If Mark Carney is the Sven Göran Eriksson of central bankers, let’s hope he gets better results. The Canadian chosen as the next governor of the Bank of England has a tough job to avoid the UK slipping into the economic relegation zone
Football metaphors are all the rage following the appointment of a foreigner as governor of the Bank of England. Mark Carney, apparently, is the best economic manager in the world and we need him in the premier economic league.
In football, as in economics, it’s important to look at a potential manager’s previous results and technical philosophy. In the FT recently (£), Carney was celebrating the success of conventional monetary policy and singing the praises of the contemporary economic history of defeating inflation in developed economies. He argued that the policy model had succeeded for well over a decade. In doing so, he sounded suspiciously like a monetary conservative.
That is worrying given we live in an age when conventional monetary policy has stopped working. With central bank interest rates through the floor, even quantitative easing has not stimulated the productive use of credit into necessary investment. The credit crunch looks increasingly like credit starvation for the small- and medium-sized industries we are all pinning our hopes on.
Monetary policy may have been very successful in controlling inflation, but it failed fundamentally to control the money supply, the growth of credit and certain asset bubbles. That is why we had the crash. Let’s hope Carney has some ideas about how to score at the other end of the pitch, not just a ‘back four against inflation’.
On the fiscal side, Canada did achieve a big reduction in national debt between 2000 and 2010, but this was also a period when it had a growth in energy exports due to the new oil fields becoming operational in the north of Canada, so it took good corporate tax receipts.
The UK is now experiencing an unprecedented decline in corporate tax receipts as its oil, gas and banking sectors decline. We have to invest in replacing those industries. We also have to get credit flowing into productive investment as a matter of urgency and make sure that any credit easing does not go into the next asset bubble. The stakes now are just too high if we want to avoid relegation.
Canada has a small population and massive commodity wealth to underpin its small population. This is very different to the UK. The key is to direct the money supply and any future credit growth towards ‘ productive’ investment, rather than further western asset bubbles.
Mark Carney in the UK? He has a tougher job on his hands now. Let’s hope we don’t get relegated and politicians (acting like certain football club owners) don’t decide to scapegoat ‘the manager’.
Philip Haynes is professor of public policy at the University of Brighton and the author of Public Policy beyond the Financial Crisis: An International Comparative Study
