The Economist Party is beginning to squawk a little bit about Mark Carney’s entry into electoral politics, which may be announced by the time you read this. The former boss of the central banks of Canada and the United Kingdom is said to be considering a run for the leadership of the Liberal Party, and will have lots of help from the inner circle of Justin Trudeau, assuming that this is the kind of help that ends up, y’know, helping. Carney has been talked about as a potential saviour of the Liberals for years, yet it seems we are only getting around to asking a basic question: is this at all a good idea?
The issue is that a Carney candidacy may injure the recognized international norm of central bank independence by setting a novel example for the use of the Bank of Canada as a launch pad for a Canadian electoral career. It is perhaps the fragility and novelty of this norm — I could call it a “rule” or a “tradition” if those stronger words fit — that makes it worth defending. Carney would not quite be the first central banker to make the jump to being a head of government. But the Italian precedent of Mario Draghi is unusual and arguably irrelevant, as he was called upon from “outside” everyday politics to lead a national-unity government of explicitly cross-party character.
The global experience of the 20th century proved to liberal democracies and developing nations alike that it is safer for monetary authorities to be independent, or at least as independent as possible, of elected governments. The implication is that, like judges, central bank bosses should also be resistant to vested interests and to ephemeral outbursts of popular feeling, and they must be willing to set optimum monetary parameters without keeping one eye on how their actions will affect their personal prestige.
The problem here ought to be obvious — but since Carney’s appearance on horseback at the summit of Canadian politics is thought to have potential to save many a political career, no one has discussed it much until now. Central bank independence isn’t a political standard that has hundreds of years of theory and practice behind it in the way that judicial independence does, nor is folk understanding of it especially widespread. The norm has become near-universal only within my lifetime and probably yours, and there are heterodox theorists that don’t accept it now.
To Carney fans within the Liberal Party of Canada, it may seem unjust to decide in retrospect that electoral activity is haram for a central bank governor, as it would be for a judge. But we are only having the discussion in retrospect because their party is in a state of collapse and desperation, and Carney has stayed clear of the mud-wrestling pit — while making it clear enough where his personal and partisan affections lie.
Even some deep-dyed partisan Conservatives are likely to be thinking that it would be helpful to the country to have a proper neoliberal bean-counter type at the head of the Liberal Party. This logic is no doubt compelling even to the economists: hell, it’s compelling to me. But economists, more than most, know that the universal embrace of central bank independence has a slightly miraculous character.
No one ever had to fight a war for it. The idea hardly even has a recognized intellectual father. It has provided a cure for inflationary evils that came about with the advent of public political control of currency, of the very concept of monetary policy; for better or worse, those phenomena are now seen to go hand in hand, and any threat to one must be regarded as a threat to the other.
National Post