Mervyn King Was (Eventually) the Right Man for the Job
When Alan Greenspan ended his 18 years as chairman of the Federal Reserve in 2006, I thought he'd timed his exit brilliantly. I'd no idea what was coming, but the growth he'd presided over seemed unlikely to continue, and his successor would get the blame for the slowdown. Compare with Mervyn King, who steps down today as governor of the Bank of England -- he took the top job in 2003 and stayed on after the crash for five years of grinding economic misery.
Memories being short, you might have thought Greenspan would get away scot-free whereas King's name would by now be mud. Not so. As of this writing, Greenspan -- at one time not just admired but revered -- has seen his reputation shredded. King was head of U.K. monetary policy before, during and after the disaster, yet retires to a peerage and polite applause. Tenacity and a platform for speaking down to your critics apparently count for a lot.
King's critics have plenty of material. They say he failed to act as a housing bubble inflated; that he was slow in responding to the recession (which began in the U.K. before the Lehman Brothers debacle triggered the global crisis); that he was too preoccupied with moral hazard to support the financial system adequately in the early stages of its meltdown; and that he supported fiscal austerity, which the government thought would restore confidence but which actually made things worse.
His leadership skills have come in for a bit of a beating too. Professor David Blanchflower, one-time member of the central bank's monetary-policy committee, wrote a startling denunciation of King's tyrannical tendencies. (Blanchflower, a former Bloomberg columnist, isn't noted for sweet talk, but still.)
Some of this criticism, though not all, is wisdom of hindsight; some is beside the point (so what if he's domineering?); and some would have been impossible to act on at the time. It's self-serving of him to say so, but King is right that "on all sides there was a failure of imagination" -- the crash was a failure of the policy system as a whole, not of one or two individuals.
Take the refusal to suppress the credit-driven house-price bubble before 2007. The National Institute for Economic and Social Research, among others, had drawn attention to the problem. But if the Bank of England had raised interest rates, growth would have slowed and inflation would have fallen below target. Try explaining that. Policy makers needed a way to restrain leverage while leaving interest rates free to target inflation. Back then, they didn't have one. Now they do -- or at least say they do -- in an emerging framework of "macroprudential" regulation.
I think King is wrong about fiscal policy. Britain could have moved more slowly on debt-reduction, and should have done so. But he deserves credit for being the unflappable leader the situation demanded once the dimensions of the problem became visible. He was quick to push interest rates to zero and embark on large-scale quantitative easing. He's been a forthright critic of the banks and has made enemies in the City of London by pressing for regulatory reform of a kind it doesn't want -- stressing capital adequacy and control of leverage.
Above all, he pressed to maintain aggressive monetary stimulus even as inflation persistently overshot its 2 percent target. Niesr's most recent review discusses what would have happened if monetary policy had been tightened to hold inflation down: Growth would have been a percentage point lower in 2011 and 2012, and unemployment a percentage point higher in 2012 and 2013. As the institute's Jonathan Portes says, that's the difference between a Jean-Claude Trichet and a Mervyn King.
Of late, by the way, King's repeatedly been on the losing side in votes on the BoE's monetary-policy committee -- calling for additional quantitative easing, unable to carry a majority. That's some tyrant. Starting next week, his successor Mark Carney maybe needs to bang some heads together.
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Clive Crook at email@example.com