Is Mervyn King really the most disastrous Governor in the BOE's History?

Is this really the most disastrous Governor in the Bank of England's history?





By Jeremy WarnerEconomicsLast updated: December 14th, 2012

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Everyone is entitled to their opinion I suppose, but Tim Congdon's latest diatribe in Standpoint magazine against Sir Mervyn King as "the most disastrous governor in the Bank's history" is, even for Tim, a trifle over the top.

For starters, King certainly has quite a lot of competition. What about Montagu Norman, whose momentous and disastrous decisions, he once confessed, were guided entirely by instinct? Or how about Gordon Richardson, who seemed to see it as his duty to undermine the Government, or for that matter Lord Cunliffe, who by most accounts was a complete buffoon and whose only lasting contribution to the Bank of England was to stipulate a dress code for women after being pained by some of the costumes he encountered?

In any case, this is a somewhat curious article, because it's mainly about King's supposed conversion to monetarist economics, which as a leading monetarist himself, you would have thought Professor Congdon would approve of. True enough, King didn't start out that way, but you might have thought that in the spirit of the sinner who repents, Congdon would have been quite pleased about bagging another convert, particularly one as eminent as this.

Not a bit of it. King is condemned as pretty much a complete fool for not having realised the eternal truths of monetarism at a much earlier stage. This all seems to go back to the letter King helped pen in the early 1980s condemning the Thatcher government's economic policies, and by implication, the monetary targeting Thatcher advocated. Congdon, it hardly needs saying, was a keen supporter of these policies.

But his real gripe is that King knows nothing about banking, and in Congdon's view has greatly exacerbated the contraction in money with his constant calls for more capital and more write-offs. "It is almost beyond imagination", Congdon writes, "that someone in King’s position could, with a straight face, ask the banks both to write off a big chunk of their existing assets (so that they inevitably have less capital) and almost immediately to raise huge amounts of new equity capital (so that they have enough capital to expand their risk assets). But that is what King has been doing in the last few months!"

As Congdon argues, there is obviously a contradiction here, and I would certainly tend to agree that King's very vocal obsession with capital has not helped in calming the banking crisis. No investor is going to provide more capital if he's being constantly told that banks are still essentially insolvent and need much more of it.

Whether this justifies being labelled the most disastrous Governor ever is another matter. Still, only six months to go, and then there's a new man in the job. Poor Mark Carney. He's been so built up, both by the Government and the press, that he can only disappoint.


Tags: Gordon Richardson, Governor of the Bank of England, Lord Cunliffe, Mervyn King, monetarism, Montagu Norman, Thatcher, Tim Congdon