This podcast is quite a lively exploration of a proposal of mine that is – frightenly – a quarter of a century old! Below is Gene Tunny’s introduction to his podcast interview with me. NG
Last month, in a Financial Times article, (unpaywalled pdf here) Nicholas Gruen proposed an independent fiscal policy advisory body so that fiscal policy is freed from political tinkering. In his view, during an economic crisis, the fiscal stance, or the size of a stimulus, could be decided by an expert body, rather than being decided by a political process in which political considerations may be decisive. Fiscal policy could be operated in a way similar to monetary policy conducted by independent inflation-targeting central banks.
In his FT piece, Nicholas notes that President Biden and congressional Democrats may have pushed for the huge $1.9 trillion stimulus because they could later lose control of Congress and the ability to boost the stimulus later if required. He also points out that political considerations, i.e. wanting to be seen as responsible economic managers, led the Cameron government in the UK to tighten fiscal policy too early in the aftermath of the 2008 financial crisis.
I’m grateful that Nicholas agreed to be interviewed for my Economics Explored podcast regarding his FT article, and I’ve just published our conversation as Episode 81 of the show. We had a great discussion about how fiscal policy could be delegated to an independent body in such a way, whether fiscal policy is too political for politicians not to be involved, and whether politicians would ever give up their power to determine fiscal policy.
When I questioned Nicholas about the political feasibility of his idea, he pointed out that bringing down the tariff wall was once seen as politically impossible in Australia. In the late sixties, no less an authority than Max Corden wrote that analysing tariff cuts in Australia was of academic interest only because tariff cuts would be politically impossible. It was only half a decade later when the Whitlam Government cut tariffs by 25 percent across the board, largely inspired by advice from Nicholas’s father Fred Gruen, incidentally. So we shouldn’t let political considerations deter us from considering radical policy ideas.
I’d encourage you to listen to the conversation and let us know what you think in the comments below.