I first posted this blog on 24 August 2015. I offer it again because it is particularly relevant today given all the nonsense that will be offered to mark the twentieth anniversary of the Bank of England's supposed independence:
I argued on the Today programme on Radio 4 this morning that the Bank of England's independence from the Treasury is just a charade. It was always designed to appease the stupidity of the bond vigilantes. This is why. It is Section 19 of the Bank of England Act 1998:
To put it another way: they have independence so long as they do what the Treasury wants or independence can be suspended at any time.
And that is precisely why the Bank of England has always done what the Treasury wants, as I said. They really don't have much choice in the matter.
It's time we talked economic reality and not the silly games people have played in pursuit of neoliberalism.
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Depending on the bureaucratic convention/practice in respect of such provision it may be that such power is only/has only been invoked in case of emergency which would be reasonable. Hard to tell without data. But yes on its own it appears to undermine independence.
Who has priority over the definition of public interest. The Governor or some lacky in the Treasury?
There is this thing called democracy
The Governor is not elected
Who do you think has priority in that case?
Neither are elected so it must be the govt to probe your point about dependence not independence.
The Chancellor is elected
I know that you would prefer the Bank to be formally under the control of the Treasury and you prefer not to alter your message to try and present your ideas in a way that is more acceptable to the mainstream view, but given that you face such overwhelming opposition on this one from economists across the spectrum, on the basis that PQE is a more important short-term goal and recognising the Bank is not independent is maybe a less important, medium/long-term goal, would it be possible to maintain the Bank’s “independence” while still implementing PQE?
What I mean by this is, say Carney thought the best thing for the economy would be an inflation rate of 0% or 5%. He wouldn’t be able to set policy to try and achieve this — he has to try and get 2% even if he disagrees with this, because this is the target the government orders him to aim for, and he has to try and achieve it using the tools the government gives him.
So would there be any way that government could tell the Bank that they are allowed to use PQE and then set them a target such that the only way they could realistically achieve that target would be to “independently” use PQE?
The Bank has alway used QE as instructed
He would do PQE is told to
This is the source https://www.carolinelucas.com/latest/financial-times-mark-carney-boosts-green-investment-hopes
A “self-denying ordinance”. Westminster are good at them!
At what time were you broadcast on the “Today” programme today? I would like to hear what you said.
I wasn’t
I said I posted that originally in 2015
Worth saying again, it’s not just the BoE; the “independence” of all of the other so-called economic regulators or competition bodies is a total charade. The projection of this illusion of independence (and the ferocity with which this illusion is defended) serves two purposes. First it protects and insulates governing politicians from the repercussions of unpopular decisions (e.g., when interest rates rise or utility prices increase). Secondly, it allows governing politicians to delegate responsibility to these bodies to make decisions that favour the corporate capitalists, private equity and hedge fund operators and high wealth individuals who have suborned them — at the expense of the vast majority of ordinary citizens as taxpayers and consumers. This is nothing to with liberalism, neoliberalism or free markets; it is simply the acquisition, retention, exercise and abuse of politcal and economic power by powerful and infuential special interest groups.
The Corbyn phenomenon is causing the scales to fall from the eyes of more and more people. More and more citizens are beginning to see how they’re being gouged. They always knew that were being gouged, but such a complex edifice of legislation and regulation has been constructed to facilitate this gouging and the process was covered in so many layers of bullshit that they couldn’t see it clearly or understand it. Now they’re beginning to. And the powerful, influential and privileged special interest groups doing the gouging and the politicians who pander to their desires are beginning to take fright — and so they should. But the assault on Jeremy Corbyn, on Corbynomics and on those who advance it will be savage, vicious and sustained.
I agree on just about all counts
I expect there are quite a few of us with a certain amount of expertise in a variety of economic sectors, who have been energised by this rejuvenation of the dessicated hulk of the Labour party and by the outlining of key economic policies that reveal the extent to which ordinary citizens are being exploited and who would welcome guidance on how we might provide effective assistance to the effort — particularly following the almost certain election of Jeremy as leader when the the ferocity of the internal and external attacks will be ramped up. Any thoughts?
Although I have a number of concerns about aspects of the policies being advanced that expose them to unjustified attack, I expect they will be ‘refined in the fire’. The biggest concern I have is that this is taking place in just one OECD country. The globalisation of capitalism makes any effort at change one economy — however large it might be — very vulnerable. And we can be sure that any vulnerability will be exploited.
It would be good to develop an international dimension. However, I can’t see Bernie Sanders making much ground in the US — though he may force Hillary Clinton to adopt more progressive policies (but any implementation will require a big shift in Congress). The NDP in Canada should make progress in the upcoming election, but maybe not enough. There’s a centre-right hegemony in much of the EU. Many of Labour’s EU sister parties are also dessicated hulks — mostly out of power, or, if in power, subservient to dominant centre-right parties or to a centre-right ideology. There are doubts that Germany’s SPD will contest the next federal election as a separate entity — remaining sunservient to the CDU-CSU. Syriza looks set to replace PASOK and will implement centre-right policies. The PSOE is going nowhere — but neither is Podemos. Hollande may not even make the second round of the French presidential election in 2017.
That doesn’t mean there isn’t a huge latent demand for what Jeremy is offering internationally — and particularly within the EU. But it needs to be tapped in to — and ideally via the rejuvenation of the existing centre-left parties as Corbynism is achieving in Britain
I think Corbyn knows that
But it’s not happening as yet
@Paul Hunt – it’s across the board – not just the economic realm. You only have to look at the progress of Rhona Fairhead from ‘Audit Risk’ Director of HSBC (where she managed not to notice $800+ million of money laudering of terrorist and Mexican drug money) to the Chair of the BBC Trust, to imminent Conservative Peerage and Trade Minister. It stinks.
Agreed
As you made us aware in a previous article the Bank of England has been prepared to work with the government even if it meant engaging in shady practice:-
https://bankunderground.co.uk/2017/08/08/your-country-needs-funds-the-extraordinary-story-of-britains-early-efforts-to-finance-the-first-world-war/
This article sheds light on John Maynard Keynes’s diffidence with Abba Lerner who wanted him to acknowledge that Functional Finance was a logical development of Keynes’s ideas in his “General Theory” book:-
https://varoufakis.files.wordpress.com/2014/01/ta-on-debt-paper-1.pdf
I am Re-reading the latter
Fascinating
I think a fair summary of Keynes would be that when push comes to shove and practice needs to be put in front of theory, like the immediacy of defending your country (and your wealth), Keynes would be all in favour of Abba Lerner’s “money printing” as evidenced by the Bank Underground article:-
https://bankunderground.co.uk/2017/08/08/your-country-needs-funds-the-extraordinary-story-of-britains-early-efforts-to-finance-the-first-world-war/
This article also reminds me of the JD Alt article on the American’s funding of the Second World War:-
http://neweconomicperspectives.org/2013/08/mobilization-and-money.html#more-6200
and Phillip Pikington’s article on how the Germans prepared for war using the parallel currency of Mefo Bills created by a private company but used by the German government to issue these Bills (yet another accounting sleight of hand like the BoE’s in the First World War and no doubt in the Second unless they also just “printed money” as Roosevelt’s government did). No doubt “the establishment” will continue to be reluctant to come clean as Glynn Worthington has discovered:-
http://www.nakedcapitalism.com/2013/12/philip-pilkington-hjalmar-schacht-mefo-bills-restoration-german-economy-1933-1939.html
I think Keynes is misread he was in reality a wealthy “establishment” economist but lived through two world wars and the British general strike of the 1920’s taking place shortly after the Bolshevik takeover in Russia. All of these would have contrived to make him fearful and anxious to bolster the British economic way of life. In many ways I believe he was right to do so but not to the extent it has delivered the absurd Austerity ideology now currently prevalent in the country. Keynes was always big on the importance of nuance but he got his nuance substantially wrong in relation to Lerner’s Functional Finance as China’s astounding economic development shows!
So are you implying Labour was neoliberal from 1997 ~ 2010 (Gordon Brown years) whilst in power and out of power until Corbyn became the leader and changed the direction of his party?
Or are you implying that the Labour party have never been neoliberals, but now it is much clearer that they are not neoliberals?
Of course they were neoliberals
I have been unambiguous on that
Maybe a bit better than Tory neoliberals but one of the persistent themes of this blog and so much elsewhere has been the persistent denial of political choice that neoliberalism created. William Davies argues that this suppression of political dialogue in favour of rigid mathematical economic analysis of markets is a characteristic of neoliberalism. Labiur succumbed.
As an addendum to my last comment it occurs to me at least theoretically the Bank of England needs to provide clear evidence that both at the time of the Bank’s “accounting fraud” to fund World War One and currently the Bank is under the obligation to sell its holding of Treasury bonds back to private investors. This means that unless it can provide accounting statements that the Chief Cashier and his deputy received money back from the Treasury as private citizens holding Treasury bonds at some stage after World War One that “obligation” doesn’t hold water! The accounting statements are the smoking gun!
I note that someone called Nicole instead of Brendan Manning replies to Glynn Worthington’s second letter. No doubt it will be someone different who’ll respond to Glynn Worthington should he choose to write to the Bank asking for the above accounting statements. He will also perhaps be referred to the Treasury and one can imagine the outcome will be possibly be along the lines of mice ate the accounting records or automatically destroyed after so many years or destroyed by Hitler’s bombs, etc.
It would be interesting if John Maynard Keynes were alive to day how he would respond to a question put directly to him that the Bank of England continues to have an obligation to sell its holdings of Treasury bonds back into the private market given it’s on record he thought it smart that the Bank of England (now of course owned by government) all those years ago should “print money from nothing” to obtain goods and services as Abba Lerner argued they could and should.
I must do that letter
If you have a draft send it to me, please
I think there are two letters. One (in consequence of the Bank Underground article you previously referenced) to the BoE requesting evidence that the whole of the 3½% War Loan was sold by the BoE back into the market as “Nicole” has implied is standard BoE practice. The other letter to the Treasury asking for evidence that they repaid the above War Loans to the BoE’s chief cashier, Gordon Nairn, and his deputy, Ernest Harvey in a private capacity including periodic interest.
Am I missing something? The comment from Paul Hunt has references to events as if they have yet to happen, eg Clinton v Sanders and the elections in Germany, France and Canada.
Spare us the false argument that the Bank has been independent for the last 20 years, and spare us the idea that it has done well over that period.
Gordon Brown’s Treasury clearly influenced the Bank’s approach to interest rates, and on one occasion set it a new inflation target to remind it who was boss. Brown also took powers away from the Bank over banking regulation, making its job of controlling the money supply and credit more difficult. The background to the banking crash is a turf war between the Bank and the financial regulator.
George Osborne chose the Governor he wanted, who turned out to share Mr Osborne’s view of what would happen were the UK to vote for Leave. The Bank joined the Treasury in making wildly inaccurate forecasts of the short term economic impact of a Leave vote.
The Bank made two major policy errors. In 2005-7 it failed to limit an excessive build up of credit and money despite warnings from Opposition parties and many commentators. Worse still in 2007-8 it decided to remove too much liquidity and keep rates too high, triggering runs on banks and the collapse of several financial institutions.
It has shown a very unsure touch pre and post the Referendum vote, and is today tightening credit prematurely.
Even a supporter of BoE independance isn’t that smitten:
Jim O’Neill writes (unsurprisingly) in the ‘Evening Standard’ :
“Which takes me to a bigger issue. The UK’s long-term problem of weak productivity – and at the centre of this, very significant widening geographic inequality and a big divergence in productivity – has not been improved by 20 years of Bank independence.
In respect of the inflation remit given to it by the Government – quite rightly – the Bank has generally performed very well
The published evidence is that productivity has weakened considerably in the latter half of this period, both absolutely and relative to our peers elsewhere in the developed world. It is, however, hard to blame the Bank for this. While some observers try to do so by blaming the mechanism we call quantitative easing, and suggesting the Bank has essentially made life easy for zombie companies and kept too much inefficient activity alive, I don’t share this view. Because, as I say, the Bank was given a remit by Parliament that it had a responsibility to fulfil.
But what could be said, perhaps, is that the Bank’s mandate has not prevented the deep underlying problems facing the country from persisting and possibly getting worse – perhaps including those that led to the remarkable referendum outcome on Brexit.
How should we judge the Bank for its 20-year performance as an independent institution? On its mandated remit, a tick. But on the larger question as to whether it has helped us solve our structural challenges, it did not.”
Agreed
But in the end democratic control is important so I’m also against BoE independence – just because it really is not logical (although Ihave to admit that that logic doesn’t much affect the ‘sentiment ‘ of the City).
Compare, for example:
I always thought we should have an independant Navy. They are the specialists. So if they decide they want a bit of a show at Spithead instead of the City of London that is fine – they are after all both nationalised and independant.
And if the Navy think a small nuclear war would be beneficial – well it’s their job, they have the tools – they must know what they’re doing . We’ll probably just have to put up with it.
Objectively, the tools of the State remain just that – under State control!