Transparency

Makhlouf again

Michael Reddell Transparency

This evening, so we are told, the official government farewell is to be held at the Beehive for outgoing Secretary to the Treasury Gabs Makhlouf whose eight year term expires in two weeks’ time.  It should really be a rather awkward occasion, even allowing for the likelihood that the people who turn up to the farewell will mostly be those either not bothered by serious misjudgements in public office (and a multi-year record of underperformance) or who feel that they have little choice but to attend (the host –  the Minister of Finance –  and, for example, ambitious careerists in the upper levels of the public sector).   The Leader of the Opposition and National’s Finance spokesperson are reported to be boycotting the event.

I’ve long been something of a sceptic of Makhlouf, having first observed him when I was working at Treasury a decade ago.  I was surprised –  and not exactly positive about –  him being appointed Secretary, and more surprised and seriously disappointed by Bill English’s decision to approve his reappointment.   The gradual decline in the quality and standing of The Treasury continued on his watch –  Eric Crampton argues it accelerated –  with a growing sense that The Treasury had become less interested in, and capable of, rigorous economic analysis, and more about bending with the wind to (indeed championing) all manner of trendy causes.   Makhlouf gave many published speeches, and they too were remarkable mainly for platitudes, politically-driven pandering (eg on the PRC), and conventional centre-left tropes, rather than for any distinctive insight.  He was particularly fond of talking up the idea of New Zealand being close to Asia, to which I’ve several times pointed out that when he was home in London he was closer to Shanghai or Mumbai than when he was in the office in Wellington.

Which is not to suggest that he was without his merits.  There were policy and organisational issues where I thought his instincts were sound, under his leadership Treasury continued to be better around the OIA than most agencies, he was/is a pleasant person, and he must have something of a thick skin.  Having been quite critical of him and The Treasury, I was a bit surprised a few months ago when he followed through on one of those polite “we must get together for a coffee” comments people sometimes make, and we had a long, pleasant, and productive discussion on all manner of things.

And so until a couple of weeks ago I’d assumed his term would end quietly and conventionally, with the hope (against hope, given the SSC –  and, frankly, the pool of credible contenders) that someone better might replace him.

But his conduct in the Budget “leak” affair –  much of it directly visible to, and aimed at, the public –  descended to a whole new level.   And simply should not have been allowed to stand.   I wrote about this in a post last week.    Quite a lot of additional information has emerged since then, including from the GCSB. the Prime Minister, and the head of the Department of Prime Minister and Cabinet.  None of it puts Gabs Makhlouf’s conduct in a better light, or offers any mitigating circumstances to explain his words, his actions, and his demeanour.    In such a serious matter he fell far short of acceptable standards.  An honourable and self-aware person in his position would have resigned by now (which might have been made a little easier knowing that he was leaving in a few weeks anyway). But then such a person would not have found themselves in such a position, because having realised that they had made a succession of mistakes –  perhaps unused to the glare of the public spotlight in an intensely political controversy – they’d have apologised and adopted an attitude of contrition.

Where did he go wrong?

Well, first, there was the not-insignificant matter that he was chief executive of an agency charged with maintaining Budget secrecy, and yet systems were such that some material found its way into the public domain anyway without too much difficulty.   Not a hanging offence in its own right, but not a good start.  And there hasn’t even been an expression of regret or apology for that –  not in the public statements anyway, but perhaps he has apologised to the Minister of Finance.

Then there was the rather melodramatic statement Makhlouf issued on the Tuesday evening  (this was the “deliberately and systematically hacked” statement).    It was made when, as is now clear, the GCSB had already told Treasury that nothing of the sort that most people think of when the word “hack” is used had occurred.  At best, it was loose and flamboyant language.  Makhlouf will have had the benefit of advice from his comms, legal, and IT people, and (we presume) his senior deputies.  His staff had had the advice from GCSB, and yet he still put out this statement.  He could, quite easily, have put out an alternative version along the lines of “GCSB has advised us that there has not been a hack, but as we continue to investigate ourselves, we have referred the matter to Police.”

In all the timelines that have emerged to date, none has documented the (likely frequent) contacts between Treasury staff and staff in the office of the Minister of Finance (or of the Prime Minister).  But even if you subscribe to the idea that the Minister was putting pressure on the Secretary, the fact remains that the statement was Makhlouf’s responsibility, and his alone.  As I’ve noted previously, when you are leaving in a few weeks, and then leaving the country, the Minister of Finance has little no leverage over you – but even if he had some leverage, your legal responsibility is still to act responsibly, calmly and independently.

We now have confirmation that the head of the GSCB had alerted his minister to concerns about Makhouf’s statement that evening (after the statement had gone out).  We know too that Andrew Little passed those concerns on to the Prime Minister and the Minister of Finance.  So even if Makhlouf did not know the full extent of GCSB’s concern prior to his statement going out, he must have been made aware of those concerns by late that same evening. (If Andrew Hampton was concerned enough to call his minister, are we to suppose he would not have first rung his fellow public service CE, Makhlouf, to put his concerns on record?)

And yet in his round of media interviews the next morning,  not only did Makhlouf not ease back the rhetoric, he amplified it –  both directly (his use of the “iron bolt” image) and in lines from interviewers to which he did not object.   We also don’t know precisely when Treasury IT staff formally advised Makhlouf what had actually happened, but even by this stage he must have had ample material and perspectives that should have led him to reconsider.  His rhetoric was out of step with whole-of-government action (no ODESC meeting, no early release of market-sensitive bits of the Budget etc,).   Whether or not his intent was partisan (I presume not), his rhetoric in turn provided cover for, for example, pretty inflammatory statements from the Deputy Prime Minister.  He must have realised  –  and if he didn’t it reflects more poorly still –  that he was misleading the New Zealand public.

By later on the Wednesday afternoon, even the Police were washing their hands of the affair (presumably after talking to Treasury IT staff earlier in the day) and yet there was still no clarification or withdrawal from Makhlouf.  Instead, we finally got a statement from Makhlouf at 5am the next morning, in parallel with one he had managed to get out of SSC.    I don’t suppose anyone thinks Treasury staff were at work at 4:30am finalising the press release –  there was no obvious reason why the statement could not have been released hours earlier –  but even then it was the content of the statement that was even more problematic than the timing.

There was no apology (either for the systems allowing the breach, or for his actions words over the previous 36 hours) and renewed attempts to muddy the waters with unsupportable claims that the release of the data had been a breach of some (non-existent) convention around Budget secrecy.  And then nothing more: no media appearances, no nothing.  And there has been nothing since, whether before or after the (belated) announcement of an SSC inquiry into Makhlouf’s words and actions, complete with (irrelevant) report from the State Services Commissioner that Makhlouf believed he had been acting in good faith throughout.  Quite probably, but good faith doesn’t excuse shockingly poor judgement (especially not in one of the most senior officeholders in the land).

My own view remains that had Makhlouf issued a genuinely contrite statement that Thursday morning, the issue would have died off pretty quickly.  New Zealanders seem mostly pretty forgiving, when someone owns up.  But Makhlouf appears to have dug in.  He could have apologised.  He could have taken leave while the investigation is going on (especially as it will involve a lot of questioning of his own staff). He could have resigned.  He could have arranged for tonight’s farewell to have been quietly postponed (I’m sure Treasury will have its own farewell).   But he did none of these things.  And now it appears to be in the joint interests of Makhlouf, the SSC, and the government for the inquiry – undertaken by people with specific conflicts (the SSC statement on the Thursday) and who are in any case too close to those they are investigating – to take just long enough to run out the clock.   That is a sad commentary on the people involved and on the system, and tonight’s farewell does look quite a bit like cocking a snook at New Zealanders, and robust standards of governance (which includes sweating the small –  and not so small – stuff), as the elite –  perhaps barely conscious of what they are doing –  look after their own.

What of the Irish?  I was among plenty of people surprised by Makhlouf’s appointment as Governor of the Irish central bank (I recall a flippant remark the day the appointment was announced about needing to check that it wasn’t April Fool’s Day).  He has no strong background in monetary policy, banking supervision, financial markets, or financial stability.  And he was male, (there was a strong female local contender) and he was – not to put too fine a point on it –  British, and Irish independence hadn’t exactly come about in the peaceful and evolutionary way New Zealand and Australian independence had.   “Hated imperialist overlords” and all that, even allowing for the fact that some time has now passed since then.  To the outsider, it seemed that what Makhlouf had going for him was mostly the conventional centre-left platitudes (appealing to the current Irish government) and a strong emphasis – beyond the facts and evidence –  on “diversity and inclusion”.  He hardly seemed likely to add brilliance or gravitas to the deliberations of the European Central Bank’s governing bodies: as a policy person and economist he was not a patch on the outgoing Governor, Ireland’s own Philip Lane.

The Irish central bank’s reputation took a hit in the wake of the 2008/09  financial crisis.  Much of that appeared to be very well-deserved (with the caveat that the political classes were so invested in the success narrative pre-2008 that a central banker who had tried to be much better might not have lasted long).    They’ve done a lot of rebuilding in the last decade, including having had some foreign appointees in senior roles.  The economist Stefan Gerlach served as Deputy Governor for several years.  He was sceptical when the Makhlouf appointment was first announced.  Here was his take on the news of the SSC inquiry

and on Eric Crampton’s piece on The Treasury under Makhlouf late last week

Radio New Zealand yesterday reported the Irish Minister of Finance saying that Makhlouf’s appointment was secure unless there was “very very grave misconduct” uncovered.

If the appointment has already been lawfully made, a quick check of the Irish central banking act suggests that government may have few options.  The initial appointment will have been solely at the discretion of the Irish cabinet.

19.—(1) The Governor shall be appointed by the President on the advice of the Government and shall receive such remuneration and allowances and be subject to such conditions of service as the Board shall from time to time determine.

A person serving as Governor is automatically ousted in exceptionally extreme circumstances

d) if and whenever he is adjudged bankrupt (whether in the State or in any other country) or makes a composition or arrangement with his creditors or is sentenced by a court of competent jurisdiction to suffer imprisonment or penal servitude, he shall forth-with become and be disqualified from holding the office of Governor.

There is a separate section on removing a Governor.  There is a health ground

21.—(1) If the Governor becomes by ill-health permanently incapacitated for performing his duties as Governor he may be removed from office by the President on the advice of the Government.

and a residual catch-all, which has to be initiated by the Bank’s Board and has to be unanimous.

(2) If the Board, by unanimous vote of all the Directors, requests the President to remove the Governor from office for cause stated, it shall be lawful for the President on the advice of the Government to remove the Governor from office.

It should be very hard to remove a serving Governor from office.  But Makhlouf doesn’t take office for another three months, where the standards really should be lower.  Embarrassing as it might be for the Minister of Finance to do so –  having initiated the appointment and lauded Makhlouf to the skies – it is a bit hard to see how anyone would have so thick a skin as to resist an approach from the Minister of Finance making it clear that he would no longer be welcome as Governor, and could not credibly serve as Ireland’s person in the governing halls of the European Central Bank, at a time when the ECB and European institutions will need all the credibility, and expertise, they can muster.   In the private sector, a payout might be involved.  Those don’t go down well in the public sector, but it isn’t as if Makhlouf resigned another job to accept the Irish appointment –  his term here was expiring and he wasn’t eligible for reappointment.

Time will tell, and that is Ireland’s problem.

On the occasion of farewells, people often go round looking for stories about the person departing.   I’d have met Gabs before this, but the first encounter that really sticks in my mind was a policy forum at The Treasury on aspects of overall economic performance, productivity etc.  If I recall rightly it was held in The Treasury’s wharenui, so we were all there in our socks/stockings.  At some point in the meeting Gabs piped up, opining that New Zealand’s real problem had been that we hadn’t invested heavily enough in rail, and went on to note that one of the best aspects of the British Empire had been its emphasis on rail.  The economists among us didn’t know where to look –  the floor mostly –  or what to say, but I still recall the conversation afterwards along the lines of “thank goodness he is only the Deputy Secretary for the operational side of The Treasury, and doesn’t have a policy role”.

Sadly, little did we know.

It is the sort of experience that leaves me cautious, at best, about what sort of appointment SSC will make this time, when they finally get round to filling the vacancy that has been known for three years and which was advertised six months ago….and which will be vacant in, at most, two weeks from now.

 

 

 

The shift from services to goods in NZ international trade

Michael Reddell Exports, Transparency

I wrote the other day about the woeful underperformance of our tradables sector, suggesting that it was past time for the Minister of Finance and the Secretary to the Treasury to actually engage with, and respond to, the underperformance.

Instead, this morning I stumbled on a speech given the other day by the Secretary to the Treasury that, in this regard, is not much better than just making stuff up.   The address was to an outfit called the New Zealand India Trade Alliance.   I’m sure there is lots of worthy detailed stuff in it, but my eye fell on this line

New Zealand is taking a more productive and effective path. We recognise the importance of continuing to focus on building a resilient workforce with flexible skills, and that we should expect and enable the economy to adapt to change as it happens.

One of the most positive changes for New Zealand has been digitalisation. It has thrown open opportunities to sell services and deliver them to other countries in a fraction of a second, in addition to selling goods delivered in days or weeks.

This shift in trade from physical goods to services is very evident in the trade between New Zealand and India.

It wasn’t a speech I’d normally have read, but this line –  the “shift in trade from physical goods to services” –  had been highlighted in a tweet retweeted by the (able and respected) MFAT Deputy Secretary responsible for trade negotiations etc.

It appears to be true in respect of the (fairly small) trade between India and New Zealand (Makhlouf quotes some numbers).  But it just isn’t happening for the New Zealand economy as a whole.  In this chart, I’ve shown two lines: for the whole country, exports of services as a share of total exports and exports of services as a share of GDP.

services X mar 19

Services exports now (from New Zealand) are about the same share of total exports as they were 20 years ago.  And, consistent with the fact that total exports as a share of GDP has shrunk over that time, so has total services exports as a share of GDP.

And, as I noted in the post the other day, this is although we are heavily subsidising some parts of services exports –  the film industry notably, but also the export education sector (by bundling work rights, residence points etc together with the sale of education services, an issue that may have been of some salience for services exports to India).

How can we hope to see half-decent analysis and policy advice from the government’s (self-described) lead economic adviser, when the Secretary to the Treasury won’t even face basic facts?  There is nothing intrinsically wrong with goods exports –  in a successful economy we’d probably have more exports (and imports) of both goods and services – but there simply is no aggregate New Zealand shift from good exports to services occurring.

I’m not a mercantilist, and it is important to look at the imports side as well.  Perhaps the Secretary really had in mind imports of services?  But that doesn’t help either.

services M 2

Almost 42 years, and no shift from physical imports to services imports at all.

 

Encouraging transparency and accountability

Michael Reddell OIA, Reserve Bank, Transparency

I’m travelling today and tomorrow, so just something brief now, and perhaps nothing tomorrow.

The government announced a couple of days ago that

From January, all Government ministers will have to release details of their internal and external meetings.

Minister for State Services (Open Government) Chris Hipkins said Cabinet had agreed to the release of summary information from their ministerial diaries from January 2019 onwards, with the first publication in February 2019.

To be specific

For each meeting in scope, the summary would list: date, time (start and finish), brief description, location, who the meeting was with, and the portfolio. The monthly summary will be published on the Beehive website within 15 business days following the end of each month.

It is a significant step forward, and will (or should) strengthen scrutiny and accountability of ministers.  There are some exceptions, and potential scope for the rules to be bent, but it goes beyond the publications practice for ministers in the UK and in New South Wales.   Together with the decision to pro-actively release Cabinet papers, it is another step towards delivering on the commitment to greater openness and transparency in government.

The (largely taxpayer-funded) lobby group Transparency International –  the ones who nonetheless host senior public servants giving secret speeches – has put out a statement welcoming the move.

“We are pleased that the Government acknowledges the need for transparency from its Ministers. Transparency is the antidote for corruption, every action they take makes New Zealand a better home for her citizens and reinforces New Zealand’s leadership in the global fight against corruption,” stated TINZ Chief Executive Officer Julie Haggie.

They suggest this should only be a first step

“We hope it is not long before all Parliamentarians are required to release their diaries and this requirement is codified in law so that it cannot be undone in the future by politicians fearful of transparency,” [chair Suzanne] Snively adds.

Not to disagree with that, but in many respects we have less to fear –  in our sort of political system –  from backbench members of Parliament than from senior officials (and even judges) exercising in some cases huge amounts of discretionary power.  Sometimes that is the ability to regulate directly, but even if they don’t have that particular power then the enforcement (or otherwise) of laws and rules made elsewhere opens up the potential for inappropriate influence, or even corruption.

The specific case I’m most interested in is the Governor of the Reserve Bank.  He will shortly lose his exclusive power to set and adjust the OCR himself, although he will still be hugely influential in monetary policy (and people will be keen to bend his ear or get the inside word).  But even once the new legislation is passed the Governor will retain his, largely untrammelled, powers as individual decisionmaker in regulating banks, and in enforcing (or not) a wide range of regulatory provisions affecting banks, non-banks, and insurers.  There is a great deal of money at stake in many of these decisions.

I’m not suggesting that anything very untoward goes on –  although successive Governors have each been involved in some questionable episodes.  But we (a) need to keep it that way, and (b) gain confidence in the way an institution is being run partly by means of transparency.   And what is good enough for elected Ministers of the Crown (who face scrutiny in Parliament every day) is surely a standard that should also be met by powerful unelected, largely unaccountable, officials.   I’d encourage the Governor to take the lead and announce that he will adopt the same standard, and if he doesn’t do so the Board and the Minister should prevail on him to reconsider.  If such transparency is good enough for ministers, it should be a standard expectation for the top tier of public officials.

Hope springs eternal, but I’m not very optimistic that the Governor will see such transparency as a positive virtue.  Readers will recall that the Ombudsman recently ruled in the Governor’s favour, allowing the Bank to withhold internal analysis and advice prepared for a Monetary Policy Statement at which the then (acting) Governor announced what the Bank was assuming about the impact of some major policy initiatives of the new government (including the now mired in controversy Kiwibuild), with no supporting detail or analysis.   Among the Ombudsman’s justifications was that, although his decision wasn’t made until almost a year after the request, his decision had to relate to the date on which my request had been made (ie very shortly after the relevant MPS).  To test this standard, I then re-lodged the request, so that a new decisions would have to be made about this analysis and information but on the basis that it is now a year old.

Absolutely not to my surprise, the Bank again rejected the request.  They do this even though, across the road, very similar sorts of background notes and briefing papers prepared for the Minister of Finance by Treasury staff as part of the Budget process are routinely, and pro-actively, released.

The Bank does condescend to observe that

In considering how long it is reasonable to withhold information of this nature, the Reserve Bank recognises that as time passes then release is less likely to have an inhibiting effect.

but concludes that a lag of more like five to ten years might be appropriate.  It would be laughable if it weren’t so serious.  According to the Bank, citizens are not entitled to see background papers on such matters ( and in the end the Bank’s analysis of Kiwibuild probably didn’t change the OCR decision materially) even a year after they were written (using taxpayer resources).  It makes a mockery of the principles of the Official Information Act, further undermining the already limited accountability of an already over-mighty public official.

Ministers have set an encouraging lead. The Treasury sets a good example around papers feeding into the Budget process. It is surely time for the Governor –  encouraged by the Board, soon to be more directly answerable to the Minister through a directly-appointed chair – to get with 21st century standards of transparency and accountability.

 

 

Central bank minutes released: a small victory for transparency

Michael Reddell OIA, Reserve Bank, Transparency

Regular readers will recall that the Reserve Bank has long been deeply resistant to releasing any information relating to OCR decisions or Monetary Policy Statements, other than what they themselves chose to release, whether in the published documents or in subsequent interviews.  That has never been very satisfactory, but the Bank has attempted to carve out for itself a special place, more or less above the provisions of the Official Information Act.

One of the things they’ve consistently refused to release is minutes of the Governing Committee, the body set up by the previous Governor, in which the Governor takes his final OCR decision (and other major decisions, including ones around LVRs).  They had long taken the same stance to the minutes of the predecessor Official Cash Rate Advisory Group, even when the requests related to decisions some time in the past. Often enough, it seemed that there were no written minutes at all (which was probably in breach of the Public Records Act).

I had largely given up on making any progress on this issue (and, anyway, the new statutory Monetary Policy Committee, which will have its own charter on such matters, is coming next year). But for some reason, which I now forget, I had lodged one more request six months ago seeking

1. the minutes of any meetings of the Governing Committee relating to the May MPS,
including minutes of the meeting where the OCR decision was taken;

When the Bank refused to release anything (not even date of meeting, list of attendees, headings –  even if all the substantive content was redacted) I complained to the Ombudsman, noting that (among other things) the Bank quite often released minutes of Board meetings (even with some content withheld).

The Bank regularly releases minutes of the meetings of its own Board (in response to OIA requests), with individual deletions as appropriate.  It seems inconceivable, for example, that the date, time, place of the meeting, the list of attendees, the confirmation of past minutes, and the final decisions of any meetings (themselves reflected in a later published document) could pass a “free and frank”: withholding test, even if (again) it is plausible that if there is any substantial account of the nature of contentious discussion at the meeting that specific element of the material might.

And then I forgot all about the request until a short time ago when an email from the Reserve Bank turned up.

We refer to your complaint to the Office of the Ombudsman (ref: 480453) relating to your request for: “minutes of any meetings of the Governing Committee relating to the May MPS, including minutes of the meeting where the OCR decision was taken.”

The Reserve Bank has reconsidered its initial position and is now releasing with redactions, a copy of the only document within the scope of your request – the Governing Committee minutes in May. The document is attached to this correspondence.

And it has only take six months, which is progress.  Credit to the Ombudsman.

For anyone interested, the minutes themselves are here

Governing Cttee minutes May 2018 OCR

One day perhaps we might even have released –  with a suitable lag – the background papers the Governor (and his new MPC) receive, and upon which they base their decision

I’m not sure there is any new information in the particular minutes released, but having released Governing Committee minutes in this form –  against a request made almost immediately after the relevant OCR decision was released – a small but helpful precedent has been established.   Some material is still withheld on the highly questionable ground of avoiding damage to the substantial economic interests of New Zealand.  One day, the Ombudsman is going to have to provide some substantive guidance on that provision, but for now both he and the Bank seem keen to avoid the Ombudsman having to draw the appropriate line between national economic interests and those of a particular public agency.

 

 

Reserve Bank whimsy

Michael Reddell Reserve Bank, Transparency, Uncategorized

I was meeting someone in town this morning. I was a bit early and the person I was meeting was a bit late so I found myself standing for some 20 minutes across the road from the Reserve Bank.   As I did, I became a bit curious about these four guys.

orr1

In the entire time I watched them, this is all the activity there was (the chap with his hand on the cone).

Most of the Bank’s building is apparently still closed as a result of the asbestos scare, although the ground floor museum has now reopened.  But it isn’t at all clear what these guys were doing.  Access to the turning circle is now controlled (remotely) by those metal bollards, and although there will probably be billions of dollars of notes in the vaults, electronic security systems –  and big thick steel doors and walls – will be guarding that.  They weren’t acting as a guide to members of the public –  various people walked up the main steps into the museum while I watched and none interacted with the security men.  They seemed to be just standing there.  And when I walked past again 45 minutes later, they were still there….just standing.  Is the Bank a bit overfunded, or is it just the average productivity in New Zealand is so low that labour intensive operations (accomplishing what?) are still affordable?

I’ve commented here on the new Governor’s enthusiasm for all manner of green causes.  But he seems to be doing his bit personally, or maybe just saving a few dollars for the staff cafeteria.  Someone pointed out to me that the Bank now has a dinky little vegetable garden right on the corner of Bowen St and The Terrace.  I guess the space is too small for a tree?

orr2

On a slightly more serious note, readers will recall that a few weeks ago the Governor was billed as giving a speech on transparency, to the annual meeting of the (largely) taxpayer-funded lobby group Transparency International, to be introduced by the State Services Commissioner (who has responsibilities for open government)……..and yet the speech was to be totally non-transparent (no text published).    Potential attendees were told that the Governor was to be thanked by the head of the Department of Prime Minister and Cabinet, Andrew Kibblewhite, who is shortly to take up the job of Secretary for Justice, with responsibilities for the Official Information Act.

As it happens, the newsletter of Transparency International dropped into my inbox the other day.  It featured a report of the Orr address.

Guest Speaker: Adrian Orr

Guest speaker, Governor of the Reserve Bank of New Zealand (RBNZ), Adrian Orr, was introduced by Adrienne Meikle, CEO of the Commerce Commission. Noting that people referred to her as “the other Adrienne” she augmented her introduction with comments about the key priorities of the Commission.

The RBNZ Governor provided a most insightful, off-the-record address with ideas to stimulate thinking about the relevance of transparency, accountability and integrity for more-effective governance.

The vote of thanks was delivered by Lyn McMorran, Executive Director of the Financial Services Federation, who has contributed an account of Adrian’s presentation below.

Perhaps Peter Hughes and Andrew Kibblewhite were just too busy in the end, or did they get cold feet about being associated with such a travesty –  the secret speech on transparency by a public official, to a (publically funded) transparency and governance lobby group?

Senior officials, in roles that are closely followed by markets etc, really shouldn’t be doing “most insightful” off-the record addresses.  If the speaker can’t be bothered writing a full text he or she can do as the Reserve Bank of Australia does and make an audio or video record available.

As it happens, Ms McMorran has given us a summary of this “off-the-record” address.  Here is an extract (emphasis in the original)

He said, however, that often constructs within society work against us doing the right thing. In terms of transparency he said that what gets measured gets managed. Too often what is measured are things that are short term and that managers are often being incentivised for the start line not the finish line.

It is, therefore, crucial to get the horizon right – determine what outcomes we want over time – horizons that matter.

Another excellent point Governor Orr made was about the principal/agent phenomenon where a manager owns the capital but is highly divorced from the managers and the managers of managers to whom they outsource this capital and it is hard for the person at the top to know how ethical all the layers are within their organisation.

Same old themes –  especially the bit about time horizons, where the Governor seems still to be convinced that he knows better than citizens and markets what timeframes are relevant for what sorts of institutions/issues.

Under the Official Information Act I also asked the Bank for the speech or –  if no full record existed –  a summary of what was said (memories are official information too).  For completeness, here is the summary I received.

Governor Orr did not use any notes for his speech but drew upon:

An outline of the speech from Governor Orr’s recollection, is as follows:

  1. Thanks for the invite.
  2. Congratulations on your work to raise transparency as a means of ensuring integrity in peoples/firms/governments behaviour.
  3. Property rights sit at the basis of a sound functioning economy.
  4. Macro stability is also very useful (monetary and fiscal policy).
  5. Microeconomic incentives to invest productively are also necessary (human and physical capital investment).
  6. 3-5 (above) are endogenous inputs to economic growth (see Conway and Orr, RBNZ Bulletin 2000).
  7. Transparency assists 3-5 occur – as it reduces the likelihood of some forms of ‘market failure’ – myopia, asymmetric information, time inconsistency in policy, and principal-agent issues.
  8. Even if people don’t aim to create bad outcomes, market failure can lead to sub-optimal outcomes.  Likewise, market intervention can suffer the same issues.  Hence, commitment and transparency can reduce these risks.
  9. Applause and thanks.

There were no questions as there wasn’t time.

I remain less interested in the specific substance of the speech than in the principle of openness.  Private fee-paying audiences shouldn’t have better access to the Governor’s views or insights than the wider market or public audience.

 

Inching towards greater transparency

Michael Reddell Reserve Bank Act reforms, Transparency, Uncategorized

Several years ago the then Reserve Bank Governor went public when there was some criticism around an OCR decision (more so about communications surrounding it) telling us that all his advisers had on that occasion supported his decision.   A group of senior staff provide written advice at each OCR decision.

If it was good enough for him to disclose such information when it suited him, I thought it should be fine to have the information disclosed routinely, including for OCR decisions some time in the past.  I lodged an OIA request accordingly.

Not that surprisingly, given the Bank’s approach to the OIA, I didn’t get anywhere.  They refused to release any other information about previous OCR decisions and, a bit more surprisingly, [as I recalled things, but see below] they managed to get the Ombudsman to provide cover for their refusal.

But in this morning’s Monetary Policy Statement we find almost exactly the data I requested 2.5 years ago, in the form of this chart.

OCR advice

Kudos to the Governor for releasing the information, even (a) this belatedly, and (b) only for the period to the end of 2016, which is now two years ago.  We still have no idea what the balance of advice has been over the last couple of years, most of which wasn’t even in the current Governor’s term.  But it is better than nothing.

I was among this group of advisers up to and including the March 2014 decision –  where I’m pretty sure I was the grey vote (opposed to the OCR increase).

Given that the Governor has now released so much information, I’m tempted to lodge another OIA request for the more recent information –  there cannot possibly be any market sensitivity or other problems (defensible under the Act) in knowing that (say) one advisor out of ten favoured an OCR cut six months ago –  but as the legislation is about to change perhaps I will leave it for now.

The Governor goes on to note that

Generally, there was a clear majority in the balance of advice. Should the current Reserve Bank Amendment Bill become law, our intention would be to publish the formal votes of the Monetary Policy Committee each time a vote is taken. It is envisaged that a vote would not be called for every meeting, but only when needed.

I found this mildly encouraging, Until now that rhetoric has tended to emphasise very heavily the consensus model the previous Reserve Bank management favoured (under which any differences of view –  inevitable in a well-functioning organisation dealing with so much uncertainty –  would be obfuscated and kept secret).  At least now there is a straightforward explicit statement that the formal votes will be published when such votes are taken.   It still isn’t too late for the select committee looking at the bill to amend the legislation to require votes to be taken, and require the number of votes for each position to be published.

There is still a long way to go in getting the Reserve Bank to the point of operating transparently, even reaching (say) the level managed by the Treasury through the Budget process.  I still have an Official Information Act request in, now with the Ombudsman, over the Reserve Bank’s refusal to release background papers underpinning claims it made (including around KiwiBuild) in last year’s November Monetary Policy Statement.   The Bank has long argued that it would be destabilising, undermining the effectiveness of policy, if anyone ever saw any internal background papers.    They claim, citing the OIA itself, that the substantial economic interests of New Zealand would be damaged.

Some months ago the Ombudsman advised a preliminary view that would have continued his office’s longstanding practice of allowing the Bank to keep almost anything associated with monetary policy secret.  I made a submission in response that highlighted what appeared to be a serious inconsistency in the way, for example, budget papers are treated.  This was some of what I wrote

In general, I think Mr Boshier’s provisional decision, if allowed to stand, would seriously detract from effective accountability for the Reserve Bank, and in particular would expose the Bank routinely to less scrutiny and challenge than Cabinet ministers or government departments receive.  That cannot be the intention of the Act.    That parallel doesn’t seem to have been taken into account at all in the draft determination.
Thus, Cabinet papers underpinning key government announcements are frequently released, sometimes in response to OIA requests and at other times pro-actively.  But so too is advice to a Cabinet minister from his or her department.  That is so even when, as is often the case, officials have a different view on some or all of the matters for decision from the stance taken by the minister.   A classic example, of course, is the pro-active release of a great deal of background material, memos, aide-memoires etc compiled and submitted as part of the Budget formulation process.  Many of the working papers in that case may never even have been seen the Secretary to the Treasury but will have been signed out to the office or minister at the level of perhaps a relatively junior manager.  Many will have been done in a rush, and be at least as provisional as analysis the Governor receives in preparing for his OCR decision.  I’ve been personally involved in both processes.
Is it sometimes awkward for the Minister of Finance that his own officials disagreed with some choice the minister made?  No doubt.  Do ministers sometimes feel called upon to justify their decisions, relative to that official alternative advice? No doubt.  But it doesn’t stop either the provision of such dissenting (often quite provisional) analysis and advice, or the release of those background documents.
The sorts of arguments the Reserve Bank makes, and which Mr Boshier appears to have accepted, could well be advanced by Cabinet ministers (eg clear messaging about this or that aspect of budgetary or tax policy –  all of which are substantial economic interests of the NZ government).  If they have advanced such arguments, they have generally not succeeded.  And nor should they.  Doing so would undermine effective accountability or scrutiny, even though the Minister’s formal accountability might be to Parliament (he has to get his Budget passed).
The relationship between the Minister and his or her department officials is closely parallel to that between the Governor of the Reserve Bank –  the sole legal decisionmaker (who doesn’t even have to get parliamentary approval of his decisions) –  and the staff of (in this case) the Economics and Financial Markets departments of the Bank.  One group are advisers, and the other individual is the decisionmaker.  The fact that they happen to both part of the same organisation, doesn’t affect the substantive nature of that relationship.   Manager and senior managers in the relevant departments are responsible for the quality of the advice given to the Governor, in much the same way that the Secretary is responsible for Treasury’s advice to minister (and at his discretion can allow lower level staff to provide analysis/advice directly to the Minister or his office.   I would urge you to substantively reflect on the parallel before reaching your final decision, including reflecting on how (if at all) official advice on input to the OCR is different than official advice (including supporting analysis) on any other aspect of economic policy.
Mr Boshier’s argument about potential damage to substantial economic interests itself seems insubstantial, and displaying little understanding of how financial markets (and the market scrutiny of the Reserve Bank) work.  It also appears to be based wholly on official perspectives; officials who will routinely oppose transparency (except as they control it).    All those who follow, and monitor, the Reserve Bank recognise that there is a huge degree of uncertainty about any of the assumptions the Bank (or other forecasters) make, Indeed, the Bank itself stresses that point.    Markets trade changing perceptions of the outlook all the time, each piece of new data slightly adding to the mix.   Most monitors of the Reserve Bank (many of whom have previously worked for the Bank) recognise the distinction between analysis and advice, provided as input to the Governor, and the Governor’s own final decision and communication thereof.    And since markets –  and the Bank –  know that any projections are done with huge margins of uncertainty, the pretence that economic outcomes could be substantially damaged by people knowing there were a range of views or analysis is almost laughable.  Again, there is also a distinction to be considered between possible institutional interests of the Reserve Bank and the substantial economic interests of New Zealand.   You seem to treat those two sets of interests are the same thing, but they are not.

Given that some more months have now passed I hope the Ombudsman is seriously considering these arguments.   But whether he is or not, I call on the Governor to take seriously his words about greater openness and more transparency, and put in place proactively a new regime (perhaps for the new MPC) in which staff background papers provided to the Governor and MPC are released, with a suitable lag (perhaps four to six weeks) as a matter of course.  Doing so would be a significant step forward, and should help to boost market and public confidence in the Bank.  It wouldn’t be terribly radical; it is pretty much what is done for the government’s Budget each year.  Perhaps the new Treasury observer could explain to his Bank colleagues how it works, and how Treasury continues to function, continues to offer free and frank advice, even knowing that in time the background work will most probably be open to scrutiny.  It is how open democracies, open societies, should work.

I might have some other thoughts tomorrow on more substantive aspects of the Monetary Policy Statement.

UPDATE:  Well, it seems that credit is due to the Ombudsman not to the Governor. A few minutes after putting this post, I received this letter from the Bank

Dear Mr Reddell

At the invitation of the Chief Ombudsman, the Reserve Bank has reconsidered your request for the aggregate numbers of MPC members favouring each rate option for each OCR decision since mid-2013. You made this request on 14 March 2016.

On the basis that the requested information has become sufficiently historic, the Reserve Bank has decided it can now release the information. You can find the information on pages 13-14 of today’s Monetary Policy Statement at the following web address www.rbnz.govt.nz/monetary-policy/monetary-policy-statement.

 

 

 

A bouquet for the Government

Michael Reddell NZ politics, Reserve Bank, Reserve Bank Act reforms, Transparency

They don’t deserve many, but this announcement this morning is unambiguously positive.

Cabinet papers will be proactively released, Minister of State Services Chris Hipkins announced today.

The move is part of the Government’s wider plan to improve openness and reflects its commitment to the international Open Government Partnership.

The Cabinet papers will be released no later than 30 business days after a Cabinet decision. This process will be in place for Cabinet papers lodged from 1 January 2019, Chris Hipkins – who is also responsible for Open Government – said. ……

“Cabinet papers will be released within 30 business days of the Cabinet decision unless there is good reason not to publish. If we can publish it, we will.”

It will, almost certainly, end up less good than it sounds.  But it is a start.    The official papers upon which our governors make their official decisions should be open to public scrutiny, with only a short delay.  As the Minister’s press release notes

“This change is consistent with the spirit of the OIA which states that information should be made available unless a good reason exists for withholding it.

“Proactive release of official information promotes good government and transparency and fosters public trust and confidence in government and the public agencies.”

Of course, only time will tell how (a) this government chooses to run the system, and (b) whether future governments regard themselves bound by the newly-established practice (the law isn’t being amended to require pro-active release, but it probably should be).  I don’t suppose we will ever see any Cabinet papers that might deal with awkward issues around the relationship with the People’s Republic of China, or PRC interference in New Zealand public and commercial life.   Perhaps we shouldn’t either.  Some things – a few –  need to be not only deliberated in secret, but to able to have the relevant considerations and supporting evidence kept under wraps for a longer period.  And, reasonably enough in my view, they won’t be releasing papers relating to recommendations for honours (they say they will withhold papers relating to appointments as well, and that is more concerning).

What worries me a little more is that

Individual ministers will have responsibility for releasing Cabinet papers, which will be subject to an assessment to decide if there are good reasons to withhold any of the information.

If individual ministers are making the decision, how will we be confident that all ministers are applying more or less the same standard?  There is no suggestion of a central monitoring process, and there will be more or less ornery ministers, more or less politically uncomfortable issues, weaker and less confident ministers, and –  as our arrangements have developed –  ministers who hold ministerial warrants but aren’t part of Cabinet, or even of the government itself.  Will, for example, the Greens ministers be bound by this new Cabinet practice?

But if the principle is that the official papers upon which our governors make their official decisions should be open to public scrutiny, with only a short delay, shouldn’t this principle be extended –  either voluntarily, or mandatorily –  to other state agencies that make major policy decisions, that attract considerable public interest and scrutiny?

One could readily extend the principle to the boards of all Crown entities (subject to similar specific exclusions as the Cabinet will apply to itself).

But, of course, the entity I particularly had in mind was the Reserve Bank.   The Bank’s longstanding line has been that, even though they make vital economic decisions that can materially affect the short to medium term performance of the economy, it would be costly, damaging, and confusing to release the background papers that the Governor receives prior to making his or her decision.  After all, they tell us, there is the MPS or the press release, and the Governor holds a press conference once a quarter.  What more do we need to know, they argue?   They simply generally refuse to release background papers –  although I did once manage to get them to release some that were ten years old (to make the point that, at most, there is a time dimension to any decision on whether material can be released under the OIA).

But those arguments apply –  if at all –  just as much to decisions made by Cabinet, often on much more complex and sensitive issues than those the Reserve Bank deals with.  Cabinet decisions are announced by ministers, the PM holds press conferences, and ministers are generally pretty accessible to the media  (more so than most Governors).  But the Cabinet has rightly decided to release (most) Cabinet papers, and recognises that doing so is right and proper in a free and open society, and will over time enhance confidence.

The same should go for the Reserve Bank.  If the Governor is serious when he talks about being open and transparent –  as he seems to be on all matters that he isn’t responsible for –  he’d take the lead on this issue, and announce that in future the big folder of background papers prepared going into each Monetary Policy Statement, together with the (anonymised) written advice of his advisers on the OCR decision, would be routinely released (perhaps with a small number of redactions) six weeks after the OCR/MPS announcement to which they relate.  Six weeks is long enough that plenty of new data will have emerged since the papers were written (indeed, it will be close to the next OCR decision), and short enough to still be of use/interest to analysts in understanding the Bank’s thinking (recall that we still have no idea what analysis they used last year when they announced they were assuming half of the building associated with Kiwibuild houses would be offset by reduced other residential building activity).

And if the Governor won’t take the lead, the Minister of Finance should insist on this sort of approach as part of the legislation and procedures around the establishment of the new statutory Monetary Policy Committee.

Most likely the Bank will continue to fall back on spurious arguments about potential damage to the “substantial economic interests of New Zealand” (an OIA ground that hasn’t been well-tested), or risks of confusion.  Those arguments are just wrong, and risk sounding (or perhaps are) self-serving: powerful bureaucrats protecting their particular monopoly on information/advice.  Cabinet has been willing to step beyond those arguments, and we should expect the Reserve Bank Governor –  a very powerful unelected policymaker –  to be even more ready to do so (being, after all, unelected and thus with less legitimacy).  If he doesn’t do so willingly, he should be left with no choice.

 

(Lack of) transparency at the Orr Reserve Bank

Michael Reddell Monetary policy, Reserve Bank Act reforms, Transparency

Since I have to spend a large chunk of the day at the Reserve Bank –  among other things, checking out how serious the Governor is about customer focus and about remediation when customers have problems (among the things he claims the right to demand from banks and insurers) in the case of the superannuation fund the Bank (=Governor) sponsors –  it seemed fitting to have a brief post focused on a Reserve Bank issue.

Long-term readers will recall that the previous Governor was notoriously secretive, except when it suited him.   Among the things he always refused to release were any minutes of any meetings of the Governing Committee (him and his two or three most senior staff).  The Governing Committee had been set up by Graeme Wheeler, and was sold to the world as the forum in which major decisions were made –  whether monetary policy, regulatory policy or whatever.   You might suppose that the records of such meetings would be of considerable public interest, and it is common internationally for the minutes of the meetings of any body responsible for monetary policy to be published, with a (typically) quite short lag.  But Graeme Wheeler seemed to think there was no legitimate case for such material to be released –  his model was that he should be obliged to tell us only what he wanted to tell us, how he wanted to tell it, and when he wanted to tell it.  That isn’t how the Official Information Act works, but that consideration never seemed to much bother the then-Governor.

But that was then.  Wheeler has left, bearing his CNZM, and we have a new Governor.  He talks a good talk about communicating more or better with outside audiences.  We’ve even had cartoons to help illustrate official documents, and at one press conference I think the assembled journalists were greeted in four languages.

So he seeks to build an impression of a more open Governor –  including by his (ill-judged)  willingness to talk freely about all manner of things that aren’t his responsibility.  And almost simultaneously with the Governor taking office, the Minister of Finance announced reforms he plans to legislate later in the year.  Under those (inadequate) reform proposals, there will be a statutory committee to make monetary policy decisions and –  fulfilling a Labour Party campaign pledge –  the minutes of the meetings of that new Monetary Policy Committee are to be published.  I’m sure that, if the Minister sticks to plan, they will be fairly anodyne minutes, but the indication has been that the minutes will outline any differences of view (even while not putting names to views or votes).  It will be a step forward when it happens.

And so, going into last month’s Monetary Policy Statement I noted that the new Governor could perhaps show his seriousness about being different from his predecessor, and get ahead of the forthcoming legislative provisions, by beginning to publish now the minutes of the Governing Committee (for meetings relevant to that MPS).   Ideally, as I noted, he would also pledge to publish the background papers for each MPS with a suitable lag (perhaps six weeks).

Nothing was forthcoming with the release of the Monetary Policy Statement –  just the cartoons, multi-lingual greetings (and a document itself that seemed to go down well with market economists).  So I lodged a request for the minutes of the Governing Committee meetings relating to the May MPS.

And last week I got my response.

…the Reserve Bank is withholding the information for the following reasons, and under the following provisions, of the Official Information Act (the OIA):

  • section 9(2)(d) – to avoid prejudice to the substantial economic interests of New Zealand; and
  • section 9(2)(g)(i) – to maintain the effective conduct of public affairs through the free and frank expression of opinions by or between officers and employees of the Reserve Bank in the course of their duty.

As advised previously, the Reserve Bank recognises the tension between disclosure and confidentiality and has considered your request in light of that tension. Public disclosure, in summary form, is essentially what happens with monetary policy decisions in a carefully considered media release and the full text of the Monetary Policy Statement. The process of deciding what to publish in these documents recognises and balances the tension between disclosure and confidentiality.

In other words, exactly the same approach adopted by the secretive and defensive Graeme Wheeler, and nothing is released at all.  Thus:

  • the date of the meeting,
  • the place the meeting was held,
  • the attendees at the meeting,
  • confirmation of the minutes of the previous meeting,
  • any subheadings outlining the nature of material discussed at the meeting,
  • and the final OCR (itself already published in the MPS)

all, in the Governor’s view, had to be withheld to protect the “substantial economic interests of New Zealand” or to protect “free and frank expression”.  I wonder if the Governor was worried there might one day be a debate about what day of the week it was.    The claim is so absurd it is hard to believe that serious people –  required to operate according to the principles of the Official Information Act –  could make the claim.  But the Governor does.

I can barely imagine a circumstance in which disclosure of material in such minutes could undermine the “substantial economic interests of New Zealand” (NB these aren’t the same as the “economic interests” of the Bank), especially when released several weeks after the MPS to which the discussion relates.  We aren’t talking about imminent bank failures here.  But perhaps there are such circumstances, in which case specific deletions  could be made and justified under this subsection.  Officials make such specific deletions every day (although not commonly, I gather, under this particular provision of the OIA).

The same goes for “free and frank”.  In the (extremely unlikely event) that the minutes ever recorded that the Deputy Governor (say) thought the Governor’s ideas about the OCR were barking mad, there might be a case for withholding that particular detail.  But no official writes minutes like that.    And recall that the Minister of Finance has already committed to the publication of minutes of the MPC a few months hence, once the legislation is in place.  Differences of view are supposed to be highlighted (even if not attributed by name).  It will be a small step forward, and the Minister has already decided that “free and frank” isn’t a good reason to withhold such material.

But the Governor clearly disagrees.  Perhaps he just wants to enjoy his last few months as the single decisionmaker.   But then –  it suiting him to do so –  he has already told us that all his advisers were unanimous last month that the OCR shouldn’t be changed.  So what can he possibly have to hide in those Governing Committee minutes?  The short answer is likely to be “nothing at all”, but he has quickly imbibed the traditional Reserve Bank resistance to Official Information Act scrutiny.

It is not a good sign.  I’ve been concerned that the reforms the Minister announced will be too weak to make any material difference, and suspicious that they will allow a Governor so inclined to dominate the new committee, suppressing debate and the serious examination of alternative interpretations or policy approaches.  Since Orr has never been one to encourage challenge or debate, that seemed a quite real and specific risk.  Which is why I thought I’d test the waters.  Had the Governor agreed to the release of MPS Governing Committee minutes (even with odd specific deletion) I’d have lauded him, and revised up my probabilities on his governorship, and the new MPC, proceeding well.

By simply refusing to release anything, it looks as though he has once again confirmed some of the fears people held (mostly quietly) about his appointment.  If so, that is a shame.   And however many languages he greets journalists in, however many cartoons he adds, serious scrutiny of powerful independent public agencies –  particularly as at present when all power is vested in one individual –  requires access to official information that won’t always suit the Governor.  Minutes of his policy committees are a good example, one most other Governors in advanced countries have come to live with, or even champion.

I’ve appealed this decision to the Ombudsman –  I might have a response by the end of next year –  but in a sense the point has already been made.  When it comes to things he is responsible for, Adrian Orr is no more open and transparent than his predecessor, who set the benchmark in quite the wrong places.  A government committed to more-open government (as the current one says it is) would have a quiet word to the Bank’s Board, and to the Governor, encouraging the Bank to think again.

Towards a more open central bank

Michael Reddell Reserve Bank Act reforms, Transparency

Earlier in the week I wrote a post making the case for reform of the Reserve Bank to be done in such in a way that encourages a much more open central bank, at least in its monetary policy dimensions (there are similar, but different, issues around the other areas of the Bank’s responsibilities).     That post was prompted by the public efforts of the “acting Governor” and his deputy (and acknowledged candidate to be the new Governor) to push back against (a) external members on a new statutory Monetary Policy Committee, and particularly (b) to resist any suggestion of any greater transparency around monetary policy.   As I illustrated in that post, what these officials dislike are systems that work well, and have become established, in places as diverse as the United Kingdom, Sweden, and the United States.  There is no obvious reason why such an approach could not work well in New Zealand.  And it is not as if the Reserve Bank’s reputation now stands so high that no sane person can envisage any possible room for improvement.

I gather that Spencer and Bascand have since given other interviews restating again their opposition to reforms along these lines.  Whatever their views, it is astonishing that they are carrying on this campaign in public –  even as Bascand has been privately making his case to be the next Governor.  They are bureaucrats, who are paid to operate under the laws, and governance arrangements, that Parliament – acting on behalf of the people –  establishes.  Good statutory provisions governing powerful public agencies involve striking a balance between, on the one hand, drawing on technical expertise, and on the other hand, protecting the interests of citizens against over-mighty bureaucrats advancing their personal interests and/or the interests of their bureau.    Openness and transparency are among those protections.  It is perhaps telling that Bank officials are keen on openness when it allows them to advance their views on this issue –  to protect their patch –  but not when it might prove awkward for them.   Graeme Wheeler was much the same  –  last year willing to go public to tell us that for one controversial OCR decision every single one of his advisers had supported him, but then willing to fight all the way to the Ombudsman to prevent citizens seeing comparable numbers for other decisions (even ones well in the past).  The only principle that seems to guide them on such matters is patch protection and self-interest, precisely the things we need protection against (and the sorts of things that motivated the Official Information Act 35 years ago).

In the purpose provisions of the Official Information Act, the very first item is this

to increase progressively the availability of official information to the people of New Zealand in order—

  • to enable their more effective participation in the making and administration of laws and policies; and
  • to promote the accountability of Ministers of the Crown and officials,—

and thereby to enhance respect for the law and to promote the good government of New Zealand

It is a mindset that has never taken hold at the Reserve Bank.    And thus it was encouraging that in the Speech from the Throne the other day there was an explicit commitment to “improving transparency” around monetary policy.

But after my post the other day, someone got in touch to point out that I’d left out one argument for a more open (monetary policy) central bank.  This correspondent noted that they would have

….added another argument for the value of individual responsibility of committee members: Central banks should stop pretending that the future is knowable, and the economy well understood. Monolithic representation of THE Bank view perpetuates that dangerous myth.

I agree entirely.  To have left it out the other day was an oversight, but it was also something implicit in many of the other arguments and international experiences.

Getting monetary policy roughly right –  the best than anyone can hope for –  is a process of discovery, iteration, revision and so on.  It isn’t a case of one wise person, or even a handful of wise bureaucrats, consulting the secret oracle, and revealing truth to the peasants.   Members of a monetary policy committee –  or the Governor under current NZ law –  get to make the final decision on the OCR, but they know no more about how the economy works, or what might happen next, than any number of other observers.  Indeed, of the four members of Wheeler’s advisory Governing Committe, only one could be considered pretty much fulltime focused on monetary policy (the chief economist).  Of course, they have more analytical resources at their command –  but, in fact, those are our resources, paid for by taxpayers.

When it suits them, the Bank will –  correctly –  emphasise just how much uncertainty there is about the appropriate monetary policy, and how the economy and inflation might unfold in future.  But, if so, what do they have to be afraid of from a much greater degree of openness?

I went back and listened again to the relevant bits of Thursday’s press conference.  Governor-aspirant Geoff Bascand was quite explicit that he thought people needed to focus on the issues that “the Bank” had set out in its Monetary Policy Statement, on “the risks ‘the Bank’ was considering”, on “the substance”.  Bascand didn’t want people focusing on the other issues, or divergences of views, and so on.

It is the same old mindset: we know “the truth”, we know which issues are important and which aren’t, we know how best to balance risks, and so on. And “we” can’t possibly risk letting people know that there might, at times, be genuine differences of view among able people at the Reserve Bank.   But what evidence do they have for such claims?  Either of the degree of knowledge they (implicitly) claim for themselves. or for the level of risk they claim explicitly to worry about.    Instead, life is just easier for bureaucrats if we maintain the secrecy, and continue to channel a monolithic view –  monolithic this time, monolithic next time, monolithic the time after, even though each of those monolithic views may be quite different from each other.

It would bore readers to run through the evidence for how often the Governor’s monolithic view has been wrong (or central banks in other countries have been wrong).  Sometimes one could count him culpable. At other times, things just turned different than most people –  inside or outside the Bank –  reasonably thought likely.  That is the nature of the beast: things are highly uncertain and nothing is gained, no one’s interests (probably not even those of really capable bureaucrats) are advanced by keeping on pretending otherwise.  The evidence to the contrary is there almost every time any central bank sits down and deliberates on monetary policy.  Mostly, it seems as of Spencer, Bascand, and McDermott have settled in a comfortable rut.  It may suit them, but that isn’t a good argument in institutional design.

I noted the other day the Supreme Court offers a good counter-example.   Final appellate decisions are, in some ways, quite like OCR decisions.  They aren’t necessarily “the truth”, but they are final.   Smart lawyers make sophisticated arguments on either side of any particular case.  Smart judges often enough disagree among themselves.  Some decisions end up being made by a 5:0 vote, but many are 3:2 decisions, and the Chief Justice can easily be in a minority.    Court hearings are, typically, open, and decisions – in the affirmative, and dissenting –  are typically published.    Only an idealist would pretend that the decision is “truth” –  the only possible, or sensible, way of reading the facts and relevant statutes.  But that particular panel of judges –  chosen for their character and expertise –  gets to make the final decision.

It isn’t clear why monetary policy should be so different.  It is even more provisional since, although each OCR decision is final, the panel is back every couple of months looking at an only slightly different set of facts, but sometimes reading them in quite different ways.  I’m not suggesting –  at the ludicrous extreme –  broadcasting meetings of a Monetary Policy Committee, but I can see no possible harm – to the public, or to a well-managed Reserve Bank – from shifting to a culture of much more radical openness, suited to the specifics of monetary policy.   Why shouldn’t the relevant background papers be published, even with a bit of a lag?  Doing so would not only gives stakeholders more a sense of the quality of the staff analysis, it would allow outsiders to point to things staff might (being human) have missed.    Why shouldn’t dissenting opinions, carefully crafted, be included in the minutes (much as the appellate judges do)?  And why shouldn’t members of the MPC –  each independent statutory appointees, and accountable as such –  be giving thoughtful speeches, or interviews, outlining how they see the issues around monetary policy, in ways that invite input from outsiders.  Capable people –  the only sort who should hold these roles –  need have nothing to fear from the contest of ideas.  From such exchanges, from such scrutiny, usually better decisions –  still imperfect –  will emerge.  And the public will have a better sense of the limits of what they can expect from any agency in an area so (inevitably) riddled with uncertainty.

Openness can be messy.  There will be mis-steps at times.  But that is nature of a free and open society.    Choreographed uniformity of view should be left to Xi Jinping.  I noticed a day or so ago that Robert Kaplan, head of Dallas Fed, was on the wires observing

“History has shown that normally when we have a substantial overshoot the Fed ultimately needs to take actions to play catch-up,” Kaplan said in an interview with the Financial Times.

Kaplan said he was actively considering “appropriate next steps” when asked if he was willing to consider a rate rise at the upcoming Fed meeting, FT reported.

I’m sure there are plenty of people around the Fed who will disagree with Kaplan’s particular perspective.  But the question for old-school bureaucrats like Spencer and Bascand is what possible harm, to the conduct of monetary policy or the interests of the American people, is done by such openness?  I can’t see any.  I hope the Minister of Finance –  helped by the forthcoming Independent Expert Advisory Panel –  will draw the same sort of conclusion, and ensure that the new legislation is crafted, and key appointments are made, accordingly.

One difference between a transparent central bank and the Reserve Bank

Michael Reddell Reserve Bank, Transparency

The Reserve Bank constantly tries to convince us of how transparent it is.  As Deputy Governor, Geoff Bascand, put it in his first on-the-record speech

The Reserve Bank is deeply committed to transparency – of policy objectives, policy proposals, economic reasoning, and of our understanding of the economy, and of course of our policy actions and intent. Clear communication and strong public understanding make our policy actions more effective.

We are working to enhance the openness and effectiveness of our communications

Just recently, the Bank even had the gall to argue that its new charging regime for official information requests would support this; it “helps the bank fulfil the OIA in making valuable information publically available”.

I’ve illustrated on numerous occasions just how relatively un-transparent the Bank now is, whether in respect of monetary policy, financial regulation, or indeed its own corporate and governance activities.  In some ways and some areas the Bank has got worse, while in others it has just not kept up with best practice –  whether in other government agencies (especially those exercising regulatory functions), or in international central banking.

This won’t be a lengthy post.  It was prompted by reading a recent blog post by Dan Thornton, a former senior researcher at the Federal Reserve Bank of St Louis (and a very stimulating visitor to the Reserve Bank).    One of the features of the Federal Reserve system is that minutes of the FOMC meetings are released, and in addition full transcripts of those meetings (whether in person, or by conference call) are released five years after end of the relevant year.  You can see all the 2010 material the Federal Reserve has released here,  all readily accessible and nicely laid out.

Researchers and commentators use this stuff.  Here is the link to the post I was reading.  Thornton looks at one aspect of March 2009 FOMC meeting, a discussion around the wording of the statement that would be released.    For anyone interested, here is the heart of his discussion.

thornton

My point is not to take one side or other of the debate at the FOMC, but simply to illustrate the sort of openness that exists in the US, even with a lag, and contrast it with the situation in New Zealand.   It took me months last year to get the Reserve Bank to release the background papers to a ten year old Monetary Policy Statement – and I didn’t even bother asking for the minutes of the meetings, or the written advice to the Governor on the OCR, or any records of debate over the press release (all of which is official information, with a statutory presumption in favour of release).  Even that didn’t prompt a change in regular practice –  and if someone asked again now, for 10 year old papers, they would no doubt face a substantial charge.   Citizens and researchers, and even MPs, have no insights into the Reserve Bank’s processes or internal debates, beyond what (very little) the Governor chooses to publish in the MPS.  And the level of transparency around other Bank activities is even worse.  

The Federal Reserve isn’t perfect by any means –  and has fought transparency around, eg, its lending activities during the crisis –  but the contrast with the Reserve Bank of New Zealand is striking.