Do governments really control their economies?
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*“Despite the importance of the economy in voters’ minds, the general trend over the last few decades has been for governments to give up economic power rather than take on more. …”
”Like so many of the early actions of the New Labour government, granting independence to the Bank of England was very much in keeping with the economic orthodoxy of the time, and having an independent inflation-targeting central bank has become the norm globally. The theory behind this apparently anti-democratic setup is essentially that politicians cannot be trusted to run the economy well. They will, so the argument runs, be tempted to lower interest rates before an election in order to curry favour with voters, and may combine this with cutting taxes or increasing spending. When difficult decisions have to be taken, such as raising borrowing costs in order to lower inflation, they will duck them or delay. By contrast, technocrats not subject to political pressure should be able to take decisions that may cause some immediate pain but help smooth the path in the long run. What’s more, the very fact that firms, investors and wage bargainers believe a central bank is prepared to hike interest rates in order to bring inflation down can be enough to decrease it without the need for higher interest rates.”
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*“Despite the importance of the economy in voters’ minds, the general trend over the last few decades has been for governments to give up economic power rather than take on more. …”
”Like so many of the early actions of the New Labour government, granting independence to the Bank of England was very much in keeping with the economic orthodoxy of the time, and having an independent inflation-targeting central bank has become the norm globally. The theory behind this apparently anti-democratic setup is essentially that politicians cannot be trusted to run the economy well. They will, so the argument runs, be tempted to lower interest rates before an election in order to curry favour with voters, and may combine this with cutting taxes or increasing spending. When difficult decisions have to be taken, such as raising borrowing costs in order to lower inflation, they will duck them or delay. By contrast, technocrats not subject to political pressure should be able to take decisions that may cause some immediate pain but help smooth the path in the long run. What’s more, the very fact that firms, investors and wage bargainers believe a central bank is prepared to hike interest rates in order to bring inflation down can be enough to decrease it without the need for higher interest rates.”
…@Axtremus said in Do governments really control their economies?:
. What’s more, the very fact that firms, investors and wage bargainers believe a central bank is prepared to hike interest rates in order to bring inflation down can be enough to decrease it without the need for higher interest rates.*”
…Yeah, how’s that working out? :eye roll:
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IN general, I think it is a good idea that the central bank of countries is independent.
Politicians (usually ) have a very short term view.
And since the world has become such a "smaller" place, no one country can operate independently on the economy without being affected by the world at large.
( I know, you guys are sick of hearing me say this. 555)
