Imagine you’ve contracted an architect to design your dream house. The architect then employs contractors to build it and the house falls down. Do you blame the architect? For sure. But the architect complains: ‘I didn’t know the wind could be like this.’ But what if you’d approved the design, because it looked lovely, but it had no foundations, and had a roof resting on non-load-bearing walls? Do you only blame the architect?
The disaster breaking over Britain’s economy is the responsibility of not just the Bank of England governor, but the entire governing financial and economic establishment. The Bank’s governor cut an abject figure when he told MPs he felt ‘helpless’ to contain inflation. But he also embodied a terrible lack of accountability, or even professional honour. If the Bank of England’s governor tells us he cannot control inflation, then the correct response is to thank him for his work, accept his resignation, and find someone who can do the job. This should happen without delay.
But the clear-out cannot stop there. Despite Conservative MPs howling, it is inconceivable that the Bank could have embarked on the largest QE operation in Britain’s peacetime history without having cleared it with the Treasury, and with the Government. The Chancellor and the senior stratum of the Treasury civil service are therefore equally culpable, and should be gone as soon as is practically possible.
For let us remember just what the Treasury’s ‘economic strategy’ has been. At the beginning of the pandemic, the Treasury opted for a wildly unconventional set of policies: massive fiscal stimulus accompanied by massive monetary stimulus. This combination of fiscal and monetary largesse was something Britain managed to avoid even during wartime. Moreover, it was neither inevitable nor necessary: as we wrote at the time, the pandemic’s huge and extraordinary government deficit could and should have been financed by targetted public-bond sale campaigns, with the debt ring-fenced via a 60-year sinking fund. Had this strategy been pursued (or even imagined), the excesses of QE would have been avoided, and the temptation to ‘normalise’ fiscal balances immediately by tax rises would have been avoided.
For when the pandemic retreated, in a screeching U-turn, the Treasury reversed its wildly unconventional pandemic policies to pursue a financial and economic policies so ortho-orthodox they have no followers anywhere in the world. Quite suddenly, fiscal rectitude was to be re-established by huge tax rises, even as the Bank of England tightened monetary policy. Anywhere and everywhere, if you sharply tighten fiscal policy at the same time as you are tightening monetary policy, you court recession. Which, incidentally, will leave a red imprint on your budget deficit. The fact we’ve got such dangerous drivers manically swinging the wheel this way and that is one reason why the pound is weakening. No-one wants to be a passenger in a fish-tailing taxi.
Let us call this what it is: it is cruel and brutal stupidity which is doing great damage to Britain. Those at the top of the Treasury should be given their inflation-proofed pensions right now. Their leadership has been disastrous not just in the normal quotidian ways we have come to expect to suffer (think of the contribution of the Treasury’s Green Book to regional inequalities). Rather, the swing from wild and dangerous unconventional behaviour to wild and dangerous ultra-conventional behaviour suggests an economic leadership that has no stable intellectual underpinnings, no useful imagination, and last but most importantly, no genuine care for the society it purports to serve.
Meanwhile, our economic establishment is still loving their repudiation of responsibility. For as the inflation gales gather strength, the Treasury thinks that now is a good time to put a new carbon tax on imports. Is this mere stupidity, or actual economic malice? Lucy Frazer is Financial Secretary to the Treasury, and that she is prepared to go to bat for this plan tells us she is yet another branch of the problem. Similarly, in this environment, the ‘Safeguarding Minister’ Rachel Maclean tells us we should be beating the cost-of-living crisis by working longer hours or getting a better job. Way to go, Minister: that’s how to deal with Britain’s productivity problem!