The Economist Asia - 03.02.2018

12 Leaders The EconomistFebruary 3rd 2018

1

W

HEN George H.W. Bush

lost his presidency after

four years in office, he blamed

Alan Greenspan for not cutting

interest rates fast enough in an

election year. “I reappointed

him, and he disappointed me,”

said Mr Bush of the Federal Re-

serve chairman. Janet Yellen cannot now be a let-down to Pres-

ident Donald Trump. She chaired her lastmeeting of the Fed’s

rate-setting committee this week; her successor, Jerome Pow-

ell, will serve beyond the next presidential election. On both

counts—the change at the top and the type of replacement—

America is setting a lead that others are likely to follow.

The guard may be about to change at other central banks,

too. Haruhiko Kuroda, boss ofthe Bank of Japan, must be reap-

pointed or replaced by April. Zhou Xiaochuan is expected to

step down as governor of the People’s Bank of China after 15

years (see page 64). Big changes are coming at the European

Central Bank (ECB). The eight-year term of its vice-president,

Vitor Constancio, expires in May. His is one of four jobs on the

ECB’s six-strong executive board, including the top post held

by Mario Draghi, which are up for grabs in the next two years.

The signs are that central bankers of Ms Yellen’s kind (nurtured

in academia, immersed in economic models, aloof from pol-

itics) are out of favour. The new central-bank bosses will prob-

ably, like Mr Powell, be generalists versed in the ways of gov-

ernment and mastersof a brief rather than a theory. They are

set, in short, to be more agreeable to politicians.

It is natural for politicians to want to hug central bankers

closer. The bankers’ powers have grown since the financial cri-

sis of 2007-08 in part because governments have themselves

been unable orunwilling to act. Central banks kept credit mar-

kets working, bailed out banks and gave confidence to shaky

bond markets. They have since been given, or been given back,

powers to regulate banks and to preserve financial stability.

The politicians’ instinct to appoint one of their own will be

amplified in Europe bythe usual horse-trading among euro-

zone members. Spain believes it is high time it got a top ECB

job, and is claiming the vice-presidency. Were a Spaniard to be

appointed, it might imply Mr Draghi’s job will go to a northern

European (though perhaps not to a German) to preserve bal-

ance between the euro zone’s core and periphery. France will

lose one post, so must gain another. And so on. It is unlikely

that someone with the qualities of Ms Yellen or Mr Draghi will

emerge from such a messy process.

The decline of the pointy-headed central-bank governor

need not be calamitous. Mr Zhou has been influential on a

broad range of economic reforms even though—or, perhaps,

because—the People’s Bank of China doesnot have autonomy

over monetary policy. Independence can sometimes be a trap.

Until Mr Kuroda was appointed in 2013 asits boss, with the ex-

press backing of Shinzo Abe, the prime minister, the Bank of Ja-

pan was loth to fight deflation aggressively in part because it

feared it would compromise its independence.

All over bar the Yellen

Yet there is also good reason to worry. An independent central

bank can be better trusted to act swiftly to curb inflation. That

trust also gives it freedom to cut interest rates when the econ-

omy turns down. The kinds of problems set by a booming

world economy and elevated asset prices (see page 61) are best

tackled by experts at some distance from politics. What central

banks need is not the appointment of officials who are less in-

clined to disappointtheir political masters. It isnew thinking

about how to make overmighty central banks more account-

able to electorates, while at the same time shielding them from

day-to-day political pressure. 7

Monetary policy

Changing of the guard

The growing powers of central banks will give rise to a different type of central-bank boss

A

FTER she contrived to lose

the Tories’ parliamentary

majoritylast yearin spite of a

widely unfancied Labour oppo-

sition, Theresa May was de-

scribed by one former cabinet

colleague as “a dead woman

walking”. That harsh descrip-

tion hasturned out to be only half-right. The prime minister’s

inactivity since the election means that it would be more accu-

rate to describe her as a dead woman standing still.

The lack of policies or purpose in Downing Street, coupled

with Mrs May’s frequent political pratfalls, have driven the

Conservative Party to the brink of seeking a new leader (see

page 48). The case for getting rid of the prime minister is com-

pelling. But consider more closely what would follow and

there is a stronger, though depressing, argument that if Britain

tried to replace its failing leader it would be even worse off.

Sub-prime

Since her electoral disaster Mrs May has blown several last

chances. She mishandled the aftermath of a tragic fire at Gren-

fell Tower. She spluttered her way through a speech designed

to relaunch her premiership, as the set literally fell apart be-

hind her. When she attempted a cabinet reshuffle some of her

ministers refused to budge. Worse than these blunders is the

Theresa May

Intolerable but unsackable

Britain must hang on to its inadequate prime minister