How many academic economists does it take to change a light bulb? When it comes to the Bank of England’s Monetary Policy Committee, it seems the answer is nearly all of them*, with someone from the Treasury holding the ladder. That the MPC lost its way has been glaringly apparent to outsiders for months, but thanks to the narrow practical experience of its members it has taken rather longer for them to see the light.
But boy, have they had an education this week. Academic economists, like economists everywhere, can always find something to quarrel about, but the MPC lacks members with knowledge and understanding of how markets work and why it is so dangerous to ignore them. Nobody knew this better than Eddie George, the first chairman. The cumulative result of the many changes of personnel since was witnessed last week in the simultaneous crash in sterling and the price of government debt as the Casino Budget followed the MPC’s pusilanimous half-point rise in Bank Rate.
A fall in the exchange rate alongside plunging bond prices is a terrible combination, typically seen only in struggling third-world countries after years of economic blunders. It’s as if the UK was becoming a banana republic without the bananas. The impression is of an administration where half-baked ideas are imposed as policy without discussion of the risks or consequences.