It’s not that the Bank of England didn’t try to find a chief economist who wasn’t a 53-year-old white man. In fact, it went to great expense: a government contract award shows it spent £43,000 with the diversity consultancy Audeliss to ensure that serious thought was given to appointing someone who wasn’t demographically indistinguishable from the other four internal members of the Monetary Policy Committee (MPC). But for all that, it seems only a Huw of a certain hue would do.
Huw Pill takes over today as the Bank’s chief economist at a pivotal moment for the UK’s economy, as the unprecedented financial stimulus of the past 18 months is limited or withdrawn.
Pill, an Oxbridge graduate who worked for Goldman Sachs, will report to the deputy governor for monetary policy, Ben Broadbent, an Oxbridge graduate who worked for Goldman Sachs. Broadbent also sits on the Financial Policy Committee with Jonathan Hall, an Oxbridge graduate who worked for Goldman Sachs. And while the Bank is technically independent of the government, Pill and Broadbent will work closely with the Treasury and its Chancellor, Rishi Sunak (an Oxbridge graduate who worked for Goldman Sachs).
Is Pill’s identity important? Isn’t his expertise as an economist all that matters? The economist David Blanchflower, who sat on the MPC from 2006 to 2009, says these things matter. He describes it as “an outrageously bad appointment”, not only because it has the makings of a “public relations disaster”, but because it shows the Bank is once more falling prey to a dangerous homogeneity of outlook.
“What did we learn from the Great Recession? We learned that groupthink was a major problem,” Blanchflower tells me. During his own time on the MPC, as the 2008 financial crisis approached, the committee had “eight people [who] thought the same, they were all wrong – groupthink was the issue”.
So why didn’t the Bank appoint one of the MPC’s impressive external members, such as Catherine Mann, the former chief economist of the OECD? The answer may be that relatively few senior economists would want, at this moment, to be held responsible for what happens next to the British economy.
Pill’s published views as an academic suggest that he favours tighter controls on quantitative easing (QE, electronically created money used to buy government bonds), which some have criticised for inflating asset prices. But conventional policy leaves the Bank with few options if this doesn’t go well.
“He is going to have a tough time at the Treasury Select Committee,” says Blanchflower. “They’re going to ask him: OK, so Sunak takes away all this fiscal stimulus and the economy tanks… what are you going to do if suddenly the unemployment rate rises?… Are [you] going to do what you said in the past, no QE… Do you like negative interest rates? How low do the negative interest rates go? Minus five? What are you going to do?”
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But Jagjit Chadha, the director of the National Institute of Economic and Social Research, has worked with Pill as an academic and has more confidence in his originality of thinking. Pill benefits, he says, from “a whole working career of expertise on monetary theory and policy, as well as practice, both from the perspective of central banking [before Goldman, Pill spent much of his career at the European Central Bank], a spell in academia, and in the markets.” As for the question of diversity, Chadha jokes: “Well, he is Welsh.”
The challenge Pill faces, Chadha says, is “managing a smooth exit [from QE] about which the markets are happy, and can feel that it will happen over time in a way that doesn’t lead [to] disruption of market participants’ behaviour”. This, he accepts, will require an economist who is prepared to break new ground: “We haven’t done it before.”
As for the wider economy, Chadha says it’s not right to expect the Bank to take on more than the already daunting task of monetary policy.
“The job of monetary policy is very simple: price stability and financial stability. The rest of the economy depends on that. There are clear economic priorities to be thought about: the housing market, social care, the health service, infrastructure, climate change. But… they are all matters for Whitehall. The central bank is just about ensuring the payment system works, that we can plan ahead with certainty as to where the price level will be, and that the financial system doesn’t fail us.
“There’s a danger that politicians are trying to put too much on central banks… We can sometimes forget how important it is to maintain price and financial stability and the integrity of the payments mechanism. That is enough. And, therefore, we need people who can guard that; we don’t really need central bankers to be moving into these territories where they’re ultimately political decisions, and they need to be made on the other side of town.”
This might suggest another reason for Pill’s hiring: was he, like BBC director general Tim Davie, thought to be the right man to placate a government that has sought aggressively to politicise other institutions?
This is the real task ahead of Pill, Governor Andrew Bailey and others: not only to manage the Bank’s experts during a wholly uncharted period of maximum-stakes decision-making, but also to help keep monetary policy a financial rather than a political issue, as it has been since Gordon Brown gave the Bank its independence in 1997. If the government cannot keep us out of a recession, it will do everything it can to make sure the buck stops not on Whitehall, but on Threadneedle Street.
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