Do Central Banks Serve The People? By Peter Dietsch, François Claveau and Clément Fontan

The Blurb On The Back:

In the wake of the 2007 financial crisis, central banks injected trillions of dollars of liquidity – through quantitative easing – to prevent financial meltdown and stimulate the economy.  The untold story behind these measures is that they have come at a considerable cost.

Central bankers argue we had no choice.  Using examples from Europe and the US, this book shows why this claim is false.  It outlines why we should worry about the role played by central banks since the crisis and what could be done about it.  Not only do central bank policies drive economic inequality, they have also become worryingly dependent on financial markets.  Far from applying neutral and scientific solutions, their expertise is often biased in predictable ways.

This book is a sobering and urgent wake-up call for policy makers and anyone interested in how our monetary and financial system really works. 

The Review (Cut For Spoilers):

Peter Dietsch is Professor of Philosophy at Montreal University, François Claveau Assistant Professor of Philosophy at Sherbrooke University and Clément Fontan Assistant Professor of European Economic Policies at the Catholic University of Louvain.  In this interesting but, in my opinion, flawed book they look at whether central banks actually serve their main purpose of serving the benefit of the people by examining whether they take into account the side effects of their policies through the prism of the effects of monetary policy since the 2007 financial crisis and examining conflicts of interest within central bank policy.

The book is at its strongest in the section where it examines conflicts of interest within central banking with the authors making the point that central bankers are socially recognised as regulatory experts who know how to implement the proper policies to help manage the economy and also testimonial experts who explain to the public and policy makers how the economy and central banking interrelate and how they should work going forward, which means that they are seen as being reliable experts.  However these two roles are actually in conflict with each other, which is part of the reason why the credibility of central banks was so damaged as a result of the financial crisis (with Alan Greenspan being particularly singled out for his hubris).   The authors are critical about the lack of transparency that governs much central bank decision-making (albeit transparency that has improved as they have accepted the need for more accountability), with central banks carefully crafting the media communications issued after their meetings – often messages that take several weeks to come out. They are equally critical of how central banks dominate research into their functions and operations, exploiting their access to economic data and practical knowledge, which can stifle research that may be critical of their policies or function, making their points in a way that I found convincing.

I was less convinced however by the authors’ view that central banks should not merely be focused on keeping inflation low and stable and instead focus on the inequalities in distribution of wealth and income.  Although the authors make perfectly acceptable points about the unintended consequences of the central banks’ intervention within the financial market and make a convincing case for how it has widened inequality, I wasn’t clear on which levers the authors’ believed should be operated by central banks to achieve this and nor was I clear on where they saw a line between what central banks should do and what was the responsibility of wider governmental policy. The authors focus on this as a matter of central bank independence but I would have welcomed some concrete suggestions of policies that should be introduced and more of a recognition of where government and financial regulators (which are not always part and parcel of the central bank’s mandate) come into the equation as a means of tackling societal inequality.  This is particularly given the modern tendency for buck passing when policies do not turn out as intended where surely involving a central bank in such a function would just mean one more entity to spread blame to and leave potential for overlap between the different players (although to be fair, the authors do argue for the need for more integration)

There are a lot of interesting ideas in here and I found it a provocative read but ultimately not one that left me convinced of the strength of their argument.

DO CENTRAL BANKS SERVE THE PEOPLE? was released in the United Kingdom on 6thJuly 2018.  Thanks to the Amazon Vine Programme for the review copy of this book.

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