Those who call for the defense of Governor Andrew Bailey, cruelly caricatured as “the plank of England,” should be careful what they wish for.
A bank’s mission is usually to manage inflation. In fact, its purpose is to promote the well-being of the people of the United Kingdom by maintaining financial and monetary stability.
Bailey has helped bring worry and hardship to hundreds of thousands of British people and failed, and he owes us all an apology.
However, firing him may just do more harm than good. In the short term, it can create much greater instability in the markets, and in the long term, it can fatally undermine the Bank’s independence.
In any case, it is virtually impossible to remove the governor. Deliberately to reduce the specter of political interference and as financial security is a long-term issue. Governors get eight-year sentences — Bailey isn’t even in the middle — and can only be charged with a felony or insanity.
Food for thought: Those calling for Gov. Andrew Bailey’s defense should be careful what they wish for
He could have agreed to a decent trade sooner or later before his term ended, but he couldn’t.
Let’s assume that the approach to release him could very well be revealed, it could significantly shock the cash markets. Moreover, sooner or later it would make it difficult to select high-quality candidates.
Instead, the bank wants much less groupthink and more openness to objective consideration. The orthodoxy that seems to have infiltrated the nine-member Monetary Policy Committee (MPC), which sets interest rates, will not work.
The MPC needs to be extra large, not because of extra girls or minorities—although that will be helpful—but mental diversity.
As it stands, the committee is dominated by ex-Treasury officers and new Keynesian financial concepts. Three members of the MPC are former finance ministers, as are all 4 deputies.
This has undoubtedly led to errors in the study of the financial system, crucially with regard to the provision of cash, which the MPC could have forewarned of the specter of inflation.
Monetarism, acceptable in the nineteen-eighties, turned into a dirty phrase. This was due to the harsher aspect of Thatcherism, large job losses and devastated communities. But the monetarists are back. They accordingly predicted that inflation would rise after the increase in the cash supply.
The bank played little or no note of this, insisting that inflation was mainly driven by electricity costs and supply chain problems, which it did, though not entirely.
In the 1980s, securing cash became an obsession, with some damaging penalties. But it is quixotic to go to the opposite extreme and ignore it completely.
This is to discourage overcrowding the MPC with monetarists: the committee can profit extra by hiring industrial and behavioral economists.
If Bailey is thrown out, there is a risk that the independence of the Bank of England will be successfully completed.
No one needs it. If politicians are expensive, they might not resist manipulating payments for their own purposes.
Economist Roger Bootle has found that there was a marked tendency for price cuts to coincide with the Tory’s celebratory conferences. Work can be just as unhealthy.
Whatever the disadvantages of a financial institution, it is the least unhealthy option.