Bias at the Bank?

First of all, let me declare my own view on Brexit, in case anyone thinks what follows represents my own bias (which it may do but I’ll be up front about it). I am voting to stay in the EU, but as much for political/emotional as economic reasons.

Having said that, I believe Carney was showing bias in his positive view of the EU at the Treasury Select Committee hearing yesterday. One reason was presented by Jacob Rees-Mogg, who questioned his statistical arguments as being speculative, and I think that is right, as even Carney admitted that many of the points arguing that the EU had helped boost capital inflows and growth were “arguable”.

But even if that is wrong and you can make a strong statistical argument for membership of the EU having boosted growth and investment in the past, there is no guarantee that that will be the case in the future. Past performance, as Mr Carney should know if he reads the small print to investment advice, is not necessarily a guide to the future. The EU now is different to the EU in the past. Whether being a member is positive for growth and investment will depend to some extent on the arrangements Britain makes with the EU but also on the EU itself and whether it can shake off its persistent economic malaise of recent years . I would agree with the “Remain” campaign that the benefits from leaving are currently pretty nebulous in terms of the things that we would no longer have to do to comply with EU law as it stands, but the terms in the future could change and “ever closer union” could mean an increasing EU straitjacket on the UK.

Now Mr Carney would no doubt argue that he was making no claims for the future but rather just producing the evidence available. Well, yes, but the choice to do so is in itself a decision. Bias is about the questions you ask as well as the answers you give. If you ask the right questions you know you will get the answers you want.

To be fair to Mr Carney, he did say that the decision on Brexit was not purely an economic one, though conveniently that statement justified him providing a pro-EU view with the economic analysis and still being able to claim he wasn’t taking a position on Brexit.

Carney also said that he had not discussed what he was going to say with David Cameron. But since it is part of the Bank’s remit to support the government’s economic policy and maintain financial stability a pro-EU view is almost prescribed. There is little doubt that Brexit would create uncertainties in the short term, even if the impact on markets is more unpredictable than most claim, and the short term could turn out to be quite short.

So in this case, I agree with Jacob Rees-Mogg. It would have been better for Carney to have been far more scrupulously neutral. Not that many voters probably care much what he thinks. After all, while the previous BoE governor Lord King has also said he is not expressing a view on Brexit, his recent comments have been very negative about the Eurozone and could be seen to favour the “Leave” camp, even though he makes it clear that Britain is inextricably linked to the EU regardless of the decision. And while Lord King isn’t everyone’s cup of tea, he will at least still be living here after the referendum, and is  deeply rooted in the UK and has also experienced the whole period of EU membership, the ERM debacle, the financial crisis, etc., and is not beholden to any government or political party. I would suggest his views consequently carry rather more natural weight.



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