I just noticed that Mervyn King, former Bank of England Governor, has taken a place on the HoL Economic Affairs Committee, and is therefore due to take part hearing evidence in an enquiry on quantitative easing [QE].
This is a curious state of affairs.
Lord King was head of the Bank when QE was instigated in March 2009, and piloted the program, which involved not just monetary policy decisions by the MPC, but also important execution decisions in the markets area, with the set up of reverse auctions, and decisions about what assets to purchase.
An enquiry into QE is bound to either explicitly touch on, or have looming in the background, certain questions that involve issues about King’s own views and actions. For example: should QE have been embarked on at all? Did it give adequate consideration to distributional issues? Was it executed well and with proper regard to debt management, public finances, market efficiency? Did the Bank understand properly what it was doing, whether it would work, how? Did it communicate the policy well and in a way that helped its effectiveness?
Mervyn is perfectly capable of being impartial on these matters. And there are not so many as qualified to talk about them, given his experience.
But appearences matter. And it cannot help but appear that King’s sitting on the Committee during the enquiry compromises its credibility as willing and able to examine QE impartially.
There are many criticisms one could level at QE: that it was embarked on singularly and without putting appropriate effort into alternatives [like forward guidance for interest rates, or lowering interest rates further]; that it did not purchase more private sector assets, arguably more stimulative; that it was communicated badly, focusing on the element of the program that at the time was considered least important [money creation]; that the MPC itself was not given a proper chance to debate these alternatives; that no regard initially was given to the distributional implications of QE, even if, later, when prompted, the Bank did consider them; that it was unnecessarily opaque about its forward plan for QE; that it did not properly foresee the fact that regulatory change and the post financial crisis climate would mean that a considerable portion of QE would never be unwound…. and more.
All of these arguments – themselves contested, I am not stating these as uncontroversial conclusions – can reasonably be put to witnesses, but it would be highly peculiar for King to put them himself as they would constitute self-criticism.
The best role for the former BoE Governor would be as a witness, grilled by the other members of the Committee on his own views and conduct.
Very restrained. Obviously, it’s inappropriate. Letter to the Times (or FT), maybe?