Just some more Carney-related stuff - namely that you often (more than often!) hear of bankers and people in finance being poached left, right and center but when have we had central bank poaching at this level? I really really do believe that being a central banker might well be the single most important position in certain countries.
Matt O'Brien at The Atlantic advocated a global market for central bankers and argued for a removal of the home-grown theory. This was back when news first filtered of Carney being a front-runner. In it, he said
"Let's try a thought experiment. Say that Lars Svensson -- one of the world's top monetary economists and the current deputy governor of Sweden's central bank, the Riksbank -- could get our economy back to trend in half the time Ben Bernanke could. It's actually plausible-ish. Like Bernanke, Svensson spent his academic career championing unconventional monetary policy as a "foolproof" way to escape a liquidity trap. (Coincidentally, they were colleagues at Princeton). But unlike Bernanke, Svensson's Riksbank has been much more willing than Bernanke's Fed to experiment with these kind of heterodox policies. Perhaps unsurprisingly, Sweden's recovery has been the envy of the developed world. So I ask again: How much is a good central banker worth? Put simply, how much cash should we throw at Svensson to steal him away from Sweden?
Now that's some food for thought - assembling a superstar monetary policy team of global talent.
Sid Verma had an eye-opening piece in Euromoney where he notes how 'Finance's New Statesman's signature move in Canada was undoubtedly the 50 bps rate cut he administered one month into power (the ECB raised rates for the record) along with tact use of language and forward-guidance a year later to hold the rate there for a year once the lower-bound had been hit.
Here's the actual BoC announcement from back then:
"With monetary policy now operating at the effective lower bound for the overnight policy rate, it is appropriate to provide more explicit guidance than is usual regarding its future path so as to influence rates at longer maturities. Conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target. The Bank will continue to provide such guidance in its scheduled interest rate announcements as long as the overnight rate is at the effective lower bound."
For the sceptic in you, Nomura's Philip Rush says, "The only potential negatives we see are ones of perception rather than substance. Specifically, how the proliferation of ex-Goldman's bankers assuming senior policymaking positions around the world may feed popular mistrust, and how Mr Carney's willingness to leave previous posts may reflect a lack of commitment to each job."
Neither a dove nor a hawk and a trend setter to boot (the BoC was the first G7 central bank to introduce the conditional commitment concept), it's clear that big, innovative things are expected from Carney. Perhaps a bit too much.
But with fiscal gridlock (read: austerity -> read: idiocy), how much can one man get done? It's something Bernanke probably asks himself every single day.
Matt O'Brien at The Atlantic advocated a global market for central bankers and argued for a removal of the home-grown theory. This was back when news first filtered of Carney being a front-runner. In it, he said
"Let's try a thought experiment. Say that Lars Svensson -- one of the world's top monetary economists and the current deputy governor of Sweden's central bank, the Riksbank -- could get our economy back to trend in half the time Ben Bernanke could. It's actually plausible-ish. Like Bernanke, Svensson spent his academic career championing unconventional monetary policy as a "foolproof" way to escape a liquidity trap. (Coincidentally, they were colleagues at Princeton). But unlike Bernanke, Svensson's Riksbank has been much more willing than Bernanke's Fed to experiment with these kind of heterodox policies. Perhaps unsurprisingly, Sweden's recovery has been the envy of the developed world. So I ask again: How much is a good central banker worth? Put simply, how much cash should we throw at Svensson to steal him away from Sweden?
That's another way of asking how long it will take the economy to return to trend. Here's where things get really depressing. According to Fed Vice Chair Janet Yellen, we won't get back to full employment until after 2018. If we assume the output gap will steadily shrink until then, that leaves us with roughly another $4 trillion in lost income. Maybe more. If Svensson really could double our recovery speed, he'd be worth $2 trillion to us. Even if that's being wildly optimistic, something on the order of hundreds of billions of dollars probably isn't. Tell me that wouldn't be worth paying Svensson a billion dollars a year. Maybe more.
The above suggestion is obviously a bit tongue-in-cheek ... but not completely. Right now, central bankers are paid almost entirely in prestige. Ben Bernanke is making just $199,700 this year. That's not to say that we need to pay central bankers more to attract the best ones. We don't. Economists really care about prestige.
This doesn't necessarily lead to the most efficient allocation of monetary economists. As Matt Yglesias pointed out, we'd ideally have economists prove their central banking chops in smaller countries before moving up to the big leagues of the Fed or the ECB or the Bank of England. Put a bit less diplomatically: Sweden is important, but it's a relative waste of Svensson's talents not to have him running a bigger central bank. (Not that I have anything against Sweden). Here comes the "to be sure" sentence: It wouldn't be enough just to import Svensson. As L.A. Galaxy fans can tell you, bringing in one (albeit, overrated) superstar like David Beckham doesn't help much if his teammates are only mediocre. We'd need to create a Federal Reserve board equivalent of the Super Friends for Svensson to make the biggest difference. We might even find out that we already have a superstar in Bernanke in that scenario.
This doesn't necessarily lead to the most efficient allocation of monetary economists. As Matt Yglesias pointed out, we'd ideally have economists prove their central banking chops in smaller countries before moving up to the big leagues of the Fed or the ECB or the Bank of England. Put a bit less diplomatically: Sweden is important, but it's a relative waste of Svensson's talents not to have him running a bigger central bank. (Not that I have anything against Sweden). Here comes the "to be sure" sentence: It wouldn't be enough just to import Svensson. As L.A. Galaxy fans can tell you, bringing in one (albeit, overrated) superstar like David Beckham doesn't help much if his teammates are only mediocre. We'd need to create a Federal Reserve board equivalent of the Super Friends for Svensson to make the biggest difference. We might even find out that we already have a superstar in Bernanke in that scenario.
Central banking should be a superstar profession. The difference between a top central banker and an average one can be astronomical, particularly when conventional policy is impotent. An efficient market would pay them accordingly. If the United States spent $10 billion assembling a central banking fantasy lineup of Lars Svensson, Stanley Fischer, Adam Posen, and Christina Romer, it would probably be a phenomenal investment. It'd pay for itself many, many times over. The biggest challenge is changing the norms around central banking. We shouldn't just consider the top American economists for the top spots.
We're a nation of immigrants. The Federal Reserve should reflect that."
Now that's some food for thought - assembling a superstar monetary policy team of global talent.
Sid Verma had an eye-opening piece in Euromoney where he notes how 'Finance's New Statesman's signature move in Canada was undoubtedly the 50 bps rate cut he administered one month into power (the ECB raised rates for the record) along with tact use of language and forward-guidance a year later to hold the rate there for a year once the lower-bound had been hit.
Here's the actual BoC announcement from back then:
"With monetary policy now operating at the effective lower bound for the overnight policy rate, it is appropriate to provide more explicit guidance than is usual regarding its future path so as to influence rates at longer maturities. Conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target. The Bank will continue to provide such guidance in its scheduled interest rate announcements as long as the overnight rate is at the effective lower bound."
For the sceptic in you, Nomura's Philip Rush says, "The only potential negatives we see are ones of perception rather than substance. Specifically, how the proliferation of ex-Goldman's bankers assuming senior policymaking positions around the world may feed popular mistrust, and how Mr Carney's willingness to leave previous posts may reflect a lack of commitment to each job."
Neither a dove nor a hawk and a trend setter to boot (the BoC was the first G7 central bank to introduce the conditional commitment concept), it's clear that big, innovative things are expected from Carney. Perhaps a bit too much.
But with fiscal gridlock (read: austerity -> read: idiocy), how much can one man get done? It's something Bernanke probably asks himself every single day.
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