Primum non nocere is a Latin phrase that means “first, do no harm.” Its derivative is ‘non-maleficence’, which is a fundamental precept of bioethics that all healthcare students are taught in schools around the world. It reminds the health care provider that they must consider the possible harm that any intervention might do where intervention carries an obvious risk of harm and a less certain chance of benefit.
Further to this theme, a great article in the Wall Street Journal yesterday urges that Central Banks of the world be mandated with an similar oath before unleashing ‘monetary experiments’ on the lot of us. See: Memo to the Fed, first, do no harm. In truth the standard should be mandated not just on the US Fed, but on central bankers everywhere.
I have a simple proposition. Physicians practicing medicine are expected to “first, do no harm.” Our practitioners of monetary policy should be expected to do the same. Congress should add to its Fed mandates the following language: “The Federal Reserve should strive to limit or mitigate the collateral damage caused by monetary policy, wherever possible.”
This new language would create additional accountability for the FOMC by requiring it to consider both the desired results anticipated and the collateral damage expected before implementing policy, and to report on such deliberations in its minutes—thus permitting closer oversight of the FOMC without an audit or otherwise infringing on the Fed’s independence.
This was a principle alluded to by Economist Milton Friedman in the 1970’s, when he pointed out that monetary policy produces imprecise and dubious results with real ancillary costs to savers, conservative investors, sustainable growth and the real economy.
Putting personal accountability for downside risks squarely on the shoulders of the Fed and the finance sector is a critical step to sobering up its actors and reining in the reckless policies that have driven global financial risks to untenable levels for the rest of us.