The developed world needs long term structural reforms, not endless monetary stimulus. Reforms require international co-ordination. But that’s a big ask of politicians elected with a mandate and horizon of just a few years.
There is a screaming lack of political will to heed European Central Bank president Mario Draghi’s repeated calls for structural reforms in Europe, even though most of the EU’s big hitters recognise their importance.
Nine years since the financial crisis began in 2007, governments in the US and Europe have been severely weakened. Politicians have been responsible for some of that.
States have outsourced responsibility to central banks. Unable to act themselves, politicians have relied on monetary policy wonks — and their only tools are ultra-low interest rates and vast stimulus.
These have some effect, but central banks use their tools to achieve narrow policy goals. Side effects include punishing savers, widening the gap between the rich who have assets and those who lack them and, in some countries like the UK, lifting the bottom of the home ownership ladder out of the reach of millions.
The result has been a negative feedback loop. Politicians demand central banks fix the problem. Central banks take actions that fuel socio-economic divisions. Politics becomes more divided and bitter, with extremists suggesting everything from debt default to locking out immigrants.
Reliance on central banks is both a symptom and cause of political gridlock. If we want western economies to thrive, it is high time elected leaders took back the central economic responsibility they’ve delegated to unelected central bankers, but this time they must also look beyond their own short term interests.