A year after Ghana’s independence, an economist called William Phillips published a paper titled, “The Relation between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861-1957” in the quarterly journal of Economica. A key observation of the paper was an inverse relationship between money wage changes and unemployment in the UK between 1861 and 1957.
By Hubert Nii-Aponsah | IMANI Africa
In 1960, Robert Solow and Paul Samuelson of MIT further showed a negative relationship between inflation and unemployment in the short run based on Philips’ paper. Thus the Phillips curve became famous as the inverse relationship between the rate of inflation and the rate of unemployment.
It became tempting for governments/policymakers who viewed the relationship as stable and permanent to embark on expansionary policies intended to reduce the rate of unemployment by increasing the inflation rate despite the warning from Solow and Samuelson that it would be wrong to have such a perception.
Economists such as Milton Friedman proved that the perceived permanent trade-off was just a mirage. The curve may hold in the short run but not in the long run (due to expectations of inflation). For example, if employers expect inflation to rise, they know that they will have to pay workers more to ensure that the workers are at least not worse off. This will be costly to the employers and hence compel them to lay off workers leading to higher unemployment.
The point, however, is that the aforesaid temptation emphasized the need for Central Banks to be autonomous of political influences in order to be more concerned about the rate of inflation which underscores the cost of living.
Today, the newly appointed Governor of the Bank of Ghana holds a PhD in Political Science.
Does holding a PhD in Political Science suggest that he could be politically influenced? Not necessarily because there are those who pursue the study with the hope of becoming objective analysts, lecturers and researchers. However, one could make a sort of revealed-preference-argument if one considers the fact that spending years to pursue a PhD in a field shows one’s strong interest in the field. But time will tell.
Furthermore, the fact that the Governor of the Bank of Ghana is appointed by the President is inherently a huge challenge to the independence of the Central Bank.
This is not case in the United Kingdom who for the first time in September 2012 openly advertised the post of Governor of the Bank, seeking applications by 8th October 2012. After candidates were shortlisted and interviewed, the Chancellor of the Exchequer made his recommendation to the Prime Minister who merely iterated it to the Queen who then approved the appointment. On 26th November, the Chancellor announced the successful candidate as Dr Mark Carney who was the Governor of the Bank of Canada at the time and holds a PhD in Economics from the University of Oxford.
Even in the United States where the members of the Board of Governors who supervise the Federal Reserve System (central bank of the United States) are appointed by the President, there have been instances where Presidents of different political parties affirmed the independence of the Central Bank by reappointing the same Board Chairman previously appointed by their rival party. Paul Volker and Alan Greenspan are examples of such Board Chairmen appointed by both Republican and Democrat Presidents.
The independence of the Central Bank is as vital today as it was in the 1960s and 1970s. Moving forward, Ghanaians need to reconsider the manner of the appointment of the Governor of the Central Bank in order to ensure that the Bank is truly independent.
Hubert Nii-Aponsah is IMANI Africa’s Deputy Head for the Center for Economic Governance and Political Affairs. For comments and enquiries, please email firstname.lastname@example.org
 Phillips, A. W. (1958). “The Relationship between Unemployment and the Rate of Change of Money Wages in the United Kingdom 1861-1957”. Economica 25 (100).
 Samuelson, Paul A and Solow, Robert M. (1960). “Analytical Aspects of Anti-Inflation Policy”. American Economic Review 50 (2).
 Friedman, Milton. (1968). “The role of monetary policy”. American Economic Review 68 (1)
 House of Commons Treasury Committee. (19th April, 2013). “Appointment of Dr Mark Carney as Governor of the Bank of England”. Eighth Report of Session 2012–13.
 Federal Reserve Bank of New York. (November, 2008). “Board of the Governors of the Federal Reserve System”. Retrieved from https://www.newyorkfed.org/aboutthefed/fedpoint/fed46.html