I have written elsewhere about Mr Carney’s first 5 months (subscription) at the Bank of England. I showed that in terms of the goals he was set by the UK Treasury (both those stated and those unstated but implicit in his appointment), he has made remarkable progress – with luck playing a part. The UK economy has perked up, the City is happier, markets are strong, the Bank is being rejuvenated, and so far as one can tell from the outside, the major task of restructuring is on track – though much will depend on the outcome of the various reviews and consultants reports he has commissioned. One little noted aspect is the way he has established a better working relation with Westminster and Whitehall. Moreover, with a new and powerful team of Treasury mandarins and former mandarins in key positions, including Sir Jon Cunliffe as a deputy governor, the UK is now well placed to influence the ongoing process of rule-making and policy coordination in Brussels, other European capitals and Basel. Mr Carney is of course chair of the Financial Stability Board, and in full command of the dense thicket of detailed regulations, working parties and consultative groups that entails.
I see no inconsistency between noting all this on the one hand – and indeed praising Mr Carney for his contributions – and , on the other, believing that the entire process that he, and other central bankers, are part of, is likely to fail. To succeed it would have to have visibly restored market and public confidence in the broad direction of policy.
However able, the central bankers are constrained by their environment, their mandate, the expectations of governments and of markets. Hence the argument about the exact timing of tapering by the Fed, withdrawal of exceptional stimulus by the ECB and so on are crucial for markets, but do not go anywhere close to solving the underlying problems.
Even within these limits, I do believe that central bankers could do more to urge government to engage in the profound re-thinking of policies needed. There is a refusal to countenance the case for a change in the policy regime, national and international. Banking systems have collapsed and remain on life support, real incomes for median households have fallen, economic stagnation is set to continue, but governments and central banks doggedly press on with the same mix of policies as before – “tighter and smarter” regulation, insular inflation targeting, easy money. How pathetic!
So. Given the objectives and within the limits he has been set, Mr Carney and his colleagues are doing well; but he and the UK remain caught in the money trap.
Mervyn King admitted in 2012 that although the Bank had warned about risks leading up to the crisis, he wished he had “shouted from the rooftops”. Who should be shouting now?
