AFTER months of speculation over the identity of Mervyn King's successor as head of the Bank of England, Chancellor George Osborne announced a surprise choice today: Mark Carney, the man in charge of Canada's central bank. Mr Carney was long seen as a favoured candidate, but he appeared to rule himself out of contention for the job. At Schumpeter, a colleague writes:




I'm still mulling over the implications of this brave new world of international central bankers. I certainly support the internationalisation of labour markets, in central banking as elsewhere. Britain absolutely should go out and hire the best person they can find for the job.

Something about the cheering surrounding the pick strikes me as a little odd, however. It makes sense to hire an experienced regulator to help manage the Bank of England's assumption of new regulatory powers. I worry, however, that this appointment tells us something disconcerting about monetary policy. In particular, I worry that it means that economics has done so poor a job explaining the roots of ongoing economic failures that politicians feel unable to adopt institutional reforms, or new mandates, in response to economic weakness. If governments can't feel secure in knowing what went wrong and how to fix it, their best bet is to find people who have presided over reasonably successful economies and pay a premium for their skills, whatever those are.

Back in April, Matt O'Brien wrote a fun piece asking how much a good central banker is worth. The answer is: an awful lot. Leaving a large economy to stumble along below its potential for years at a time generates losses that run to the trillions of dollars. If central banking were a matter of individual skill and insight then successful central bankers should demand and receive enormous salaries, and governments should make every effort to higher the best ones. 

But this is not the way the way that economists talk about monetary policy. Optimal monetary policy in the literature is a matter of institutional structures, policy rules, and reaction functions: non-rivalrous ideas that, if agreed upon, can be adopted anywhere and everywhere simultaneously. Put simply, if economists have a clear idea about what central bankers ought to do and how, and if they can communicate this idea to governments, then there shouldn't be any reason to pay any sort of premium for a superstar central banker.

A central banker salary premium looks to me like a measure of institutional failure, or a measure of our economic ignorance. Hopefully, Mr Carney will be a great success in London. And hopefully, his success will inform our understanding of the theory and practice of central banking, allowing all economies to improve policy, even if they can't place a Mr Carney at the central bank helm.