Michael Reddell: Wholly inappropriate

It didn’t used to be terribly controversial that powerful independent government bodies and powerful statutory officeholders should “stay in their lane” or “stick to their knitting”. Those entities/individuals typically have a pretty narrow set of official statutory responsibilities and if they are exercising power independently of the naturally-partisan governments of the day, they should focus their energies on those official responsibilities and keep quiet about, and keep out of, other stuff.

Central banks are a classic example. Independent central bankers exercise enormous delegated power in some narrow and specific areas (monetary policy, banking regulation). Part of the way they build and retain trust – our willingness to delegate that power to them – is by doing the day job excellently. But one of the other ways is by staying out of other highly contentious and/or party political stuff. We need to be able to be confident that these very powerful people aren’t using their (rather limited) official position to advance personal ideological or political agendas. And, frankly, that should be so whether or not we as individuals might happen to agree with a particular cause the powerful decisionmaker happens to be advancing (I’ve written here previously (see link above) about Orr in this respect, but also the very dubious case of Don Brash – as Governor – and the Knowledge Wave speech, some of which I did agree with). As I noted in an earlier post

We should value a good independent central bank, but the legitimacy of the institution – and its ability to withstand threats to that independence – will be compromised if Governors play politicians or independent policy and economic commentators.

And that applies to statutory members of the Monetary Policy Committee too, especially ones employed fulltime in the service of the Reserve Bank.

(Here I would note that, rightly or wrongly, central bankers have tended to be given more societal leeway to weigh in on this, that or the other policy issue when the central bank itself is perceived to have been doing its day job excellently. No serious observer would accord that description of the Reserve Bank of New Zealand in the last few years,)

I opened The Post this morning to find a headline “Cutting a $20b fossil fuel bill”, and read on. It was a report on a new paper from a think tank called “Rewiring Aotearoa” championing widespread electrification and all sorts of policy levers in support of that end. Fair enough you might suppose, were it coming from the Helen Clark Foundation, or really anyone independent. They are welcome to present their arguments and make their case. But it wasn’t until I got halfway through the article that I learned that “it was co-written by Reserve Bank chief economist Paul Conway”.

The chief executive of this think tank, one Mike Casey, was at pains to assure us that

So, at least according to Casey, the Reserve Bank didn’t “endorse” the document, but had it seems done enough checking to know that it was all “economically viable”. Quite whether that is how the Reserve Bank would see it – having its imprimatur asserted by Casey – is not clear (one would hope not). Casey himself seems like a pretty entrepreneurial guy – and was featured on Country Calendar last year around his impressive central Otago cherry orchard – but……he isn’t a central bank statutory officeholder wielding considerable power/influence over the macroeconomy and not supposed to be using his office, or associations, to advance personal agendas.

I went and downloaded the report, which was apparently released yesterday at an online event in which the two speakers were an Australian entrepreneur/author and Conway. There were four authors of the paper but Conway is one of the two used to market the release.

I opened the report and the concerns grew. On the first page I found this
Click to view

So Conway’s involvement in this report is explicitly linked to his rather important day job as chief economist of the Reserve Bank. Conway must have been aware of this, highly inappropriate, linkage being drawn (he is a co-author, it is on the very first page).

Then I went looking for any sort of disclaimer. Often enough, when official agencies publish their own research reports there is a standard disclaimer noting (generally not very credibly) that views expressed are those of the individual and not necessarily those of the institution they work for and which is publishing the research. Here, as illustration, is an example from a recent Reserve Bank research Discussion Paper


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But there is no disclaimer at all on the Rewiring Aotearoa paper that Conway co-authored and fronted, even as he is presented by them as the chief economist of the Reserve Bank. Conway simply cannot be unaware of this lapse: even if he was authorised by the Reserve Bank to get involved in this project in whatever spare time he has, surely they and he would have been bending over backwards to ensure that there was no association between this involvement and the Bank? A disclaimer would have been the bare minimum. At least among central bankers with any regard at all for appropriate boundaries.

Perhaps you wonder if all this is just very technical and not worth bothering about. Well, here (from Rewiring Aotearoa’s LinkedIn)


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This is a highly political project. And there is nothing wrong with that – it is how policy debate goes – but not the place for the central bank’s chief economist (and even less when pro-actively identified as such, with not even a hint of a disclaimer in the official report, even while the champion of the project claims that the Reserve Bank thinks it is all very robust or they wouldn’t have let their chief economist get involved.)

Or there is this from the report itself


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I’m sure parts of the political spectrum will really welcome the report and be cheering on its state-led approach. But senior central bankers aren’t supposed to be championing divisive causes – at least not ones other than those Parliament has specifically assigned to them.

You’ll note earlier that the report described Conway as having given his “personal time” to working on this report. One does wonder quite how much spare time a senior manager of the Reserve Bank actually has. After all, this is an agency that has been coming off the back of the biggest policy failure, in Conway’s own area, in decades (the sustained outbreak of inflation, only just now getting back inside the target range). It was Conway himself who was on record after the May Monetary Policy Statement lamenting potential problems with either the modelling tools or the Bank’s use of them (both things the chief economist might be thought primarily responsible for). Mind you, this was the same Conway who chose to take his holidays and miss the (July) Monetary Policy Committee meeting where the MPC executed perhaps its biggest U-turn in decades in such a short space of time. Very few people looking at the conduct of monetary policy over the last six months (hawkish lurch in May, quick reversal in July, rate cut in August, all on not much new data) would think that all was well in the economics functions of the Reserve Bank, and that it was appropriate for the Bank to be signing off on its senior officeholder getting heavily involved in any other project, no matter how non-political or innocuous.

And is if all that wasn’t enough, it is worth remembering the Code of Conduct governing MPC members

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And the Reserve Bank staff conflicts of interest policy

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Conway’s boss is the underqualified Karen Silk, but it is hard to believe that this involvement wasn’t signed off by the Governor himself. It shows remarkably poor judgement by all three of them (Silk, Conway, and Orr), around both the initial involvement and the active identification of Conway’s involvement in the Rewiring Aotearoa report and the absence of any serious disclaimer (not that the latter would have materially allayed concerns).

I’m sure work in the area of this report was after Conway’s own heart. His inclinations seem to be to the technocratic left, and his professional experience has been most strongly in these microeconomic areas and issues around productivity. But he chose to take up a role as a senior statutory officeholder, wielding huge influence over the near-term performance of our economy. That needs to be his focus, and we need to be able to trust that he – and his colleagues – are using their professional endeavours only for the narrow task Parliament has given them.

In a serious world, the Minister of Finance and the chair of the Reserve Bank’s Board would be asking hard questions about all this, including around the judgement of those involved. In latter day New Zealand (with Quigley and Willis in those offices) it seems sadly unlikely. And so standards degrade even further, and there is a bit less reason still to have any trust in or respect for our central bank.

Michael Reddell spent most of his career at the Reserve Bank of New Zealand, where he was heavily involved with monetary policy formulation, and in financial markets and financial regulatory policy, serving for a time as Head of Financial Markets. Michael blogs at Croaking Cassandra - where this article was sourced.