Added remit: "Reducing inequality" for central bank

Proposer
cyanc
State

Accepted

Vote Score

0

Age

2250 days


@cyanc edited manifesto/economy.md - about 6 years ago

We will instruct HM Treasury to produce a roadmap for the future of currency and the role of central banks in a world with non-state-issued digital currencies, such as Bitcoin.

The central bank will be given the remit of 'reducing inequality' alongside its existing remits of maintaining inflation at 2% and promoting 'stability'.

cyanc

@cyanc - about 6 years ago

This is up for discussion. It would create a deliberate confict of interest between restricting price inflation by lowering interest rates, and the unintended consequences of such actions - increasing asset inflation (e.g. property prices and share prices). Asset inflation is good for the wealthy because they hold assets, the poor don't hold assets so lose out - e.g. housing becomes more expensive. This is an example of "predistribution"; rather than allowing assets to rise exponentially and then taxing them, take action to restrict their rise in the first place.

Floppy

@Floppy - about 6 years ago

I like this idea 👍

PaulJRobinson

@PaulJRobinson - about 6 years ago

I like this idea too. Could we be a little more precise (wording wise) with what sort of inequality the Bank will be trying to reduce? ie we aren't talking about making everyone's height more equal so we can all enjoy a similar success at basketball. I know we can infer your meaning, but I like to nail these things down. Would "reducing inequality of wealth" be appropriate? Inequality of income? I'm not sure of the correct answer. Thoughts?

Floppy

@Floppy - about 6 years ago

Is there a technical definition we can lean on? https://en.wikipedia.org/wiki/Gini_coefficient for instance?

Floppy

@Floppy - about 6 years ago

Perhaps the bank could have a target of keeping the gini coefficient below 0.3 (on a par with Germany, slightly below France)?

PaulJRobinson

@PaulJRobinson - about 6 years ago

Agree with @Floppy as I think Central Banks like precisely defined numeric targets rather than philosophical ones.

cyanc

@cyanc - about 6 years ago

My thoughts on this.

Yes, "promoting stability" is a philosophical target. I could argue that allowing property prices to rise by 18% in London in 2014 is a failure to provide stability, however the bank is probably looking at financial market volatility so philosophical targets are subjective and are in this respect bad.

Having said that, the bank has also failed to keep price CPI inflation at 2%, it was above target for a number of years and the bank agued that this was a price worth paying for saving the banks with low interest rates. That's a specific target that it has failed at. So you could argue that technical targets are bad too.

Recognition needs to be given that the bank cannot control an economy, but people need to be able to understand what the bank's remit is and be able to recognise when it has failed in order to be able to put pressure on politicians to hold it to account.

Philosophical tagets connect with the people more closely than abstract mathematical formulae.

cyanc

@cyanc - about 6 years ago

So perhaps both need to be specified to convey both the spirit and the measurement of the remit.

Floppy

@Floppy - about 6 years ago

Seems sensible.

philipjohn

@philipjohn - about 6 years ago

I like this 👍

Not sure whether this needs to be in the manifesto itself but worth acknowledging that there are many factors influencing economic inequality and so expanding the bank's remit without granting more power may simply set the bank up to fail. Perhaps it's a wording thing around it's "consideration" of the gini coefficient.

Does the bank currently face any sort of sanction for failing to hit it's targets?

Floppy

@Floppy - about 6 years ago

@cyanc this is looking good to go in, though it will remain open for a couple of weeks to allow people time to comment. If you want to add anything to respond to comments, you should be able to click 'edit' on https://github.com/openpolitics/manifesto/pull/191/files and edit the change.

cyanc

@cyanc - about 6 years ago

@philipjohn I agree. Having considered this a bit more. It's reasonable to argue that if the bank cannot stick to a 2% inflation target, which is supposedly a measure that can be influenced directly by monetary policy (e.g. changing interest rates), a target such as the GINI coefficient, which is affected by potentially hundreds of factors is a bit unrealistic as a hard target. I think your suggestion of taking it into consideration when formulating fiscal and monetary policy would be a better wording.

This could form part of a wider set of intentions and actions to reduce (or restrict the growth of) inequality, and would make it more difficult for monetary policy that encourages inequality to be justified or defended.

In answers to your question, currently the bank has no sanctions if it cannot hit the inflation target, but it has to write an open letter to the chancellor if it misses its target by more than 1% over two months. There are no sanctions regarding "stability".

@cyanc edited manifesto/economy.md - about 6 years ago

We will instruct HM Treasury to produce a roadmap for the future of currency and the role of central banks in a world with non-state-issued digital currencies, such as Bitcoin.

The central bank will be required to consider the reduction of inequality (as measured by the GINI coefficient) when formulating monetary policy to balance its existing remit of maintaining price stability and inflation at 2%.