If he wants to turn around the Bank of England supertanker, Mark Carney has a major task ahead

Given that monetary policy decisions take around two years to have any effect on the real economy, expectations are unreasonably high for the new govenor

Share

At the end of the month Mark Carney will take over as Governor of the Bank of England.  He was clearly the best pick available in the central banker draft. There are better ones out there who were not available, not least my favourite central banker, Ben Bernanke, who is run a close second by Janet Yellen.

The expectations are high, but it is going to be hard for Mr Carney, pictured, to deliver very quickly as the Old Lady of Threadneedle Street moves even slower than a massive, Capesize cargo vessel – named because they are so large they can’t go through the Suez or Panama canals and are typically above 150,000 long tons deadweight. Touch the controls and very little happens for a long time. Unless the economy improves the press is inevitably going to turn on Mr Carney as not being good value for his high salary. The concern is expectations may be too high, especially when the Government has been trying to claim that recovery is in the air

Mr Carney is going to have to deal with a Bank of England monetary policy committee ( MPC) that seems set on doing absolutely nothing – he is going to have to persuade them to change their minds. Nothing has ever precluded the MPC from doing “forward guidance” so why start now? 

I wonder what arguments he will bring to bear to get them to start quantitative easing again given the majority have voted against doing more every month for the last 11 and Mr Carney would certainly not want to be in a minority anytime soon. Given that monetary policy decisions take around two years to have any effect on the real economy,  Chancellor Osborne is probably hoping Mr Carney whips them into shape sooner rather than later. He has an election to win and so far he has little prospect of big tax cuts before then as he had hoped given the parlous state of the public finances.  

The MPC voted again last week to do nothing even though the economy remains in the doldrums. The latest purchasing managers index numbers were slightly encouraging, but the labour market certainly does not seem to be taking off.  Plus it is hard to see what the driver for growth is going to be especially given what Capital Economics has called the “underwhelming effects” on lending so far from the Funding for Lending Scheme. This week the Bank of England announced that lending to firms was negative again last month. No lending, no growth.

I have a new boss at Dartmouth who takes over as president after this week’s graduation ceremony.  Phil Hanlon was the second in command as provost and vice-president for academic affairs at the University of Michigan, a Dartmouth alumnus and a distinguished mathematician.  We caught a big fish, and if we hadn’t caught him others soon would have.  Dartmouth is a private university and the president has lots of power to shape things; Mr Hanlon’s main task is to raise money, whereas Mr Carney’s main task is likely to be to print it.

There are some similarities between the positions these two men find themselves in. Both take over from despots with unwarranted self-assurance and are likely to have to change the cultures. 

In the case of Dartmouth it was Jim Kim who is now head of the World Bank, but who showed little interest in anything or anyone other than himself.  Not good qualities for a university president.  He tried to turn Dartmouth into a “Center for Health Care Delivery Science”, whatever that is.  It took him three years to work out that nobody cared – apparently he is doing much the same at the World Bank.  Even the class valedictorian at last year’s Commencement exercises claimed that he was already thinking about his next job after the World Bank.  His main problem was that he didn’t know what he didn’t know.  He had no experience in university administration, and he failed to appoint high-quality administrators so disasters were waiting to happen. He left Dartmouth rudderless and discord prevailed. 

Mr Carney replaces Sir Mervyn King who argued on the recent Desert Island Discs that he had slept well through the crisis and knew precisely what was needed.  The question, of course, is why then didn’t he act as if he knew?  GDP in the UK is still 2.5 per cent below what it was at the start of the recession in 2008.   Sir Mervyn ruled the Bank of England with a rod of iron and slayed dissenters in his path; senior people according to a recent review “have a tendency to filter recommendations” out of fear of how the boss might respond. 

Both Mr Carney and Mr Hanlon have had lots of experience and presumably know what they don’t know.  Time will tell whether they are despots, but early signs suggest that they are not; the best hope is that they are smart, benevolent dictators.

One of their first steps will be to appoint their people to senior management positions. Mr Hanlon has already started appointing people and searches are under way for others. There is little doubt that he will hit the ground running. 

Mr Carney has yet to show his hand – he is likely to have to sweep clean at the top starting with the chief economist, Spencer Dale.   Mr Hanlon probably has a couple of years to find his feet but Mr Carney does not.

There are differences between what is expected of a university president and the Governor of the Bank of England. Both need to avoid crises. Successful college presidents have to make an impression by raising money, coming up with new initiatives and put up new buildings.

My economic historian colleague, Doug Irwin, has pointed out to me that successful governors are the ones who we don’t remember as they managed to avert crises; who remembers Lord Cobbold of Knebworth (1949-1961) or Gordon Richardson (1973-1983) or Robin Leigh-Pemberton (1983-1993)?  The most infamous governor prior to Sir Mervyn was Montagu Norman (1920-1944) who must take a lot of responsibility for the inter-war depression.

My friend Adam Posen once told me that before making interest-rate decisions he would work out what Mr Norman would have done in such circumstances and then do the opposite.  Not a bad piece of advice for both Mr Hanlon and Mr Carney in relation to their predecessors.

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Recruitment Genius: Customer Service and Business Support Assistant

Negotiable: Recruitment Genius: By developing intimate relationships with inte...

Recruitment Genius: Customer Service and Business Support Assistant

Negotiable: Recruitment Genius: Highly successful private company - Oundle bas...

Recruitment Genius: PA to Consultant Surgeon

£25000 - £25500 per annum: Recruitment Genius: An exciting opportunity to join...

Recruitment Genius: Service Manager - Franchised Dealership

£40000 - £60000 per annum: Recruitment Genius: This is a fantastic opportunity...

Day In a Page

Read Next
 

Daily catch-up: the Labour leadership election hasn’t yet got to grips with why the party lost

John Rentoul
Kennedy campaign for the Lib Dems earlier this year in Bearsden  

Charles Kennedy: A brilliant man whose talents were badly needed

Baroness Williams
Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at long last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

Wiggins worried

Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific