Another Tuesday. Another rate rise. You should be ropeable

Today’s governor, Philip Lowe, joined the RBA at the very beginning of his working life. The RBA, at its heart, is a monastic institution. They get them in young, they train them in the doctrine, and they keep them for decades. It’s not a job so much as a way of life. Exposing oneself to the glare of the outside world runs deeply against the grain.

This approach might have worked for a time to preserve the RBA’s sovereignty, but evidently it was both terribly corrosive to the institution (and our democracy) and politically unsustainable. Mercifully, that era appears to be at its end.

The RBA’s myriad problems have been well ventilated. Current and former staff speak of an insular and anti-intellectual culture, the economic research department being at best ignored and at worst dismissed, junior staff being stifled, and a military-style, top-down culture hostile to dissent and creativity. From the outside, the bank seems at times totally oblivious to the global frontier of expert thinking on monetary policy.

If you want a smoking gun, look at rates kept too high before the pandemic (costing many thousands of jobs) and rates kept too low coming out of it (helping stoke inflation). Philip Lowe’s RBA is not so much risk-averse as action-averse, preferring to commit sins of omission over commission. Even when the former is far worse, at least you can blame someone else.

But more powerful than any smoking gun is the vast accumulation of tiny cuts that in aggregate speak to a sick institution.

The RBA’s board, unlike the central banks of other advanced countries, is not occupied by experts. That means Lowe knows far more about what he is recommending than any outside member. There isn’t a single person in the room in a position to scrutinise his advice. When questioned about this, Lowe staunchly defends the status quo. No wonder!

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In the decades the RBA has conducted independent monetary policy, it has never pre-emptively initiated an independent or external review of itself, in contrast to the countless reviews initiated by other central banks. When the idea was floated, Lowe resisted it. When it became inevitable, he expressed a preference only for an internal review. No wonder!

Lowe almost never holds press conferences after rates decisions and appears before the House of Representatives just twice a year. Unlike other agency heads, he doesn’t appear before Senate estimates. Only after being compelled by a motion by Senator Nick McKim to attend in person did Lowe appear last week.

Indeed, McKim hit the nail on the head: “Independence does not mean a lack of accountability.” In fact, I’d posit a lack of accountability undermines the sustainability of RBA independence. As one can see from the witch-hunt the bank has unleashed upon itself.

You should be angry with the RBA. Not because it is raising rates, which it must do to contain inflation. But because it has slowly eroded the cornerstone of our economic architecture, which is responsible for the livelihoods of us all. The review under way, and our treasurer who awaits it, must show the guts to finally do something about it.

Steven Hamilton is assistant professor of economics at George Washington University in Washington DC and Visiting Fellow at the Tax and Transfer Policy Institute at the ANU.

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