Democratic non-accountability of Central Banks

There has been a hiatus in blogging in the last one week. I went to Chennai for a Board meeting on Monday and Tuesday last week. Returned to Singapore to move houses on Thursday. Still settling in, in the new abode. Hence, the relative paucity of blog posts. Not that the world was any poorer, on account of it.

I just finished teaching my last class at the Singapore Management University for the M.Sc. in Applied Finance 2017-18 cohort. I taught one section. The course is Advanced Economic and Quantitative Analysis. The economics bit is disproportionately bigger in my class.

(1) I had just finished telling the students of the importance of behavioural insights and of the way brain functions for successful investing that I came across this excellent post by Jason Zweig.

The post is about the investment folly of Sir Isaac Newton. He had a well diversified portfolio until the temptations of the South Sea bubble did him in (circa 1720):


Newton appears to have lost as much as 77% on his worst purchases, or at least £22,600, estimates Prof. Odlyzko. That’s the equivalent of £3.1 million, or nearly $4.1 million, in today’s purchasing power. Overall, he lost at least a third of his account value.

Prof. Odlyzko finds that the words often attributed to Newton were ascribed to him years after his death, so the great man might or might not ever have said that he “could calculate the motions of the heavenly bodies, but not the madness of the people.” [Link]

(2) His (Zweig’s) best books to read (for investors) is worth taking a look too.

(3) I was just lecturing the class today about the unintended consequences of unconventional monetary policy. Couple of hours later, I was trying to catch up with Tim Price’s blog, ‘The price of everything’. Thanks to this post, I stumbled upon a letter by Baroness Ros Altmann. The letter is worth reading in full. I post two paragraphs here:

Quantitative easing artificially boosts asset prices but with assets so unevenly distributed, the wealthiest and older households become even wealthier, while QE-induced house price inflation and rent increases have further disadvantaged non-homeowners and the young. Such social, distributional — and political — side-effects of unconventional monetary policies are routinely overlooked.

If politicians announced tax changes to enrich the wealthiest groups and redistribute away from young to old there would be a voter backlash. But disguising such fiscal measures as monetary policy has achieved similar impacts without democratic accountability. [Link]

I am glad to note that someone of her reputation in the City and a former Minister said something what needed to be said – of the absence of democratic accountability of monetary policy. May be, it is all a brilliant plutocratic strategy. They lose the most when financial assets crash because they hold them the most. Commoners hold bank accounts. So, when the crisis of 2008 struck, they conceived of this wonderful idea of QE with a vengeance! That is a possibility.

Just as one thought that the pendulum was about to swing back from capital to labour, they ensured that not only that did not happen but also that the pendulum swung further in their favour!

In an earlier longer piece for FT, she had mentioned that QE had robbed pensioners of their incomes, something that OECD too had documented in its Economic Outlook published in June 2016. This is what she wrote:

In 2008, a £100,000 pension fund would have generated a life-long annuity income of around £7,900 a year from age 65. But today, that £100,000 fund would only generate around £5,000 a year — a 36 per cent fall, leaving pensioners permanently poorer. [Link]

(4) Lastly, close on the heels of his piece in ‘Project Syndicate’, Dani Rodrik has a longer piece in ‘The Boston Review’. He writes about neo-liberalism and this sentence made my day because that is what I tell my students all the time:

Good economists know that the correct answer to any question in economics is: it depends. [Link]

Come to think of it, ‘it depends’ applies to most social phenomenon. It is not that there are no ABSOLUTES that are context-invariant. But, they are a lot fewer than we think.

(5) Finally, a blog post by MarkGB (ht Tim Price) in which he takes apart a piece by Martin Wolf defending central bankers is worth reading. I am providing a short extract:

There are 255 million Americans of working age. Of these, 102 million are not employed.  This represents 40% of the working age population, up from 35% at the millennium.  Of those, the percentage of unemployed males in the core group of 25 to 54 is at record highs. Meanwhile the percentage of Americans over 55 who are still in work is soaring…again arse about face…

Of the 153 million Americans who are employed, 26 million are in low wage, part time jobs. Of those, 8 million hold multiple jobs.  10 million people classify themselves as ‘self-employed’, which includes a large number who are barely scraping by.  A further 21 million people work for the government, jobs that generate no revenue, which are therefore funded by private sector taxes.

Jim Quinn of ‘The Burning Platform’ summarises it thus:

“When it is all said and done, there are approximately 94 million full-time workers in private industry paying taxes to support 102 million non-workers and 21 million government workers. In what world does this represent a strong job market?”

So: there are a lot more people available in the labour market than is suggested by the BLS.  So then the question is this: Why aren’t businesses hiring them? Why do employment surveys consistently quote employers ticking the box that says ‘hard to find workers’?  [Link]

The post by Tim Price that features the above is also a useful read.

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