Central banks are useful but not that impressive

Published in the Financial Times.

Martin Wolf’s apologia for central banks (“Unusual times call for unusual strategies from central banks,” Nov. 13) asserts that critics of central bank financial manipulation assume that “in the absence of central bank policies, the economy would achieve an equilibrium.” As one such critic, I do not share the assumption claimed, since “equilibrium” in an innovative and enterprising economy never exists. As the great Joseph Schumpeter said: “Capitalism not only never is, but never can be, stationary.” It is always in disequilibrium, heading someplace else into an unknowable future.

Without doubt, central banks are very useful to finance panics and busts. They are also good at monetizing budget deficits to finance the government of which they are a part. Other than that, pace Mr. Wolf, their capabilities are not that impressive.