David Blanchflower: Bank needs governor with experience of how markets work
Economic Outlook: I read I was a candidate for the Monetary Policy Committee in a national newspaper
I spent most of last week flying around Europe. A total of eight flights, including four in or out of Frankfurt, the home of the European Central Bank. I was stuck in Frankfurt for the night when my flight from Heathrow was delayed by bad weather, and I missed my connection to Boston.
While I was kicking my heels in the hotel, I found the unprecedented advert in The Economist for the job of Governor of the Bank of England. Sir Mervyn King didn't get his job by answering a bloody advert.
I went to the Treasury website, where I downloaded the details, plus a "diversity questionnaire" with details of an "interview access scheme" to make it easier for the disabled to apply. It's a pretty good bet that we are not going to see a disabled black female being appointed. I assume Cameron substituted this form for one that asked potential cabinet members if they were male, rich, went to private school and Oxbridge and considered most people in the country to be "plebs". Hence all the "posh boys" in the Cabinet, which is also rather slim, to say the least, on women, minorities as well as the disabled. Why?
The point of advertising the job escapes me: it's rather unlikely there are unknown candidates out there who are going to apply online. The chances that the governors of the central banks of China or Russia, or Ben Bernanke, might apply are pretty slim.
I do recall I never actually applied to join the Monetary Policy Committee (MPC). I read I was a candidate in a national newspaper, and a few weeks later Sir Nicholas Macpherson (permanent secretary at the Treasury) called to ask if I was interested. I was never interviewed, and a couple of weeks later Sir Nick rang back to ask if I wanted the job.
The nature of the job Osborne has created – with an eight-year term – and pressure from Downing Street to produce a get-out-of-jail-free card to save the failed fiscal strategy and get the economy moving again, looks hugely unattractive. They don't even state the salary, although it notes that Sir Mervyn's salary is £302k, so some candidates might do the job for less, which would mean George Osborne could use the savings to reduce the amount he is going to cut welfare benefits. Mike Bloomberg, the billionaire Mayor of New York and owner of Bloomberg News, takes only $1 a year in salary, so Mr Osborne might be attracted to the idea of hiring someone rich, like Icap's Michael Spencer.
Obvious candidates like my good friend Rachel Lomax, who would have been perfect, have ruled themselves out, and others who would have liked the job have Libor and money-laundering troubles,so have also been ruled out.
I don't have a problem with Alastair Darling's suggestion that it could be a foreigner – Donald Kohn, maybe, who was on the Federal Open Market Committee, and is already on the Financial Policy Committee (FPC). Tim Geithner, US Treasury Secretary, ex-president of the New York Federal Reserve and Dartmouth alumnus, is available in January, but talk on the street is that he will replace Jim Yong Kim , whom he appointed as head of the World Bank, as Dartmouth's new president. The Canadian central bank governor Mark Carney apparently has ruled himself out. But I found his protestations rather hollow, so maybe he is still in contention.
John Vickers, who was previously chief economist at the Bank, is another viable British contender, although apparently he doesn't want the job, but he may change his mind; I understand that if he does want it, he would be likely to be offered it.
Paul Tucker's troubles in regard to the Libor presumably also disqualify him.
Anyway, the new Governor, according to the "role profile", is expected to play a central role, among other things, in:
l setting the Bank's overall strategy to deliver financial and monetary stability in the UK;
l ensuring that the new arrangements for the FPC operate as effectively as the MPC;
l leading the Bank through the reforms to the regulatory system, including the transfer of new responsibilities that will see the Bank take the lead in safeguarding the stability of the UK financial system, including the prudential regulation of banks, other deposit-takers and certain investment firms (via the Prudential Regulation Authority, the PRA), and the regulation of the systemic infrastructure.
This looks like a mammoth task. Are members of the FPC going to vote on anything as the MPC does? What is the overlap between the PRA, FPC and MPC? How the PRA fits into all this is still to be determined. Of course, to get the job the candidate presumably has to tell Mr Osborne what a great idea it was to set all of this up, and it is all going to work out just fine, and quickly. It really does look like another shambles in the making.
One of the difficulties in the United States is that an incoming president has to make several thousand political appointments to run the government, which takes a long time to do. The candidates have to be identified, then security cleared. About a third of them have to be confirmed by the Senate, which also takes a long time. This gives an added advantage to an incumbent president like Barack Obama. In the UK, there are many fewer political appointments on a change of government, and the civil service enables continuity. The newly constituted Bank of England, though, will not be fit for purpose for a year or two; the concern is that they will not be prepared if another big shock hits.
My advice to the new governor would be to stay well away from fiscal policy. What is needed is someone with practical experience of how the financial markets work, not some theoretical economist who knows how to write down mathematical squiggles, which was Sir Mervyn's background. The next governor probably will be an economist of some kind, and it is vital they have knowledge and experience of the real world, but above all they need to have clean hands.
It is important that they are interested in evidence and take note of what I call the economics of walking about – where you listen to what people say and take it seriously. Both Gus O'Donnell and Adair Turner pass these tests.
I have no intention of applying. But maybe Sir Nick has plans to call me again?
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