When Sweden’s Riksbank was founded in 1668, followed by the Bank of England in 1694, the motivation was that a single economy should have a single central bank. Over the next three centuries, as the benefits of instituting a monopoly over money creation became more widely recognized, a slew of central banks were established, one for each politically bounded economy.
What was not anticipated was that globalization would erode these boundaries. As a result, we have returned to a past from which we tried to escape – a single economy, in this case the world, with multiple money-creating authorities.
This is clearly maladaptive, and it explains why the massive injections of liquidity by advanced-country central banks are failing to jump-start economies and create more jobs.
Kaushik Basu (Senior Vice President and Chief Economist of the World Bank and Professor of Economics at Cornell University), Two Policy Prescriptions for the Global Crisis, Project Syndicate, April 23, 2013.
Since the economic crisis of 2008, most economists have been telling political leaders and their constituents what they want to hear – that national policy making sovereignty is still viable. (Implement the right policies and your nation will do well no matter what is happening in the rest of the world.)
The time is up for this kind of political expediency. With more than four years of policy failure now weighing on the world’s political leaders and no promising economic corners in sight, economists can only lose the last of their credibility by continuing to tell policy makers that they are the sole masters of the destinies of their peoples.
The choice for the field of economics is clear: take a chance that some political leaders and some constituencies are ready to acknowledge that national policy making sovereignty is a thing of the past. That’s the only approach that will save the field of economics from becoming an object of contempt.