The Governor of the Bank of England, Mark Carney makes about £800,000 a year, of which £250,000 is a top-up to help with the rent, has the right to change interest rates without accountability and cannot be removed from his job. What could go wrong? 

Image by World Economic Forum, Photo by Sebastian Derungs.

One of Gordon Brown’s first moves as the incoming Chancellor of the Exchequer in 1997, was to declare the “independence” of the Bank of England. In handing control of UK interest rates to a set of unelected officials, Brown was attempting to demonstrate “fiscal responsibility”. It was a tacit admission of defeat to the neo-liberal and conservative critique that Labour couldn’t be trusted with the economy. Influenced by Clinton-era spin and hyperbole, Brown remade the Bank of England in US Treasury’s image, then under the leadership of Reagan-appointee Alan Greenspan.

Greenspan, sitting like Zeus on Mount Olympus, dispensing showers of gold to the faithful, ushered in the era of god-economists. Greenspan’s successor was frequently referred to as “Obi-Wan Bernanke”.

Prior to 1997, the Governor of Bank of England was relatively anonymous civil servant, answerable to the Chancellor of the Exchequer, thereby Parliament, thereby the People. Brown broke the democratic tradition for a short-term political fix.

Top-level civil servants can certainly expect to be well-paid, with some earning around £250,000 per year, although board directors of FTSE 100 companies can easily command salary packages in seven figures. However, a celebrity civil-servant requires a celebrity remuneration package. The Bank of England accounts indicate that Carney’s package is around £800,000, of which around £250,000 is a top-up to help with the rent. Carney has previously worked for Goldman Sachs, which would put him closer to the seven-figure-celebrity pay bracket than a time-served Sir Humphrey.

There are many reasons why this is a problem, but first let’s consider the role of Governor from Tony Benn’s Five Questions to the powerful:
1. What power have you got?
2. Where did you get it from?
3. In whose interests do you exercise it?
4.  To whom are you accountable?
5. How can we get rid of you?

With an “independent” Bank of England, answers appear to be:
1. Life and Death over the populace, particularly the poor, by restricting government’s ability to deploy resources as needed,
2. A shadowy collection of like-minded financial services interest groups,
3. See 2,
4. Probably no-one, but see 2.
5. You can’t.

By swallowing the “sound finance” narrative and allowing the City to appoint one of its own, the Government of the United Kingdom has essentially demolished a fundamental underpinning of democracy.

According to “sound finance”, the Central Bank is the source of money injection into the economy, using the lever of interest rates to adjust quantities of personal debt. As we have seen this leads to unsustainable debt bubbles. Personal debt in the UK is now near the highest levels ever seen, and this excludes Student Loan debt, which is treated as a deferred tax by the government and an actual debt by everyone else. This means personal debt levels are now starting to have real consequences for British lifestyles. Graduate debt is included in mortgage applications, adding to the unaffordability of housing, creating a generation mired in debt and housing instability, who in turn will be less likely to start families, exacerbating the aging population.

“Don’t worry!” say the Bank of England cheerfully, “Interest rates are still low!” Of course, they would say that wouldn’t they? They need spiraling private borrowing to transfuse cash into an economy bleeding from deflationary spending cuts.

By swallowing the “sound finance” narrative and allowing the City to appoint one of its own, the Government of the United Kingdom has essentially demolished a fundamental underpinning of democracy.

Carney and his cardinals believe government spending is constrained. Not by resources, which of course is true, but by actual money. You know that extra £1bn that magicked its way to Northern Ireland? It can’t exist in the Carney universe.

So we have a Governor of the Bank of England who quite literally maintains something that even the Conservative government have proved to be false, has the right to change interest rates without any accountability to the people, and cannot be removed from his job.

The Scottish parliament is constrained as it does not control its own Scottish currency. Many there would like Scotland to have the monetary freedom of the Westminster Parliament. In reality, the “sound finance” lobby would like to reduce Westminster to a provincial parliament like Holyrood, with global financial services dictating the terms and supply of Pounds, and the Governor of the Bank of England choosing the colour of the plastic notes.

Central Bank independence is generally justified with impressive-sounding data on inflation. Silly politicians can’t help tinkering with interest rates, you see. Best leave it to the professionals.

The golden era of low inflation we have enjoyed since the late 1990s is a symptom of insufficient negotiating power among workers (who fear unemployment and cannot bargain for better wages). This, in turn, has been driven by a steady, neoliberal push for an ever smaller public sector. It’s like lowering your blood pressure by slashing your wrists. The influence of Central Banks and the theatrical showmen at their helm is, at best, homeopathic. At worst, toxic.

Neil Wilson

Neil Wilson

Neil Wilson is the editor of Modern Money Matters and an expert in finance and information systems. He is an Engineer, not an economist, and therefore has to make things work in the messy old real world that has actual people in it.

After more than 20 years in the IT industry, Neil has learned the hard way that systems rarely follow the manual. Moving from network crashes to financial crashes, Neil was intrigued as to whether the economy could be fixed with a reboot - which lead him to Modern Monetary Theory (MMT).

Neil has become one of the UK’s leading writers on MMT and its implications. His blog “Modern Money Matters” challenges the high-priesthood of Important Grey Men who refer to people as “resources”, and who believe debt is bad for government and good for you. Neil dreams of a world where everyone who wants a living wage job can find one next to their home, friends and family.

Getting to know Neil:

- How do you spend your days?

Hopefully making a small part of the world run smoother than it did yesterday.

I do to business and information systems what Formula 1 mechanics do to the cars - continual improve them and fix them when they're broken.

- What in your answer to Q1 is especially important to you and why?

Doing more with what we have is vital to progress. I look to add to progress in my small way.

- What drove you to focus on economics? Was there a particular moment you can remember that led you to this field?

The 2008 Financial Collapse happened and it became clear that the economy was broken and ineffective.

- What drives you professionally?

I don't like to see things that are broken or ineffective. I want to sort them out.

- In your opinion what are the three biggest problems facing the developed and developing world?

Increasing income inequality, the breakdown of democracy and lack of accountability threaten the future peace and prosperity of all our societies.

- If you hadn’t become...not an economist, what would you have done?

Logically that would mean I would have to be an economist - which is an appalling thought. At that point I would have had to visit Japan, the place where economic theories go to die, and wandered into a forest with a sharp knife.

- If you look at recent history, can you identify a turning-point that explains how we come to face the peculiar challenges of today?

In 2008, billions of pounds were summoned up to save corrupt financial institutions, and yet now we are told there is no "magic money tree".

We all now know there is a man behind the curtain. We are no longer in fear of the Great and Powerful Wizard of Oz.

- What are the lessons we failed to learn during and since the 2008 crisis?

This is best answered by Michal Kalecki in his essay "Political Aspects of Full Employment" ... published in 1943.

"Under a laissez-faire system the level of employment depends to a great extent on the so-called state of confidence.If this deteriorates, private investment declines, which results in a fall of output and employment (both directly and through the secondary effect of the fall in incomes upon consumption and investment).This gives
the capitalists a powerful indirect control over government policy: everything which may shake the state of confidence must be carefully
avoided because it would cause an economic crisis.

But once the government learns the trick of increasing employment by its own purchases, this powerful controlling device loses its effectiveness.
Hence budget deficits necessary to carry out government intervention must be regarded as perilous.

The social function of the doctrine of 'sound finance' is to make the level of employment dependent on the state of confidence."

There is a reason episodes of Yes Minister never seem to date...

- Name one measure we might implement immediately to improve the situation.

Stop lying to the public about the Magic Money Tree. It's about the allocation of resources, not money. Money is just a tool to move stuff
around. Nobody has ever had 'inflation' written down as their cause of death. Malnutrition and Exposure: yes, Inflation: no.

- If you were a President / Prime Minister what would your first three pieces of policy be?

Job Guarantee
Guaranteed Jobs
Jobs for All

- What was your biggest & / or your most recent mistake?

Assuming that Macroeconomic textbooks were scientific works, not religious texts guarded by a loyal priesthood.

- You are stuck in a ski lift for twenty four hours and you can have one person (living or dead) with you. Who will it be?

The dead person - they're exceptionally good listeners and never interrupt.

- Name the book that changed you.

Full Employment in a Free Society by Beveridge.It was written in 1944 regarding the unemployment crisis of the 1930s and in response to
the full employment enjoyed in the Second World War.The questions raised in the book are still to be answered 70 years later.

- What would you do differently if you were to start all over again?

I think I'd answer these questions in pretty much the same way.

- Give our readers, members and subscribers a piece of advice that has served you well.

Very little in life is under oath. But the Wayback machine lives forever.

- What is your main anxiety where you and / or your family are concerned?

We now face a world where our children can expect poorer housing, education and health outcomes than their parents or grandparents.

No-one in good conscience can hand over the world to the next generation, knowing we have made their lives worse, taken away privileges and blocked the opportunities that we enjoyed.

- What gives you hope for humanity?

That there are people out there who have actually read this far.
Neil Wilson

One thought on “Mark Carney and Whose Army?

  1. Neil complains about an economic decision (on interest rates) being delegated to “unelected officials”. I have disastrous news: literally MILLIONS of decisions every day are taken by “unelected officials”.

    And far from that being undemocratic, it is entirely democratic because government (specifically the Chancellor of the Exchequer) has decided to leave that central bank independence in place. He is free to remove it at any time, but has chosen not to. Democratically elected politicians are free (quite rightly) to delegate any decision they like to whoever they like (though Trump getting his daughter to stand in for him at the recent summit was taking that process a bit far, I must admit).

    Next, and contrary to Neil’s suggestions, the BoE does not have “Life and Death” powers “over the populace, particularly the poor, by restricting government’s ability to deploy resources as needed.” That is, government has total and complete freedom (and quite rightly so) to adjust taxes on the rich and the generosity of social security type provision for the less well off.

    Moreover, if the BoE were even to express a view on how generous or stingy social security benefits should be, it would get a sharp wrap over the knuckles from everyone from Guardianistas to Times leader writers.

    It is of course true that the BoE has power over AGGREGATE DEMAND, and that in turn influences incomes of the less well off. But it also influences (in approximately equal measure) the incomes of the rich. E.g. if the BoE pitches interest rates too high, GDP will be lower than it might be, which won’t do wonders for entrepreneurs, shareholders, etc.

    Thus Neil’s sob story about the disastrous effect that independent central banks have specifically on the poor does not really stand up.

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