Robert Gerard - throwing the switch on cronyism

When he was ALP shadow communications minister, Lindsay Tanner suggested something like the Nolan Rules for appointments to the ABC board. With shadow treasurer Wayne Swan flagging policy development on RBA board appointments, let’s hope the idea catches on.

The RBA is alone among its central bank peers in not having monetary policy decisions formally dominated by economic experts. Indeed its board comprises fewer experts than non-experts.

It’s easy to ridicule this. But some wise elder statesmen defend it. In 2000 in a speech to the Sydney Institute, then treasury secretary Ted Evans addressed a national debate that had been sparked by my proposal to build independent fiscal policy institutions like our independent monetary institutions.

Evans argued that though RBA board members should not be party-political, they should have “political abilities”. The Australian tradition of monetary independence has always valued what I’d call “engaged independence”. Here the RBA seeks to combine its fundamental commitment to appropriate monetary policy with close collaboration with governments.

This, and the government’s “reserve power” to publicly overrule the bank (which has never been used for fear of market and political reactions) helps co-opt government into tacit - albeit sometimes reluctant - support of the resulting monetary stance.

Evans argued that these subtleties were lost on those calling for an all-expert board:

[A]t least at this stage of Australia’s economic development, monetary policy has become independent partly because the Bank Board is not so comprised.

I admire this reasoning, and the way Australian monetary policy has “muddled through” to be as good today as any country’s. But to use Evans’ expression, the argument has been lost on some - like the prime minister and treasurer whose continued brazen defence of Gerard has thrown the switch to cronyism.

However hard it was won, RBA independence is now well established. So I think it’s time to move on - and appoint the board transparently and on merit.

I also hope that the bank will continue its recent exemplary record of “collaborative independence” to deliver a combination of low inflation and employment growth that’s as good as any central bank in the world.