King of threadneedle street: how Mervyn King reshaped the Bank of England

International Economy, The,  Fall, 2003  by Diane Coyle

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The new pre-eminence of economic research in the Bank of England hasn't been uncontroversial. It has affected traditional career structures, aiding those who are economists rather than generalists. Access to research resources has become so important that in 2000 there was an unseemly public row between King and some of the external members of the Monetary Policy Committee about the research budget available for the outsiders. (The external members won, thanks in part to their astute use of the press.) The Bank's forecasts have been criticized as systematically biased (although it seems picky to argue with an inflation outturn so very close to target year after year).

Above all, King is often criticized for an abrasive manner or arrogant style or described as a difficult, controlling boss. These all seem very out-of-character for a man who, outside the office, is calm and unpretentious with a dry sense of humour. They also seem inconsistent with his evident skill in steering through the shoals of politics and handling the media. So it's most likely that he shams with many brilliant people a certain impatience with others whose minds work more slowly--not an ideal characteristic in a manager but not the most serious flaw either. He's also always described as a workaholic, which is true in its way but misses the point that he loves the work. One newspaper profile described his only relaxation as watching Aston Villa matches--it was written by someone who didn't understand that doing economics (not to mention listening to a concert) can be just as relaxing as watching soccer.

The marriage of intellectual rigor and practical policy--for all this effort in the Bank supports the monthly interest rate vote of the Monetary Policy Committee--is a great achievement, a contribution to public service of the highest order King's driving motives for having spent twelve years building a resilient monetary framework for the United Kingdom are set out in a brilliant 1996 speech, "Monetary Stability: Rhyme or Reason?" It argues the case for low and stable inflation as the raison d'etre of central banks. That case is social as well as economic, and reflects his deep concern with the effects of uncertainty and instability on everyday lives. He concludes: "Few people enter politics to keep inflation low. Nor should we expect them to do so. Price stability should be part of our economic constitution, common to all parties, providing a degree of macroeconomic stability to enable governments to devote both time and energy to debate the great issues of the day."

All macroeconomists of the generation which came of age professionally in the 1970s place a high value on stability. King has spent more than a decade now helping put that lesson into practice, and persuading others of the need to change. And it has involved an impressive degree of change in the management of the British economy. The independent Bank of England, inflation targeting, and the Monetary Policy Committee represent a remarkable institutional achievement, a real break with the past.