As we face an economic crisis of potentially epic proportions Blanchflower and Murphy believe it is time for the Monetary Policy Committee to be both democratically accountable, and to reflect the wide range of business, financial and economic experience that is available right across the UK.
For the point is that we know what happens to money when democracy controls it. High inflation. That’s exactly why the BoE is independent. Because the rest of the world believes that – more that perhaps – there is some control of inflation not in the hands of politicians.
The whole point of the system is to make monetary policy NOT democratically accountable in order to keep inflation away from the incentives of politicians.
In fairness to them, it’s not like we’ve had great results from handing power to bureaucrats anywhere else. And asset prices, inflation, government debt, home ownership, pension pots, growth rates, productivity etc aren’t exactly an advertisement for the BoE’s success.
As we face an economic crisis of potentially epic proportions Blanchflower and Murphy believe it is time for the Monetary Policy Committee to be both democratically accountable, and to reflect the wide range of business, financial and economic experience that is available right across the UK.
That’s bullshit. What Blanchflower and Murphy believe is that it is time that the Monetary Policy Committee does what they want done.
If a “democratically accountable” MPC was put in place and did not do what Murphy wants done, he’d be the first in line to denounce it and demand it be changed until he got what he wanted.
What if economists are wrong about controlling inflation, and the people are right to demand COLAs?
What if economists are wrong about controlling inflation, and the people are right to demand COLAs?
Why not go to Zimbabwe or Venezuela and find out? No economists there trying to control inflation, and money being printed by the truckload to be given to “the people”.
I know I’d be interested in your report.
One of the roles of government is to sit between the general population and the levers of power. True, governments often make a poor job of handling the levers of power, but the majority of the population would otherwise insist on ‘more bread’ and ‘more circuses’ without a thought for the consequences.
I know I’d be interested in your report.
Fibber! 🙂
TMB… the “fibber” is not entirely true…
W@e might learn some new CodeSpeak for “They didn’t apply [x] correctly”, “This was not True [X]”, and “But This Is Different” ( with possibly a “because” ) from our ..Elizabeth.. regarding the showers of shyte those nations have become.
After all, got to keep up with the Times, and whichever redefinition of the english language the local Woo Crowd fancy this week.
“For the point is that we know what happens to money when democracy controls it. High inflation. That’s exactly why the BoE is independent.”
Remind me again what inflation is right now under the aegis of the ‘experts’ at the BoE?
Marvellous. Technocratic government. Long Live Salazar!
Indeed Jim. And before that they were “managing” inflation to their preferred level. Or, to put it another way, robbing savers to further their own ends.
@DiscoveredJoys: Handing power to unaccountable bureaucrats isn’t exactly a solution – particularly when they benefit more directly from spending than the public.
Governmental power is best controlled by dividing it among competing interests. As an example, a better solution to the population demanding infinite ‘bread and circuses’ would be to replace the Lords and Commons with a house of (genuine) taxpayers and a house of recipients (plus anyone else). Then give each powers to wield against the other (e.g the taxpayers control spending and the recipients control taxation).
Plus, I think you underestimate the public. In my experience they always do the right thing in the end – once they’ve exhausted all the alternatives.
Remind me again what inflation is right now under the aegis of the ‘experts’ at the BoE?
Question #1: Which specific government policies/action caused and/or contributed to the present level of inflation. Specifics, please.
Question #2: Of the policies/actions you’ve identified, how many of them were recommended by the MPC?
Question #3: Just because the MPC is now trying to reduce inflation does not mean they caused the inflation they are trying to reduce, now does it?
“Question #2: Of the policies/actions you’ve identified, how many of them were recommended by the MPC?”
Printing £450bn to allow the government to play neo-fascists over covid. There was absolutely no need to inject that amount of money into the economy from a macro-economic point of view. If the government decides to lock everyone in their homes because of a nasty case of the sniffles and pay them to do nothing, then the BoE should have told them ‘You’re on your own pal! Fund it out of borrowing in the marketplace, we’re not buying jack shit.’ Not printed all the money so it could be could spaffed up the nearest wall.
“Question #3: Just because the MPC is now trying to reduce inflation does not mean they caused the inflation they are trying to reduce, now does it?”
They’re not doing much of a job of reducing it, any more than your Federal Reserve is. They should have pulled the plug on QE (if they’d even started it) in late 2020/early 2021, and started rising rates at that point. Instead they printed hundreds of billions more and didn’t start raising rates until the very end of 2021, by which time inflation was already rising rapidly, even before Uncle Vlad went on his hols.
Well, let’s unpack the response:
Question #1: Answered as the response to Question #2.
Question #2: Unanswered. Did BofE/MPC recommend the government’s response? You don’t say.
Question #3: Unanswered.
I’d note that just because the BoE has independence, I’m not sure that gives them carte blanche to defy a duly elected government attempt at fiscal policy in a time of crisis.
Why is the dollar rising against other currencies even as domestic inflation surges?
Is it possible that there is more demand for dollars than supply, worldwide, and that inflation is really a sign of dollar demand?
@SoVen
As you point out inflation in the US is surging too, so the global issue is a shortage of goods and services relative to paper money of all sorts.
The dollar is rising against other currencies because although the Fed has been too slow to raise interest rates, other central banks have been even slower…
“I’d note that just because the BoE has independence, I’m not sure that gives them carte blanche to defy a duly elected government attempt at fiscal policy in a time of crisis.”
So a central bank has a duty to print money whenever told to by politicians? If someone gets elected on the ‘Give everyone a million bucks’ platform and demands their central bank magic up the cash they have a duty to do so?
The BoE had no duty to print money to allow the government of the UK to implement the anti-covid strategy it came up with, any more than it had a duty to print cash to pay for any other particular government policy. The state of the economy on 1st March 2020 did not demand £450bn be injected into it, there wasn’t a massive financial crash, there was no risk of deflation (as there was in 2008/9). It was pure ‘Lets print money and spend it, because we can’ behaviour and the BoE went along with it, and caused a significant proportion of the inflation we see today.
“Question #3: Unanswered.” The BoE did cause the inflation because they printed money that was not necessary given the state of the economy. It was an entirely political decision, not an economic one, and thus one that was entirely outside their remit.
“Question #2: Unanswered. Did BofE/MPC recommend the government’s response? You don’t say.”
The government’s response to covid has nothing to do with the BoE, any more than the government’s response to the current energy price crisis is within its purview. The UK government have determined that paying shed loads of money to stop people’s energy bills going up too much is a good idea, and its going to have to fund it out of genuine borrowing, with no assistance from the BoE. And will have to deal with the consequences thereof. So why couldn’t the BoE have behaved exactly the same over covid? Arguably the energy crisis is actually more damaging to the country that covid was (the response was the most damaging thing about it) so why isn’t the BoE turning on the printers again to pay for an elected government’s chosen policy?
Is there really an energy shortage, or is OPEC throttling supply by arbitrary, fickle, capricious policy?
If you pay a supplier whatever they charge, but they choose to sit on supply out of spite, is there a physics problem or a psychological problem?
Is thinking inflation means scarcity quaint?