As the Bank of England maintains its high interest rates, it is worth reflecting on the victims of the Old Lady’s efforts to stamp out inflation. Homeowners have been forced to choose between mortgage payments and family basics. Some businesses haven’t started, others have been wrecked as credit was pulled or hiked.
Such victims are the inevitable victims of what Milton Friedman branded the “blunt tool” of monetary policy. Rate hikes fall arbitrarily in the lives of those they affect. Little but chronology separates those who reached the phase in life of buying a home and facing the burden of a mortgage now, from those who came before them who paid lower rates for cheaper houses.
The one group who suffered nothing was those responsible for the mess that caused it.
Andrew Bailey – a governor who presided over perhaps the greatest monetary policy failure in recent history – chuckled when asked ahead of the last MPC if rates would fall. His insouciance betrays a reality: however bad the disaster, he will face no consequences.
But, why would he? In the end, the decisions that led to the disaster of inflation of over 10 per cent weren’t his – or at least not purely his.
The disastrous decision to print money via quantitative easing and failure to unravel it was taken not by Bailey as Governor but by the Monetary Policy Committee. A body he chairs but does not control. So too were the fundamentally faulty decisions to delay minor adjustments to the base rate in 2021.
So, while his voting record on the committee was as faulty as any other member, he is confident in the knowledge that any prospect of being held to account for the abject failure of the bank to fulfil its central mission, controlling inflation, is remote. After all, it wasn’t down to him.
Even if it were. The committee lacks the power to control the other core drivers of inflation. Not least, the continuing tolerance of fractional reserve banking by which high street lenders conjure up money, sits with separate regulators. Those regulators, the FCA and PRA, were also those that, it should be noted, Andrew Bailey has, at points in his career, led.
Bailey’s career is a remarkable vignette into how the British state rewards those who never rock the boat, never challenge the orthodoxy, but fail. More or less, since the time he entered the Bank in 1985, Bailey’s various roles have had a common thread, control inflation and deliver monetary stability. In that time, we have had Black Tuesday, the Global Financial Crash, and have seen inflation hit five times its targeted level.
Bureaucratic accountability shirking is by no means limited to the financial sector – it runs through the Civil Service and is strangely redolent of governance disasters like the Post Office Horizon scandal. There too, highly paid board members have pleaded ignorance or a lack of responsibility.
No business would be run this way. No sports team would delegate strategy to a committee. Our fiscal policy is run by a chancellor, not a fiscal policy committee.
So why is monetary policy run any differently? Almost 30 years on from monetary policy independence, it’s far from clear that the quangoisation of decision-making is leading to better results. The inflation crisis that triggered those punishing interest rate rises was widely predicted – including in these pages.
The MPC is a fundamentally flawed way of governing policy. The natural desire to be convivial, which has suppressed dissent, combined with the bank’s continuing to prop up the worst vestiges of the UK’s big banks has long ago seen monetary policy stop working for normal people.
It should be unwound. By all means, keep the body as an advisory board, but we need one person responsible for when the bank fails. Working families, facing the slavery of crippling mortgages, deserve that. Even if it draws to a close the curious career of Andrew Bailey.