Joseph Stiglitz, two-time Nobel Prize winner and one of the most famous economists of our age, unleashed a verbal tirade against central bank independence at the C D Deshmukh Memorial Lecture today in India, reports The Times of India.
Ironically, he spoke on the heels of Duvvuri Subbaro, governor of the Reserve Bank of India, who introduced him – after arguing for increased autonomy for India’s central bank.
According to Stiglitz, central bank independence is both overrated, since it does not necessarily correlate with better economic performance, and unfeasible:
“[The crisis] has shown that one of the central principles advocated by Western central bankers- the desirability of central bank independence-was questionable at best…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.”
He believes that in the run-up to the financial crisis, the Federal Reserve was accountable only to Wall Street, and singles out New York Fed President William Dudley for some especially harsh criticism. He claims Dudley was “a model of bad governance” because of his inherent conflict of interest: he bailed out the very banks he was supposed to regulate – the very same banks that enabled him to gain his position.
As Reuters reports, central bank independence is coming under siege all over the world. The effort is undoubtedly led by newly elected Japanese Prime Minister Shinzo Abe, who is leaning heavily on the Bank of Japan to embrace quantitative easing to combat deflation, devalue the yen, and spur growth.