According to the FT this morning:
John McDonnell is to speak out in defence of the independence of the Bank of England after a spate of political attacks on its role.
Labour under Tony Blair “gave the Bank of England independence to stop Tory chancellors leaving monetary policy to the whim of their backbenchers”, the shadow chancellor will say in a speech in London on Thursday as he defends his party's economic record. Gordon Brown made the BoE independent of the Treasury when Labour came to power in 1997.
And you wonder why I could not work for him?
Independent central banks are about giving bankers control; they are about subscribing to the power of markets; they represent a belief in monetary and fiscal policy; they indicate a lack of faith in government. Most of all they represent a failure to believe in democracy, accountability and the duty of a politician to decide.
What John McDonnell is going to do is endorse Ed Balls and this whole approach to economic management.
I can't, and won't.
But this is a lesson to all those who think McDonnell is the power behind some new left wing vision for the UK: he isn't, and he never will be.
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I have a lot of sympathy with your position Richard – but if we are to entrust the central bank with money creation for socially beneficial purposes, perhaps it would be a good thing to put some distance between the money creation and the government of the day?
I have no problem with delegation
But I do with dictation by the unelected
Well said richard!
Indeed, an endorsement that sits very uncomfortably with all the effort – and belief (allegedly) – that team Corbyn have in grass-roots democracy and so on. I assume the realpolitik behind this is that they think that as and when they’re in government they can exert control via the Treasury (as happens now) and by appointing a replacement for Carney whose sympathetic to left wing ideas. They may well be disappointed.
Agreed
It’s a rock and a hard place, though, isn’t it? The BoE’s independence ensures that it is disconnected from the needs of UK society and industry, and participates only in global market groupthink. Shafik recently as near as dammit admitted that QE (with the BoE’s backing) will continue indefinitely – the fundamentals of business having changed radically and permanently as a response to globalisation. That is, the taxpayer – unto the nth generation as debts accumulate – will continue to prop up financiers.
BUT, on the other hand, I can’t imagine any group of parliamentarians, or the chums they appoint to oversee the BoE’s activities, running a successful pissup in a brewery. If government is to set financial policy, and enforce it, it may be that McDonnell, looking at the people now in power rather than any hypothetical Labour administration, prefers the devil he knows, at least for now.
QE does not cost the taxpayer, barring the increase in inequality
And principles matter: we need to find politicians who can live up to them
Ok. How does the government fund the bonds bought by central banks (plus interest) in order to quantitatively ease their pals, when the bonds mature? Genuine enquiry.
I wouldn’t dream of arguing with an expert, but please indulge me if I propose that ultimately it is productive capacity which underwrites the printing of funny money, and if the government is providing liquidity for financiers to leverage into profits, it seems a pretty fair bet (absent a sovereign wealth fund) that this is sourced through tax.
Let’s be clear: the money used to buy binds back is created out of thin air: it is costless (all money creation is costless, per se)
And let’s also be clear: no interest is paid on QE’d debt, because it’s effectively cancelled
So what happens when it rolls over? The Treasury pays the redemption funds using its BoE account, to the BoE. And the BoE then goes and buys new Treasury debt with it. So the money goes round in a circle. That’s true even if the replacement debt is bought in the market as the Treasury then just issues new bonds which the market proceeds are then used to buy.
So apart from transaction costs the debt just keeps rolling
And after Brexit the market can be cut out
The debt is simply cancelled in that case
There is no tax cost
Which also means tax is not needed to fund government spending except to the extent that it is necessary to control inflation
Thank you for the explanation. That is very nearly incredible, but does make an awful kind of sense.I had evidently not appreciated just how far money has diverged from being a medium of exchange, or even a commodity. Yes, we need regulation. And a firing-squad, perhaps.
No surprises there then.
More’s the pity.
Richard
I err to agree with Komodo, this is a tactical position taken by Mc Donnell.
The noisier Tories are baying for an interest rate rise to bolster Sterling, and they would be delighted if Carney is removed as soon as possible, then the Treasury could drive Tory macho policy.
Philosophically medium/long term, you are right about a new paradigm of Labour thinking but…a rate rise – now, with a bucket load of uncertainty, i am not sure – Carney may be, in the short run, the only brake on Tory zeal.
Regards
That might be right
So he should have said he supports Carney in the role for now
But that in the future the role needs to change
That’s what Oppositions are meant to do
Richard
Agreed, but it is very difficult to predict which faction of the Tory party is calling the shots. The game is fluid, the response may be cautious.
It may be better to watch the Tories struggle with Brexit and internal division.The press would love Labour to make big pronouncements, to deflect the Tory philosophical differences emerging.
A piece by William Davies ( author of The Limits of NeoLiberalism) writes in the latest LRB*.www.lrb.co.uk/v38/n21/william-davies/home-office-rules. worth a read.
He suggests that May’s Hobbesian views are colliding starkly with the deposed Tory Neoliberal faction ( Osborne/Treasury), the policy contradictions are huge, with Carney in the middle.
With Boris, Davies, Hague, Fox, Gove…and a party schism..what could possibly go wrong.
Lets hope
Regard
I think it would be best to go back to the pre-1997 system where the Bank of England was under more direct political control. While it is possible to get more political control even under the existing system by appointing a governor of the Bank who is sympathetic to the govt’s political views (and this is probably what McDonnell is aiming for), it’s a more indirect route – it would be easier just to get rid of central bank independence. Having said that, if we are going to have democratic control of economic policy we need to ensure that our democracy is up to the task. The UK’s democracy is fundamentally broken at the moment – most obviously evidenced by the disastrous decision to leave the EU, but also the ludicrous first-past-the-post electoral system and the Tory efforts to gerrymander a permanent majority via boundary changes and changes to the voter registration system. So ideally we would need to fix all that as well and I would like to see Labour talking about electoral reform a lot more and working with the SNP, the Greens and the more sensible elements of the Liberal Democrats to bring about a progressive alliance which could win in 2020.
That all makes sense Howard
My comment has now featured on the Tim Worstall blog with Tim’s usual style of commentary – distorted, rude and incomprehensible. Don’t you just love that guy? 🙂
http://www.timworstall.com/2016/10/28/to-violate-the-most-basic-rule-of-politics/
Howard
It’s the first time I have been there for a long time
If Worstall had any influence he’d be invited to take his superior intelligence to places to be heard
Oddly, that never seems to happen
Which may say a lot
Some things in life are very definitely best ignored
Wortstall and his wannabee Worstall crew are amongst them
Best
Richard
“The UK’s democracy is fundamentally broken at the moment — most obviously evidenced by the disastrous decision to leave the EU”
Why is that evidence of democratic breakdown? It was Yes/No vote with all above 18 having the vote. That IS democracy isn’t it?
The words trees and wood come to mind
Can you enlighten me?
On?
Your comment, and what you meant by it.
When I moderate I can’t see previous comments and nor do I recall them all so I can’t help
BoE independent from whom, I ask myself? Ok so our democracy is flawed and government is unrepresentative -but at least it has a bit more accountability than the so-called finance industry.
Precisely