Photo: World Economic Forum, Flickr
The big news of the day is the Bank of England poaching Mark Carney from the Bank of Canada. Carney, a widely respected central banker, will assume the top spot at the BoE in the spring.Not only is it seen as a good choice, it’s also pretty darn noteworthy that a high-profile central bank poached the head of another fairly high-profile central bank.
So how did the Bank of England do it?
Chris Giles at Patrick Jankins at the FT have a good story about how Carney was extremely reluctant to take the job, but that U.K. finance ministry gave him a huge salary raise, a generous pension, shortened term, and all kinds of relocation help. That finally convinced Carney to take the plunge and jump from one country to another. Sky News’ Edmund Conway has more on the cajoling that took place in Mexico and London.
Back in April, when news first percolated up that England might pursue Carney. Matt O’Brien at The Atlantic proposed a more aggressive global market for central bankers.
Let’s try a thought experiment. Say that Lars Svensson — one of the world’s top monetary economists and the current deputy governor of Sweden’s central bank, the Riksbank — could get our economy back to trend in half the time Ben Bernanke could. It’s actually plausible-ish. Like Bernanke, Svensson spent his academic career championing unconventional monetary policy as a “foolproof” way to escape a liquidity trap. (Coincidentally, they were colleagues at Princeton). But unlike Bernanke, Svensson’s Riksbank has been much more willing than Bernanke’s Fed to experiment with these kind of heterodox policies. Perhaps unsurprisingly, Sweden’s recovery has been the envy of the developed world. So I ask again: How much is a good central banker worth? Put simply, how much cash should we throw at Svensson to steal him away from Sweden?
Central banking should be a superstar profession. The difference between a top central banker and an average one can be astronomical, particularly when conventional policy is impotent. An efficient market would pay them accordingly. If the United States spent $10 billion assembling a central banking fantasy lineup of Lars Svensson, Stanley Fischer, Adam Posen, and Christina Romer, it would probably be a phenomenal investment. It’d pay for itself many, many times over. The biggest challenge is changing the norms around central banking. We shouldn’t just consider the top American economists for the top spots.
Getting the right central banker is especially crucial now, since many governments feel traditional policy measures are constrained by either debt or politics. Just think how much better the U.S. is because Bernanke has had room to manoeuvre while Washington has been gridlocked. Or think or how much worse the Eurozone would be if it didn’t have a central banker that had the ability to overcome nationalist fighting.
The next country that should poach a central banker is Japan. The BoJ has been ineffective for a long time, and a more activist approach would be a worthwhile test. Presidential candidate Shinzo Abe has run on a (changing) policy of forcing a more aggressive inflation goal on the Bank of Japan, but that carries all kinds of complications. Better to appoint someone fresh and good from the outside, and let them do their thing.
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