When he was recruited to the BoE Governor’s job in 2013, Mark Carney let it be known that he would not serve more than 5 years of the 8 year term. Lately, he has made it clear that he is more open to staying beyond 5 years. Much journalistic amusement has been had with the conjecture that this change in tone is related to the victory of Trudeau in the Canadian election, which would appear to rule out an opening in high political office for Mark Carney any time soon. Is there anything in all this of substance, except for gossip?
The 8 year term hoped for by the Government was a well-intentioned reform.
The old, shorter, 5-year terms had two disadvantages. First, there is the suspicion that a Governor would spend time in the first term currying favour with Treasury bosses so as to secure re-appointment. Politically awkward hikes in interest rates, or a curtailment of easy credit by means of new macro-prudential levers, for example, could be avoided to make sure of another 5-year term. Whether it worked like this or not, merely the expectation that it might was damaging.
Second, longer terms reduce the proportional amount of time that a Governor is viewed as either a wholly or partially lame duck.
Towards the end of each term, it would naturally be harder for a Governor soon to be leaving to drive through change, or begin any new initiatives. Those responsible for implementing it would know that there was a fair chance that the plans would be scrapped anyway under the new regime, or that they would not get their full reward for their implementation. All but the most saintly and driven of Governors might succumb to the temptation to lighten their workload by avoiding such managerial effort, knowing that it might all be in vain. So, longer terms cut down the amount of time, proportionately, that the middle management spends in this limbo.
Suggestions that Carney might serve out his single 8-year term are not just part of the entertaining central bank tittle-tattle. There is a serious point to it all, and, other things equal, it’s probably good news.