The measures the Chancellor announced at Guildhall last night could go some way to meeting at least the first two criteria. Publication of the monthly Monetary Assessment will enable outside economic commentators to see precisely the basis upon which the Treasury is arriving at its decisions. Unfortunately, the Assessment is largely statistical, so much will depend on whether any official interpretation of the data will be provided. Unless the Treasury is prepared to say what it thinks about the numbers it is looking at, the exercise may be of limited value. The new practice of giving a brief analysis of the monetary and inflation indicators when interest rates are changed is no substitute for the regular commentary provided by the Bundesbank or the US Federal Reserve's Open Market Committee.
Recruiting a panel of independent economic forecasters is a similarly worthwhile half-step in the right direction. It will result in a greater range of voices being heard, but its usefulness will be limited if policy decisions continue to be informed only by the Treasury's own forecast. The effectiveness of the Five Institutes in Germany and the Council of Economic Advisers in the United States rests on their combination of official authority and independence. When the Institutes attacked the Bundesbank this week for excessive tightness, their criticisms carried far more weight than those of the government.
Perhaps the most interesting of Mr Lamont's mini-reforms is the new quarterly report on inflation performance to be given by the Governor of the Bank of England. The present incumbent lacks the authority to take this ball and run with it. But when the new Governor is appointed next year, providing it is somebody with the credentials to be convincing, the quarterly report could become a formidable mechanism for turning the Bank into a genuine counter to the overwhelming power of the Treasury. A determined Governor could have an effective veto over a policy of which he disapproved. If the Bank proceeded to earn its spurs as a serious inflation fighter, the logic of granting it full independence would eventually become inescapable, even to those who resist it now.
At last the Chancellor has gone some way to giving an explanation of how monetary policy post-ERM will look. We will have a degree of transparency and the potential for greater accountability than in the past. If markets are able to monitor the reasoning behind policy decisions, the process should itself be strengthened. For all that, there is something depressingly half-hearted about Mr Lamont's package. The Chancellor seems to know that real reform of our economic institutions is necessary, but lacks the imaginative boldness to undertake it. As Mr Gorbachev would confirm, glasnost without perestroika can get you only so far.Reuse content