Wizard, rock star, George Clooney lookalike: these are just some of the tributes bestowed upon the incoming Governor of the Bank of England, Mark Carney, the 48-year-old Canadian who started his new job at the apex of the financial system bright and early yesterday morning.
We British have always had a reciprocal soft spot for handsome, well-spoken North American stars who choose to live among us: Douglas Fairbanks Jr is an example from an earlier era. It might seem absurd to compare a central banker with a Hollywood movie star. Yet the role of physical allure is greatly underestimated within careers which ought to owe nothing to physiognomy: the alpha male is made alpha plus if he can transmit a sort of homoerotic appeal to his fellow men.
This might be part of the explanation for the unusually easy ride that Carney had from the male-dominated Commons Treasury Select Committee when he appeared before it in February. Whenever a broad pearly white smile flashed across Carney’s indisputably handsome features, the MPs – grown-ups all – seemed almost to blush. As the Financial Times’s ever-alert economics editor Chris Giles noted at the time: “Questions became gentler and the committee room purred… When the meeting ended, MPs of all sides rushed over to congratulate his performance.” Perhaps some of them were asking for his autograph.
None of this is to question Carney’s genuine achievements and all-round intellectual grip. I note with only minimal envy that the Oxford economics tutor who would rightly criticise my many errors as a student had nothing but praise for Carney’s postgraduate academic achievements under his direction; and during his own tutelage as Governor of the Bank of Canada that nation has enjoyed economic growth and low inflation, a combination without equal among the world’s developed economies over the past few years.
By no means all of that was down to Mr Carney – Canada had a particular advantage as a big commodity producer and exporter, benefiting from the very factor which has made life more difficult and expensive for countries such as the UK, quite apart from our self-inflicted problem of an over-leveraged banking sector. The fact remains, there is no visible blot on the Carney CV.
Just as well, since the role assigned to him by Chancellor Osborne is an extraordinarily demanding one. Following the extinction of the generally hopeless Financial Services Authority, Carney now has charge not just of national monetary policy, but also banking supervision and financial stability. Forget the NHS chief Sir David Nicholson: Carney is way over the horizon as the country’s most powerful unelected official – in some ways much more autonomous (because of his ability to act without needing to solicit the votes of crotchety fellow MPs) than the men who appointed him.
In this context, it is more than a little unsettling that we have no idea what he proposes to do with that power. In part, that is the inevitable consequence of the mystique still (just) attaching to central bankers. Traditionally, they are gnomic in their utterances, almost in deference to their own power: brutal clarity would have such dramatic effects on the markets that it could itself be a source of very undesirable instability. This explains why the former chairman of the Federal Reserve, Alan Greenspan, once told an audience of businessmen: “If I have made myself clear, you must have misunderstood me.”
That was when Dr Greenspan was regarded as Carney now is – a financial “rock star”. So everyone would laugh sycophantically, in honour of the veteran central banker’s impenetrable wisdom. But Greenspan’s mystique evaporated when he failed completely to anticipate the banking collapse of 2007 – although the Fed had also been strikingly slow to notice the US recession beginning in 2001.
In these epochal errors, of course, the US central bank was hardly alone; economic forecasting has been astonishingly bad at precisely the periods when the need for foresight would have been most welcome. The Bank of England has also had a lamentable record in generating an accurate estimate of future economic output; more than that, it has had no great success in measuring the state of the economy in real time. Indeed, it has also been consistently forced to restate the past strength or weakness of the economy.
Thus we had last week’s spectacle of the Office of National Statistics announcing that its revised figures showed that the “double-dip” recession had never taken place; but that the drop in GDP had been significantly bigger in 2008 and 2009 than had previously been stated. Now they tell us. This provoked the economist David Blanchflower to observe in yesterday’s Independent: “So now we know that the Monetary Policy Committee under Sir Mervyn King had no idea where the economy had been, no idea where it was at that time, and absolutely no idea where it was going... A monkey throwing darts at a dartboard could hardly have done worse.” Yet Blanchflower had himself forecast that the economic policies of George Osborne would result in unemployment approaching the five million mark: it has actually stabilized at around half that figure. That’s too high for anyone to take pleasure in, but still, an estimate of twice the actual outcome illustrates the general point that private sector forecasters are hardly in pole position to sneer at the failings of the officials.
The truth is that for too long economics has masqueraded as a branch of physics, as if through refined computer-aided calculations the brainiest exponents of what is actually the study of human behaviour can achieve mathematical certainty. This is why we should regard with extreme scepticism the claims of central bankers in both America and the UK that they know when would be the right time to end the current policy of money-printing (quantitative easing), an allegedly controlled experiment which threatens to create an asset bubble bigger than that which blew up the banking sector five years ago.
Make the most of the wonderful first-night reviews, Mr Carney; because if there’s one thing the British like to do more than welcoming new stars in the firmament, it’s shooting them down.
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