This blog had earlier argued that firstly having a monetary policy committee hardly changes anything in central banking. So we in India should not be much excited about the same. MPC is one of those several pre-crisis fads which like all fads has been found wanting. Eventually central banks do what the boss says and it remains at that. MPC just makes the whole process fancier with few priests trying to figure the mantra and then eventually agreeing to what the head priest says. We keep saying results matter but have failed to see that MPCs have hardly changed anything much other than becoming an additional place for recruitment for economists.
Second, as we will copy whatever happens elsewhere so MPC has to be floated. So what should be done? Well atleast try and make it more regional representative. Instead of just having MPC members with similar education backgrounds and based in US/Delhi/Mumbai, we should get members which represent different regions. This will atleast get diverse views from different parts of the country. Monetary conditions differ widely across and having regular research, feedback and action is essential. But it is all missing. We talk so much of Federalism but do we have any idea about what is happening at regional level/state level economies? Having all states on board is obviously difficult but experts from different regions can be surely done.
However, it is unlikely this will happen. Our obsession is only to talk about economics which no one understands especially when it comes to monetary economics. One person reacted to the post saying won’t this politicise matters. Well, isn’t it highly politicised already? We will only learn more about different regions which is far richer than the usual noise about growth-inflation trade-off.
Given this, came across this post in Brookings which goes even further. It says regional Feds are not ethnically and gender diverse!
there is a real problem with the Federal Reserve System as it relates to its governance and the selection process of the regional Federal Reserve Bank Presidents.
Throughout the history of the Federal Reserve System, there have been 134 different presidents of Federal Reserve Regional Banks. Of those 134 presidents, zero have been African American. There have also been zero Latino presidents. Until 2009, there had never been a non-white Federal Reserve Regional Bank President. Since then, the only two non-white presidents have been from the Minneapolis Federal Reserve Bank, current President Neel Kashkari and his immediate predecessor, Narayana Kocherlakota. The other 11 Federal Reserve Regional Banks still have never had a single non-white president.
This lack of diversity extends beyond race. Eight of the 12 Federal Reserve Regional Banks have never had a woman president. There have been only six women to serve in this role in history, and half of them have been President of the Cleveland Federal Reserve Bank, including Karen Hornwho, in 1982, became the first woman to serve in such a role.
Federal Regional Bank Presidents are important: they vote to determine the nation’s monetary policy, have significant authority over bank regulation, and lead on-the-ground teams of regulators and supervisors for our nation’s banks, bank holding companies, and systemically important financial institutions. Their banks have a combined $3 billion operating budget, and together oversee the largest economics research program in America.
…..While geographic diversity is important, so too are gender, race, educational background, and occupation. The Fed’s current homogeneity is not just a matter of race or gender. Prior research demonstrated that the vast majority of Federal Reserve Regional Bank Presidents were former Fed employees themselves or had been members of the Regional Bank’s Board before being appointed, and that the senior economists at the Federal Reserve Banks and Board have been clustered in a small number of university economics departments. A lack of diversity of background, experience, and vantage points can lead to group-think and collective misjudgments.
So, the author believes apart from geographic on should also be looking at ethnic and gender diversity.
Ethnic diversity is really difficult in India and I do not even want to get into the debate given very little understanding.
However, a regional representation is doable and the need of the hour. Instead of fighting who should have more members and veto power and get into power game, there should be more thinking and action on representing diverse regions. It is just a great opportunity.
There was a time when economics in India was lot to do with knowing different regions. One comes across some really good books on the same. There was both demand and supply for the same. Now, there is hardly any connect with what is happening here. Much of this is lost.
It may not be as important then given how centralised everything was. It is far more important now given the next set of changes have to happen at state and local levels. It will also provide employment to several economics students as well who cannot either go abroad or be in Delhi/Mumbai.