by Jonathan Todd
This is a rare thing: some thoughts from a Labour perspective on the politics of monetary policy. Maybe it derives from reverence for the last government’s decision to make the Bank of England independent. Perhaps it comes from a slowness to appreciate how the George and Mervyn show has so smoothly transitioned to the George and Mark show. In any case, we do not hear enough from Labour on monetary policy.
Ed Miliband followed Stella Creasy is stressing the importance of having females on banknotes. While the symbolism of this is significant, it is only symbolism. As Carney was being pictured with Creasy and other campaigners, in the manner, according to Dan Hodges, of “three schoolgirls who have just won a Blue Peter competition to design a new bank note”, he was putting the finishing touches to an intervention of more than symbolic consequence.
That this heralded the age of the perpetual never-never – otherwise known as forward guidance or cheap money till the other side of the election – is also predictable. It has not come from the ether. It is what Carney did in Canada. Like all the most profitable, international consultants, he’s selling the same recommendations to a new client. As a variation on the framework adopted by the Federal Reserve at the end of last year, it is also of a piece with an emerging monetary consensus.
All of which sounds very elite and removed from the shop floor. Yet what could be more shop floor than worrying about how many people are on it? The rate of employment, in other words. By targeting the unemployment rate, Carney has created something akin to “the bank for the workers”, which I argued for at a Pragmatic Radicalism event at the start of this year.
All I was really doing at this event was cribbing the Fed’s idea. But, for some reason, there was something about targeting the unemployment rate that seemed apt for our party. The clue is in the name, as someone once said.
If the Fed is targeting the unemployment rate, wouldn’t you think both that this might be something the Labour party can call for and an idea whose time has come?
Sure enough, as predictably as the comparisons between the appearance of Carney and the cast of Mad Men, that time came to Threadneedle Street yesterday. If Labour had argued for unemployment targeting when I was arguing for it in the pub with the other pragmatic radicals and kept arguing for it until we were bored daft of doing so, then yesterday’s announcement would have been seen by pub drinkers and other everymen and women as Carney heeding the wise words of Labour.
Political success can require a sense of where things are going and a willingness to repeatedly say that they are going there. With this combination, politicians can seem in charge of events. Without it, at the mercy of them.
As Labour stayed silent, Osborne was installing his man in the Bank. While it seems churlish to the point of being self-defeating for a Labour party to quibble too much about unemployment targeting, this is only one feature of a strategy that effectively locks-in Osborne’s preferred approach till beyond the election. His fiscal tightening will combine with Carney’s loose monetary stand.
This might be the inverse of what Keynes advised in depressed conditions but the politics fit much more neatly for Osborne. He can keep cutting, serving the “tough medicine” that he’ll say will never come from Labour. Safe in the knowledge that his mate at the Bank is seeding a recovery based on cheap money.
Both the fiscal and the monetary dimensions of this are challenging for Labour. We’ve so exited the monetary debate as to make unemployment targeting seem the magic dust of a latter day Don Draper and not the recommendation of a party founded on the dignity of work. While our attempt to crack the fiscal nut with our “too far too fast” mantra is more easily portrayed as reckless vandalism by Osborne as the green shoots gradually spring up around him.
As Carney’s cheap money also potentially threatens another bubble – not least in property – another plank of the case in favour of fiscal activism is removed. It was, though, always likely that Carney would do this. Yet Labour has said little on monetary policy. It was also always likely that green shoots would reappear sooner or later. We have, however, a fiscal argument that seems best calibrated for bad times.
I’m not asking Labour to see round corners. Only to see what is starring us in the face. And, yes, that’s privatising the banks before the election that I see as well.
Labour must break out of the long tired, economic debate, which Lord Glasman characterises as . It leaves no one in a particularly healthy place, least of all Labour. We need, instead, to think more imaginatively and act more boldly, not least about the big calls most likely to come. What to do with the public shares in the banks is a debate that Labour hasn’t really had and yet it now really needs to be ahead of.
My forward guidance is that Labour either gets ahead of events or is eaten up by them.
Jonathan Todd is Labour Uncut’s economic columnist
Tags: Bank of England, Ed Balls, Federal Reserve, Jonathan Todd, Mark Carney, monetary policy
What worked in Canada, or Sweden, won’t necessarily work in in GB. Its a completely different ballgame; different dynamics different attitude and different work ethic.
Carney, and Gove, will find out the hard way, at the expense of our children’s future.
Good article Jonathan; i too think it’s a shame that the Labour Party have not been more vocal on both monetary policy and the need to link monetary policy with the unemployment rate.
I would like to see the Labour Party generally offering positive solutions rather than just moaning about the regressive actions of the Conservative led coalition. I agree with the closing line – “My forward guidance is that Labour either gets ahead of events or is eaten up by them.” If I were being pessimistic I might suggest that the PLP is at risk of becoming irrelevant. We need pragmatic, radical policies predicated on building economic growth that benefits everybody and not just the those at the top of the tree. Putting a human face on increasing marketisation does not do this.
To be honest, I don’t like Carney. I don’t like the fact that he screwed double money out of Osborne, who was desperate for someone to wave a magic wand at the time.
As for “forward guidance”, it’s bullshit. If inflation comes into this economy rates will go up pretty quick. Look at all the clauses and subclauses in this forward guidance. It’s bullshit. Once wages start rising, so will interest rates and everyone knows it.