Put Central Bankers in Their Place
Current loose monetary policies in developed economies are likely to increase wealth inequality, and in the short term there is little that monetary and regulatory authorities can do about it. Resolving the problem will instead require finance ministers with a strong political mandate to implement redistributive measures.
LONDON – In the Forbes list of the World’s Most Powerful People for 2012, Ben Bernanke, then the chair of the US Federal Reserve, held the sixth position, while Mario Draghi, then the president of the European Central Bank, came in at number eight. They were both ranked above Chinese President Xi Jinping. As the global economy struggled with the aftermath of the global financial crisis that began in 2008, and its European cousin, the eurozone crisis, central banks were in the driving seat, easing quantitatively like there was no tomorrow. They were, it was often said, “the only game in town.” Even at the time, some thought there was an element of folie de grandeur in their elevation.
This time is different. Although central banks continue to buy bonds incontinently, fiscal policy has been the key response to the COVID-19 pandemic. In the United States, President Joe Biden and Congress have led the charge. In the European Union, the European Commission’s Recovery and Resilience Facility is at the heart of the €750 billion ($884 billion) Next Generation EU plan, while in the United Kingdom, Chancellor Rishi Sunak is signing the checks.
So are central bankers’ noses out of joint, as they play second fiddle to the finance ministries, a position in the orchestra to which few aspire?