Leikha Kihara’s Reuters profile of new Japanese Finance Minister Yoshihiko Noda indicates that he shares the current global fad for fiscal austerity whether or not it makes sense. More encouragingly, though, it also reveals that he’s not afraid of picking a public fight or two with the Bank of Japan over the monetary authority’s need for looser policy. There’s a strong case for central bank independence—namely that lack of independence will lead to unduly loose policy—but that’s a contingent, empirical case. The experience of Japan has been of independence leading to unduly tight policy and far too little growth. Recently the European Central Bank has been trending in that direction as well and even though the American Federal Reserve looks good in comparison we’re also erring on the side of doing too little.
The overall dynamic is poisonous, and elected officials need to start challenging it. Japan is as good a place as any to start.
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