Hiring Mark Carney may just be George Osborne’s best move since becoming Chancellor. Britain badly needed a break from the failed economic consensus which still hangs around the Bank of England like a bad smell. In August, The Spectator implored the Chancellor to mount a global search. When Carney ruled himself out, I gave up hope and resigned myself to Paul Tucker, who would be likely to keep Britain on its current Faustian monetary path paved with freshly-minted banknotes.
Instead, Osborne has succeeded in hiring one of the best-qualified of all the Queen’s 137 million subjects — from a country that knows a thing or two about economic crises and how to handle them. Carney is not an academic like Sir Mervyn; he spent 13 years at Goldman Sachs and knows the banks and their tricks. He is anti-bailout and commands sufficient international respect to be made chairman of the G20’s Financial Stability Board.
Carney hails from a land of (comparative) fiscal sanity. The crash was global but there were no bust banks in Canada. Its troubles stand no comparison to those of the United States – and the secret was better regulation and a stronger commitment to sound money. There was no purblind regulation, no central bankers looking amazed at what the merchant bankers had been getting up to right under their noses.
Carney said recently that ‘The crisis has shaken the foundations of monetary economics, making this a great time to be an academic but a more challenging one to be a practitioner.’ You would not hear Sir Mervyn making the same statement. Nor would you hear him acknowledge the Austrian school of economics and its criticism that:
‘inflation targeting can actively feed the creation of financial vulnerabilities, especially in the presence of positive supply shocks. For example, in an environment of increased potential growth resulting from higher productivity, inflation-targeting central banks may be compelled to respond to the consequent “good” deflation by lowering interest rates.