THE MPC boat has been well and truly rocked by the committee's independent members. Any of them who were not aware before this past weekend of the value of the central banker's dull, grey image should certainly have a new understanding of it now. Being boring is half the battle in establishing the credibility of monetary policy. For, given the inflation target, it is a technical problem best left to competent technocrats.
Of course, economists generally do well on the dullness front but rather badly when it comes to consensus. They are a famously argumentative lot. So it should perhaps not have come as a surprise that, now the interest rate-setting process has had time to settle, there has been a row over the allocation of the Bank's too-scarce resources for monetary analysis.
It is a row that is in one sense easy to resolve. The independent members should certainly be able to commission research without the say-so of the internal members, and if that means hiring some additional dedicated economists then the Court of the Bank of England should allocate them a budget for it. It would probably be impossible ever to completely offset the advantage of the home team, but then the four external members have actually played a big role in setting the terms of the MPC's debate so far, even with their less-than-adequate access to research resources.
The eruption of the dispute should also, at last, convince everybody how ludicrous it is to argue that the MPC should include representatives of industry, unions or the regions. If the four pointy-heads who are currently external members feel at such a disadvantage in the debate, how on earth would the pillar of the local Chamber of Commerce or chairman of a regional development agency fare if they disagreed with the collective wisdom of the Bank of England's 130 economists?
Unfortunately, fierce rows that spill over into the newspapers do not do a lot to bolster the impression of the MPC's quiet technical competence, and this is the harder part of the problem it now has to solve. The more so as that competence was also questioned in last week's quarterly report from the National Institute of Economic and Social Research. Andrew Blake and Garry Young used the Institute's model of the economy to look at how different growth and inflation would have been if interest rates had been constant at 6 per cent since May 1997 rather than climbing to 7.5 per cent in mid-1998 and falling to 5 per cent this past summer.
The answer is that there would have been almost no difference at all. But it is wrong to draw the apparently obvious conclusion that the MPC should therefore have been seriously inactive because the outcome would have been roughly the same - if anything fractionally higher growth with little extra inflation. …