Skip to Content

The governor stakes revisited

The worse the outlook, the more gloomy I get about George Osborne’s choice


I have mentioned the familiar names – Tucker, Vickers, Turner, Burns. Of these Paul Tucker has the deepest grasp of the issues the new governor will confront, and he is getting encouragingly more radical on bank reform – like everybody else. Even Lord Turner has been asking questions about the whole viability of fractional reserve banking. That is the kind of thinking explored in The Money Trap, where banks would be replaced by “real money” investors. It is happening, actually. But this should go along with a transformation of world money.

On the latter front, the best of all would be this…. President Obama has a dream. He dreams that God tells him to give the world a new monetary system – new tablets of stone. It will be his best legacy. It will lead the people to a new promised land of milk and honey. On waking up, Obama asks, “what should I do? Oh, I know who can fix this; ask Paul Volcker to come and see me, right now!”

Dream on.

Back to the UK, who should replace Mervyn?  He will be a hard act to follow. Factions in the UK Treasury would dearly love a governor who would print money “a l’outrance”, to use Keynes’s term. To his credit, Mervy King has resisted this tempting “Keynesian-monetarist” course strongly.

Trouble is, from the Treasury’s point of view, none of the candidates usually mentioned can be relied on to print enough money. That is Osborne’s political problem. And Labour will be equally disturbed at the Bank’s perceived recalcitrance – the next person will be there for eight long years. The Lib Dems want an expansionist too.

Is there a true believer, an equivalent of the Fed’s Janet Yellen and Ben Bernanke?

The name of Adam Posen springs to mind – well-known economist, skilled communicator, combative style. Posen has done time inside the Federal Reserve and European Central Bank. In his three years as an external member of the MPC (he left in August this year) he consistently voted for more QE. He is due to succeed Fred Bergsten as president of the Peterson Institute in January but would doubtless be open to talks…

Others include DeAnne Julius, a former full-time external member of the MPC and former CIA operative, who recently retired as head of Chatham House;  Kate Barker (another dove), who served nine years on the MPC, and is a former chief economist at the CBI, the UK employers federation. Gordon Brown, then chancellor, was said to “coo with delight” when Barker succeeded Julius. Then there are Sushil Wadhwani…Danny Blanchflower…Rachel Lomax…not forgetting other former deputy govenors..

What would make Osborne “coo with delight”?

Of course, none of these “candidates” can be relied on to do the chancellor’s bidding and create favourable economic conditions for the next election in May 2015; and of course if they did print money a l’outrance it would be out of inner conviction that it was the right thing to do, not because the government wanted it. Perish the thought!

Who will George Osborne “trust” – to use Orwellian civil service newspeak?

From the point of view of the analysis presented in The Money Trap, the appointment of a governor committed to expansionist policies “a l’outrance” would have advantages. It would bring forward the next crisis and collapse, thus laying bare the structural faults of the system for all to see. Sorry to be so cynical! (Or maybe so Leninist – see his essay on Global Imperialism, the Highest Stage of Capitalism, which we should re-title “Global Finance, the Highest Stage of Capitalism”)

A more conservative economist might follow sensible non-inflationary policies, prolonging the life of  a bad system.

None of the candidates has the blazing passion, imagination and determination needed to get us out of The Money Trap. A subsequent column will spell out what this would mean in practice.