THE WORLD’S WORST CENTRAL BANKER
Author: L. Randall Wray
Nay, I just returned from a conference held by the Central Bank of Argentina—“Central Banks, Financial Systems and Economic Development” held in Buenos Aires on October 1st and 2nd. Yours truly gave a talk on Modern Money—and the powerpoint will appear below (not magically—I’ll probably need professional help so your patience will be required).
In attendance were what appeared to be about 200 central bankers from across the globe, plus a smattering of reps from international financial institutions like the IMF and as well a few from academia.
An unusually large number of presentations were given by economists who can loosely be charged with heterodoxy: Jamie Galbraith, Anwar Shaikh, Stuart Holland, Jane Knodell, Jayati Ghosh, John Weeks, William Lazonick, Dirk Bezemer, Fernando Cardim de Carvalho and many others.
What the heck was this motley crew doing at a Central Bank conference? One cannot imagine them at Jackson Hole.
Well, here’s the deal. The head of the Argentine Central Bank—Mercedes Marco del Pont–has been awarded the distinction as “the world’s worst central banker” (). By whom, you might ask? Well, by Wall Street’s sycophantic press. Wall Street hates Mercedes. The woman, not the car.
Why? Well, for one thing she’s a woman. Wall Street hates female heads of central banks (take a look at the list of the top ten worst—3 out of 10 are female; then take a look at the 10 best, of which all but one are males.)
But that’s not anywhere near the most important reason. Ms. Marco del Pont kicked off the conference with a rousing talk, defending her central bank’s recent move away from a single mandate (inflation target) to pursuit of multiple mandates: financial stability, employment creation, and economic development with social equity.
Boy does Wall Street hate that.
Stability? Where’s the profit in stability? Employment creation?—Wall Street is a job destroyer.
Economic development? Nay, Wall Street wants de-development, a return to a feudal economy as finance plays the role of wealth-extracting feudal lord.
Social Equity? You’ve got to be pulling my leg. Wall Street is overseeing the greatest concentration of wealth in the hands of the new oligarchy that the world has ever seen.
No wonder they hate Mercedes.
Moi? I’ve seen the perfect replacement for Ben Bernanke when his current term ends. I do not know whether a foreign national can be picked to head the Fed, but if not we ought to be working on removing the restriction. Governor Marco del Pont’s presentation was the most eloquent defense of the multiple mandate that I’ve seen. She laid out the need to rethink the role of central banks—to push them to directly provide finance for development and to ramp up their historic role of cooperating with the treasury to finance needed public spending.
When she mentioned her “award” given by the lapdog press, she clearly relished the battle. Later that evening I (unfortunately) was seated at dinner with a former IMF economist, now a central banker in India. He confidently predicted that Argentina will be “kicked out” of the IMF any day now because of the incompetence of its government and especially of its embarrassing central bank.
(Sure enough, the IMF’s Christine Lagarde has threatened a “red card”—soccer speech for expelling a player—to which Argentina’s feisty President Kirchner replied: “My country is not a soccer team. It is a sovereign country and, as such, is not going to accept a threat.” If there is anything Wall Street hates more than a country with a female Governor of its Central bank, it is a country that puts women in charge of both government and the central bank!)
My immediate thought as I listened to the Indian central banker’s smug assessment of Argentina’s fate: that’s like being kicked out of a motorcycle club or drug cartel for insufficiently enthusiastic raping and pillaging of innocents. There are some clubs you just don’t want to be a member of.
The twinkle in the Governor’s eye told me she appreciates the irony that her central bank’s concern with the 99% is what makes her incorrigible in the eyes of the IMF’s flunkies.
(Oh, and as an aside, this IMF official/India Central Banker went on to claim there is no longer any poverty in India, that the caste system is actually a thinly disguised scheme for social advancement—sort of like Aristocratic Polo Clubs for everyone–and that India is the greatest land of opportunity the world has ever known, with all Indians “free to choose” whether to be rich—or poor—according to individual tastes, and thus the globe’s most perfect example of democracy to which all others ought to aspire. Such is the ecclesiastical orthodoxy we mortals encounter in central banking circles.)
So what is the basis of the international attack on Argentina, aside from the fact that its leaders are thumbing their noses at the IMF? Well, Argentina has “high” inflation. How high? Well, it depends on how you measure it. The government’s numbers come in around 10%; the right wing press claims 25% or so. To be sure some of this is just about measurement: inflation is measured as growth of some price index so it matters critically what you put into the index, how you measure inflation of the individual components, and what weighting you give to each. This always surprises students—who think that the CPI numbers are handed down by heaven. In truth, they are constructed, by fallible humans, and are always subject to controversy. (If you want to read up on construction of the USA CPI, you can take a look at this: )
But here’s the more important point. Argentina has been growing very quickly since its financial crisis in the early 2000’s. It abandoned its currency board fix to the US dollar, it adopted a job guarantee program (Jefes), it defaulted on its dollar-denominated debt, and it told the IMF to take a long hike to hell. Rapid growth was thus inevitable. Unemployment and poverty plummeted and living standards rose. The currency stabilized and wages and prices started to inch up. More recently, the global commodities boom that resulted from Wall Street’s speculation drove up prices of Argentina’s main commodities outputs: soybeans and beef. These are both major exports and major components of the domestic consumer basket.
Believe me, an Argentinean without massive quantities of beef served at the table at least three times a day is not a happy Argentinean.
It is thus understandable that Argentina faces double digit inflation; indeed the result was entirely predictable. Imagine that your country is both a producer and a major consumer of a scarce commodity—say gold. In a speculative boom, gold prices rise quickly but that does little to quell domestic demand for gold. Indeed, as prices rise, domestic consumers bid prices ever higher as they try to get their share of output. Government policy will most likely turn against exporters due to the political necessity of conserving a share for local consumption. And then imagine that a natural disaster (earthquakes destroy some of the mines) reduce local supply. Inflation and some degree of social discomfort would be inevitable.
That’s more-or-less what happened in Argentina recently, as bad weather reduced soy and beef output. (And politics made the shortages worse by further restricting supply.)Rising global prices as well as falling domestic output (and thus employment) squeezed consumers who insist on keeping beef in the consumer basket. It is not at all surprising that Argentina is experiencing inflation—somewhere between 10% and 25% depending on how you measure it and who you believe. And that consumers are pissed.
But inflation will come down quickly. Prices are up mostly due to global speculation in commodities. I’ve written about that before—this is by far the biggest commodities speculative bubble in human history—so won’t go into it here except to say that what bubbles up to record highs will collapse into unfathomable lows. Presto-Change-O, Governor Marco del Pont’s main thorn in the side disappears.
(To be clear, I do not think the road ahead will be free of bumps. The coming next great recession in the developed world is going to hurt Argentina’s exports so it has got to find sufficient domestic demand to replace that.)
At the end of the conference, Argentina’s Vice President Amado Boudou joined the Governor to defend the maverick approach taken by Argentina’s government. He insisted that the Governor at the helm had brought a “breath of fresh air” to the central bank. He recounted his recent attendance at a G20 conference on “new ideas” at which he proclaimed there were no new ideas. He also ridiculed the currently fashionable view that central banks must focus only on preserving the “value of the currency” through inflation targets: a money anchored to the bottom of the sea will cause the boat to sink in the first serious storm. What really counts, he rightly insisted, is unemployment: with higher unemployment you get more debt, more poverty and less economic growth. That is why you need jobs, not single-minded devotion to stable prices.
We are, he said, at a crossroads in economics. Not only in terms of what goes on in the world, but also in terms of how we look at the world. In recent years we have put the financial system in center stage—to our detriment. We need, instead, to put employment and development first. And to do that we need to stop listening to the multi-lateral institutions (and, I’d add, to the central banker lapdogs) who offer the same tired recipes that have always failed.
If Argentina has got the world’s worst central banker, what we need is a race to the bottom.