Dick Tatorship

April 15th 2015. Mr Draghi was glitter-bombed. End the ECB dictatorship! One wonders how those institutions originally conceived as a discretionary mechanism to stabilise the banking systems arose to such a position. The amount of power bestowed on them is so tremendous that from a certain perspective they have become the dominant political power in most democracies. It does not matter that they dress themselves with technocratic robes, their decisions are political in the strictest sense of the word: their consequences affect asymmetrically different constituents of a society. They choose winners and losers. Without accountability, without representation. Why do democracies accept this? Let others argue about this. Let us tell the short history.

The single event that catapulted economic bureaucrats to the centre of political power was certainly the disruption of the Bretton Woods monetary system in the early 1970s. What followed was a traumatic and chaotic experience that ended with the elevation of central bankers as the ultimate guardians of money. Not that anybody had any idea of what money was. It must exist in an orderly form. Bureaucrats then argued: we do not need to understand the nature of money; rather we must play an active role in controlling its effects. How? Creating an environment of a relatively high unemployment where demand driven inflation does no arise. From stewards of the banking system to guardians of money to active policers of business conditions. This was not sufficient. Since they have an active role, they can implement those economic policies necessary for the attenuation of the periodic economic business cycles.  Fiscal policies are anathema. This was not sufficient. Since from now and then the banking sector create delicate credit crises why should they resume themselves to provide liquidity of last resort to the banking system. They could prevent such an outcome by acting preemptive and minimising the risks of a vicious full-blown credit crisis. This was not sufficient. If their preemptive actions was not enough to prevent the unfolding of the credit crisis they should have enough power to interfere directly in the financial companies providing explicit or implicit guarantees on their liabilities and broke artificial acquisitions in order to stabilise the banking sector. They could even decide which companies should survive and which should not. This was not sufficient. Here comes Mr. Draghi: they should have enough power to discriminate at will those countries that should suffer from those that should receive “whatever it takes” grace. Is this sufficient or not? We know the pattern. Let everyone decide for himself or herself. They usually grant themselves power when “needed”.

The irony is that at the same time they have so much power and so little. So many responsibilities and so few instruments. The underlying ideology is that money, and only money, can fix everything. What we have seen in the last of couple of years is that money is insufficient to fix anything of magnitude. We are facing the consequences of a dual anomaly. The banking system is incapable of pursuing its economical function of providing capital to credible enterprises and financing to creditworthy consumers; the corporate sector is incapable of pursuing its economic function of reinvesting their profits, in the interests of their stake holders, in order to provide continued economic development. We might invoke a third anomaly: the incapacity of financial markets participants to recycle capital efficiently, but this is a matter for another blog post. These anomalies should be addressed directly. By proper political actors. They involve deep vested interests and affect us all. They will not be fixed by money. We echo the activist mantra: let us bring back democracy to the table. If it is necessary to reform our monetary system and its institutions let us face the challenge.