The Bank of England’s Monetary Policy Committee (MPC) that meets today and tomorrow has an unprecedented new look.
Out has gone Dr Martin Weale, the academic economist from the National Institute of Economic Research. In comes Michael Saunders, the well-regarded economist from Citigroup.
This follows, a year ago, the replacement of Professor David Miles with Dr Gertjan Vlieghe from the hedge fund Brevan Howard Asset Management.
In both cases, academic economists made way for City economists (earlier in his career Dr Vlieghe was on the Bank staff, working as economic assistant to the then Governor, Mervyn King).
The MPC is comprised of a mix of internal members from the Bank staff and external members. For the first time since its creation in 1997, the MPC is without an external member from UK academia. Professor Kristin Forbes is now the only academic external member, but from the Massachusetts Institute of Technology in the US. The other external member is Ian McCafferty, with a background also in the City and later in business (and a relentlessly hawkish temperament).
In the past academic members have proved their worth as important counterweights to the dangers of group think among the Bank staff. Notably Christopher Allsopp held out against Bank officials, and voted for faster rate reductions after the dot.com crash. David Blanchflower’s battles are well known, wanting to cut rates faster than Bank officials, in the wake of the financial crisis. Though of course others external members were less successful: Tim Belsey for example wrote in the Sun newspaper raising the spectre of a 70s style inflation as he voted to raise rates in the midst of the financial crash (August 2008).
The question is - why lose the UK academic members? Recruitment for the MPC is run by the Treasury. The Bank website offers:
“four external members appointed directly by the Chancellor. The appointment of independent members is designed to ensure that the MPC benefits from thinking and expertise in addition to that gained inside the Bank of England”.
There have been criticisms in the past that the process is opaque. Currently HM Treasury run an open competition – here’s an application pack (though there are no vacancies at present!)
Maybe the present position is a big vote of no confidence in UK academic economists - with their high-powered models but little understanding of the real world of monetary economies. Maybe academic economists are less inclined to join the Committee at the present moment, when Treasury foolishness means undue and reckless reliance on monetary policy. Maybe the authorities simply prefer City people. Answers on a postcard, please.