I have long thought that Alan Greenspan would have made a passable Dalai Lama. Those gnomic utterances, that air of inner calm, that instant access to a deep well of understanding…. The faithful have come to accept that the chairman of the United States Federal Reserve Board is the embodiment of power and wisdom, and they are now preparing themselves for his next incarnation. Ben Bernanke, sometime winner of the South Carolina state spelling-bee, then professor of economics at Princeton and authority on the Great Depression, is told that he will soon be the most powerful man in the world, and is so wise and clever that all will be well. To look the part, that little jutting beard may have to go; long, white and wispy would be better…. In what, though, does his power reside? Why, he is the man who fixes the price of the world’s dominant currency. (It went up again this week.) To be precise, this is the Board’s job, but he may prefer to be in the majority. Even that overstates his authority. Prices are made in markets, and there are limits to his powers to tell markets what to do. James Grant, Wall Street’s level-eyed observer of interest rates, warns him: ‘If America’s creditors sense that inflation is robbing them of their wealth and the Bernanke Fed is too slow to act, they will sell their dollars.’ Holders of US government bonds have been selling them, and the rate of interest that they return has been rising sharply. James Carville, President Bill Clinton’s crafty adviser, once said that in the next life he would like to come back as the bond market: ‘You can tell everyone what to do.’ He did not ask to be reincarnated at the Fed.
G. William Who?
The truth is that Fed chairmen are mortal and fallible. Who now remembers G. William Miller? Even the sage now departing can be judged (by unbelievers) to have made his own mistakes. He looked on as the dotcom bubble expanded, he showed signs of taking it at its face value and, when it burst, he settled down to ward off the threat of deflation. At the time, Mr Bernanke was full of helpful suggestions. The Treasury could be asked to print more dollars, or the Fed could move in on the bond market, or drop money from the skies. Ideas like these go down better in the lecture room than in the marketplace, where he acquired the nickname ‘Helicopter Ben’. He might usefully study the events of a September day in London when the central bank, manipulated by a desperate Chancellor, raised interest rates from 10 to 12 per cent and then to 15 per cent in an attempt to shore up sterling. That bluff was called. Sterling collapsed and tumbled out of Europe’s exchange-rate mechanism. Ministers and central bankers may propose but markets dispose.
Activating the mafia
Simon Jenkins and I do not ask much from our old university. A couple of honorary doctorates would suit us nicely. It is just that, between us, we have solved Oxford’s problems. He rightly argues that it can never flourish at the end of a tightening string, pulled by the Treasury, and in The Spectator last week he urged it to cut the string. Oxford should assert its independence, charge the fees it could command, subsidise the needy, and appeal to its friends and admirers for help, just as Harvard does. What this brave proposal still lacks is the guile and cohesion of the Balliol mafia, and I would seek to introduce it. The scene is set in the Treasury, in the office of the Permanent Secretary, Nick Macpherson (Balliol 1978). To him, enter the Chancellor of Oxford University, Chris Patten (Balliol 1962). On the table are Oxford’s two annual cheques, £147 million for teaching and £171 million for research. ‘Not enough,’ says Lord Patten politely.
‘Quite so,’ says the Permanent Secretary, ‘but it has to come from somewhere. It would pay the interest on something like £6 billion of British government stock. Now I’ve been wondering whether Oxford would rather have the stock, once and for all? It would make no difference to us — the cost would be the same — but it would give you a decent endowment, which you’ve always said you wanted. No more annual haggling. The money would be yours to invest — active management has done wonders for Yale — but don’t come whingeing to us if you lose it.’ ‘Quite so,’ says the visiting Chancellor, ‘and if we could pass it off as matched funding, that might make some of our benefactors loosen up at last. We could even let them earmark some for deserving colleges…’. ‘Any particular college? Oh, by the way, any vacancies for heads of houses? The numbers don’t look too good, here at the Treasury, and I might want to move on.’ ‘Well, I like your endowment policy. Let’s float the idea somewhere. We can activate the mafia. Floreat Domus.’ ‘Floreat Domus.’
My railway correspondent, I.K. Gricer, sputters to the surface, grumbling that the Drain is blocked, as it so often is. The one-and-a-half-mile line that, when on form, links Waterloo to the City could scarcely be simpler for London Underground to operate — two tracks, two stations, one at each end — in principle, but not in practice. Now the plan is to close it for five months while Metronet, which provides the track and signals, puts new rails down. This is thought to be better than the original plan, which was to close it for 78 weekends. They might so easily overflow into Monday mornings. Such are the blessings of a public–private partnership, especially when the two partners are at daggers drawn. Only on the Isle of Wight are the track and trains in the same ownership. This old-fashioned idea could be brought back to the Drain by the Corporation of London, which is always grumbling about the City’s infrastructure, meaning railways. The Corporation was once invited to take the Drain over, and was short-sighted enough to refuse. It should ask to be asked again, and say Yes.
It is time for me to check on the price of martinis. This is one of the key indicators — house prices are another — that the US government’s statisticians have left out of the index of inflation. Of course, if Ben Bernanke were to spook his country’s creditors into selling dollars, the rate of exchange would fall and the recurrent mirage of a $2 martini would loom once more. Ben could have one on me. More research will be needed.