The Governorship Is A Political Appointment - So Offer It To a Politician
In Money Week, Matthew Lynn argues that the race to be Governor of the bank of England should be opened up to more candidates.
It might not be as much fun as speculating over who will be the next England football manager – but rumours about the next Governor of the Bank of England are become almost as intense. Over the last week, the papers have been full of speculation about who might take over from Sir Mervyn King next year as the next Governor of the Bank of England. We learned that the highly-respected Bank of Canada Governor Mark Carney was on the long-list – although as the Football Association seems to have decided that having foreign coaches for the England team wasn't work, this seems and odd moment for the Bank to be considering its own Fabio Capello.
Among the more routine names on the list, the leaks suggest Paul Tucker is the favoured internal candidate, alongside the ubiquitous Financial Services Authority chairman Adair Turner, the former cabinet secretary Sir Gus O'Donnell, and the chairman of the banking commission Sir John Vickers.
What matters right now, however, is less who get chosen than the way the vacancy gets filled. The Treasury seems determined to keep the appointment process shrouded in secrecy. A short-list is being drawn up somewhere in Whitehall. No doubt discreet approaches will be made. In time, a few quiet conversations will be held. Perhaps they won't actually be in the corner of a St James's Club – but that will be the flavour of the appointment.
That is a big mistake. In fact the appointment should be an open process. Candidates should declare their interest, and argue for that kind of policies they want.
And a far wider - and more political - range of candidate should be considered.
Why? Because the Governor of the Bank of England is no longer a minor, technocratic role. It is one of the most important jobs in the UK. And it is a political one as well. The Governor will be making huge decisions about who gets what within the economy. We have a right to know what their views are before they are given the keys to Threadneedle Street.
The governor used to be a fairly low-key figure, usually an experienced former banker. But in a world where banks routinely get bailed out, where close on 10% of GDP is simply printed by the Bank, and where quantitative easing constantly pushes up inflation and asset prices, it has become one of the most political roles in the country. Indeed, the Governor probably has more power to shape the state of the national finances than the Chancellor. George Osborne can fiddle with a few taxes, handing out a pound here, and taking two away over there, in ways that are mostly just irritating rather than effective. The really big issues –the inflation rate, the level of sterling – are determined by the decisions take by the Governor and the Monetary Policy Committee rather than the government.
In the last three years, for example, the Bank has quite clearly embarked on a policy of inflating away the country's debt by monetising the deficit. It has constantly missed the inflation target – so consistently in fact that it is hard to believe it is not doing it on purpose. And it has held interest rates at a three century low, whilst printing vast sums of money which is uses to buy government debt.
You can argue for or against that policy – as many people do, with a huge amount of passion. But it is a perfectly legitimate thing to try and do - and at the moment the Bank seems to be getting away with it, although there are risks ahead.
It does, however, have clear winners and losers. Savers get hammered, and debtors rewarded, for example. It is good if you happen to have a big mortgage – your interest rate goes down, and the price of your house stays high. But it is bad if you are about to retire – you'll get a rotten deal on your pension. It is good if you work in the public sector – the cuts to government spending are negligible compared to what they would be if the Bank wasn't financing the deficit. But it is bad if you work in the private sector, because you face much higher inflation than you otherwise would.
Again, these may be reasonable choices to make. Any policy you decide on is going to have some winners and losers.
But there are hugely political – and they deserve some open debate.
That hasn't happened. Sir Mervyn King has simply imposed them, without any form of public discussion, or defence.
We deserve better next time around.
As a new governor is appointed, the candidates should be allowed to discuss far more openly those issues - and what their views on them are. And they should be subjected to proper public scrutiny. The potential governors should be on Newsnight and the Toady Programme, answering questions on whether they thought savers deserved a better deal than borrowers, or whether protecting employment was more important than combating rising prices.
And as the role becomes more political, then perhaps political candidates should be considered. Such as? Ken Clarke would be a good choice. He is widely trusted, and knows his way around the subject. So might Alistair Darling. During his short-time as Chancellor he established a reputation as safe and trustworthy pair of hands.
Whoever is chosen, this should be an open appointment with an open debate. The big issues should be discussed. Lots of different voices should be heard – and different views should be put across. More QE or less? Higher inflation, or a quick return to meaningful interest rates? These are the questions that will determine the state of the British economy for years to come. And the job is now simply too important to be filled in the back rooms of Whitehall.