Clio the cat, ? July 1997 - 1 May 2016
When markets took against Liz Truss’s ‘fiscal event’ in the autumn of 2022, both her Chancellor, Kwasi Kwarteng, and the Governor of the Bank of England, Andrew Bailey, were at the IMF’s annual conference in Washington, DC. Kwarteng pulled out of the event early as yields on government bonds shot upwards into crisis territory. The Truss government had announced large tax cuts in an already inflationary environment. The great and good of enlightened global capitalism – from IMF chief Kristalina Georgieva to US Treasury Secretary Janet Yellen – made their displeasure with the Truss ‘mini-budget’ clear. In response to the financial market turmoil, Bailey had already announced the Bank would temporarily start buying government bonds, with the idea that this would raise their price and force down yields. Those same yields were undermining the pension system, which was ailing due to an apparently innocuous hedge against low returns on their holdings of government bonds. The problem was that now, yields on government debt had spiked and the pension funds were being forced to sell off assets – particularly government bonds – in order to meet margin calls by the asset managers who oversee these normally mundane hedges. The Bank had no choice but to bring down government bond yields in order to save the pension system. But, unlike previous rounds of bond buying to support the economy as a whole, this one came with a strict two-week lifespan. The Bank’s decision to end its bond buying scheme led to accusations that they had created a cliff edge which effectively forced Truss out of office.
It is clear, then, that inflation is a distributional struggle, which central bankers – themselves bearers of particular transnational class relations – must attempt to manage.
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We can only speculate as to whether the bond buying programme was expressly designed to force Truss into a climbdown. Bailey has argued that the Bank had to put an expiration date on the scheme in order to save its own credibility. Few would believe in the Bank’s ability to impose discipline on the markets in future if it continued to lower bond yields indefinitely. Following the Truss debacle, the Bank’s interest rate rises only accelerated. Amid a widespread crusade to restore the Britain’s – and the Bank’s – credibility, Kwarteng’s orthodox replacement Jeremy Hunt argued there was ‘no alternative’ to further interest rate rises. The Bank made restoring slack to the Britain’s ‘very tight’ labour market – essentially, increasing unemployment – central to this crusade. Economists like Isabella Weber and unions like Unite made it clear that attempts by some companies to maintain their profit margins in response to supply shocks had driven inflation, not workers’ wage rises. However, officials at the Bank claimed that the only way to restore ‘stability’ was to prevents workers from pursuing ‘unsustainable’ further wage rises. At the same time, rising interest rates contributed to the housing crisis by forcing up rents and mortgages. It is clear, then, that inflation is a distributional struggle, which central bankers – themselves bearers of particular transnational class relations – must attempt to manage. In seeking to resolve that struggle and restore its ‘credibility’, the Bank has resorted to a form of controlled detonation.
Following the financial crisis of 2007-8, central bankers like former Bank Governor Mark Carney called on his fellow elites to help build a more ‘inclusive capitalism’. This would imbue major decisions makers – financial investors, professional and academic economists, advisers and strategists, regulators and politicians – with a ‘sense of the systemic’ consequences of their actions. This was an attempt by a group of transnational intellectuals to re-build the ‘social capital’ of ailing ‘market economies’. They set their sights not only on making elites more ethical, but on restoring the faith of the mass public in capitalism and its leading institutions. These central bankers and their fellow intellectuals wanted to restore social stability. Now, they are imposing socially destructive interest rate rises – perhaps even in excess of what their mandates require – in order to curtail what they view as destabilising distributional conflicts. These rate rises may bring about a form of stability, but it will be -as the old financiers’ saying goes – the stability of the graveyard. Inclusive capitalism – including public investment, efforts to tackle climate change and a more functional international monetary order – will all just have to wait until inflation returns to target.
Today, politics is increasingly divided between two camps. ‘Stabilisers’ like central bankers want to pattern social behaviour in ways that encourage certain kinds of rationality and order. Self-styled ‘disrupters’ like Truss and the Brexiters want to ‘dis-embed’ markets and let the ‘natural’ justice of competition do its work. The left has been marginalised – often, no doubt, deliberately – in the midst of this discussion. Yet the stabilisers are poor defenders of stability. Their politics is rooted in a peculiar transnational class position. That class position has developed within a loosely integrated architecture of global governance. These are Gramsci’s ‘organic intellectuals’ of global capitalism.
Neither the principal owners of capital, nor fitting neatly into the middle or working classes, these organic intellectuals are responsible for rule-setting and norm-making across institutions. They are supposed to make the anarchic short termism of capital somehow ‘coherent’. Sometimes, they work within the state. At others, they work in regulatory institutions. At others still, they take that expertise into the private sector. At all times, they are a product of capital’s need for intellectual work that can help it navigate a complex and high-risk environment. Take former Bank Governor Mark Carney. Educated at Harvard and Oxford, Carney was a Goldman Sachs economist for over a decade. Migrating into the public sector in the 2000s, he became Governor at the Bank of Canada in 2008. George Osborne lured the ‘superstar’ central banker to Britain in 2013 to become Bank of England Governor (2013-2020). At the same time, he chaired the Financial Stability Board (FSB) (2011-2018), which was set up by the G7 to monitor the global financial system in the wake of the 2007-8 crash. After stepping down from the Bank, he became UN Special Envoy on Climate Change and Finance and a Vice-Chair at Brookfield Asset Management. Or take the membership of the Bank of England’s Monetary Policy Committee (which meets to set official interest rates). Across the CVs for all members (available at the Bank’s website), major multinationals, financial firms and business associations feature prominently (Goldman Sachs, the Confederation of British Industry (CBI), BP, Shell, NatWest, J.P.Morgan, Credit Suisse, and so on). In most cases, MPC members have predominantly been employed as chief or senior economist. International official institutions (the IMF, the World Bank) also feature prominently alongside experience at either the Bank or the Treasury. This is in numeric terms a small group, which nonetheless wields very large influence through the ways in which it organises ideas about how society should work and implements rules and standards for governing capitalist economies.
The stabilisers are poor defenders of stability. Their politics is rooted in a transnational class position. These are Gramsci’s ‘organic intellectuals’ of global capitalism.
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While this transnational intellectual strata has emerged as an increasingly autonomous political actor in recent years, its pursuit of an inclusive capitalism has remained subordinated to the right’s belief in the virtues of ‘sound money’ and the benefits that should fall due to ‘prudent savers’. From 2016 on, the Tory government, its backbenchers and the right-wing press began to harangue the Bank for the negative effects of loose monetary policy on savers. Those who had prudently set aside cash in the good times now stood to lose out as interest rates were cut to zero. Moreover, the Bank was seen as an ‘elitist’, unelected and technocratic institution. Carney was pilloried by the Daily Mail for his ‘jet-setting’ lifestyle, links to Goldman Sachs and apparent Remain sympathies. An alarming opposition between the ‘common sense’ right which supported ‘real’ people and meddling technocrats was created. Debtors were being coddled while savers – usually older voters who had paid off their housing debts – were being ignored by loose monetary policy. In Theresa May’s words, ‘those with mortgages have found their debts cheaper… those with savings have found themselves poorer.’ This has applied pressure on central banks to raise interest rates further and faster once inflation began to rise due to supply shocks in 2021. As has been widely noted, this had little to do with excessive money creation by the Bank and more to do with easily disrupted global supply chains. The left, then, needs to formulate a positive alternative narrative about monetary policy that can act as a counterweight.
Extinction Rebellion gather at the Bank of England. 3rd September 2021.
Photo credit: The Author
‘A Rat Became the Unit of Currency’
In Zbigniew Herbert’s 1982 poem Report from the Besieged City, the narrator acts as ‘chronicler’ – ‘I don’t know for whom’ – of events in the dying days of a long and hostile siege. Under the pressure of external assault, the city has seemingly collapsed into a state of exhausted absurdity. As the store houses empty, a rat is declared the unit of currency. The poet shoulders the heavy burden of seeing through the chaos to record only the facts of the situation:
I avoid any commentary I keep a tight hold on my emotions I write about the facts only they it seems are appreciated in foreign markets
This could be the motto of an independent central banker in the age of the breakdown of neoliberal order. The Bank of England has in recent years come to occupy this position of chronicler of the dysfunctions and absurdities of a monetary order that it perceives as similarly under siege. Its publications amount to an epic chronicle of interconnected risks – climate change, Covid-19, Brexit, deglobalisation and market fragmentation, productivity and wage stagnation, emerging market financial fragility – delivered in dispassionate technical prose. Herbert’s narrator wonders whether his words will be heard by ‘our/friends beyond the sea’, but concludes ‘those struck by misfortune are always alone.’ We can only imagine how Andrew Bailey felt among the elite in Washington as he reaffirmed his commitment to cutting the government’s lifeline, but he at least did seem to have allies overseas.
The Bank of England has in recent years come to occupy the position of chronicler of the absurdities of a monetary order that it perceives as under siege. Its publications amount to an epic chronicle of interconnected risks.
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Herbert’s line about a rat becoming the unit of currency also forms the epigraph of Don Delillo’s 2003 novel Cosmopolis. In the novel, the quote is used as a slogan by a riotous group of terrorists, whose only motivations appear to be to cause chaos and murder members of the global elite. At the time they attack the billionaire protagonist’s armoured car, they have already murdered the head of the IMF. The slogan – ‘A rat became the unit of currency’ – is graffitied on the sides of Wall Street buildings. Unsurprisingly, their actions tank the dollar and cause almost inestimable losses for the world’s rich. We are not quite in that world yet. But there is a peculiar analogy. Extinction Rebellion have targeted the Bank of England in recent years, gathering at its doors and hurling red paint at its walls. In the view of this rather more sedate crowd, the Bank of England was responsible for continued financing of global polluters. On the other side of the Bank of England’s massive walls and its layers of metal detectors and security gates, there is a strange calm. From the hushed atrium you can see into the central courtyard, where Governor Bailey is known to take calls in the summer months. The Bank makes its own honey from the bees that nest in the trees there.
There is a clear awareness among central bankers and other regulators and technocrats that capitalism today is suffering from popular legitimacy problems.
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Like the impassive billionaire in his armoured limousine in Delillo’s novel, the Bank seems to survey the chaos as if through a layer of virtually impenetrable armour. What these officials see outside is an increasingly destructive and turbulent world. Carney, for example, was fond of the following form of words: ‘Of course, markets only clear in textbooks. In reality, people are irrational, economies are imperfect, nature itself is unknowable.’ The same, or close to it, appears in speeches of 2015, 2018 and 2019, each one delivered to relatively ‘elite’ economic or financial audiences (the ‘Harvard Club of the UK’, the Economic Club of New York, and the ECB). Economists have long known that markets can be ‘irrationally exuberant’. But there is an interesting slippage in Carney’s telling: not only markets, but people are irrational. Looking out at the world from behind their reinforced windscreens, the people of Davos – private sector economists and CEOs, asset managers and their strategists, global regulators and their supervisory staff – might perhaps see this ‘irrational’ and ‘populist’ public as a risk in itself. Freed from the strictures of office, Carney, in his 2021 departure-lounge-manifesto Value(s): Building a Better World for All, discusses at length how crises of democracy, climate and health are the product of the irrational tendency to let the market dominate all aspects of social life. What he defines as participatory and transformational global leadership – building popular consent while mobilising private finance for the public good – can help to prevent these various crises from consuming the social order. What Carney wants to avoid is a world where a rat has become the unit of currency – that is, where what is valuable about the institutions of ‘market society’ is dissolved and chaos takes over from order.
Net Satisfaction with the Bank of England, 1999-2022 Source: Bank of England. Graph: Author’s Own.
There is a clear awareness among central bankers and other regulators and technocrats that capitalism today is suffering from popular legitimacy problems. The Bank is well aware of the loss of its own public standing, and of the leading institutions of contemporary capitalism more broadly, since the crash of 2007-08. Former Bank Chief Economist Andrew Haldane addressed the Occupy Movement in the wake of the global financial crisis. He claimed that the protestors were right to point out that rising inequality had gone hand-in-hand with rising levels of household debt. Haldane went on to launch communicative initiatives designed to stem this system-wide loss of legitimacy (what he called the ‘twin deficits’ of falling public trust in and understanding of the institutions of the market economy). The Bank now runs educational initiatives to increase public understanding of the economy, essentially attempting to re-format the public as good consumers and investors. Yet, despite Haldane’s efforts and his recent protestations, when inflation returned in 2021, central banks and the world’s enlightened regulatory elite imposed unprecedented, globally coordinated rate rises on their respective publics. As Adam Tooze lamented in the pages of the Financial Times, ‘How long is it since we were calling for a new social contract [and] supporting democracy against lopsided capitalism?’ Central banks are of course mandated to pursue low inflation. But rate rises take twelve to eighteen months to bleed through to the economy. Raising interest rates by five percentage points from rock-bottom lows in the space of less than a year suggests that concerns about inclusion and stability have been shunted aside. Conservative forces have long been mobilising pressure on the Bank – via the press and Treasury Committee hearings – to stop ‘printing money’ and reward ‘prudent savers’ with higher interest rates. A long-held suspicion that the Bank was propping up the government by purchasing public debt on secondary markets also fed the belief that there was an establishment stitch-up going on: regulators and technocrats around the world were colluding against the free market. These political arguments point to the sharp divides that exist between different social groups over the appropriate forms and functions of money.
The last working-class hero in England.
Kira the cat, ? ? 2010 - 3 August 2018
Jasper the Ruffian cat ? ? ? - 4 November 2021
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