Well, it was not hard to see this one coming. Highly regarded Australian academic economist, John Quiggin, who is known to extend his inter-neuronal connections into fields beyond his direct area of expertise, argues in favour of reducing the RBA's political independence and increasing its 2-3% inflation target. As far as I can see, John does not tender credible cases in support of this thesis. It is more an ideological crusade that bundles together independent, inflation-targeting central banks with Libertarian, free-market fundamentalism, the latter of which is John's bete noire. This is one debate Australia does not need. On the contrary, I believe we should consider cutting the RBA's CPI target from 2.5% to 1.5%. The RBA currently seems incapable of hitting its 2.5% pa through-the-cycle target, and there is apparently little discontent delivering core inflation in Australia that averages 3% pa. A lower target would mean, amongst other things, higher average rates, higher levels of household saving, and a lower incentive to speculate on risk assets. You can read John's full article here, or take the summary immediately below:
"A higher inflation target would be an even more direct repudiation of central bank independence. Not only would it facilitate active fiscal policy but it would underscore the point that the greatest financial disaster in history occurred during the era of strong central bank independence and as a result of the combination of central bank independence and financial deregulation, previously cheered on as the cause of the Great Moderation.
To paraphrase Clemenceau, monetary policy is too important to be left to central bankers. Governments will inevitably held responsible for the outcomes of macroeconomic policy, so they need to take a substantial share in shaping it."
