|
|
Free-Standing Monuments
Last week, in the greatest English electoral landslide in 150 years, the Labor party routed the arch-capitalist Tories. Working stiffs are in charge for the first time since the beginning of Thatchermania, 17 years ago.
The new Prime Minister, Tony Blair, moved into No. 10 Downing Street, and then announced his first policy decision: control over interest rates and monetary policy is forthwith removed from Parliament, and instead given to an independent Bank of England. Simultaneously, short term interest rates rose .25%.
In response to the news, English stock and bond markets enjoyed record rallies, and the press reported not one single Labor voice raised in opposition.
A deal, maybe? The Bank of England gets "independence," but agrees that jobs and economic growth will have priority over inflation-fighting?
No such deal. The charter given to the Bank of England is simple and direct: hold inflation under 2.5%. If done so, jobs and the economy will take care of themselves.
At a stroke, England has a true central bank, and in no coincidence at all, it is designed on the model of its American cousin, the Federal Reserve -- as are all the other effective "Fed's" in the world.
The tightfisted Bundesbank is a post-war invention, only half the age of the American Fed. The European Monetary Institute, which will govern the new European currency in 1999, is chock full of Fed-believing German, French, and Italian graduates of the University of Chicago.
In more remote spots, two great, Fed-style triumphs over inflation are enjoyed in Argentina and New Zealand. Even China has empowered a "Fed" to rein in monetary growth and inflation. Non-believers fail: Russia's non-recovery is in large part due to the kleptocrats still in charge of the printing press at the remnant Red-Fed.
Why do the American-style Feds perform so well? Independence from political interference is the key.
These modern central banks do have excellent information, but given the largest budgets and staffs in the economic profession, they ought to. The American Fed has about 500 economists and a budget measured in the billions, and gets corresponding results. A recent study covering the period 1965-1991 concludes: "If commercial forecasters had access to the Federal Reserve's forecast of future inflation, they would find it optimal to simply discard their forecasts and adopt that of the Federal Reserve."
However, splendid information is merely a library curiosity without the will to use it, and politicians cannot be trusted. Witness Dick Gebhardt, ex-Speaker of the House and Presidential aspirant. While the Fed obviously feels the need to raise the cost of money, Mr. Gebhardt last week authored a letter (co-signed by 59 of his Democratic colleagues) to Mr. Greenspan denouncing "unwarranted" rate rises.
In sharp and unusual contrast, another leading Democrat has maintained a proper distance from the Fed -- gnashing his teeth from time to time, but nevertheless respecting its independence.
Last week, Mr. Clinton dedicated the new memorial to Franklin Delano Roosevelt. I expect it occurred to Mr. Clinton during the proceedings that whether because of unfair attacks or a very ordinary era, there will never be a statue to William Jefferson Clinton in Washington, D.C. Maybe in Little Rock, but not by the Reflecting Pool.
Perhaps there should be one, outside the Fed's D.C. headquarters, with an epitaph reading, "He Had the Wit to Leave Us Alone."
|
