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Three qualities for good policy and decision making: knowledge, courage and humility

Summary:
Mario Draghi in this speech talks about three qualities for good policy and decision making: I have had the good fortune to work with exceptional central bankers, public officials and political figures, people whose example I have learned from and to whom I owe a debt of gratitude. In turn, I hope that some of the lessons I have learned along the way may also be of benefit to the next generation of public servants. Many students from this university, and from other places of learning, will at some point in their lives take up the mantle of public service. Society depends on its best young minds to devote their energies in the public interest. Today, I would like to focus on three qualities that often appear to inform what we think of as good

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Mario Draghi in this speech talks about three qualities for good policy and decision making:

I have had the good fortune to work with exceptional central bankers, public officials and political figures, people whose example I have learned from and to whom I owe a debt of gratitude. In turn, I hope that some of the lessons I have learned along the way may also be of benefit to the next generation of public servants.

Many students from this university, and from other places of learning, will at some point in their lives take up the mantle of public service. Society depends on its best young minds to devote their energies in the public interest.

Today, I would like to focus on three qualities that often appear to inform what we think of as good decision-making: knowledge, courage and humility.

Of course, these qualities do not guarantee that the right decision will always be made. Policymakers often take decisions in an environment of uncertainty, where outcomes are rarely known and cannot easily be anticipated. But as former United States Secretary of the Treasury, Robert Rubin, observed a few years ago, “almost all significant issues are enormously complex […] the very nature of reality is complexity and ambiguity”.[1]

Hmm..

On central bank independence:

I once described central bank independence as “independence in interdependence”.[12] What I meant is that the institutional context in which we operate affects the speed at which we can achieve our objective, and the scale of the side effects of our actions. There is a need to say clearly when other policy areas could help us to do our job more quickly and effectively.

Central bank independence is not an end in itself. Its purpose is to ensure that the central bank is credible in its pursuit of price stability, while making sure that monetary policy is never subservient to fiscal policy – what is known as “monetary dominance”. Thus central bank independence does not preclude communication with governments when it is clear that mutually aligned policies would deliver a faster return to price stability. It only imposes limits on what such alignment could entail. Specifically, it means that alignment between policies, where needed, must serve the objective of monetary stability and should not work to the detriment of it.

This is why, since 2014, we have gradually placed more emphasis on the macroeconomic policy mix in the euro area, which is the respective contribution of monetary and fiscal policy in supporting the economy. We have seen in other regions where fiscal policy has played a greater role since the crisis that the return to price stability has been faster. In the United States, for example, from 2009 to 2018 the average cyclically adjusted government primary balance[13] was -3.6%, while it was 0.5% for the euro area.

This is one of the reasons that interest rates in the United States have been able to rise sooner, while in the euro area they have been low or negative for a long time. A more active fiscal policy in the euro area would thus make it possible to adjust our policies more quickly, which we are well aware are having adverse effects on certain sectors of society and certain intermediaries.

It is always with this idea of “independence in interdependence” in mind that, throughout my mandate, the ECB has continuously advocated further institutional reform of the euro area. We have welcomed the improvements that have been made and urged governments and parliaments to continue working towards that goal. We have done so because we know that it is only by taking these steps that we can make our monetary union more resilient – and more able to deliver on the expectations for which it was created in the first place.

Independence in interdependence!?

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Amol Agrawal
I am currently pursuing my PhD in economics. I have work-ex of nearly 10 years with most of those years spent figuring economic research in Mumbai’s financial sector.

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