Beyond price stability and reactionary Keynesianism

I really enjoyed the talk “Beyond Price Stability” with Daniela Gabor and Adam Tooze.

A few points that stood out for me:

(Implicit) coordination between monetary and fiscal authorities has been increasing since the GFC. This year, 70% of the debt issued by the Euro area was bought by the ECB. According to this piece in the FT, prior to its latest round of QE last week, the Bank of England owned 44% of outstanding government bonds.

While coordination is subtly back on the table, they caution against seeing this as a revolutionary return to the days of explicit fiscal and monetary policy coordination. Coordination, especially in the EU, has usually come with conditions attached, and central banks have been the ones to set the conditions for intervention and coordination, not governments.

This is an enormous amount of power given how important these interventions have been for maintaining the continuation of politics. Absent Draghi’s “whatever it takes,” the EU could have fractured. Absent central bank’s massive and repeated interventions into government bond markets since the crisis, the world could have been thrown into economic depression.

Adam Tooze argued “the integrity and the cohesion of monetary and fiscal policy should be the premise, not as it were, something that we contingently agree to because the circumstances demand it.”

But he also cautioned against progressives calling for this absent a constellation of forces to guarantee it.

It reminded me of Zach Carter’s discussion of reactionary Keynesianism in his biography of Keynes; big spending government can just as easily be attached to projects like the Vietnam War and nuclear armaments as it can to health and education.

Daniela, who writes lots on green finance and monetary policy, framed an essential question for central banks looking to ‘green the financial system’: will they enforce rules of the game created by private actors (who often have an incentive to greenwash), or develop their own rules to enforce?

Well worth listening to.