Carney Lays Out Vision to Revive Benefits of Globalization

  • World faces first lost decade since 1860s, BOE Governor says
  • He defends low interest rates as a consquence of global forces

Mark Carney

Photographer: Chris Ratcliffe/Bloomberg

Mark Carney launched a defense of globalization and set out a manifesto for central bankers and governments to boost growth and make the world economy more equal.

The Bank of England Governor said they must acknowledge that gains from trade and technology haven’t been felt by all, improve the balance of monetary and fiscal policy, and move to a more inclusive model where “everyone has a stake in globalization.”

Carney’s speech in Liverpool, England, comes amid rising disquiet about the state of the world economy and political status quo that helped propel Donald Trump to victory in the U.S. presidential election and boost support for the U.K.’s exit from the European Union.

Trump isn’t right to favor more protectionist policies in response to globalization, Carney said in a television interview broadcast after his speech. The answer is to “redistribute some of the benefits of trade” and ensure that workers are able to acquire new skills.

“Weak income growth has focused growing attention on its distribution,” Carney said in the speech. “Inequalities which might have been tolerated during generalized prosperity are felt more acutely when economies stagnate.”

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Describing the world as facing the “first lost decade since the 1860s,” the BOE governor said public support for open markets is under threat and rejecting them would be a “tragedy, but is a possibility.”

Policy Defense

Carney also defended the central bank’s current policy stance. The BOE has faced criticism from politicians after officials took measures including cutting interest rates and expanding asset purchases in August to support the economy after Britain’s June vote to leave the EU.

“Low rates are not the caprice of central bankers, but rather the consequence of powerful global forces, including debt, demographics and distribution,” he said, adding that they helped to prevent a deeper economic downturn.

His comments weren’t all critical, and he voiced support for both U.K. Prime Minister Theresa May and Chancellor of the Exchequer Philip Hammond. He agreed with May’s assessment that companies have social responsibilities and praised Hammond’s first step to rebalance the economy in his Autumn Statement last month.

New Balance

Monetary policy in the U.K., Europe and U.S. has been “carrying a lot of the burden,” Carney said in answer to a question from the audience. In Britain, he sees the beginning of a new balance between fiscal and monetary policy that is “appropriately timed.”

“While fiscal prudence will continue, the degree of fiscal drag will be reduced somewhat,” Carney said, noting also plans for investment to boost productivity.

He rebuffed suggestions that low rates have hit savers disproportionately and that policy makers should act to keep inflation in line with their 2 percent target.

Carney said offsetting the impact of the pound’s drop on inflation would require an overly aggressive tightening that would hit the economy and boost unemployment.

Echoing the latest assessment of the BOE’s Monetary Policy Committee, he said officials will tolerate a period of above-target inflation, though there are limits to this. The MPC will also, as needed, tighten or loosen policy depending on the economic outlook.

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