Central bank independence: the orthodoxy's under attack

Have we handed the foxes the keys to the hen house?

Japan's central bank and treasury are discussing co-operating more on economic policy — news which has sent the Nikkei soaring, opening around 2 per cent higher than it closed yesterday, and rising further throughout today.

We've already had previews of this news. After all, new Prime Minister Shinzo Abe was elected on a promise (or threat?) to force the Bank of Japan to do more monetary easing, and has already made other unconventional moves like "nationalising" industrial stock to encourage private-sector investment.

Nonetheless, it was unclear that Abe would actually pull it off. Business Insider describes it as "one of the most taboo concepts in modern economics", noting that "the Treasury is supposed to do fiscal policy. The central bank is supposed to do monetary policy. And that's that".

But, as with so many orthodoxies of economics, the idea of central bank independence has come under attack since the global financial crisis.

Central banks are supposed to be independent to remove the risk that politicians will use monetary policy the same way they all-too-frequently use fiscal policy: to engineer temporary booms, gain brief popularity, and win elections. By removing control of policy from people who stand to gain if they favour the short- over the long-term, monetary policy ought to be "better run".

Monetary policy is worse for this sort of thing because it depends far more on ideas of credibility and restraint than fiscal does. Much of the job of a central bank involves saying the right things, rather than doing them. There's a thousand ways to hold interest rates low, but doing so while explicitly saying they will be low for the next two years (as with the Evans Rule) is very different from doing so while saying they may rise at any time.

But it's important to remember that an "independent" central bank may be no such thing. If principal-agent problems apply to banks run by democratically elected politicians, they apply just as effectively to banks run by technocratic ex-financiers. Frequently, this works well. As Tyler Cowen wrote in 2009:

The default selection mechanism favors bankers, i.e. lenders, people whose interests make them more favorable towards lower inflation.

Given the trend in monetary policy for most of the last thirty years was a desire to reduce then suppress inflation, that convergence of interests was beneficial. But there's no particular reason to expect the convergence of interests between the economy as a whole and one subsection of it to be a long-term thing.

If nothing else, we get the downsides of "independent" central banks when their policy turns to whether to backstop banks and bankers. As a lengthy Atlantic piece by Simon Johnson from May 2009 describes, too many of those decisions were actively favouring the interests of the finance industry when those interests were in direct opposition to the rest of the nation.

And as we've faced an increasing number of unprecedented situations, even the old truth has come under attack. As Joseph Stiglitz said in India earlier this year:

In the crisis, countries with less independent central banks-China, India, and Brazil-did far, far better than countries with more independent central banks, Europe and the United States. There is no such thing as truly independent institutions. All public institutions are accountable, and the only question is to whom.

Obviously the independence, or not, of the central banks is unlikely to have been the deciding factor between whether China or Europe came out of the crisis intact. But more and more people are starting to realise that concepts of independence need to be re-examined, as technocratic rulers are demonstrated to be just as beholden to their own interests as democratic ones, and as those interests continue to diverge from those of the nation as a whole.

So if Japan is about to break a taboo, maybe it has picked the right time to do it.

Pedestrians walk past a stock quotation board in Tokyo on January 11, 2013. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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“Rise like lions after slumber”: why do Jeremy Corbyn and co keep reciting a 19th century poem?

How a passage from Percy Shelley’s The Masque of Anarchy became Labour’s battle cry.

“If I may, I’d like to quote one of my favourite poets, Percy Bysshe Shelley,” Jeremy Corbyn politely suggested to a huge Glastonbury audience. The crowd of nearly 120,000 – more accustomed to the boom of headline acts than elderly men reading out romantic poetry – roared its approval.

“Rise like lions after slumber, in unvanquishable number!” he rumbled. “Shake your chains to earth like dew, which in sleep had fallen on you: ye are many – they are few!”

The Labour leader told the crowd that this was his favourite line. It’s the final stanza of Shelley’s 1819 poem, The Masque of Anarchy, written in response to the Peterloo Massacre earlier that year, when a cavalry charged into a non-violent protest for the vote.

Though it was not published in Shelley’s lifetime – it was first released in 1832 – the poem has become a rallying cry for peaceful resistance. It has been recited at uprisings throughout history, from Tiananmen Square to Tahrir Square.

Corbyn’s turn on the Pyramid Stage was not the first time he’s used it. He recited the stanza during his closing speech on election night in Islington, and the audience began quoting along with him:


It was also used by comedian and celebrity Labour supporter Steve Coogan at a rally in Birmingham:


During Corbyn’s second leadership campaign, his ally Chris Williamson MP told a public meeting that this part of the poem should be “our battle cry” . He delivered on this the following year by reciting the poem to me in his Renault Clio while out on the campaign trail in England’s most marginal constituency (which he ended up winning).

You can hear it echoed in Labour’s campaign slogan: “For the many, not the few”.

Corbyn’s election guru, James Schneider, told the Standard at the time that “it would be a stretch” to say the slogan was taken directly from the poem, but that “Jeremy does know Shelley”. Yet even he took the time to recite the whole stanza down the phone to the journalist who was asking.

Corbyn is famously a fan of the novelist and author Ben Okri. The pair did a literary night at the Royal Festival Hall in London’s Southbank in July last year, in which the Shelley lines came up at the end of the event, as reported by Katy Balls over at the Spectator. Okri announced that he wanted to recite them, telling Corbyn and the audience:

“I want to read five lines of Shelley . . . I think there are some poems that ought to be, like you know those rock concerts, and the musician starts to sing and the whole audience knows the lines? And sings along with them? Well this ought to be one of those, and I’d like to propose that we somehow make it so that anytime someone starts with the word ‘Rise’, you know exactly what the lines are going to be.”

Which, of course, is exactly what Corbyn did at Glastonbury.

“We have this huge, abundant literature on the left and it’s hardly known”

The former left-wing Labour leader Michael Foot loved the poem and recited the lines at demos, and Stop the War – the campaign group Corbyn supports and chaired – took a line from it as the title of its 2014 film about anti-Iraq War action, We Are Many.

So why does the Labour left rally around some lines of poetry written nearly 200 years ago?

“It’s a really appropriate poem,” says Jacqueline Mulhallen, author of Percy Bysshe Shelley: Poet and Revolutionary (Pluto, 2015). “Shelley wrote a poem about the fact that these people were protesting about a minority taking the wealth from the majority, and the majority shouldn’t allow it to happen.

“He was writing at the beginning of industrial capitalism, and protested then, and 200 years later, we’ve still got the same situation: food banks, homeless people, Grenfell Tower, more debts – that’s why it has great resonance when Corbyn quotes it.”

“Shelley said there’s loads of us, it’s just a little corrupt crew – well, of course that applies now”

Michael Rosen, the poet and former Children’s Laureate, also describes the poignancy of Shelley’s words in Corbyn’s campaign. “You’ve got a sense of continuity,” he tells me. “Shelley was campaigning for freedom, for free thought, for free love. He was campaigning for a fairer society; it was a time of incredible oppression. He said there’s loads of us, it’s just a little corrupt crew – well, of course that applies now.”

Rosen celebrates the poem’s place in the Labour movement. “When any of us from the left quote people from the past, we’re saying that we have traditions... We’re making a claim on our authenticity,” he says. “Just in the same way as the right and the establishment draw on the pageantry of the Queen, or talk about Parliament or quote Winston Churchill. These are our traditions, which are different. You hardly ever come across it, either in newspapers or history lessons or anything.”

Rosen, a friend of Corbyn’s, believes his speech brings a left-wing tradition alive that is often forgotten. “We have this huge, abundant literature on the left and it’s hardly known. What’s great about Jeremy calling on it is to remind us . . . This stuff sits in old museums and libraries, gathering dust until it’s made active and live again. It’s made active and live particularly when being used in an environment like that [Glastonbury]. He was making the words come alive.”

Read more: 7 things we learned from Jeremy Corbyn on The One Show

The Masque of Anarchy’s final stanza has been recited at high-profile protests throughout history – including at the 20,000 garment workers’ strike in 1909 in New York, the student-led demo in China’s Tiananmen Square in 1989, anti-Poll Tax protests, and at Tahrir Square in Egypt during the Arab Spring, according to Mulhallen. The way civilians were treated by the authorities in many of these protests echoes what happened at Peterloo.

So does Corbyn’s penchant for the verse mark a similar radical turning-point in our history? “It’s indicating a change in attitude that people should start thinking about redistributing the wealth again,” says Mulhallen. “People are becoming much more aware.”

Anoosh Chakelian is senior writer at the New Statesman.

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