Home > Monetary Policy > Politicians Hate Monetary Dominance

Politicians Hate Monetary Dominance

George Osborne, March 2009:

The Shadow Chancellor described the decision to effectively print more money as a “last resort”, necessary because of the “complete failure” of Labour’s other measures to tackle the recession.

He told BBC News, “I don’t think anyone should be pleased that we have reached this point. It is an admission of failure and carries considerable risk.”

Ed Balls, October 2011:

But rather than change course the Government has spent the last week urging the Bank of England to step in and essentially print more money. The Bank of England has been left with no choice but to step in and try to offset the contractionary effects of George Osborne’s Budget plans

Ed Balls, August 2013:

But of course the reason why the Bank is having to take this new approach is because, as their report says, government policy has ‘weighed on output growth over the past three years and will continue to do so’.

And for balance so we have two right-wingers to balance out two quotes from Mr. Balls, this is Tony Abbott, August 2013 in response to the recent RBA rate cut:

“There is no doubt that a reduction in interest rates is a good thing, but you have to ask yourself why are interest rates likely to be cut,” opposition Leader Tony Abbott was quoted as saying by the ABC, ahead of the rate decision.

“If interest rates go down, it is because this government is presiding over an economy which is in much more trouble than government has previously been prepared to admit.”

I just like to document these things.  Perhaps a better title for this post would be “Politicians Shouldn’t Make Central Banks Independent of Political Control So They Can Still Take Credit for Monetary Policy.”

Categories: Monetary Policy
  1. Rajat
    August 9, 2013 at 01:55

    Britmouse, Aussie politicians love to take credit (or can their opponents) for interest rate changes because most home loan rates are closely linked to the overnight cash rate. As you suggest, politicians (and journalist to be fair) cannot wean themselves off the idea that the government of the day controls aggregate demand and thereby steers the macroeconomy.

    An interesting history to the present debate is that the (now) opposition Coalition holds a grudge against the RBA for a 0.25% rate rise during the 2007 election campaign (when they were in government), which they lost, but were always going to lose having been in power nearly 12 years. The RBA cut rates on Tuesday, again apparently ‘helping’ the Labor (now) government at the start of the current election campaign. But in a longer-term sense, the RBA has done a much bigger favour to the Coalition by keep policy too tight for the last 2 years, with NGDP growing at 3-4% as against the 1995-2005 average of 6.5%. Having been in power only 6 years, Labor is not an old government destined to lose in the same way the Coalition was in 2007, even though Labor has been pretty appalling otherwise and deserves to lose. My point is that if anything, Glenn Stevens has been much more pro-Coalition than pro-Labor, but no-one seems to recognise this.

    • August 9, 2013 at 08:19

      Rajat – thanks for your comment. Very interesting. Has that always been true about politicians taking credit/associating blame for RBA cuts, do you think? Or only more recently under tighter NGDP growth? The Oz GDP data is incredible – a negative GDP deflator!

      Wayne Swan seemed to be on the ball, I read a couple of very good speeches from him about nominal GDP. “We live in the nominal economy” etc.

  2. Rajat
    August 9, 2013 at 11:21

    It has always been thus!

    The negative deflator is due to a falling terms of trade due to lower commodity prices.

    Funny you say that about Swan, as he was widely regarded as a poor communicator if not also a woeful Treasurer, in part for reasons outside his control. I guess Treasury has become acutely aware of low NGDP growth as all their revenue projections keep substantially missing the mark.

  3. Rajat
    August 9, 2013 at 11:24

    Perhaps the difference with the latest rate cut is that – as demonstrated by the quote above – the Opposition tried for the first time to argue that a lower rate was not an unmitigated good thing.

    • August 13, 2013 at 10:49

      Maybe Abbott has read Friedman on what low rates mean!

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