In a Hole?
THE world’s central bankers – who oversee the global monetary system – have just returned from their annual Druid’s conclave at the US ski resort of Jackson Hole, Wyoming. One ostentatiously absent face was Mark Carney, Governor of the Bank of England. Carney also gave Jackson Hole a miss last year. In 2017 he sent in his stead Ben Broadbent, the Deputy Governor in charge of UK monetary policy. Broadbent is usually tipped as the frontrunner to succeed Carney when (theoretically) his boss steps down next June.
However, the City press is currently awash with rumours that Chancellor Hammond is desperately courting Dr “I-am-the-smartest-guy-in-the-room” Carney to stay on post-Brexit. The tall Canadian from central casting is one of the few calming influences keeping UK banks from bolting for the Continent (or Dublin) to escape the looming Brexit car crash. Till now, Carney has been plotting a return to his native land in preparation (it is speculated) for a run at becoming Canadian Prime Minister. But with bonkers Donald Trump threatening a US-Canada trade war – despite America running a $12.5bn trade surplus with its northern neighbour – now might not be a good time to stick one’s head above the political parapet.
When I was an MP, I found myself one of the few politicians invited to the Bank of England’s annual Christmas party – a most discrete but very un-banker-like affair. I suspect, deep down, Dr Carney prefers the secretive world of high finance and influencing from behind the scenes, to the cruel limelight of the elected politician. After all, capitalist bankers really do run the planet.
The main gig at this year’s Jackson Hole was a speech by Jerome “Jay” Powell, Trump’s new head of the US central bank, the Federal Reserve. Powell is a razor-sharp Wall Street lawyer turned investment banker. Don’t be fooled by his urbane demeanour: Powell was formerly a partner at Carlyle Group, the giant US vulture fund that specialises in buying distressed debt and squeezing dry it for cash returns. In character, Powell’s keynote address was a brutally honest, if rather worrying. With a deadpan delivery, he told fellow central bankers that US monetary policy was the equivalent of “navigating by stars”. Helpfully he added: “guiding policy by stars in practice… has been quite challenging of late because our best assessments of the location of the stars have been changing significantly”. Good to know we are in such safe hands.
WAGES OF SIN
After Powell’s talk, the conclave got down to serious business: trying to explain why global wage rates are staying flat. This is a hot topic amongst bankers and mainstream economists – not to mention poor employees. Any rise in wages would herald inflation. Central bankers would then respond by raising interest rates, thus stopping the economy in its tracks. Such a rise in interest rates is the last thing Donald Trump wants, as he keeps telling Jay Powell. Yet despite near full employment in most industrial countries, wage rates are not responding as expected. This is a mystery.
The bourgeois economists attending Jackson Hole had a few ideas. Put simply, they think that the world has entered a new age of super monopoly, high tech firms like Apple, Google and Amazon. These are able to fix prices and wages free of pesky competition – because it is so difficult to create equivalent monster companies in the same markets. This has resulted in a dual labour market governing wage rates. Most of us work for small companies or are freelance, and so have limited power to raise our salaries. In the monopoly high tech sector, wages are higher and protected. Yet even here wage increases are limited because “superstar” companies routinely force employees to sign contracts banning them from leaving to join competitors for higher remuneration.
This is a bleak picture because it implies ordinary workers will remain stuck with flat wages, while super profits pile up in the monopoly high tech sector. In the West, trades unions are too weak to make a difference. This is also true in China, which is currently in the grip of a classic strike wave. As I wrote last week, one solution in an independent Scotland would be a return to legally-sanctioned, centralised wage bargaining. Under this system, the government would force employers and worker representatives to meet annually to determine wage increases, sector by sector. These wage contracts would have the force of law. Failure to agree would result in government mediators imposing a solution.
RETURN OF RISK
The other news this week is that Britain’s banks are responding to the weaker housing market by doing what they did before the last big Crash in 2008: lending recklessly. Welcome back loan-to-value mortgages of 90 per cent plus, and 35-year loans. Where is Mark Carney when you need him?