Prof Danny Blanchflower and I issued this press release late yesterday:
The Mile End Road Economists
Time to reform the Bank of England Monetary Policy Committee
The Bank of England Monetary Policy Committee has had the power to set the Bank of England's base interest rate and to manage quantitative easing since 1998. These enormous powers are managed by nine people. The governor is a bank insider, all four deputy governors have worked at HM Treasury, whilst of the so-called ‘external' members, three are professors of economics and the other is a former banker. Without exception they are London-based, banking orientated, have a focus on economics and finance and know little or nothing of the real world beyond the walls of the City of London.
Unsurprisingly, this group of people with similar backgrounds, life experiences and comfortable incomes suffer from ‘groupthink'. Dissent on the Monetary Policy Committee is rare. The policies pursued by this committee are also hard to differentiate from those of the US Federal Reserve, the European Central Bank and other similar organisations. In these extremely uncertain times, it is hard to think that there are no dissenting voices arguing alternative scenarios and yet none are heard. As a result, the British people are worse off. Organisations fail because of groupthink.
Professors Danny Blanchflower and Richard Murphy, who describe themselves as the Mile End Road Economists because they deliberately look at the world from the perspective of the person living just outside London's City Walls[1], believe that this lack of diversity of experience and thinking on the Monetary Policy Committee is dangerous at this moment.
As we face an economic crisis of potentially epic proportions Blanchflower and Murphy believe it is time for the Monetary Policy Committee to be both democratically accountable, and to reflect the wide range of business, financial and economic experience that is available right across the UK. Only if this happens do they think that this committee might set policy in the interests of everyone in this country, or the person on the Mile End Road omnibus as they call them.
The aim of the proposal is to encourage diversity of thought. At a later date Blanchflower and Murphy will also be making suggestions on how the remit of what the MPC targets might be changed.
They have today called for the Bank of England's Monetary Policy Committee to be radically reformed. Their suggestion is that the Governor of the Bank of England should be appointed by the government. The Deputy Governor should be appointed by the Mayor of London to represent the city where the bank is based, as a whole. Of the remaining members three should be appointed by the devolved governments of Scotland, Wales, and Northern Ireland and the last four should be appointed by regional committees of MPs to represent the diversity of opinion and needs across the rest of England. These members should be elected for fixed terms, not be allowed to serve for more than one term, and should be supported by strong regional offices of the Bank that are intended to inform the decision making of these members based on local need throughout the UK. This would mean staff, including forecasting staff should be moved from Threadneedle Street to various parts of the economy, where their focus would be on both the regional and national economies. These members would represent and seek for the interests of people in their regions and would be well paid and the jobs would be full-time. Each region would get to decide the background and experience of the person it appoints to represent its interest.
This way five goals are achieved. The committee will become very much more democratic. Groupthink could be overcome. The committee is bound to be more diverse. The range of professional interests reflected upon it will increase, which is important given the massive impact of monetary policy on all aspects of UK life, and there will be a clear opportunity to remove from office those who fail in their duties.
The potential harm that the current approach, with its inbuilt bias towards the interests of banking and the City of London is what motivates the call for reform from Blanchflower and Murphy. Professor Danny Blanchflower said:
There is a role for a monetary policy committee, but it must be accountable, and it must be representative. Our proposal diversifies the professional and regional experience of those on the committee in a way that is bound to ensure that the interests of ordinary people are better reflected in the Bank of England's decision-making processes. We need to encourage diversity of views to stop the groupthink that has dominated the MPC since its inception.
Professor Richard Murphy added:
The current MPC brings together a range of people with deep experience of economics rather than a wide range of lived economic experience that might be of greater benefit when making decisions with massive real-world implications for the people of this country. We don't need theoretical answers to the current crisis: we need real ones. Only by changing the composition of the MPC can that be delivered.
ENDS
[1] The Mile End Road starts a mile from Aldgate, one of the gates into the City of London.
Notes to Editors:
- Prof David (Danny) Blanchflower, CBE, is a British-American labour economist and academic. He is currently a tenured economics professor at Dartmouth College, Hanover, New Hampshire. He was a member of the Bank of England Monetary Policy Committee from 2006 to 2009.
- Richard Murphy is Professor of Accounting Practice, Sheffield University Management School, a chartered accountant and economic justice campaigner.
- Details of the membership of the Bank of England Monetary Policy Committee can be found at https://www.bankofengland.co.uk/about/people/monetary-policy-committee
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It would be interesting if the BoE could target house price inflation. Keeping at around 2% a year in all the regions would mean that they would have the power to issue planning permissions or designations and once so designated local objections could not follow on.
That could expand eventually to the BoE having the power to issue permits to produce energy to prevent inflation in that market sector.
Also one MPC member nominated by the government of Scotland if going independent would be interesting too.
Is that really the best you can do?
I completely agree that we need greater diversity on the MPC and your suggestions are a realistic step in the right direction. Does it go far enough? Well, “politics is the art of the possible” so in a practical sense, yes it does go far enough….. for now.
My fear is that the nations/regions will merely send people with different accents but the same thinking.
I would like to see seats for representatives of Trade Unions, the CBI, Small Business Federation, Pensioners etc., After all, if the goal of Monetary Policy is to have an impact on the real economy it might make sense to hear from people actually involved in the real economy!
Fair points
Thank you Clive – my thoughts exactly.
Yes, let’s not have experienced, qualified people looking after our economic policies. Let’s have people like you instead!
Do any of your proposals not seek to elevate yourself into a position of importance?
No, in a word
Now, presuming I would never want one of these posts, tell me your objections?
Why would I object to placing inexperienced, unqualified personnel in charge of major financial decisions?
I wonder!!
What is the qualification to be chancellor?
Why is autocracy so popular here today?
Or is it fascism?
Mr Mallender,
Could you outline precisely in what way your interpretation of ‘experienced and qualified’ was exemplified in the Bank of England, Treasury or Monetary Policy Committee; when they failed to forecast, observe, or respond to, (stil leass prevent) the failures in banking or regulation committed by the ‘experienced and quailified’ bankers and their regulators (and regulations) in the lead up to the self-inflicted monetary and banking Financial Crash of 2007-8? Until it was too late to prevent it, or mitigate its disastrous economic impact; which led to twelve years of severe austerity in the UK, with serious consequences across the economy (and public health and the NHS), and has left us with a banking system whose reputation has unquestionably been damaged in the eyes of the public. People lend to banks, because their deposits are guaranteed (up to £85k) – just to underscore exactly what I mean by reputational damage.
Specifics please; not the waffle or the specious ‘argumentum ad hominem’ you indulged gratuitously in your first comment; that made this reader “wonder” why you actually decided to write, and publish it.
Thank you John. Well said
So who was looking after the system in 2008?
From what I read in the news the Monetary Policy Committee does indeed suffer from “groupthink” – as do their equivalents in the other main Western central banks. I agree that is a bad idea which creates a lot of national and international risk.
But I am not sure that the answer to making the committee more diverse in economic thinking is to have its members politically nominated when its job is providing expert technical advice. Yes it needs members who have first hand knowledge of the economy beyond the narrow confines of the London-based financial industries, but they need to be quite technical economists to weigh up the possible consequences of moving the monetary policy levers and to argue their case with other experts – not politicians.
At the same time the suggestion of BoE forecasters and support staff having regional bases is a radical and attractive idea for avoiding London-centric thinking. Perhaps there is a solution where committee members are appointed with different regional offices as their “home base” but the selection process involves head-hunting candidates on the basis of expertise with a selection committee on which are represented the various regions and other relevant interests (like business sectors, unions etc as suggested above).
What is wrong with democracy?
And why can’t we trust it to decide?
Are you really saying you don’t trust it? Why? What do you want instead?
I believe in democracy, but not for everything. It wouldn’t be appropriate for airline passengers to vote for which one of them will pilot the plane.
Perhaps I am over-awed by the technical side of economics and central banks, and it would be adequately steered by those aiming to achieve a political object. But from reading this blog I have learned that a professional economist (you, and I assume some of the other contributors) is able to tease apart which current causes of inflation might respond to adjustments of interest rates and money supply, which not, and what risk there might be of undesirable side effects such as pushing the economy into recession. Politicians, such as Liz Truss in a recent pronouncement, seem to have a blind faith in interest rates as the all-embracing solution.
Not that the current MPC are covering themselves in glory, but I assume their deliberations do involve deeper analysis than Truss displayed.
But do you really not trust parliaments to select appropriate people?
I am baffled by that
I am not sure that selection of experts is in Parliament’s remit, let alone its strength. Those individuals that it does have a role in selecting (example: Boris Johnson) don’t give me a lot of confidence.
To take a couple of recent examples who have been in the limelight, I am pretty sure that Parliament didn’t select the current Chief Medical Officer, or the Chief Scientific Advisor. Those aren’t political roles, their advice to government (and occasional evidence to Parliamentary committees) is on the basis of expertise not party politics. I see the MPC as similar, plus in fact their members are a stage removed from government, and they need appointment on the basis of expertise not politics – but I totally agree that committee needs a range of expertise and experience to ensure all aspects are considered in full and from different angles.
I defer to physicists because they have built a science which produces predictions that I may depend on. Economics and economists? I trust you are being ironic. Economists do not do predictions because their science is bereft of a methodology that produces any predictions you could rely on. They do “forecasts” instead; their methodology uses a smear of mathematics, but without any capacity to test or experiment effectively on the actual redults of their obsessions with mere ‘theory’; their forecasts are generally terrible; their reputation as statisticians is not high; and they have never yet spotted a looming economic crisis.
Perhps you could explain what they are actually qualified to do? Teach economics? To whom? For what substantive purpose?
The lesson from all this? Beware of where you place your confidence.
Wholly agree with the Mile End Economists premise. Not only is it advisable to increase diversity of thought, it is vital that we don’t create dangerous, narrow, self-interested thinking leading to policies that further increase the wealth gap, damage overall economic prospects, etc.
As highlighted by Kate Raworth in her book Doughnut Economics, research by Robert Frank and others shown that the discipline of economics tends to attract self-interested people. Furthermore, experimental research in Germany discovered that economics students compared to other students tended to be more corruptible if it led to a personal payout. In the US research found that economics majors were more approving of their own and others’ self-serving behaviours. Whilst recognising that this does not apply universally to all economists or students of economics, it does, however, suggest that we do need – as you suggest – diversity of thought if we are to avoid falling into the trap of groupthink or narrow, self-interested thinking.
I find it both fascinating and frightening that Truss and Kwarteng are seriously considering removing the cap on bankers’ bonuses. I recognise that the cap was only partially effective since they got round it by increasing base salaries. In short, they will simply increase the level of risk-taking (for personal short-term benefit) which we know worked so well as per our 2008 experiences in the vain hope of GDP growth, trickle-down benefits through London and then spreading to the rest of the country. However, as Larry Elliott of the Guardian succinctly pointed out today “ This is a classic example of the triumph of hope over experience. We have been here before – and we know it doesn’t end well.”
Likewise the MPC have been here before…and we know it doesn’t end well. Whether the change is as per your suggestion or something similar is not the issue but what we do know is that we must change the make-up of the MPC.
A more diverse MPC is not only possible, it is necessary! I would point to the Scottish Government’s approach of firstly creating a council of economic advisors which included a diverse range of thinkers including people like Joseph Stiglitz. The full list is here if interested:
https://www.gov.scot/groups/council-of-economic-advisers/
This was then revised to become the Advisory Council for Economic Transformation made up of business leaders, academics and economists including Mariana Mazzucato, Mark Blyth and Roz Foyer, General Secretary of the STUC. If interested here’s a link: https://www.gov.scot/groups/advisory-council-for-economic-transformation/
I can only hope that they see the light as suggested by yourself and Prof. Danny Blanchflower.
Many thanks
Appreciated
Looking at the BoE’s website, I think it’s entirely correct that the base rate, which is such an important aspect of our economic life, should be addressed in a more comprehensive way to reflect what is really going on at every level of the economy and not just business
I’ve checked out how the MPC works and find that in addition to its 8 members, it has 15 regional agents (BoE employees) whose responsibility is to report back to the MPC and other committees within the BoE. I suspect that there is groupthink even within the agents as their background is in predominantly economics and finance.
https://www.bankofengland.co.uk/about/people/monetary-policy-committee
They have discussions with business on at least four days every week and have a scoring system for the results of these discussions. I suspect that the members of the MPC don’t meet any of the agents but merely have their reports with their scores.
https://www.bankofengland.co.uk/about/people/Agents
The BoE needs to ensure that the lower echelons of the bank (agents or their equivalence) as well as MPC members consider the economy from the broadest range of interests – regions, businesses large & small, local authorities, MPs and ordinary people – to really enable the MPC to come to an interest rate conclusion based upon not just business but also what’s happening at all levels of the economy.
In addition to Scotland, is there history from any other counties which illustrate ways and tools which achieve a better outcome?
You are missing the point..we know what happens to money when democracy controls it. High inflation. That’s exactly why the BoE is independent. Because the rest of the world believes that – more that perhaps – there is some control of inflation not in the hands of politicians.
The whole point of the system is to make monetary policy NOT democratically accountable in order to keep inflation away from the incentives of politicians.
Tell me when they happened and why?
There is not a shred of evidence to say independent central banks worked whenbutbis obvious so many other factors did
But you have outed yourself amongst what seems to be a fascist majority here today
“But you have outed yourself amongst what seems to be a fascist majority here today”
Oh so i am a fascist because i have a counter view you yourself??… if you are so intolerant of disagreement it is you sir that is fascist
You posted the racism
God, the naivety on display sometimes is just unbelievable!!!
“The whole point of the system is to make monetary policy NOT democratically accountable in order to keep inflation away from the incentives of politicians.”
The problem is, they are not keeping inflation away from the public; which is currently circa 10% and is not guaranteed to fall, or not rise further, no matter BofE policy. They are, therefore now squeezing households and domestic business to remove a domestic inflation threat (currently more threat than impact), that is solely a lag effect principally of imported inflation that the BofE and MPC have no control over whatsoever, and critically offer no remedy for this ongoing inflationary impact on the British people.
Thus, even if they squeeze UK domestic inflation out before it starts, it is done at huge cost to households, and does nothing to fix the real problem – imported inflation; and it does not prevent a UK recession that is probably already upon us: but the BofE policies do have a dreadful impact on the capacity of ordinary people to cope with the ongoing economic crisis, without even offering a solution to the real problem.
There is no easy answer to this, but this is your fix?
First, the BofE and tax cuts are not the answer. Primarily this is an energy issue. The British energy market is as phony as a “$3 bill” and has been a ruinous economic failure, introduced by the Conservative Party solely for neoliberal ideological reasons – that has nearly bust the economy. The chickens have come home to roost. The so-called ‘energy market’ requires to be completely swept away and replaced by a domestic energy policy that a) functions efficiently, b) serves first the interests of the British people and business and c) invests heavily in renewables, including serious scale research investment into tidal, carbon capture and other innovative technologies.
Second, unfettered, unregulated Neoliberal market economics have come close to wrecking the British economy twice in twelve years. It is about time the British people woke up and cleared the neoliberals out of office once and for all. Do not confuse business, opportunity or private enterprise with neoliberal Conservatism. Regulation is nothing to do with the fake news of the mad-tabloid ‘red-tape’ stories.
One single word sums up the Neoliberal approach to regulations; why we have them and why we need them in the economy, in spite of the sheer wantonness, the casual indifference of Neoliberalism; and why we need to establish regulations (to protect the health, pocket and security of consumers), and then ensure regulations receive the resources to ensure their implementation, because mere enactment is never enough. Regulations save lives.
That single word? Grenfell.
Agreed
Is it the people or the place? This probably sounds far-fetched but if the Treasury and/or the Bank of England were moved lock, stock and barrel to say, Bradford or Bolton, would the economic landscape of the UK not be very different? The current members of the MPC are highly unlikely ever to have visited towns such as these (or even know where they are) so how could they possibly know about their multitude of economic and social problems? Or do they even care?
The UK will always be an unequal society while London remains the centre of political, economic, entrepreneurial, technological and social activity. While a reconstituted MPC would be very welcome, I feel nothing will change significantly until there is a proper devolution of power to the regions, including shifting entire government departments.
Another country would also take the chance to move parliament out of the capital instead of spending billions refurbishing the crumbling old one
Please feel free to ignore this post Richard as it is never likely to happen.
We need what is unlikely now
Part of the treasury has been moved up north, to Darlington, a redwall constituency next door to Sunak’s constituency of Richmond and near the freeport of Teesside, also ruled by a tory. Obviously that has not been noticed.
https://www.instituteforgovernment.org.uk/blog/treasury-move-darlington
It’s a tiny number but a st3p
Now Sunak has gone will it last?
The Darlington Treasury facility is, to use the FT’s words, an “outpost”, in other words a branch office with junior staff. If the government were serious about its “levelling up” agenda (I doubt we’ll hear that term again under the Truss adminstration) a whole government department complete with senior ministers would be moved.
400 from the treasury over five years seems to me to be a lot. A quarter of the department plus 350 from other departments? There are going to be 1100 jobs eventually, which seems to be a good start.
They have decided where the new campus will be built.
https://www.thenorthernecho.co.uk/news/20059053.brunswick-site-preferred-home-darlington-treasury-base/
People already working up there. Simon Clarke, MP for Middlesborough South, was chief secretary to the treasury and is now minister for levelling up, so I think he will try his hardest to keep it there. Why Darlington rather than a city like Middlesbrough? Because it’s on the GNER mainline and close to Durham Tees Valley airport.
There’s an article in the local paper today about 4 houses being sold for over a million each round Darlington. I wonder if they were bought by people moving up from London to work in Treasury North.
It’s a sop to the north and includes none of the key decision makers. The “levelling up” agenda will be quietly forgotten as this right wing Truss government goes on an ideological crusade to cut taxes and shrink the state. I’d wager it will be closed in a few years as part of Treasury “cutbacks”
CONservative neoliberalism is not much different from wild dog eat wilddog economics and everything else
Robert Dawkins, the North could do with a few sops at the moment. Why is the minister for levelling up not a key decision maker in levelling up? I agree Rees-Mogg wouldn’t help the North East, but I think Simon Clarke might.
Levelling up was a meaningless slogan designed to con “red wall” voters to vote Conservative at the last election. It worked! I don’t think you’ll hear much about levelling up from now on and the Darlington outpost will quietly wither away and be closed
So those of us who live up north should just forget about it, and keep in our place, should we?
Oh well, better do as I’m told.
Reported in MSM.
https://www.theguardian.com/business/2022/sep/21/economists-call-for-radical-shakeup-of-banks-interest-rate-committee
Thanks