I wasn’t going to write anything here today, but I couldn’t let the final question and answer from this morning’s Finance and Expenditure Committee hearing on the Monetary Policy Statement go without record and comment.
Simon Bridges, National’s FInance spokesman, asked the Governor whether the current prohibition – agreed between the Governor, the Board and the Minister – on any (external) MPC member having any active, engaged (present or future) analytical/research interest in monetary policy was not “frankly simply daft”, and did it not “ruin the ability to have thought diversity”.
He might well have added, but time was short, “and without precedent anywhere else in the advanced world” (or quite probably in most of the less-advanced world). Ben Bernanke would be disqualified, Lars Svensson would be out, and one could run a very long list of the sort of people who’ve served with distinction on the MPCs of other countries, whom Orr, Quigley and Robertson bar as a matter of determined policy.
Labour chairman Duncan Webb attempted, somewhat half-heartedly, to stop the question being asked, suggesting that it wasn’t really relevant to this Monetary Policy Statement (as if that was not also the case with several other questions, notably those from government MPs).
But in the end, the Governor did answer. He claimed first it was a matter of “legislation and government”. What he might have meant was not clear, but here is what the legislation says. The Minister makes the appointments, but can only appoint people the Board recommends, and the Board has to consult the Governor on those recommendations. These types of people are (rightly) disqualified.
People with a strong ongoing, and possible future, analytical/research interest in macroeconomics or monetary policy are not. That ban – the blackball – is pure Orr/Quigley/Robertson in concert. And none of them has ever mounted a substantive defence of this extraordinary ban, a ban without precedent.
But then Orr went on to end with a claim that the Monetary Policy Committee has a “very high level of expertise in monetary policy”.
It is worth distinguishing here between the external (non-executive) members – to whom the formal ban applies – and the executive (and majority) members.
There are three non-executive members:
- Professor Caroline Saunders, who knows quite a bit about international trade but even her RB bio does not suggest knows anything in particular about monetary policy,
- Peter Harris, former adviser in Michael Cullen’s office and former chief economist at the CTU. His RB bio also lays no claim to any particular background or expertise in monetary policy, and
- Professor Bob Buckle. Buckle is a retired academic, who also worked in The Treasury for several years. He has something of a background in macroeconomic matters, but his focus tended to be more on tax and fiscal issues. Buckle is not self-evidently unsuited for the role – although he has long tended to be a “don’t rock the boat” establishment figure – but has no particular track record on monetary policy, let alone “high level expertise”. And he has, presumably, signed on to the understanding that he will never again do any writing or research on matters associated with monetary policy or macroeconomics (that is part of the ban).
Hardly a “very high level of expertise”.
Then, of course, there are the executive members, to whom the formal ban does not apply:
I’m not going to dispute that either the Governor or the Deputy Governor has some relevant qualifications and experience (although the deputy governor’s day job is now financial regulation and supervision), but neither is what most people would call a high-level expert. That needn’t be a criticism – the central bank is more than monetary policy – but you might hope for high level expertise (even “a very high level of expertise”) somewhere on the MPC. As it happens, neither Orr nor Hawkesby has even given a serious and thoughtful speech on monetary policy in their time on the MPC.
There was, for yesterday’s decision, the outgoing chief economist Yuong Ha. But he is leaving, with no other job to go to, and in his three years on the MPC gave not a single speech, delivered not a single paper, on matters monetary or economic.
The new appointee is Karen Silk. She has been a general manager at Westpac for some years, and will have senior management responsibility for financial markets where, just possibly, her skills might be a match. But her qualifications are in marketing and accounting, and she has no work experience relevant to being a monetary policymaker, or the senior executive responsible for those functions. Hard to imagine that morale among the Bank’s remaining economists did not dip quite a bit further when her appointment was announced. It is as if they wanted to go above and beyond and apply the ban to executives too,
It is now more than three months since it was announced that Yuong Ha was leaving, and the Bank has still not been able to fill the role – a job that would once have been one of the best jobs in New Zealand for a macroeconomist with policy interests. Perhaps they will appoint the person who will be filling the vacancy on an acting basis, but we don’t know.
There are some competent people on the MPC, and as I’ve written previously I don’t believe all 7 need to be (or even should be) research economists, but there is really no one there now who – by any reasonable global standards – could be described as offering a “very high level of expertise in monetary policy”.
That isn’t good enough – and the problems are especially evident with recent macro and inflation developments – but it is a choice, by Orr, Quigley and (above all) Robertson. So I hope MPs and journalists keep asking about what possible justification there can be for this extraordinary ban on some of the potentially most talented people who might otherwise be appointed to the Committee.