David Blanchflower: Tyrant King held the Bank in thrall - but they all got it wrong

Economic Outlook: You were either an insider on Sir Mervyn’s good side or you were out

A couple of weeks ago, it was an earthquake: this week, it was a hurricane. I managed to get the last flight out of Boston for my third Atlantic crossing of the week just before the airport closed. My family were all fine but the town where my father-law has a condo on the Jersey shore had a major problem as their roller-coaster was washed away, and was last seen heading towards France.

I write this driving through the snowy Highlands where Danny Alexander, our Chief Secretary to the Treasury, was once the head of communications at Cairngorm National Park. That's the same heroically underqualified Danny Alexander who argued in a BBC interview that the Coalition would have still gone ahead with austerity two years ago if it had known the economy was going to grow by just 0.6 per cent instead of the 6 per cent forecast by the Office for Budget Responsibility in June 2010.

Interestingly, in his maiden speech in Inverness on the August 27, 2010, he made it clear that the Coalition should be judged on what it delivered. "We have steadied the ship, but if we wish to remain on course we must deliver on the plans we have set out". He even went on to claim that the coalition was all warm and cuddly. "So the spending decisions for which I am responsible will be guided by clear principles: To support private sector growth that lasts, that is more balanced across the people and places of the UK. To promote fairness and opportunity. We are all in this together."

The boat, just like the roller coaster, is sinking, plus the Government has promoted unfairness and lack of opportunity for so many. This week's news: Comet failed, Ford closed its UK plants and UBS fired thousands of its workers. Plus the construction and manufacturing PMIs were bad. More troubled waters are ahead.

And then there those three reviews – by Bill Winters, David Stockton and Ian Plenderleith – on what went so terribly wrong at the Bank of England. The report by Mr Stockton on forecasting was especially sensible and hard-hitting. Recall that the unelected Sir Mervyn King for a long time resisted the very idea of reviewing the Bank's failings despite frequent protestations from the Treasury Select Committee (TSC). How dare anyone question the great man? I have always been sympathetic with calls from elected MPs for greater transparency from unelected officials. Did Sir Mervyn's opposition suggest he had something to hide?

I gave evidence to two of the reviews. The three confirmed the picture of the Cruel Tyrant who ruled all; this meant that alternative, but frequently correct, views were given short shrift. Disastrously, the Bank of England under Sir Mervyn's rule failed to spot the greatest recession in a century or act on the evidence they were given that the Libor was being fiddled or even the imminent failures of Northern Rock, RBS and HBOS. A tyrant looks more to his own advantage rather than that of his subjects and uses extreme and cruel tactics – which describes Sir Mervyn perfectly. The reviews revealed that the staff were too scared to provide advice that he didn't like because their careers depended on pleasing the Tyrant; so the quality of advice was ostensibly lower than it should have been.

At the Bank of England, you were either an insider on Sir Mervyn's good side or you were out, like me. Paul Tucker was seemingly an insider who benefited from his patronage, and must shoulder a lot of the blame for the failures; Mr Tucker is unsuitable to be the next governor, he doesn't have the leadership skills for the job nor does he command the respect of the Bank staff. The "too dumb" explanation works here as well. He also failed to spot the recession or the double dip. It took me more than a year on the MPC to discover that Sir Mervyn's hands had been all over the forecasts before external members of the MPC ever set eyes on them.

I could never get the forecasting team to show me the results with the so-called top-down judgements removed. That is, the forecasts were largely made up to fit his conceptions. When I told Mr Stockton, the former research director at the US Federal Reserve, this, his response was that Alan Greenspan and Ben Bernanke never ever told him to alter a single number. Mr Greenspan apparently took delight in disagreeing with the staff's judgements.

I made clear in my evidence to Mr Stockton that, the way the forecasting process was set up by Sir Mervyn, it was almost impossible for any member to dissent. Mr Stockton criticised the process by which the committee signs up to its "best collective judgement" on inflation and growth, and argued that "the financial crisis highlighted just how wrong the consensus view can be at times". He has sensibly recommended that the MPC actually gets to vote on the forecast in addition to the policy decision, and that there should be a separate staff forecast, as is the case in the US.

Mr Stockton went on to question the MPC's "overly optimistic" and ultimately hopeless predictions of rapid growth that has never appeared. The committee had made "somewhat larger forecast errors for growth" than the average of external forecasters, and failed to apply "systematic, detailed quantitative analysis".

The taxpayer had not had good value for its money as the MPC's forecasts have been worse than useless. The TSC looks like it will have a field day when the three reviewers appear before it to give testimony on the November 20; it will be uncomfortable viewing for Sir Mervyn and Mr Tucker. Good.

Start your day with The Independent, sign up for daily news emails
Sport
footballHe started just four months ago
News
Nigel Farage celebrates with a pint after early local election results in the Hoy and Helmet pub in South Benfleet in Essex
peopleHe has shaped British politics 'for good or ill'
News
One father who couldn't get One Direction tickets for his daughters phoned in a fake bomb threat and served eight months in a federal prison
people... (and one very unlucky giraffe)
Travel
Streets ahead: Venice
travelWhat's trending on your wishlist?
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Selby Jennings: VP/SVP Credit Quant- NY- Investment Bank

Not specified: Selby Jennings: VP/SVP Credit Quant Top tier investment bank i...

Selby Jennings: Quantitative Research | Equity | New York

Not specified: Selby Jennings: Quantitative Research | Global Equity | New Yor...

Selby Jennings: SVP Model Validation

Not specified: Selby Jennings: SVP Model Validation This top tiered investment...

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

Day In a Page

Aren’t you glad you didn’t say that? The worst wince-and-look-away quotes of the year

Aren’t you glad you didn’t say that?

The worst wince-and-look-away quotes of the year
Hollande's vanity project is on a high-speed track to the middle of nowhere

Vanity project on a high-speed track to nowhere

France’s TGV network has become mired in controversy
Sports Quiz of the Year

Sports Quiz of the Year

So, how closely were you paying attention during 2014?
Alexander Armstrong on insulting Mary Berry, his love of 'Bargain Hunt', and life as a llama farmer

Alexander Armstrong on insulting Mary Berry and his love of 'Bargain Hunt'

From Armstrong and Miller to Pointless
Sanchez helps Gunners hold on after Giroud's moment of madness

Sanchez helps Gunners hold on

Olivier Giroud's moment of madness nearly costs them
A Christmas without hope: Fears grow in Gaza that the conflict with Israel will soon reignite

Christmas without hope

Gaza fears grow that conflict with Israel will soon reignite
After 150 years, you can finally visit the grisliest museum in the country

The 'Black Museum'

After 150 years, you can finally visit Britain's grisliest museum
No ho-ho-hos with Nick Frost's badass Santa

No ho-ho-hos with Nick Frost's badass Santa

Doctor Who Christmas Special TV review
Chilly Christmas: Swimmers take festive dip for charity

Chilly Christmas

Swimmers dive into freezing British waters for charity
Veterans' hostel 'overwhelmed by kindness' for festive dinner

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect