He was god of big finance. He retired, in January 2006, to universal acclaim. Academic studies pronounced him the greatest central banker ever. But some of America?s most noted economists and politicians, whose critique is being eagerly reported by the media, are now blaming Alan Greenspan for the current financial crisis, saying the oracle was, in fact, all too fallible. That he couldn?t see low interest rates over a long period would create a housing bubble and he didn?t understand and/or care that subprime lending was full of risk. This critique, and its broader philosophy, that regulation with a light touch is dangerous, can be debated. This newspaper firmly believes that the current crisis should not be used to over-regulate and that critics must understand that markets extract the best and severest price for bad judgement. But the most interesting point about Alan Greenspan being downgraded to human status is that central bankers must be subjected to the same severe scrutiny that is reserved for other policymakers. This is very relevant for India.
For a variety of reasons, central bankers in India, even after reforms afforded RBI real autonomy in terms of setting monetary policy, have received light treatment when it comes to public assessment. Finance ministers are excoriated. But central bankers retire with little fear that their career may be severely scrutinised. This is wrong. Central bankers, to state the obvious, have a huge impact on the economy. For example, and as this newspaper has long argued, the current central bank leadership can be critiqued for helping along an avoidable slowdown. Just as the central bank leadership during the mid-1990s midwifed an unnecessary industrial slump. We are of the view that India needs a central bank that has a stake in economic transformation, not one that narrowly focuses on a few numbers. We understand and we enjoy the fact that this view can be contested. But we hope that even those who differ with us will agree that our central bankers? career must receive thorough post mortem. If this slowdown deepens, there will be economic bad news that will demand explanations and accountability. Let?s not then forget to debate the role of the months-long high interest rate regime. Our central bankers are fallible, too. And we must tell them that.
