Jobs and inflation

since the 1970s. The theory is that the bank’s task of setting interest rates should reflect not just the value of stable prices, but jobs as well.

Some argue that central banks with a dual mandate really ignore the employment part of the equation and just concentrate on controlling inflation. If the Reserve Bank in New Zealand did this, then Labour finance spokesman Grant Robertson’s reform would make no difference in practice.

There is, however, an argument that central banks should take employment seriously and that concentrating solely on inflation is harmful. Critics of the European Central Bank, for instance, which has only a single mandate, says the Eurozone has as a result been stuck in a damaging cycle of austerity and high unemployment.

Defenders of the single mandate argue that in the long run central banks can only control inflation, but that by doing so they will also hit the target of sustainable high employment.

And the evidence does seem to suggest that unemployment can remain stubbornly high even while inflation is low. A low but positive inflation rate, says economist Paul Krugman, can co- exist with a persistently depressed economy.

The decision to raise, lower or maintain interest rates is a judgement call that also involves assumptions about the effects on employment.

A dual mandate might stop the Reserve Bank moving too quickly to raise interest rates, which it has sometimes done before. Arguably the bank is stuck in an old- fashioned anti-inflation mind-set at a time when inflation has long been dormant. Interest rate rises should be delayed in order to bring unemployment down further, and this could be done without an undue increase in inflation.

The move to take the decision on interest rates away from the Governor and give it to a committee might also help produce better decisions, if only because eight heads are better than one. There would be less chance of a one-eyed Governor making persistent misjudgments.

The proposal to issue the voting records of the committee, moreover, reflects the current practice of the Fed and is nothing to fear. Greater transparency is always welcome, and the Reserve Bank at present is notoriously secretive. That needs to change.