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"Unelected Power" by Paul Tucker: Sets out to nudge our thinking in an unfamiliar direction. 

My law of banking says that disasters happen when the last man who can remember what happened last time has retired. Ten years on, you might think that the last one was cataclysmic enough to be etched on our memories, but they fade. Now is the time for new thinking.

Ten years ago, Paul Tucker was in the thick of it. As Deputy Governor of the Bank of England he was Mervyn King’s right hand and, to City minds, his natural successor. That did not happen. The Chancellor of the day preferred to import Mark Carney from Canada, and Tucker retired to Harvard to teach and to write. Now, with his book Unelected Power (Princeton University Press, £27.95), he sets out to nudge our thinking in an unfamiliar direction.

He wants to make the Bank (and central banking in general) safe for democracy. It is just one, though perhaps the weightiest, of the independent authorities and regulators that now have wide powers and no evident constituency. His watchword would be: “No regulation without representation.” Otherwise, when something goes wrong — and, as he says, in the end something will — and we find ourselves let down by these unelected rulers, there is going to be trouble.

To be feared as one of them would, at least, for the Bank, make a change. The Chancellor who formally nationalised the Bank referred to it as his creature. Subsequent Chancellors took to setting Bank rate, and to cutting it in nice time for their party conferences. When Nigel Lawson, an imperious Chancellor, first proposed giving the Bank independence, it was (so I felt) as if Cromwell had offered Dominion status to Connaught.

Independence, when it came from Gordon Brown, set the Bank to hit a target for inflation. This, as Tucker says, was thought to be sexier than keeping an eye on the banks, which now acquired a watcher of their own, with the Treasury holding the ring. In the end, shaky banks fell between the hands of the three “tripartite” powers, and there could be no answer to the question pitched in Parliament: “Who was in charge?”

A subsequent round of reforms set out to answer that question — at least until the next crisis comes along to test it — but it does not tackle the question that Tucker poses, or establish the link between regulation and representation. That link would have to be forged by trust. Tucker argues that the judges have it (though it needs to be respected) and that an independent central bank would need to earn it. Easier said than done.

He sets out a long list or flight of steps in the right direction, to be taken by any such independent authority. It must not (for instance) bring prosecutions or impose ruinous fines. Its decisions should be made in committee, and the members would need to know that doing nothing is doing something. (This, for today’s Bank, would represent a change of policy.) Like the judges, the central bankers should not be looking over their shoulders to the next job somewhere else.

Most significantly, Tucker warns, central banks must be planning for the next crisis. They may not be required to identify it or see it coming, but when it comes they will need to do something exceptional, and they need to be ready for that. Last time round was exceptionally exceptional.

In a year’s time, Governor Carney will be on his way. Candidates to succeed him — the betting is open — should work their way through Unelected Power. They will then have some thinking to do.
June 25th, 2018
7:06 PM
To celebrate the anniversary of the inception of the NHS, a reward to the people of the UK for winning WW2, may we remember that there was no conception of the scale of the commitment, open-ended in fact, and no way of arranging finance. As a socialist venture, it was to be left to other countries to accept the constant, interrupted only by the lottery win of North Sea Oil, devaluation of Sterling. Never mind that those countries were also engaged in getting others to pay for their excesses. 70 years down the line and the global economy is in a very deep hole, with ZIRP in charge. But don't worry, the socialists have a long list of scapegoats. Meanwhile, Argentina, home of the Peronist Approach, are conducting the usual dance with the creditors.

June 12th, 2018
10:06 AM
The stumbling-block is that all currencies are trying to devalue at the same time. Not the sort of problem that professional economists or their followers intend bothering with. They will only be rewarded if they follow the yellow brick road and ignore reality. The EU is probably the most instructive case of consistent stupidity since it opened for business as the world's first empire built from the roof down. It now sits on the biggest pile of worthless IOUs and hopes no-one will notice.

June 10th, 2018
3:06 PM
Further to my enquiry about the currencies that reflect their issuers incontinent spending habits, it does seem there are none that are not constantly devaluing. Happy to be corrected. The global reserve currency against which all other currencies were measured, used to be the US Dollar, until they abandoned responsible behaviour and are now burying the world in green stuff. Meanwhile Sterling is celebrating the 70th birthday of the NHS and its unique incontinence.

June 6th, 2018
4:06 PM
Would someone please identify those currencies not issued by serial devaluers. Inter alia, devaluation has let the UK enjoy the benefits of their open-ended commitment to the NHS. We have been living in "the next crisis" for a long time.

May 31st, 2018
5:05 PM
'My law of banking says that disasters happen when the last man who can remember what happened last time has retired.' Several decades ago I read a review of the banking system of Latin America - or of some of the countries there. The author made the point that banking crises, in the 19th century (and I think later) occurred at regular intervals. He said that they happened when the last people who had lived through the previous crisis had retired.

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