Where is Ignominy?

I’m not entirely sure where Ignominy is but I do know that lots of things end up there. It is common to hear of this or that ending up in Ignominy. Perhaps I should look it up on Google Maps.

I was reminded of this when reading about the Government’s announced shake-up of the Reserve Bank of Australia (RBA). Readers will be fully aware of my criticism of the RBA over many years. It now seems as if the Government has come to the same conclusion.

50 or more recommendations for changing the RBA and how it works, made by a review panel, have all been accepted by the Government. When I found out that the review was under way, I was hopeful. In retrospect, I am disappointed, although not surprised.

Of the changes, the key ones are:
1) Decision making authority for setting interest rates will be handed to a separate panel of experts.
2) The RBA will be required to give equal consideration to the rate of inflation and the rate of unemployment in fulfilling its charter.
3) A new position, Head of Communications, will be established.

You will understand my disappointment. I had hoped that the Review Panel would recommend that the RBA be abolished. There is no need for a central bank. Central banks are an invention for political convenience. They are not needed. During the time of the greatest rate of economic growth in history, the 19th century, there were no central banks. The only people who advocate for central banks are politicians and bankers. Let that sink in.

So my main hope was not well served by this Review Panel. But they have made things worse.

Firstly, having another panel of experts rather than the RBA experts setting interest rates is nothing new. The new panel will be equally bad as the old experts. An external panel of experts will argue with the internal experts and so on. Too many experts increases the likelihood of analysis paralysis.

Secondly, imposing the need to consider unemployment on an equal footing as the preservation of the currency is setting the RBA and its external panel on the road to impossible conflicts. Which is more important when inflation is running at say 10%pa and unemployment is 5%? What about the reverse? There is frequently a conflict in policy when trying to control these two malaises. Not always, of course, as the Phillips Curve has faded in credibility in recent decades, but in political terms there are conflicts. Thus the Government is setting up the RBA to be an active participant in the political struggle. That is a huge mistake.

The third key recommendation of setting up a Head of Communications thus becomes clear. The messaging from the RBA justifying policy settings will become part of the political messaging. Communication will be harder, messier etc.

In essence, the independence of the RBA, always a vague and loose concept, will be abandoned. The Government of the day will be influencing monetary policy. In the words of a political scoundrel*, there will be a modern and nuanced approach to RBA independence.

While the RBA shake up will make things worse, not better, there has been a public battering of the current RBA Governor and Board. Governor Lowe has been shamed publicly by the Government for the Bank’s incompetence. Yet Lowe still harbours thoughts of having his term as Governor extended at the end of his current term this September. Talk about lack of self-awareness. Or clinging to the wreckage.

I would hazard a guess that the new Governor has already been appointed, the signatures are on the contract, and a public announcement will be made soon. Lowe will be thanked for his service and “we wish him well in his future endeavours.” In other words, bye Phil. Shut the door on the way out.

The offices of the RBA are in Martin Place, prime Sydney real estate. When Phil walks out of the office for the last time and ends up in Martin Place, Google Maps will probably point to that part of Sydney for any searchers looking for Ignominy.

*Political scoundrel: Victorian Premier Andrews, who submitted to an anti corruption review panel that his Government operated a “modern and nuanced interpretation of ministerial responsibility.” The anti corruption panel found corruption operating at the highest level of Government in Victoria under Andrews.