The truth about Mervyn King

A new political cult forms.

"Who would have guessed in late 2007 or early 2008 that an answer to the banking crisis would be to hand more power to Mervyn King?" asks the Guardian's Nils Pratley. King has long been admired in Tory circles and so George Osborne's decision to give the Bank of England the linchpin role in regulating the UK's financial sector came as no real surprise.

I'm no fan of Merv. I think he long ago politicised and abused his position. Remember his public objection to the Labour government's fiscal stimulus? Remember his public approval for the coalition's deficit reduction plan?

He also has rather poor judgement. My colleague Professor David Blanchflower, a former external member of the Bank of England's Monetary Policy Committee and one of the few economists to see the crash coming, outlined King's failures in a devastating piece for the NS in September 2009 ("The story from the inside").

Blanchflower wrote:

So why did the committee get it so wrong? From my perspective, it was hobbled by "group think" -- or the "tyranny of the consensus". Governor Mervyn King, the old iron fist of the Bank of England, with his hawkish views on rates, dominated the MPC. Short shrift was given to alternative, dovish views such as mine. I focused on the empirical data suggesting Britain was heading for recession; Mervyn and the rest of the committee focused on their theoretical models and the (invisible) threat of inflation. In fact, the Bank of England may more suitably be called "the Bank of Economic Theory". Unfortunately, the economic theories failed just when we needed them most.

He added:

Clever as Mervyn King may be, he missed the crash and the subsequent recession, and hence, so did the consensual MPC on which I sat. In August 2008, the MPC's quarterly Inflation Report did not even contain the word "recession"; it saw the economy standing still over the next year. I very nearly quit the committee at that point. In an interview that month with Reuters, I called the forecast "wishful thinking". Mervyn called me into his office to admonish me for that one.

Blanchflower also criticised King's obsession with so-called moral hazard:

We were not told what was happening to British banks such as Northern Rock, Royal Bank of Scotland, Lloyds, Bradford & Bingley or Alliance & Leicester. Or to US banks such as Lehman Brothers or Bear Stearns. We weren't kept in the loop, but we should have been. With hindsight, Mervyn King's focus on moral hazard -- the idea that banks are encouraged to take more risks because they know they will be bailed out -- was a huge mistake.

He reminds us of King's unforgivable failure to foresee the explosion in unemployment:

In the summer of 2008, I warned the Commons Treasury select committee that "something horrible" was going to happen. I was becoming even more worried about recession, and in September I voted alone, as ever, for a cut of 50 basis points (bps) -- or 0.5 per cent -- to the Bank's base rate. At my September appearance before the select committee, King, who was sitting two seats from me at the time, was asked by the MP Andy Love: "On unemployment there have been some suggestions, and Mr Blanchflower has said -- and I think there are quite a lot of people out there who would agree with them -- that it may go up faster than the projections in the Inflation Report. Is that a worry to you?"King replied: "At least the Almighty has not vouchsafed to me the path of unemployment data over the next year. He may have done to Danny, but he has not done to me." To say the least, I was rather surprised.

Hail the King? I'd rather not.

Mehdi Hasan is a contributing writer for the New Statesman and the co-author of Ed: The Milibands and the Making of a Labour Leader. He was the New Statesman's senior editor (politics) from 2009-12.

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Tory right-wingers are furious about Big Ben – but it’s their time that’s running out

They could take both Corbyn and the present moment seriously. Instead, they are arguing about a clock.

Jeremy Corbyn, it is often said, wants to take Britain back to the 1970s.

The insult is halfway to an insight. It’s true that the Labour leader and his inner circle regard British economic policy since the late 1970s as an extended disaster that led to the election of Donald Trump and the vote to leave the European Union: a “failed experiment”, as Andrew Fisher, Corbyn’s influential policy chief, puts it in his 2014 book of the same name.

The Labour leader views the 1970s not as a blighted decade waiting for a saviour, but as a time when trade unions still had teeth, privatisation was not treated as a panacea and inequality was lower.

Theresa May doesn’t see the past four decades in quite the same light, but she does believe that the Brexit vote was, in part, the destabilising consequence of an economic settlement that has left too many people in Britain without a stake in society. This means, for now at least, an ideology that was until recently a consensus has no defenders at the top of either party.

May’s successor might conceivably be an unrepentant cheerleader for free markets and the Anglo-Saxon model of capitalism, but as things stand, whoever replaces May faces an uphill battle to be anything other than a brief pause before Corbyn takes over. Because of the sputtering British economy and the prospect of a severe downturn after Brexit – coupled with the Labour leader’s rising personal ratings – it is the opposition that has momentum on its side, in both senses of the word.

All of which might, you would expect, trigger panic among members of the Conservative right. Neoliberalism is their experiment, after all, the great legacy of their beloved Margaret Thatcher. Yet while there are a few ministers and backbenchers, particularly from the 2010 intake, who grasp the scale of the threat that Corbynism poses to their favoured form of capitalism, they are outnumbered by the unaware.

For the most part, the average Tory believes, in essence, that the 2017 election was a blip and that the same approach with a more persuasive centre-forward will restore the Conservative majority and put Corbyn back in his box next time round. There are some MPs who are angry that Nick Timothy, May’s former aide, has waltzed straight from the 2017 disaster to a column in the Daily Telegraph. That the column is titled “Ideas to Win” only adds to the rage. But most generally agree with his diagnosis that the party will do better at the next election than at the last, almost by default.

And it’s not that the Conservative right isn’t panicked by anything, as a result of some state of advanced Zen calm: many are exercised by the silence of Big Ben during its scheduled four years of repairs.

Yet you don’t even have to go as far back as 1970 for a period of silence from Elizabeth Tower. The bongs stopped ringing for planned maintenance in 2007 and for two years from 1983 to 1985, and the Great Clock stopped unexpectedly in 1976. What distinguishes this period of renovation from its predecessors is not its length but the hysteria it has generated, among both the right-wing press and the Conservative right. The Brexit Secretary, David Davis, described letting the bells go quiet as “mad”, while James Gray, a Conservative backbencher, went further, dubbing the repairs “bonkers”.

The reason why the bongs must be stilled is that they risk deafening and endangering the workers repairing the bell. Working around them would further extend the maintenance period, potentially silencing the clock for ever. The real divide isn’t between people who are happy for the bell to fall silent and those who want to keep it ringing, but between politicians who want to repair and preserve the bell and those who risk its future by squabbling over a four-year silence. There may well be “mad” behaviour on display, but it certainly isn’t coming from the repairmen.

The row is a microcosm of the wider battle over parliament’s renovation. The estate badly needs urgent repairs to make it fire-safe and vermin-free – in the past year, the authorities have had to spend in excess of £100,000 on pest control, with bed bugs the latest pest to make a home at Westminster. If it isn’t made safe, it could burn down.

The cheapest and most secure option for MPs is to decamp down the road to the Queen Elizabeth II Conference Centre, just a few minutes’ walk from parliament. But the current delay, facilitated by Theresa May, increases the cost of repairs. The Prime Minister has also weighed in on the row over Big Ben, telling reporters that it “cannot be right” for the bell to go quiet. Westminster’s traditionalists, largely drawn from the Conservative right, talk up the importance of preserving the institution but their foot-dragging endangers the institution they want to protect. As for May, her interventions in both cases speak to one of her biggest flaws: while she is not an idiot, she is altogether too willing to say idiotic things in order to pander to her party’s rightmost flank. That same deference to the Tory right caused her to shred or water down her attempts to rejig the British economic model, ceding that ground to Corbyn.

A Labour victory at the next election isn’t written in stone. The winds blowing in the opposition’s favour are all very much in the control of the government. The Conservatives could embark on a programme of extensive housebuilding, or step in to get wages growing again or to turn around Britain’s low productivity. Philip Hammond could use his next Budget to ease the cuts to public spending. They could, in short, either declare that the experiment hasn’t failed and vigorously defend it, or write off their old project and create another one. They could take both Corbyn and the present moment seriously. Instead, they are arguing about a clock, oblivious to the reality that their time is running out. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to domestic and global politics.

This article first appeared in the 24 August 2017 issue of the New Statesman, Sunni vs Shia