Raghuram Rajan is one of the top global monetary elites. He’s a professor at the University of Chicago and at various times has served as governor of the Reserve Bank of India and in senior capacities at the IMF and Bank for International Settlements. He’s what the top elites call “a safe pair of hands,” which means he can be appointed to any one of a number of top positions with no fear of him rocking the boat with heterodox views.
He just wrote a new article on the role of central banks in the economic recovery since 2009. Guess what? According to Rajan, the central banks have done everything right and fiscal authorities are to blame for weak growth, below-target inflation and other maladies from the weakest economic expansion in over 60 years.
Rajan is correct when he says that central banks cannot create inflation or stimulate growth. But he runs off the rails when he says that populist politicians (such as Trump, Boris Johnson, Giuseppe Conte and Jair Bolsonaro, whom Rajan disparages) are now threatening central bank independence.
The causality is the other way around. It is central bank incompetence that has given rise to populism. Central banks should have their powers curtailed and their independence limited. Incompetence has a cost, and in the case of central banks that cost involves exposure of their smokescreen around failure in economic management.
Central banks are really good for one thing only: being lenders of last resort. All other goals should be repealed. Better yet, maybe we should get rid of central banks entirely.
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