David Blanchflower: The Bank needs a governor who grasps the real world

Economic Outlook: The economists failed. It is time for the practitioners to take over

The economic fog shows little signs of clearing. The latest labour market release had some good news in it that David Cameron trumpeted at Prime Minister's Questions. Employment increased by 50,000 and unemployment fell by 35,000, which resulted in a drop in the jobless rate from 8.4 per cent to 8.3 per cent. The Prime Minister hasn't had that much good news to report for a while.

Click here to view the graphic

But a closer examination showed the good news was tempered by not such good news. The claimant count increased by 4,000. Plus all of the job increase was in part-time employment, which grew by 80,000, while the number of full-time jobs dropped by 27,000. The story was also very different by gender. Male employment rose by 50,000 and male unemployment fell by 43,000, whereas female employment rose by only 2,000 and female unemployment increased by 8,000. Wages in both the public and private sectors grew by only 1.1 per cent. The number of vacancies remained unchanged.

The Bank of England's agents also reported last week on economic conditions on the same day the official minutes of the last Monetary Policy Committee meeting were released. The agents didn't bring much good news. They reported that consumer demand growth remained modest, while investment intentions were essentially flat. Importantly, the agents found that there had been some tightening in credit conditions, primarily in terms of the cost of finance. Most worrying was the finding that private sector employment intentions were likely to be broadly flat over the next six months.

The chart above presents the agents' scores in relation to employment intentions over the next six months for both manufacturing and services. The series for services is especially concerning given that the last time it was in negative territory was at the start of the Great Recession in March 2008. The good news on the labour market is unlikely to continue for long.

Last week's positive retail sales numbers were likely driven by the good weather and petrol panic. But this good news seems unlikely to continue, given rapidly falling real wages.

The minutes of the MPC's April meeting warned that the committee could not rule out the possibility that GDP growth was likely to show the UK is in a double-dip recession, as I have been warning for some time. Here is the relevant quote: "Indeed, it was possible that the ONS's preliminary estimate for GDP could record a fall in aggregate output." Recall of course that recently OECD also forecast that GDP growth in 2012 Q1 in the UK would be minus 0.1 per cent.

The first estimate of GDP growth for Q1 2012 is due to be published by the ONS on Wednesday, and I will report back on that number in this column next week. Admittedly, the positive retail sales data do reduce the prospect that the number will be negative.

It was something of a surprise to find that Adam Posen did note vote for further QE at this meeting, even though David Miles did. He made it clear in an op-ed article in The Independent that he was never an automatic vote for more QE. The most telling line was this one: "The latest data convinced me that for now an additional £25bn could be unnecessary." At least we know he is ready to act if the data worsens, as it may well.

Incidentally, Adam is my top candidate for the job of deputy governor for monetary policy in 2013. He has made the right calls over the last few years and would ensure that a more credible approach is brought to economic forecasting and research than has occurred under the current failed regime.

There has been some speculation about who should replace Mervyn King, whose term is up in June 2013. It has been reported that the Government has been exploring the possibility that the governor of the Canadian central bank, Mark Carney (who in a recent speech in New York made it clear he is a big fan of flexible inflation targeting), had been sounded out about the job. Mr Carney looks exactly like the clone candidate Mr King would pick if the choice was simply his to make. Fortunately it isn't. What is needed is the not-King candidate, a practitioner who understands the real world, not the made-up world of an economic theorist. Someone who has run a major organisation with skill – perhaps even a bank – and shown they can motivate and inspire their staff, would be perfect. The economists failed. It is time for the practitioners, such as Stephen Green, John Varley or perhaps Gus O'Donnell, to take over.

In May 2007 I gave a speech in which I argued that economic policymakers should look at the data carefully and sniff the air. I argued that it was appropriate to adopt a more investigative approach, if you like, to put the data before the theory. I called this the "economics of walking about", which has been a strong tradition in my field of labour economics. I had in mind Clark Kerr's 1988 statement that "labour economics will contribute more by helping to make a sense of reality than by building more castles in the air".

The chart above is especially relevant given that as early as March 2008 the services series went into negative territory for the first time in its history. It was clearly telling us something important, but Mr King failed to spot it. Other series had all been saying the same thing for months. In the light of these data, how come, for example, Paul Tucker and Mervyn King didn't vote for policy loosening until October 2008? Had we had a governor with practical experience of the walking about, rather than of the made-up world of an economic theorist, I am convinced the British economy would be in better shape now than it is.

David Blanchflower is professor of economics at Dartmouth College, New Hampshire, and a former member of the Bank of England's Monetary Policy Committee

Suggested Topics
Life & Style
Sampling wine in Turin
food + drink...and abstaining may be worse than drinking too much, says scientist
Arts & Entertainment
Kingdom Tower
architecture
Sport
Jose Mourinho restrains his assistant manager Rui Faria, Fabio Borini celebrates his winning penalty and Connor Wickham equalises for Sunderland
sportChelsea 1 Sunderland 2: Deafeat is extra bitter as former Chelsea player Fabio Borini scores late penalty to seal victory
Arts & Entertainment
Game of Thrones writer George R.R. Martin has been working on the novels since the mid-Nineties
books
VIDEO
News
Easter a dangerous time for dogs
these are the new ones. Old ones are below them... news
News
Brand said he
people
Sport
Roger Federer celebrates his victory over Novak Djokovic in the Monte Carlo Masters
sport
Voices
Actor Zac Efron
voicesTopless men? It's as bad as Page 3, says Howard Jacobson
Arts & Entertainment
The monster rears its head as it roars into the sky
film
Voices
For the Love of God (2007) The diamond-encrusted skull that divided the art world failed to sell for
its $100m asking price. It was eventually bought by a consortium
which included the artist himself.
voicesYou can shove it, Mr Webb – I'll be having fun until the day I die, says Janet Street-Porter
Extras
indybestFake it with 10 best self-tanners
Arts & Entertainment
Madonna in her music video for 'Like A Virgin'
music... and other misheard song lyrics
News
Much of the colleges’ land is off-limits to locals in Cambridge, with tight security
educationAnd has the Cambridge I knew turned its back on me?
News
peopleOrlando Bloom the pin-up hero is making a fresh start
News
Who makes you happy?
happy listSend your nominations now for the Independent on Sunday Happy List
Have you tried new the Independent Digital Edition iPad app?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

1st Line Helpdesk Engineer Apprentice

£150.00 per week: QA Apprenticeships: This company has been providing on site ...

Telesales & Sales Support Apprentice

£221.25 per week: QA Apprenticeships: This company is a well established Inter...

Client Relationship Manager - SQL, Python

£40000 - £50000 per annum: Harrington Starr: Client Relationship Manager - SQL...

**Financial Services Tax**

£35000 - £50000 per annum: Pro-Recruitment Group: Take your chance to join the...

Day In a Page

How I brokered a peace deal with Robert Mugabe: Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC

How I brokered a peace deal with Robert Mugabe

Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC
Video of British Muslims dancing to Pharrell Williams's hit Happy attacked as 'sinful'

British Muslims's Happy video attacked as 'sinful'

The four-minute clip by Honesty Policy has had more than 300,000 hits on YouTube
Church of England-raised Michael Williams describes the unexpected joys in learning about his family's Jewish faith

Michael Williams: Do as I do, not as I pray

Church of England-raised Williams describes the unexpected joys in learning about his family's Jewish faith
A History of the First World War in 100 moments: A visit to the Front Line by the Prime Minister's wife

A History of the First World War in 100 moments

A visit to the Front Line by the Prime Minister's wife
Comedian Jenny Collier: 'Sexism I experienced on stand-up circuit should be extinct'

Jenny Collier: 'Sexism on stand-up circuit should be extinct'

The comedian's appearance at a show on the eve of International Women's Day was cancelled because they had "too many women" on the bill
Cannes Film Festival: Ken Loach and Mike Leigh to fight it out for the Palme d'Or

Cannes Film Festival

Ken Loach and Mike Leigh to fight it out for the Palme d'Or
The concept album makes surprise top ten return with neolithic opus from Jethro Tull's Ian Anderson

The concept album makes surprise top ten return

Neolithic opus from Jethro Tull's Ian Anderson is unexpected success
Lichen is the surprise new ingredient on fine-dining menus, thanks to our love of Scandinavian and Indian cuisines

Lichen is surprise new ingredient on fine-dining menus

Emily Jupp discovers how it can give a unique, smoky flavour to our cooking
10 best baking books

10 best baking books

Planning a spot of baking this bank holiday weekend? From old favourites to new releases, here’s ten cookbooks for you
Jury still out on Manchester City boss Manuel Pellegrini

Jury still out on Pellegrini

Draw with Sunderland raises questions over Manchester City manager's ability to motivate and unify his players
Ben Stokes: 'Punching lockers isn't way forward'

Ben Stokes: 'Punching lockers isn't way forward'

The all-rounder has been hailed as future star after Ashes debut but incident in Caribbean added to doubts about discipline. Jon Culley meets a man looking to control his emotions
Mark Johnston: First £1 million jackpot spurs him on

Mark Johnston: First £1 million jackpot spurs him on

The most prize money ever at an All-Weather race day is up for grabs at Lingfield on Friday, and the record-breaking trainer tells Jon Freeman how times have changed
Ricky Gervais: 'People are waiting for me to fail. If you think it's awful, then just don't watch it'

Ricky Gervais: 'People are waiting for me to fail'

As the second series of his divisive sitcom 'Derek' hits screens, the comedian tells James Rampton why he'll never bow to the critics who habitually circle his work
Mad Men series 7, TV review: The suits are still sharp, but Don Draper has lost his edge

Mad Men returns for a final fling

The suits are still sharp, but Don Draper has lost his edge
Google finds a lift into space will never get off the ground as there is no material strong enough for a cable from Earth into orbit

Google finds a lift into space will never get off the ground

Technology giant’s scientists say there is no material strong enough for a cable from Earth into orbit