This article was in The Express online yesterday:
The whole article is based on an interview with me and concluded:
But Prof Murphy believes the Bank is now "out of control". He added: "Why are they doing this? Because we have a bunch of unelected, out-of-control people at the Bank of England whose main preoccupation is proving that they have a job to do when for the last 12 years they have had nothing whatsoever to do.
"They are creating a ghastly recession, the worst in living memory. I don't know how the bastards sleep at night."
If you want a summary of my sentiments on the motivation of the Bank of England, that's it.
The 'bastards' element was not intended for publication when I said it: the journalist did ask for permission to use it.
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Might it be possible to place harmful decisions on a continuum between the poles of the incompetent and the malign?
Might both sleep well enough?
I have complete confidence that they sleep exceeding well! Their cognitive dissonance sub-routines are up and running and as far as they are concerned all is well.
The situation (in terms of ignoring realities) is identical in the EU. Here is a summary account of a recent meeting – note the level – the only ones absent were the Commissioners:
“The Berlaymont is a bit like the Titanic at the moment, Captain Ursula full steam ahead for a second term, etc. etc.
Nobody said anything of any particular use, quite interesting given how many people spoke in 4,5 hours. The leader of EU energy policy was there, the director generals and their Directors and Head of units, Cabinet members, DG competiton. And we ended up right where we started with no direction – except straight ahead towards the iceberg. ”
I use this as an illustration of the utter failure of existing political institutions. This failure is not limited to the UK, it encompasses the whole of the EU (and arguably Russia and the USA). One of the chaps I know well in Bx (an economist) was interviewed by HM Treasury for a senior position. One his way back to Bx they phoned him and offered him the job. He turned it down, remarking to me: “they just wern’t that bright and I did not like the overall atmosphere of “everything is fine and nothing needs to change – intellectually they were constipated”.
We need change.
Agreed
To quote the Simpsons:
“How do you sleep at night?”
“On top of a pile of money, with many beautiful ladies.”
Hmmmmm – ‘bastards’ eh – now look, I hope I’m not having a bad influence on you Richard with my industrial strength language and other working class ‘artefacts’ I let slip out here in frustration.
I mean I’m happy to job-share and all that but please don’t feel any pressure on you to stop being measured on my account!
I can do worse…..
THE EXPRESS!!!
Yes
Seriously
It would be useful for more people to read a book called The Rich Get Richer, The Poor Get Prison, because of its explication of the Pyrrhic Defeat. This is a failure in addressing a large scale issue, one ostensibly engaged with by agencies and laws and officials, when that failure has structural or political benefits for the class in charge of fixing the problem. The drug war is the perfect example. When drug policies fail, it only leads to calls for more funding, and more significantly in this context, it places blame for other failings of the upper class onto users and by extension the poor and marginalized cultural groups. When wars fail, they only rarely undo governments now, they merely create new narratives of the need for spending and vigilance. 9/11 was the biggest Pyrrhic Defeat possible for the national security state. Abject failure gave them everything they wanted. Apply this to economics, you will get there.
Given that most of the inflation is beyond the BoE’s control, e.g. commodity, food and energy prices, I am at a loss as to why they are raising interest rates which will push this country into a deep recession.
Especially as inflation next spring will drop to about 2 percent as it will be measuring post Ukraine war start versus post Ukraine war start prices as opposed to pre and post.
Likewise, the coming cuts which will just collapse the already fragile NHS, education etc.
The Tory party know that they haven’t a chance at the next election. They put in place a policy which trashes the UK economy and services. However, it will take about two years to feed through the economy.
Labour get in and inherit this. Things are beginning to bite. The results of poor business investment. High(ish) unemployment. House repossessions and negative equity. The NHS, education, defence etc. collapsing. Labour are blamed for all this.
Next election – Conservatives win by a landslide and rule for 18 years.
Of course, this is just a fantasy and would never happen.
When are we going to realise the systems used to run the world need reviewing changing, fixing. Our economic, financial systems contribute to conflict wars climate issues, poverty. The list goes on. But But. Do we accept things will never change because the comfortable ones can’t see a better system, the rich ones have great comfortable lives and like the system enough to protect it at all cost. If an alien race invaded us I wonder if we’d all work together to save our specie/ planet or would human behaviour be that some would collaborate with the aliens to form an alliance. Answers on a postcard as they used to say.
I am trying ……
as someone who is terribly ignorant of economics but trying to follow the arguments I remain utterly perplexed. It seems raising interest rates will be wonderful for the banks, terrible for those with debt to service (most ordinary people). But then I dont understand the balance between the economics for ordinary people (we wont have any spare money to help drive growth) vs institutions who will benefit from increased interest rates. More money for shareholders? The rich get richer and the poor get poorer? It cant be as simple as that. When I soon get made redundant an opportunity to try and educate myself maybe.
John
I keep thinking about how to address the issues you mention
In fact, I am working with others to discuss this over the next few days
But there is no quick answer
Andrew Bailey is as out of control at the Bank of England as he was useless at the FCA. How do people like this get into positions of such influence & power
In the Channel 4 News interview last night Bailey looked distinctly uncomfortable when questioned by Cathie Newman. He appeared sweaty and tense as he mumbled his responses – as though he was terrified of being led into an indefensible position. Sadly, that didn’t quite happen, but he did look like he was the wrong man in the job, just like before, when was in charge of the FCA. A debate with Richard and/or Danny Blanchflower would be well worth watching.
That would be fun…..
Allan
There is, it’s worth mentioning, one, and only one I think, circumstance that could (just) see the Tories win the next election. It goes like this – in March Sunak announces as the papers are full of “is the energy support ending and what will prices be like?!!!” that he will extend the support for another 6 months. In August Sunak announces a General Election for September (ie before the next support ends). With the media bigging up Sunak’s control of the economy (fantasy of course) and help for everybody, the Tories scrape a tiny win, against a Labour Party led by Starmer which simply says it would do what the Tories are doing but somehow better. England (not Scotland, possibly not Wales) is polarised again. Result either a small Tory majority or a small Labour one, possibly a Lab-LibDem coalition or arrangement. The latter would extend the support another 6 months, while continuing Sunak’s cuts, the Tories would stop the support, despite having promised to continue it, on the grounds it will be bringing it back asap. Just a short spell, don’t worry folks. The context is that unemployment by next October will be rising but not sky-high, business failures the same, but of course most people hear what their chosen media choose to tell them: the Mail tells the Tories of the Home Counties; the Guardian tells the middle classes of London and the South-East. Everyone else gets a bit of this, bit of that, and the BBC says it is being neutral but bends over backwards to suggest both sides are being realistic and truthful, though neither is the case.
So pleased that you are getting your voice heard in publications such as The Express. Let’s hope that their readership sits up and listens!
As I understand it the BoE can be overruled by government; so I suspect it’s being used as a diversion by the Express.
It can be
It never has been
I think you are wrong
> It can be
> It never has been
> It never has been
The ‘independence of the BoE’ is only as recent as Tony Blair’s government. There’s nothing sacred or constitutional about it, and if there were a policy the government demanded the CB undertake, they could get re-acquire the authority to impose it overnight.
The government is the boss. There’s no threat the BoE can wield over the PM’s head, because as Bernanke said, the central bank is a creature of the legislature and the legislature can unmake it at a whim. Another great American example is Lyndon Johnson’s fed chair’s response when asked why he failed to curb inflation in the period: “its not my job to prevent the government enacting its stated policies” (ie government desires came first).
The BoE doesn’t get overruled by governments because being overruled implies open opposition in the first place, which it wiould find impossible to act upon. This is not a theoretical question. Parliament cannot actually make any body of government independent, since that independence would evaporate the second it decided a conflict merited a repeal of ‘CB independence’ so that it could sack the governor, restructure the mandate, etc.
Independence is not for the benefit of CBers, it’s for the benefit of governments that can shed responsibility for the results of monetary policy. Independence makes CBs vulnerable because if their decisions are challenged, they are open to accusations of democratic illegitimacy.
The one thing that a chair of the BoE could threaten to do other than raise rates, should the government enact policy it opposes, is make it difficult for the government to pay for its spending. They could imply that they would consider bouncing government cheques if there were insufficient funds (which it is their job to ensure is never the case) or imply a disinclination to provide the banking system with the reserves it needs to pay for bonds during auctions (the reserves can only be made available to banks if the CB is willing to issue them). They have never tried to coerce government policy by threatening either. That’s because they know the act would be futile and they would be replaced overnight.
Consider this extract from Varoufakis’ (ex financial minister of Greece) memoir where he discusses the BoE with George Osborne
—
In the first few minutes of our discussion I suggested to him that, “While we may disagree on the merits of austerity, you are not really doing much of it, George, are you?”
He agreed smilingly. How could he not? If an Austerity Olympics had been staged, Greece would have swept the board while Osborne’s Britain would have been an also-ran.
Osborne also seemed appreciative of the help he was getting from the Bank of England… “They are behind me every step of the way,’ he told me, evidently relieved not to be in my situation, hostage to a European Central Bank that was doing precisely the opposite.
“I envy you, George,” I lamented. “Unlike you, I have a central bank stabbing me in the back every step of the way. Can you imagine what it would be like?”
The Bank and government seem to be determined to carry the policies through.
When lots of people are put in a position where they can’t pay the bills, I think we will have a snowball effect protest movement. The consequences could be quite dire.
Although the US Fed and the Bank of England are pursuing similar policies, I wonder if they will have different effects.
The $USD is the de facto global reserve currency. When the Fed raises interest rates, the $USD rises and imported goods become cheaper. Inflation duly falls. Of course there will still be a recession and misery for ordinary Americans and more production will come from overseas. But US corporations will be able to buy the overseas producers cheaply using their more valuable dollars.
In contrast, the £GBP is a secondary currency, with a Brexit- and Putin-created trade deficit. In order to import goods and services, the UK needs to export goods and services of equivalent value, which it can’t do. When the BoE raises interest rates, to temporarily maintain the value of the £GBP, it is the equivalent of burning the furniture to keep warm. Crippled UK businesses will export less, and the trade deficit will widen.
For this reason my tentative prediction is that raising interest rates will NOT reduce inflation. BoE policy will give us pure stagflation. The worst of all worlds
You are ignoring financial flows to the City
………..which if I remember correctly was where Thatcher’s Tories also had a blind spot!
History repeating itself again.
Because it is intended to.
Would financial in- and outflows not be the reason that interest rises might have different effects in the US and UK?
They do make a difference