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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How worried are Labour MPs about losing their seats?

Despite their party's abysmal poll ratings, MPs find cause for optimism on the campaign trail. 

Labour enters the general election with subterranean expectations. A "good result", MPs say, would be to retain 180-200 of their 229 MPs. Some fear a worse result than 1935, when the party won just 154 seats. Rather than falling, the Conservatives' poll lead has risen as the prospect of electing a government concentrates minds (last night's YouGov survey, showing the Tories a mere 16 points ahead, was an exception).

Though Conservative strategists insist they could lose the election, in an attempt to incentivise turnout, their decision to target Labour MPs with majorities as high as 8,000 shows the scale of their ambitions (a Commons majority of circa 150 seats). But as well as despair, there is hope to be found in the opposition's ranks.

Though MPs lament that Jeremy Corbyn is an unavoidable drag on their support, they cite four reasons for optimism. The first is their local reputation, which allows them to differentiate themselves from the national party (some quip that the only leaflets on which Corbyn will feature are Tory ones). The second is that since few voters believe the Labour leader can become Prime Minister, there is less risk attached to voting for the party (a point some MPs make explicit) "The problem with Ed Miliband and the SNP in 2015 was that it was a plausible scenario," a shadow minister told me. "It was quite legitimate for voters to ask us the question we didn't want to answer: 'what would you do in a hung parliament?' If voters have a complaint it's usually about Jeremy but it's not the case that he looks like he can become prime minister."

The third reason is the spectre of an omnipotent Tory government. MPs appeal to voters not to give Theresa May a "free hand" and to ensure there is some semblance of an opposition remains. Finally, MPs believe there is an enduring tribal loyalty to Labour, which will assert itself as polling day approaches. Some liken such voters to sports fans, who support their team through thick and thin, regardless of whether they like the manager. Outgoing MP Michael Dugher (who I interviewed this week) was told by an elderly woman: "Don't worry, love, I will still vote Labour. I vote for you even when you're rubbish."

Ben Bradshaw, the long-serving MP for Exter, who has a majority of 7,183, told me: "We're not anything for granted of course. On the current national polling, the Tories would take Exeter. But having covered five polling districts, although the leadership is undoubtedly a big issue on the doorstep, most people say they'll still vote for me as their local MP and we're not detecting any significant shift away from 2015. Which is slightly puzzling given the chasm in the opinion polls." Bradshaw also promotes himself as "the only non-Tory MP in the south-west outside Bristol": a leaflet shows a blue-splattered map with a lone red dot. The Labour MP warns voters not to be left in a "one-party state". 

As in 2010, Labour may yet retain more seats than its vote share suggests (aided by unchanged boundaries). But the fate of the Liberal Democrats in 2015 - when the party was reduced from 56 MPs to eight - shows that local reputations are worth less than many suppose. Theresa May has succeeded in framing herself as a figure above party interests, who needs a "strong hand" in the Brexit negotiations. At the very moment when a vigorous opposition is needed most, Labour has rarely been weaker. And when the public turn resolutely against a party, even the best men and women are not spared.  

George Eaton is political editor of the New Statesman.

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