We need an iconoclast to lead the Bank of England
Central bankers are acting like allied commanders at the Battle of the Somme. Adair Turner would be a breath of fresh air
Adair Turner's most celebrated soundbite, in 2009, was that British banking is over-large, and much of it is overpaid and ‘socially useless'. Illustration: Belle Mellor
How to wreck Adair Turner's chances of becoming next governor of the Bank of England? Answer, name him as the best candidate fit for the job. For the first time in modern history it really matters who is governor. It matters that the person should have a grasp not just of the shambles that is modern banking but of the rigor mortis now afflicting Britain's economic managers. They desperately need someone with the guts for new ideas.
Turner has been a banker and an economist, two professions most tainted by the past five years. Bankers are tainted by venality, economists by intellectual failure. No one involved is free of guilt. No one has gone to jail, and only a few high-profile bankers have even suffered. What matters is have they learned?
Today the IMF predicted that Britain has relapsed into recession and should "smooth its planning adjustment over 2013 and beyond", jargon for "let up on austerity". Whether such IMF forecasts merit more credibility than the wildly over-optimistic ones last year, I cannot tell. Certainly the blunders have been serious. A cut of £1 in public spending apparently does not lead to 50p less economic activity but at least £1.30p less. The "multiplier effect" of deficit reduction is thus a downward deflationary spiral. This is not ideology, but the mathematics of catastrophe.
Those who warned three years ago that the risk of double-dip recession was so high as to require a plan B were right. The Treasury, the Bank of England and the IMF were wrong. The fact that the Treasury has had to propose six ineffective business lending packages in a row, and the Bank has had to pretend to pump £375bn "into the economy" is proof of that failure. I do not believe for a minute that George Osborne and his advisers, had they correctly predicted the recession, would be following the present policy. At least the IMF is now admitting its mistake.
Government and Bank economists are continuing to allow politicians to cop out of reflating demand for fear of a U-turn. Economists are like physicians in the days when they believed in leeches. They take no responsibility for gross errors that would get doctors struck off, and even transport officials suspended.
Turner is criticised as a dabbler and turncoat, a McKinsey consultant and a poor administrator. He was Tory, then SDP, then Blair courtier, an academic economist turned head of the CBI. He was a poacher turned regulator at the Financial Services Authority. He ran pensions and low-pay policy and is unceasingly iconoclastic and articulate. To adapt Ruskin, a hundred economists may look, but few can see. Turner can see. His opinions can be deduced from a torrent of outspokenness. His most celebrated soundbite, in 2009, was that British banking is over-large, and much of it is overpaid and "socially useless". As free markets mature, he says, insiders merely collude to "proliferate rent-extracting opportunities" – that is, make huge sums of money. They should be curbed.
Three of Turner's lectures, delivered in 2010 and now revised as "Economics after the Crisis", are eulogistically reviewed by Robert Skidelsky in the latest Times Literary Supplement. Turner maintains that economics has blown too much with the political wind. It has ordained that growth is in lock-step with social order and human happiness. It is not. He does not go the whole happiness agenda but nods vigorously in its direction. Nor do wider incentives yield fairness or evidence of contentment.
This does not seem leftwing – rather pragmatic. Increased leisure may be good yet impair growth. Market forces do not correctly price risk, as we have just seen in spades, but can spin off into an instability. The task of regulation, says Turner, is to curb upturns and minimise downturns, as Keynes ordered. It should have warned politicians against the debt bubbles and housing hysteria of the last decade.
Turner seeks to "reconstruct economics" not as anti-capitalist but, Skidelsky points out, as a challenge to "an unattainable market perfection" that can so clearly lead to periodic collapses and a huge cost to human welfare. There is a moral complexity to economics that is both necessary and difficult.
As for present policy, Turner seems to agree with the IMF that Britain has over-deflated its economy. In July he told the Bank's monetary policy committee that it faced a liquidity trap in which quantitative easing "was proving to have little impact on behaviour and on demand". Using the banks to stimulate the economy – the core of Treasury and Bank policy – was "ineffective". This amounted to saying that recession was now government-induced.
Turner's more private view is that Britain should consider whether debt should now be "monetised", financed by blatantly printing money rather than buying bank bonds and hoping this boosts demand. His is a version of the "helicopter" money advocated by JM Keynes and Milton Friedman. Turner points out that actually printing money – not pretending to as at present – would involve "no increase in government debt and therefore no increase in future debt servicing". It is pure inflation and needs careful handling, but just now it is like pouring oil on a seized engine. On the spectrum from plunging deflation or hyper-inflation, the risk of the former far outweighs the latter. At very least, this should be discussed.
Britain's central bankers are like allied commanders during the Somme, sticking blindly to a defunct strategy out of sheer familiarity. Turner's scepticism seems no more than prudent. In this context, a Bank governor steeped in the financial establishment but with an observant eye and a mind open to argument is more than a breath of fresh air. It is one thing that might jolt us out of the present mess.
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