Working for the Bank of England must be tough right now. What is the point must be the question any thinking employee must ask each day as they trudge their way to Threadneedle Street?
They're meant to control the money supply. It's shrinking of its own free will.
They must constrain inflation, except doing so requires skills not expected to be used again for some time to come.
Monetary policy has, after seven years at a single interest rate, not only become stuck at the zero bound but has become largely meaningless.
They're not even allowed to regulate bankers anymore now that George Osborne has stripped the FCA of any willing it might have had to do so.
What then is the Bank of England for?
This is, I know, a question my friend David Blanchflower is looking at for Labour, but such reviews take time, so let me stick my tuppence worth in now.
First, let me note that I am not saying there is no longer use for monetary policy. And I am not saying that inflation could not be an issue. As, indeed, could control of the money supply be a matter of importance in the future. What I am saying is that whilst these issues are important they are only so contextually. In other words, at the right time attention will need to be given to them again. I accept that. But now is not the time. So let's note when we might need to use them, and remain vigilant to the need, and thereafter park them for now.
Second, if these issues are not the matters of priority that the Bank must address now, what are? I suggest there are four.
First, there is the quality of growth. I see no merit in growth per se. In fact, environmentally we know it can be harmful. So it is the nature and quality of growth that matters in our economy. Since the UK is massively underinvested in housing and the infrastrcuture required for the 21st century these have to be the focus for growth. That means at a minimum building housing, upgrading social infrastructure, delivering the highest quality broadband for all, developing new energy technology and using it and meeting modern transport need. Nothing less will do. And nor will growth from other sources be acceptable so that, for ample, more financialisation and speculation should not be an acceptable way of the BoE meeting this target.
Second, the share of wages in GDP has to grow. In other words, the decades long shift of the benefits of growth moving iexorably from labour to capital has to be reversed.
Third, this must be matched by targets for real increases in wages for most people. In other words, wages excluding bonuses for those earning less than the 95th (or thereabouts) centile must be targeted to increase in real terms.
Fourth, financial institutions must be made durable, legally responsible, socially acceptable in their activities and servants of society.
Do these four things and we would have a useful Bank of England when at present we have one tackling old issues with an old remit that is divorced from current need.
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Given that the present governments policies are the antithesis of the above, and worse, I consider that the BoE may well, soon, be run by JPMC (if it is not already).
Of course we could do the sensible thing and fully nationalise all the deposit taking banks in the UK, give the central bank responsibility for managing them in the public interest, remove all credit creation from all other financial institutions operating in or providing finance to the UK market, and take back control of the core monetary and financial system before it implodes and takes the good people of this country with it!
Ho hum, not likely with the current group of nice but dims in charge. I suppose we’ll just have to hope the big fat banking turkeys one day will vote for Christmas!
That would not solve all the problems in banking
No but it would solve all the problems of retail banking for the public AND remove the necessity for the safety net we currently provide for all investment banking activity. That’s a good start.
Interesting that these reccomendations for giving the Bank of England more to do include responsibility for growing wages. It is not clear how this would be achieved!?
And it does appear more and more sensible to me that instead of bemoaning the fact that there are so few private “challenger” banks appearing in order to give the mainstream ones a run for their money it would be advantageous to split up and localise our one nationalised bank and use the German model to encourage them to lend for public benefit rather than simply profit. And of course this would fit so neatly with the government’s localisation agenda 🙂
I agree re splitting banks
Re wages: sorry, no time to address now
One think that the BoE might like to address right now are the quality and reliability of their predictions upon which so many of their decisions are (supposedly) based. All their forecasts, it seems to me, appear to fit too nicely into the deficit-reduction-at-all-costs narrative.
Dean Baker has a very interesting article on the self-serving effect of these projections in a US context:
http://cepr.net/blogs/beat-the-press/budget-deficit-mania-and-the-congressional-budget-office