The devil you know
The Reserve Bank of Australia (RBA) will be getting a new governor this month, perhaps as soon as this week. According to The Australian:
“A decision is due before the end of July, with Treasury having provided the Treasurer with a short list of candidates that Dr Chalmers will take to cabinet within the next fortnight.
Sources have confirmed that [Treasury Secretary] Dr Kennedy was short-listed along with Finance Department secretary Jenny Wilkinson.”
Other candidates listed by the newspaper include Philip Lowe; Michele Bullock (Lowe’s deputy); David Gruen (ABS chief statistician); and Guy Debelle (Lowe’s former deputy).
None of those people are good choices.
First there are the true insiders, the career central bankers in Lowe (governor), Bullock (deputy governor) and Debelle (deputy governor until 2022). They all held some of the most senior positions at the RBA when the decision to unleash unprecedented monetary stimulus, and then wait far too long to start rectifying their mistake, was made. They also decided to put the taxpayers on the hook for hundreds of billions of dollars worth of loss-making bond purchases, without so much as a cost benefit analysis.
Worse, they did it all while assuring the Australian people that rates would not increase until 2024 (Hayek’s pretence of knowledge says hello). Their hubris knows no bounds.
Moving on, Gruen and Wilkinson also worked at the RBA (but not recently) and happen to be husband and wife. Both are deeply embedded within Canberra’s political elite:
“Presumably it can’t hurt Wilkinson either that her niece, Anna Gruen, works as a macroeconomics adviser in the office of Chalmers, or as a ‘trusted adviser’, as she was dubbed by Assistant Minister Andrew Leigh during a lecture he gave in honour of her grandfather, renowned economist Fred Gruen, last year. Nor would it necessarily hurt the other Gruen on the RBA shortlist, her uncle David, who’s married to Wilkinson and remains the chief statistician at the Australian Bureau of Statistics.”
Wilkinson won a public service medal in 2021 “for the formulation of the Australian Government’s economic response to COVID-19 and implementation of JobKeeper”.
That’s right, the very JobKeeper that was implemented so well that “$25 billion was paid to firms that subsequently failed the scheme’s turnover test”. Treasury reported that $40 billion of taxpayers money was probably wasted by JobKeeper, making it by far Australia’s worst designed and implemented expenditure scheme… ever.
Last but not least there’s Kennedy, the current Treasury secretary. He was on the RBA board during the ill-conceived stimulus of 2020-21 and like Wilkinson was “a key architect of the Covid stimulus response”. So not only are his fingers all over the RBA’s monetary policy errors, he’s also at least partially responsible for fiscal mistakes such as JobKeeper and the dubious bailouts given to the likes of Qantas, which scored itself around $2 billion for which the government received no equity and placed no repayment triggers, unlike governments in other countries.
But in government, grand failures that might cause us regular Joe’s to suggest gross incompetence are often rewarded with medals and promotions, so it’s no surprise that Kennedy and Wilkinson are both front runners for the high-status RBA governorship position.
Sometimes all that matters is who you know, especially in Canberra.
Now in a perfect world, who gets the top job shouldn’t matter too much: the RBA’s governance structures should have enough checks and balances to prevent a governor from moving too far to one extreme or the other. But with the increased politicisation of the independent RBA – even state Premiers are now weighing in on monetary policy – the top job matters more than ever.
Which is precisely why Lowe should be reappointed.
Yes, he messed up. But while we have no counterfactual, central bankers all over the world goofed almost in unison, some much more so than the RBA (looking at you, Bank of England). Would any of the other candidates named above have avoided making the same mistakes as Lowe? Unlikely, and you might be tempted to argue that given their track records and strong personal ties to Canberra’s elite, many would have performed even worse in the same situation.
So I say go ahead and give Lowe another seven years; let him atone for his mistakes. After all, sometimes it’s better the devil you know than the devil you don’t.