Column by Mervyn King and Dan Katz: Central banks risk independence | Ap
Amid widespread frustration with the inability of elected policymakers to solve the critical issues of the day, influential voices – including politicians, economic leaders and the general public – have increasingly called on central banks to intervene. Central banks have become “the only game in town. “Central bankers responded readily, moving into the political arena.
This started notably with climate change and the formation of the Network for the Greening of the Financial System. But it didn’t stop there. Central bank officials are now concerned with a wide range of political issues, from racial justice to inequality, from education to public health.
These are serious challenges for our societies. But the seriousness of a problem is not the only, or even the most important, criterion for central bank intervention. Certain social problems deserve a monetary answer. Most don’t.
It is true that many of the new issues that are catching the attention of central banks have economic implications. Clearly, pollution and its effects, including climate change and declining biodiversity, will affect the economy.
But attempts to bring these issues into the realm of monetary policy place too much strain on central banks. In a world of radical uncertainty, their economists find it difficult to meet even their traditional responsibilities of economic forecasting. Recent inflation overruns, after a decade of persistent undervaluations, suggest the need for greater humility.