David Blanchflower will fly to the UK once a month to prepare for each interest rate decision and be housed in a hotel at the Bank's expense.
Senior Bank officials have expressed anger in private at the appointment. However, the issue will be opened up to public glare this morning when Professor Blanchflower gives evidence to MPs on the Treasury Select Committee.
ProfessorBlanchflower was picked by Gordon Brown, who has the power to appoint seven of the nine members of the Monetary Policy Committee (MPC), from a shortlist of "internationally renowned economists".
Brooks Newmark, a Conservative member of the committee, said it was a "bizarre decision" to recruit an economist who would continue to work at Dartmouth College, New Hampshire.
"This is an important job but you can't really do it part-time from 3,000 miles away," he said. "He is trying to understand the nuances of the way the economy works when he is up in the mountains of New Hampshire." He said Bank sources had told him they were angry that the British-born economist had been "sprung" on them, and had called for a reform of the system. "It almost seems as if the Chancellor goes down his Rolodex, sees someone interesting that he met recently and says: 'Let's bring them on'."
It is understood at least two MPC members have expressed dissatisfaction with the choice, partly because of the cost of flying Professor Blanchflower business class transatlantic every month and paying for a hotel. The Bank yesterday declined to give the non-salary costs.
It is the latest in a series of appointments to have raised eyebrows. In 2002, the Bank was left short of a deputy governor after the Treasury failed to make its choice in time.
The appointment of Richard Lambert, a former journalist, was criticised after it emerged he had been interviewed over the telephone. Another ex-member, Christopher Allsopp, never shrugged off an MP's tag as being "more Kidderminster Harriers than Arsenal".
David Smith, the chairman of a shadow MPC run by the Institute of Economic Affairs, said the current system was "indefensible". "I think it has got to be taken out of the personal fiat of the Chancellor," he said. He said there was a growing perception in the City that these positions were filled with "Fogs - Friends of Gordon".
"The concern is that if people come to believe it is being packed with Fogs then the credibility on which the MPC is built will be subverted," he said. "If you start to get the breakdown in confidence in the framework then you would have to go back to money supply targets. It is absolutely crucial that inflation expectations remain anchored."
Another leading economist, who would not be named, said that it had been a "strange" appointment. "Blanchflower is not one of the stars of the economics profession, and there are several people in the UK already who do the same kind of work, so why not appoint someone working here?"
Another said the "outrageous" appointment of Richard Lambert, a non-economist, made it clear a new system was needed. "It could be a formal process with a head-hunter or a less formal one with the Treasury canvassing widely amongst economists for suggestions to see whose names came up most often."
But Professor Andrew Oswald, of Warwick University, who has worked with Professor Blanchflower, defended his appointment. "Blanchflower is one of the world's most distinguished labour economists," he told the BBC. "He has worked long periods in both the US and UK, and I think that international perspective and the profound skills in studying patterns in data will be particularly valuable to our economy."
The Treasury rejected claims the decision had been flawed or that the appointment had been sprung on the Bank. It said Professor Blanchflower was picked from a "long list" of candidates. A spokesman said: "The Chancellor continues to consider Professor Blanchflower the best person for the job. His residence does not make any difference." Other MPC members have been foreign-born. DeAnne Julius was a US citizen and Willem Buiter was Dutch.
The issue is unlikely to go away. The Treasury Select Committee said last October it planned to assess the way MPC members are appointed during this Parliament.
Commons criticism of past appointees
Sushil Wadhwani 1999-2002
Issue: His replies to the committee's questionnaire relied heavily on those given by MPC members in their confirmation hearings. He explained that, where he agreed with the answers of MPC members, he had used their wording to avoid focusing questioning on differences of expression. The MPs said: "We do not agree this was appropriate, and in any case would have expected the sources to be acknowledged. Upon reflection, Dr Wadhwani accepted this."
Christopher Allsopp 2000-2003
Issue: Brian Sedgemore, then a Labour MP, said he was not premier division but "more likely to turn out to be Vauxhall League of the quality of Kidderminster". The committee said it was "disappointed" with his answers. The committee said: "This casts doubt on whether he possesses the skills required to take part in meetings of the Monetary Policy Committee. We therefore call on the Chancellor of the Exchequer to think again about Mr Allsopp's appointment."
Richard Lambert 2002-2006
Issue: MPs were concerned the former Financial Times editor was not an economist, that he had just finished a Treasury-commissioned report and that he was recruited on the basis of telephone conversations with Ed Balls, then chief economic adviser to the Treasury. "We suggest it might be more appropriate to have a more formal system for appointments in future," they said.
Sir Andrew Large 2003-2006
Issue: MPs criticised the Treasury for delaying his appointment. "The failure to do so meant the Bank was left without a deputy governor, albeit only for a few days." After he stepped down early, it emerged this had been agreed with the Treasury but not disclosed to MPs. John McFall, the chairman, said it was important MPC members replied "very openly and honestly".Reuse content