What a weekend – it was time to put up the Christmas tree and soak up the explosive sensory feelings of the festive season.
The smell of pine, a toppling tree, the glistening of tinsel, flashing fairy lights and smashed baubles. For many this time brings about strong memories of childhood and allows us to reminisce. However, I suffer from an analytical mindset which means I gain emotional joy and excitement from less tactile happenings.
One of my favourite things to reminisce about is interest rates and inflation and the evocative memories I have on those topics. Growing up I remember my parents discussing interest rates, the impact of 13% repayments and how this affected their small business and the household. This exciting topic has clearly stuck with me as I get a small shiver of excitement when interest base rates are announced. That said, I don’t get much excitement these days as base rates rarely move and I’m finding the Bank of England (BoE) committee a bit of a bore, frankly.
The second thing I recall is being fascinated about hyperinflation. Of course, I now know more about this topic and it is actually pretty morbid. I must have been about 10 or 11 when I first learned about inflation. The concept of someone having to pay one Argentinian austral for a loaf one day then 100 a year later was bizarre. I pictured people walking about with wheelbarrows of cash to get their shopping. As an adult I know the whole situation was part of a wider failing of government and civil order which had huge social consequences for many. Fortunately, we seldom hear of hyperinflation these days, indeed it’s become the norm for developed countries to “suffer” from low inflation.
Back in 1998 while I was studying economics Gordon Brown created an independent decision making process at the BoE. The central aim of the bank was, and still is, to keep inflation at or around 2%. The levers available include the use of interest rates and the easing or tightening of money supply. While I was only learning in the late 90s I understood that raising interest rates would reduce inflation and reducing interest rates should help economic growth, and that in turn would generally lead to increased inflation.
Latterly, since the financial crash around 2009, independent banks have also used “quantitative easing” as a method to stimulate the economy by altering the supply of money. My recollection from university was that this would rarely be used and would lead to an inevitable increase in inflation if money supply was increased.
In 1998 one of the reasons to make the BoE independent was to remove politicians from decision-making processes on interest rates. There was a fear that politicians could use monetary policy to create short-term boosts or otherwise to gain votes. Removing the potential for political interference would allow the BoE to use their levers to keep inflation steady.
In October the Economist wrote an excellent report about why inflation may be a less meaningful measure in today’s world. The report outlined reasons why inflation is stubbornly low, including the impact of new products and services, technological advances and increased globalisation. While reading the report it made me question what the purpose of the BoE is if one of their day to day jobs (controlling inflation) wasn’t really that much in their gift to control anymore. So I came up with a plan.
Over the course of the recent political debates we’ve heard each party say the others would ruin education, healthcare, public services and split the country. Anyone I speak to feels pretty dismayed with the choices laid in front of them in terms of leaders and party stances too. Many feel ill-inclined to vote but feel they have to vote. With all of this in mind and thinking back to Gordon Brown’s decision in 1998 maybe the BoE could be given more powers now inflation is sorted.
In early 2020 the BoE governor could be given new policy levers around taxation, trade, immigration and, for good measure, social policy. This would allow sound decision making without political interference, and remove ambiguity about personal or political bias. If we are unhappy we’d fire the governor. Surely this plan has never been tried before!?
We could still hold elections of course, although I’m not entirely sure what politicians would do. I suppose the one area left is the constitution, although surely you couldn’t have about 650 elected officials spending years and years discussing only that . . . could we? With that in mind, I had better decide who to vote for on Thursday, I’m not sure Mark Carney is on the ballot list.
James Bream was research and policy director at Aberdeen and Grampian Chamber of Commerce and is now general manager of Aberdeen-based Katoni Engineering