nonetheless, hard to see why this document should have so rudely disturbed Fischer’s equipoise. Perhaps he was giving us a glimpse of more fundamental disagreements on financial regulation at the heart of the administration….

….It would be unfortunate if the Fed’s opposition to change prevented a debate on whether, ten years on, every one of the changes made – often in a tearing hurry – make sense, both individually and collectively. [Link]

Reading the long interview of Stan Fischer with FT conducted in mid-August, it is not very clear that his departure could only have been due to his remarks on financial de-regulation. One gets the impression that his relationship with the Fed chairperson Janet Yellen might be (somewhat) fraught too.

I am not too disappinted by his departure. He has a formidable reputation but he is not a central banker who disturbs the cozy consensus on monetary policy that has prevailed since the crisis of 2008. To me, that is disappointing. In a piece written in October 2016, Howard Davies points to the limits of Central Banking independence and correctly notes that independence goes hand in hand with accountability.

Professor Fischer’s text book co-authored with Dornbusch and Startz is something that I have been using for the macro-economics course I have been teaching at the Singapore Management University for the last four years. I find it somewhat disappointing. It is too ‘consensual’ and does not challenge the students to think for themselves. Its loyalty towards monetary policy – which is set by unaccountable (largely) and unelected technocrats – over fiscal policy which is set by democratically elected and accountable politicians is too obvious and glaring and disappointing too.

The Treasury document that Davies refers to is here and I have not gone through it. An important omission on my part.

The Wall Street Journal reports that the President would not consider Gary Cohn anymore since he spoke out against the President’s remarks drawing equivalence between white supremacists and neo-Nazis who were supposedly protesting against the removal of Confederacy-era statues.  I do not have strong feelings for or against Gary Cohn. WSJ pays a tribute too to Stan Fischer.


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