Summary
Danny Blanchflower and I propose reforming the Bank of England's Monetary Policy Committee (MPC) to enhance its democratic accountability and diversity. We criticise the current composition, which suffers from groupthink and lacks external perspectives. Our proposal includes appointing members from devolved governments and regional committees, ensuring representation from across the UK. This change aims to bring varied economic experiences into decision-making, ultimately better serving the interests of ordinary citizens, especially during economic crises.
I have mentioned in another blog the work Danny Blanchflower and I are proposing to do now.
Amongst those things, we are discussing writing a book.
One of the many ideas for inclusion in that which we have discussed in the last few days is reform of the Bank of England. This is something we wrote on that in a press release in 2022:
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 about 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 the MPC targets might be changed.
Today, they 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 needs 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 promote the interests of people in their regions and would be well paid, and these 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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The MPC needs abolishing not reforming! Why? It lets the government avoid its full responsibilities for managing the economy. In other words split-responsibility is a recipe for bungling!
Advice is never harmful
But key here is that democratic accountability must rest with elected representatives not a quango because of the inter-relationship of fiscal and monetary matters. There should be none of the Neoliberal pretending this isn’t necessary or even advisable!
https://billmitchell.org/blog/?p=61408
As you know, I fully support more diversity of thought at the BoE; your proposal is most welcome.
But would the geographic diversity lead to thought diversity? I would prefer to see “sector” representatives – Trade Unions, pensioners, students etc.
Also, one term only? Just as you get confidence to challenge the BoE bureaucracy you are moved on…. but I agree, term limits required to prevent institutional capture.
Did that achieve any column inches?
Some
Not many
I suppose, using Mile End and Peasant Revolt imagery, that the MPC reform proposal has been Fobbed Off.. !
I hope this campaign is sustained.
It carries potentially powerful underlying messages about equity and democratic accountability.
The public need to know that interest rate hikes are intended to cause unemployment, reduce wages and are designed to impoverish the unwashed, and the weasel words used by Bailey in particular, exposed.
“Of the remaining members, three should be appointed by the devolved governments of Scotland, Wales, and Northern Ireland”.
That should happen but rest assured it never will. London as England, England as the UK will never allow dilution of power or suffer advice from the “colonies”.
Perish the thought!
Richard
Good luck, I hope you will succeed in inducing change, but the vested interests are well entrenched.
It might be useful to frame some of the points for change to show how the Government would benefit from taking action and what they would loose from inaction – just a thought….
Noted
I despise banks, this started in the 70’s when the interest rate went up to 15% but the best I could get on my savings was 3%.
I have been working in Ireland for the last 30 years and my local town had 3 banks. Over the years all the banks in Rathdowney have shut down so the easiest bank to reach (by train) is in Portloise some 15 miles away. My bank changed the credit card system with a secret authentication system, after a lot of agro on the phone I managed to find out how to fix this. A few weeks later I found all my standing orders had been canceled and got the train to visit the bank to see the manager. There was no bank manager, just a number of booths with a screen and a phone, the screen was not working. I was supposed to ring up each standing order a renew it, since my phone was off because the standing charge was cancellation, strong words were exchanged.
No one to fault you for having a go.
You may be ignored by those you are appealing to, but others are reading no doubt and becoming interested. And that matters too.
Bollocks! No reason to handover such important decisions to people without sufficient understanding of economics and the banking sector.
As ever, you’re just trying to find a role for yourself. Funny how Danny Blanchflower wasn’t concerned about this when he was on the committee!
I don’t want such a roll
And Danny was the most awkward MPC member in its history
How do you trolls always get everything wrong?
Bollocks, indeed….. to leave such important decisions to people without sufficient understanding of economics and the banking sector.
That’s why we need change.
My recollection of Danny Blanchflower’s contributions as an MPC member is rather different to yours…. although I did feel he was fighting a losing battle.
8-1, usually
Freda
If any comment on this blog shows us why the country is in the state it is in more than yours – I’ve yet to find it.
It’s typical of the petty minded attitudes in the citizenship obsessed with kitchen sink dramas and over-personalised gripes than the stopping and looking – yes looking – at the bigger picture and finding out what really is causing your problems.
If you want to launch personal attacks like that, why not stick to X?
Why is it people look for the worst in others who are having a go at improving our lives?
It’s bizarre – unless of course you work for right-wing think tank or the single transferable party.
Either way, it’s not welcome here I think.
Go for it, Richard! We have a government that needs educating.
The idea that the MPC has the weakness of groupthink is obvious, but the best way of rectifying that isn’t straight forward assuming individual committee members should also be selected on the basis of expertise and ability to challenge. It wouldn’t be good if they in some way “represented” constituencies as Clive Parry proposes; the regions-based approach is more constructive but I am not sure it would necessarily ensure a diversity of economic thinking or even that much more awareness of local needs. It is likely that regional offices would be based in the regional banking centres, and regional members nominated from the pool of banker-acceptable economists.
As someone living in the North East, I am not convinced bankers (or even university economists) in Leeds have much more awareness of the economic realities in Hull than bankers in Threadneedle Street.
But even if an optimum solution is difficult, it is good you raise the issue, no one else does!
Thanks
I think the role of the UK MPC needs to change. The use of interest rates has only a small effect on inflation. The Bank of England MPC should be responsible for the value of the pound which is strongly influenced by interest rates. However the government should cap interest rates at 3% and accept currency changes beyond this control. Then the government takes full responsibility for inflation in its tax and spending decisions.
This over emphasises international dimensions in my opinion
I think globalisation has gone far enough. We need to reduce foreign investment in the UK which is exploiting the UK workforce for the benefit of foreign sovereign wealth funds. If the effect of the interest rate cap and government policies is to gradually reduce the value of the pound then this is a good thing because it makes local production more competitive. This is what China has been doing so effectively in holding down the value of the Yuan. We just have to be careful to stop foreign actors taking advantage of the lower value of the pound by buying up cheap UK assets such as property and land and successful companies.
Maybe
But the focus of all policy should be domestic. An obsession with exchange rates misses the point. Getting the actual economy right is what matters most, by far.
I agree with the need for diversity which should also include the voice of people who are negatively impacted by the decisions, rather than those on massive salaries who think high interest rates are a price worth paying. Perhaps some sort of impact from some kind of citizen panel might be useful, though probably too difficult to make work.
Alternatively make them publish an impact analysis of their decisions on the different strata of society