Banking on no political interference
OPINION: There are some positions in any democracy – Speaker of the House, members of the judiciary, Reserve Bank governor, Ombudsman etc –where the appointees are expected to operate free of political interference. To foster confidence in that independence and impartiality, the appointment process is supposed to be as politically bipartisan as possible. For the same reasons, putting an abrasive figure like Trevor Mallard into the Speaker’s chair was never a good idea. Oddly, in the light of last week’s furore over the reappointment of Reserve Bank Governor Adrian Orr, one strong acknowledgement of the need to de-politicise Orr’s reappointment was made last year by National Party leader Christopher Luxon. At the time, Luxon castigated his colleague Simon Bridges for saying that Orr should not be reappointed. That, Luxon said, did not reflect the party’s position. ‘‘We don’t want [the reappointment] to get politicised because we don’t want to undermine the independence and the trust that it has, both with the government and the public.’’ Yet last week, Luxon chose to do exactly what he had criticised Bridges for doing last year. The governor’s job involves making some judgment calls where the outcome will always deliver mixed results. Yes, we are now feeling pain from inflation, some of which can be traced back to the economic stimulus that Orr had previously deployed to protect the economy, support firms and save jobs in the early days of the Covid pandemic. At the time, there was no manual spelling out the exact Goldilocks amount of stimulus required to keep the economy running into the future at just the right level of warmth. Nor was it clear to any central banker in the world just when the exact right moment to begin raising interest rates might be. For every critic, there is praise that Orr erred on the side of stimulus rather than undershooting. Lest we forget: well into the latter half of 2021, tourism and other sectors were screaming out for more infusions of government funds, more support packages and for an extension of Covid wage subsidies. Globally by mid-2021, economists were deeply divided as to when was the right time to begin raising interest rates. Both camps had their own Nobel Prize winning advocates. Among the dovish team, there was a concern about killing off the shoots of the economic recovery by raising interest rates too soon, just as firms were being weaned off their Covid supports. The hope was that energy costs and supply chain blockages would ease, and enable a softer landing. It is dead easy – in late 2022 – to argue that we should have taken that risk and begun raising rates sooner. We’ll never know what would have happened if we had. Ultimately, we’ve ended up with a mixed outcome from an inherently difficult timing decision. As things turned out, Orr began raising interest rates shortly before Jerome Powell, his US counterpart, began to hit the interest rate switch. If and when the economy dips into recession next year, some people may even become nostalgic for current conditions. After all, losing one’s job altogether is worse than coping with rising prices at the supermarket.