Posted by: Dirk | January 13, 2009

Lords of Finance

The Economist has published a review of Lords of Finance: The Bankers Who Broke the World by Liaquat Ahamed. It ends on a sour note:

Perhaps this kind of single-mindedness is endemic to central bankers; since the early 1990s the idea of controlling inflation at all costs has been so compelling that central bankers have ignored such unintended consequences as bubbles in the housing and stock markets. But these were big enough, when they burst, to trigger a worldwide slump. Not lords of finance surely; more like high priests.

These days, I am co-authoring an article (for a book, since peer-reviewed journals would surely not publish this heresy) which deals with the question what central bank governance means. I can already say that a central bank’s responsibilities do not end with keeping inflation constant. If it were so, Knut Wicksell would have shouted Heureka back in 1898. He didn’t.

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