For Lords Howe and Lawson, the conversion came about for practical reasons. They were fed up with trying to persuade Baroness Thatcher that interest rates should occasionally go up as well as down. If even a politician who prided herself on her commitment to low inflation could have such a mental block about higher mortgage rates, then the case for Bank of England independence had merit.
At first sight, Mr Lamont's conversion looks more odd, especially given his criticism of the independent German Bundesbank. Why should we import arrangements that have plunged Germany into its worst post-war recession and that set up an undemocratic and unaccountable group of conservative financiers as the sole arbiters of interest rates?
Part of the answer is that independent central banks may well be fallible, but they are less fallible than politicians. The mistakes they make are at least honest misjudgements of economic conditions, whereas the mistakes of politicians frequently arise from less pure motives, and occur more often. Ministers have a covert agenda, which is re-election. Pre-election interest rate cuts can deliver good times, but are followed by post-election hangovers.
Since the Second World War, there is little doubt that Germany's economic institutions have been preferable to ours. Germany has had a lower inflation rate in every year but a few; a higher average rate of growth of output, incomes and living standards; a lower average rate of unemployment and an economy less prone to the booms and busts that have been the unhappy hallmark of our own.
An independent central bank charged with keeping inflation low is an essential part of the German institutional mix. By persuading wage bargainers and financial markets that inflation will stay low, it is actually easier to make it do so. There is less pressure for unrealistic wage rises, so that there is less pressure on costs and prices. There is also less risk of employers slashing jobs because they have misjudged their ability to pass higher wages on to customers.
The cost of financing government deficits and debt is also lower, because financial markets believe there are smaller risks of a rise in inflation that would erode the value of the outstanding debt. The Government is also likely to be able to borrow more easily during a recession. These are good economic reasons for believing that an independent central bank will help ensure both low inflation and more stable output and jobs.
The case is not based solely on Germany's experience. The diagram shows the result of academic research into the link between low inflation and central bank independence. The more independent the central bank, the lower the inflation rate.
There are, however, fears that an independent central bank is in some way undemocratic. But it would be Parliament that decided that national objectives were better pursued by an agency at one remove from the executive arm of Government, a decision no more undemocratic than delegating arts subsidies to the Arts Council or legal cases to judges. And, after all, the legislature preserves its right to alter those institutional arrangements.
The legislature can also call an independent central bank to account for the pursuit of its objectives. Alan Greenspan, chairman of the independent US Federal Reserve, gives regular testimony to Congress. The Fed's decision-making Open Markets Committee publishes each month the minutes of its previous meeting. A central bank can be both independent and accountable.
There is an alternative model of accountability in New Zealand, which some prefer. The previous Labour government gave the central bank governor, Don Brash, a pay-by-results contract to cut inflation. The new right-wing government regards the innovation as such a success that it has renewed his tenure.
This process of accountability is part of the answer to another line of attack on central bank independence, which is that we would be placing too much power in the hands of an excessively conservative group of people. The Bundesbank, under its president, Helmut Schlesinger, has raised inflexibility to an artform. As a result of his niggardly interest rate cuts, German industrial output has fallen further than Britain's.
An ability to be flexible matters particularly when an economy has suffered a large shock, such as the world oil price rises of 1973 or 1979 or the impact of reunification on Germany. In those circumstances, a brutal attempt to squeeze inflation out of the system can lead to a deep and damaging recession. But that is not an argument against central bank independence per se; it is an argument for refining the bank's objectives so that any reduction in inflation is gradual.
Alan Greenspan has won widespread praise for his management of US interest rates through the recession. An independent Bank of England would probably look more like the US Federal Reserve than the Bundesbank, precisely because it would reflect our culture. It would be composed of British, not German, central bankers. Neither Britain nor the United States has Germany's exceptional fear of inflation, which stems from its Weimar experience of hyper-inflation. In Britain, gradualism would rule.
The idea that one could merely accept any higher rate of inflation suffers two objections. The first is simply that a high inflation rate is rarely stable: little jolts, such as a rise in import prices or a spurt in wage claims, can push it up and suddenly it is not just a high, but an accelerating, inflation rate. The second is that the voters will not wear it. We surely know, after the experience of the Seventies, that people are prepared to vote for low inflation and will pay a high price for its reduction.
Britain has now endured all the agony of reducing inflation to 1.3 per cent, its lowest level for a generation, and it makes little sense to throw away that gain. All the great recessions have been caused by great booms and inflations. This one is no exception. We should surely try to avoid the same mistake again. An independent Bank of England is not a panacea, but it would reduce the risk of another ride on Britain's familiar economic roller coaster.
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