Comment: On the political backlash against monetary policy

On LinkedIn, I recently wrote a brief response to this FT article by Martin Sandbu: https://www.ft.com/content/6f70bbcd-72b7-4518-be6b-401adba7cc34?s=09. I'm posting a lightly-edited version of my response here:

While this discussion is certainly welcome, I find it somewhat one-sided, given it comes from the side of the politician (i.e. the fiscal authority).

If we were to point out the follies of governments, one could easily replace the term 'monetary' by 'fiscal' in the article:

"There is something seriously wrong with the prevailing ideas of fiscal policy when governments fail to diversify across supply chains and production networks, run massive deficits, and ultimately overheat the economy – and then expect central banks to (i) use the blunt tools of monetary policy to bring things under control, and (iii) and take blame for the resulting damage.”

To my mind, the way forward in this debate would be as follows -

(i) Institutional separation of fiscal and monetary authorities to prevent fiscal dominance (after all, most central banking arrangements globally involve the government as the final decision maker in appointments, etc.)

(ii) Limits on the tenure and power of unelected central banks by way of legislation, based on sound economic principles. Paul Tucker’s 2018 book, ‘Unelected Power’, provides an excellent guide in terms to what these limits could look like.

(iii) Flexibility - allowing for careful monetary and fiscal coordination, especially in times of economic distress (such as war, pandemic, etc.)

This would have two positive 'by-products':

First, this would afford the politician some modicum of ‘control’ in terms of economic policy making, This would help them in being accountable to the electorate (a concern pointed out in the FT article).

Second, it would allow monetary authorities to stick to their narrow, legally mandated objectives (such as price/financial stability), without undue interference from government officials.