We shouldn't be hanging on the every word of Britain’s new "superstar" central banker

Britain's economic debate needs to be more daring than the Bank of England can ever be, writes Jeremy Green.

Mark Carney’s "forward guidance" announcement yesterday was a new departure for the Bank of England. A publicly announced unemployment target will now help guide interest rates. Many had anticipated that Carney might introduce unorthodox policy measures, and in plumping for an unemployment target he has followed the lead of Ben Bernanke at the Federal Reserve. The measure is intended to assure markets that borrowing costs will remain low going forward, with the hope that this will spur further spending and investment in order to drive Britain’s fragile recovery.

It’s important not to place too much emphasis on the novelty of this announcement though. The Bank has not abandoned, or significantly relaxed, its commitment to price stability. The unemployment target will be jettisoned if there is a significant rise in inflation, or if continued loose monetary policy threatens financial stability. This is by no means a revolution in monetary policy.

The fact that so much attention has been lavished upon the appointment of Carney and his early policy announcements, demonstrates the overemphasis placed upon monetary policy as the only viable escape route from recession. In fact, the overdependence upon monetary policy has been a defining feature of the neoliberal era as a whole.

Ever since the anti-inflationary policies implemented by the Bank and the Fed in the early 1980s, monetary policy, coordinated by increasingly independent central banks, has been expected to play a larger role in steering economic growth. Under the high interest rate regimes of the early 1980s it was the money supply figures that were supposed to guide interest rates and provide a benchmark for market expectations, whereas now, in the context of zero-bound monetary policy, the unemployment rate is supposed to play a similar role.

As long as fiscal policy remains shackled by austerity, then the wider benefits of a looser monetary policy are likely to be meagre. Quantitative Easing has so far done much more for wealthy assets holders and share prices than it has for ordinary wages. Channelling the proactive element of the policy response to the crisis exclusively through monetary policy actually deepens our dependence upon financial markets as the engine for recovery. Doing so without redirecting credit into long-term infrastructural investment and export-led industries will reproduce the same deficiencies that have plagued the British economy.

Cheap money is likely to be funnelled into the property market, reinvigorating the speculation that led to the crisis in the first place and further concentrating wealth inequalities. Britain’s high levels of household debt will likely be aggravated, rather than alleviated, by the prolongation of cheaper credit in the context of falling or stagnant wages.

We should be talking about a proactive industrial strategy, expansionary fiscal policy and green jobs, rather than hanging on the every word of Britain’s new "superstar" central banker.

The flip side of Britain’s proactive monetary policy has been the talking-down of the potential for an expansionary fiscal policy. Quantitative Easing and fiscal austerity are the lead actors in a damaging double-act at the heart of the Coalition’s plan to restore British growth. But the key ingredients to getting out of the crisis, and providing more and better quality jobs in the process, are not austerity and cheaper consumer credit. We should be expanding fiscal stimulus and targeted investment through increased spending and taxation – tapping into the huge corporate surpluses in Britain as a source of strategically directed investment. Supply-side measures alone are entirely inadequate.

At a more fundamental level, the power and influence of an unelected and independent central banker should be a concern for all of us. In a democracy like ours, key economic decisions should be taken within a strong mandate of public accountability, not the shadowy and esoteric world of central bank policy making. The more faith we place in central banking to lead us out of the crisis, the less we place in the policy programmes of our elected politicians.

Photograph: Getty Images

Jeremy Green is a research fellow at the Sheffield Political Economy Research Institute at the University of Sheffield.

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Emmanuel Macron offers Theresa May no comfort on Brexit

The French presidential candidate warned that he would not accept "any caveat or any waver" at a press briefing in London.

Emmanuel Macron, the new wunderkind of French politics, has brought his presidential campaign to London. The current favourite to succeed François Hollande has a natural electoral incentive to do so. London is home to 300,000 French voters, making it by France's sixth largest city by one count (Macron will address 3,000 people at a Westminster rally tonight). But the telegenic centrist also took the time to meet Theresa May and Philip Hammond and to hold a press briefing.

If May hoped that her invitation would help soften Macron's Brexit stance (the Prime Minister has refused to engage with his rival Marine Le Pen), she will have been left disappointed. Outside No.10, Macron declared that he hoped to attract "banks, talents, researchers, academics" away from the UK to France (a remark reminiscent of David Cameron's vow to "roll out the red carpet" for those fleeing Hollande). 

At the briefing at Westminster's Central Hall, Macron quipped: "The best trade agreement for Britain ... is called membership of the EU". With May determined to deliver Brexit, he suggested that the UK would have to settle for a Canadian-style deal, an outcome that would radically reduce the UK's market access. Macron emphasised that he took a a "classical, orthodox" view of the EU, regarding the "four freedoms" (of people, capital, goods and services) as indivisible. Were Britain to seek continued financial passporting, the former banker said, it would have to make a significant budget "contribution" and accept continued immigration. "The execution of Brexit has to be compliant with our interests and the European interest".

The 39-year-old avoided a nationalistic tone ("my perspective is not to say France, France, France") in favour of a "coordinated European approach" but was unambiguous: "I don't want to accept any caveat or any waver to what makes the single market and the EU." Were the UK, as expected, to seek a transitional arrangement, it would have to accept the continued jurisdiction of the European Court of Justice.

Elsewhere, Macron insisted that his liberal economic stance was not an obstacle to his election. It would be fitting, he said, if the traditionally "contrarian" France embraced globalisation just as its counterparts were rejecting it. "In the current environment, if you're shy, you're dead," he declared. With his emotional, straight-talking approach (one derided by some as intellectually threadbare), Macron is seeking to beat the populists at their own game.

But his views on Brexit may yet prove academic. A poll published today showed him trailing centre-right candidate François Fillon (by 20-17) having fallen five points since his denunciation of French colonialism. Macron's novelty is both a strength and a weakness. With no established base (he founded his own party En Marche!), he is vulnerable to small swings in the public mood. If Macron does lose, it will not be for want of confidence. But there are unmistakable signs that his forward march has been halted. 

George Eaton is political editor of the New Statesman.