The FT notes this morning that:
The Bank of England's internal culture, governance and appointments processes need significant reform after it and other central banks showed “complacency” about the threat of inflation, said a House of Lords report.
They added:
The Lords economic affairs committee said BoE policymakers were too reluctant to challenge conventional wisdom and overly reliant on “inadequate” forecasting models when inflation was brewing in 2020 and 2021.
It is good to note that their Lordships agree with, although it would help if they had published their report by now so I could read it.
The top of the Bank of England is predominantly white, male, Oxbridge, and ex Goldman Sachs or at least investment banking. The exceptions are Bank lifers, like Andrew Bailey. They are just about as far removed from having experience of really living in the UK economy as it is possible to be whilst still living in this country, so we put them in charge. No wonder so much has gone wrong.
I suspect I do not agree with their lordships on all issues in their report, but in the need for diversity I am in total agreement.
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The right conclusion for the wrong reasons.
The suggestion is that with the correct monetary policy we would have avoided the inflation spike we have seen over the last couple of years…. and this is not true. The idea that if they had tightened policy earlier then we would not have seen prices rise is nonsense. By all means, clear out the current leadership and bring in newer, more diverse blood but lets be clear – it is for being intellectually bankrupt.
This matters because if it is allowed to become “accepted wisdom” that “if only the bank had acted earlier we would have avoided inflation” we run the risk that the future generation of BoE policy makers will be trigger happy on rates at the first whiff of inflation.
We would have had the inmfaltion, for sure.
But i woiu;ld have heloped if we had understodd it.
Of course, we need better understanding…. but my fear is that if the conclusion is “we should have tightened earlier” then we will have missed the point.
Agreed
Thank you, Richard.
From 2008 – 14, I worked with the Bank, from Tucker, Haldane and Bailey level down. I met King, too. In the autumn of 2021, the Bank offered me a job, leading on an aspect of prudential and financial stability policy. It appears little had changed in that time. Little feeds its way up from the front to policymakers at committee level. The policymakers have little interest and make it difficult to get concerns escalated. That reminded me of an incident in the mid-noughties. A young official expressed concern at a meeting with governor King about the exposure of British and other banks to sub-prime debt originated by US investment firms. King, who had disbanded the Bank’s international team and showed little interest, unlike Tucker, in bank supervision bellowed how was this relevant. I’m sure HR may have something to say about this sort of behaviour. Carney was no better.
It’s not just the Bank. The Treasury is similar. Both, and their peers overseas, also bend over backwards for Goldman Sachs, to the extent of putting the firm before their national interest, but the officials and politicians, vide Jose Manuel Barroso, are well rewarded for it. There are excellent, er, incentives if one, um, accommodates the giant.
In the summer of 2008, a colleague and I went to the Treasury to discuss reforms of securitisations. At reception, we noticed a big group waiting and asked the officials who they were. They explained that Goldman Sachs sends big delegations at least monthly. The big bank bosses are more likely to meet the chancellor than the governor. King wrote about that.
@ readers: Have a look online for my pseudonym and 007.
My experience dealing with BoE and HMT is pretty ancient (1990s mainly) but you are correct. Many smart talented people …but all the good ideas are squeezed out by the time it gets to a level where decisions can be made.
The contrast with Brussels was stark; they genuinely listened and responded honestly and openly.
I met the Teasury a lot for a decade
The lack of critical thinking was painful
The Bank of England can reform as much as they want, but unless they understand basic economics, there will be no change. Of course we are assuming that the current situation is not designed to work as it does for the benefit of the few.
Not to worry, everyone – Bernanke comes to save us! Difficult to see what he’s going to do though other than ossify matters even further.
https://www.theguardian.com/business/2023/nov/27/bank-of-england-inflation-forecasts-lords-committee-report