The madness of printing money: the Bank of England is guilty of groupthink, says ALEX BRUMMER

You would have to travel back several decades to hear a senior UK economist quoting the modern father of monetarism, Milton Friedman.

That is precisely what the former head of the Bank of England, Lord Mervyn King, does in a podcast for Bloomberg.

As Lieutenant Governor and then Governor, King was largely responsible for setting up the structure of an independent Bank of England in 1997.

His is a voice to be reckoned with. King argues that the big mistake central banks made in the cost of living mess was thinking that “money has absolutely nothing to do with inflation.”

Central banks, he suggests, took a “left-wing view of inflation” that embraced the idea that rising prices were “transient” and would automatically revert to the 2 percent target over time.

This, he suggests, is ‘demonstrably false’. King says central banks cannot take responsibility for rising energy and food prices stemming from Russia’s invasion of Ukraine. However, they can be blamed for creating money in the pandemic.

The Bank of England printed some £450bn in 2020 and 2021 to support the economy during lockdown. King suggests that his former colleagues were guilty of groupthink.

This is certainly true in Threadneedle Street, where former Bank chief economist Andy Haldane was the only member of the monetary policy committee to vote against the final round of quantitative easing before leaving for new pastures.

It is unlikely that King’s intervention will be received with equanimity at the Bank. One school of economists argues that monetary policy is nothing more than astrology.

Perhaps, but interest rates are the tool that tamed the great inflation of the 1970s, on both sides of the Atlantic, and which the Bank is now deploying.

Among the difficulties Governor Andrew Bailey has faced is decoupling the mortgage market from interest rates.

The headlines have focused on the huge threat to income from rising mortgage rates. There will be consumers who will be harmed.

The interest rate weapon is less effective than expected, as only 28 percent of homeowners have mortgages.

Of those, only about 10 percent are affected by immediate rate changes. Even this group is not very vulnerable due to the hefty savings of the Covid era.

However, there is confidence that the interest rate medicine will eventually work and the overall cost of living will drop to 3.5 percent next year.

machine’s lament

Stuart Machin must be careful. Roger Holmes, the last chief executive of Marks and Spencer to propose demolishing its iconic Oxford Street, has been sacked.

The idea of ​​a modern glass and steel sustainable building instead of the current antiquated building is appealing.

Some of Britain’s most distinctive buildings, such as the Lloyd’s of London building designed by Richard Rogers, replaced historic structures.

So Machin’s outburst over Michael Gove’s decision to block the refurbishment of M&S’s Marble Arch store is understandable.

However, he is ignorant of Marble Arch’s place in his mythology. ‘El Arco’ was for many years the store with the highest income in the empire.

It is a destination for the already estranged regiments of private shareholders, foreign tourists, and direct descendants of the founding dynasty.

Machin is right to point out the devastation in Oxford Street since the collapse of Debenhams and the House of Fraser.

Cheap candy stores and gift shops are ugly interlopers. But Selfridges thrives nearby in a historic building and HMV is making a comeback.

The idea that British architect Norman Foster, who designed the glass dome on top of Germany’s Bundestag, could not have restored the original site without destroying its character is laughable. There is a veiled threat from M&S to close the store.

That would be corporate vandalism.

pizza index

No one can accuse Domino’s Pizza of speculating in India, where the franchisee operates 1,816 stores.

Instead of raising prices to meet costs, he kept them to a minimum by selling his basic pizza for 49 rupees, or about 47 pence.

That compares to around £9 in San Francisco and £9.99 in the UK. The old-fashioned way, perhaps, but by reducing prices and selling more works. As Tesco founder Jack Cohen put it: ‘Pick it high and sell it low.’