The Spectre of Monetarism

On Monday (5/12) I had the privilege to listen to the speech given by the Governor of the Bank of England at the Roscoe Lecture in Liverpool’s BT Convetion Centre, on behalf of Liverpool John Moores University. Sir Jon Murphy; the Chief Constable of Merseyside Police, and the custodian and chair of the Roscoe lectures introduced Mark Carney on this 144th lecture, of the longest public lecture series in the country. He compared the governor Mark Carney to William Roscoe; who has been described as ‘Liverpool’s greatest citizen’ and the founding father of the University, as both men of extraordinary talents. Sir Jon Murphy also talked about saving his pocket money (10 shillings) as a boy for a Subbuteo football game team, and got in a quip about Dr Carney being on the Everton ‘blue’ side while himself a Liverpool ‘red’ supporter, although both have a dislike of Arsenal to bring them together.

Mark Carney spoke about monetary policy and inequality, backed up by data to try and assess what is really going on, and fished with a question and answer session at the end of the hour. He began his speech with “real incomes have been falling for a decade”, with “the legacy of a searing financial crisis weighing on confidence and growth” and a time where “the very nature of work is being disrupted by a technological revolution.” This was compared to the middle of the 19th century, with Liverpool in the midst of a “golden age, where this kind of revolution is changing the nature of work again.

You could “substitute Northern Rock for Overend Gurney; Uber and machine learning for the Spinning Jenny and the steam engine; and Twitter for the telegraph; and you have dynamics that echo those of 150 years ago.”

He set out to discuss during this lecture the role of monetary policy in this time of great disruption, while focusing on the underlying causes and consequences of weak real income growth and inequality across the advanced world.

A recording and a transcript of the lecture including charts on income and growth can be found here: http://www.bankofengland.co.uk/publications/Pages/speeches/2016/946.aspx

Dr Carney focused on three priorities as a way to move forward:

  1. Economists must clearly acknowledge the challenges we face, including the realities of uneven gains from trade and technology.
  2. We must grow our economy by re-balancing the mix of monetary policy, fiscal policy and structural reforms.
  3. We need to move towards more inclusive growth where everyone has a stake in globalisation.

In regard to globalisation “for the societies of free-trading, networked countries to prosper, they must first re-distribute some of the gains from trade and technology, and then re-skill and reconnect all of their citizens. By doing so, they can put individuals back in control.”

He started summing up as with “the MPC (Monetary Policy committee) indicated in the spring that the impact of a vote to leave the EU on inflation would be the product of its impact on demand, supply and the exchange rate, and it stressed then that the implications for monetary policy would not be automatic.”

Dr Carney’s final words before taking questions were: “Whatever economic developments and prospects, the MPC will always set monetary policy to maintain price stability and promote the good of the people of the United Kingdom. As it did when it was the only game in town after the global financial crisis; and as it will going forward, in better balance with fiscal and structural policies. Monetary policy will continue its good work as the UK economy adjusts to new opportunities with Europe and the rest of the world. In the end, monetary policy isn’t a spectre but a friendly ghost.”

The Q&A session was run by LJMU Honorary Fellow, and radio broadcaster Roger Philips. The first question was regarding Liverpool as a strong remain city from the referendum, with the EU helping to create a thriving city; “What can we do to carry on, after our exit from the European Union?” Dr Carney answer touched on the progress that has been made with tourism and retail, “built on the historic strengths of Liverpool”, and entrepreneurs who can think of what is next, who can push the attractiveness of the city without looking to the EU for funds, while mentioning the ‘Northern Powerhouse’ as a way of linking the country.

The Second question was about what would the EU look like in 10 years time? “It will be smaller by one country”, and Euro currency area will have to “take some difficult decisions  to deepen some aspects of integration in those economies”including the labour market, which will be a challenging process in his view. There was a discussion on referendums around Europe, and the challenge of making sure people are skilled for any changes in the job market. Another question on helping the poorest had the answer about keeping “inflation on track”, as deflation leads to debts just building up and up, with a “sweet spot of around 2%” being the best.

The lecture concluded with LJMU vice-chancellor Prof Nigel Weatherill presenting the Governor with a Liver Bird statue, specially created by sculptor and LJMU Honorary Fellow Emma Rodgers.  I felt this had been a well thought out lecture, with a lot to take away and think about as we all move forward with the uncertainties ahead, not just from the referendum result, but cultural and technological changes that affect the monetary system and all our lives.

Mark Carney

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