It’s time to change corporate law

A century or so ago, Ida Tarbell and the Progressive movement in America launched a crusade to reform the kind of ‘robber baron’ capitalism that had emerged out of late nineteenth century American industrialisation (Liam Halligan has written about the “crusading journalist” for UnHerd, and you can access his twenty-two minute film about her life below).

Team Tarbell was remarkably successful, partly thanks to ensuring more state intervention. Anti-trust legislation was created to break up the octopus-like monopolies and rules were introduced to protect consumer interests.

Often overlooked, but as important, were also the Progressive-era reforms that ensured that managers of big businesses were made more accountable – not to officialdom – but to those who actually owned the companies. Directors were given greater powers to oversee the CEO, making companies more than the private fiefdom of a ‘robber baron’ boss. In the UK, statutory audits were introduced in 1900. After 1907, public firms were required to file a balance sheet for the first time. From 1928, shareholders could insist on seeing a copy of audited accounts.

Alas, over the intervening century or so, a series of court cases have helped ensure that those running big firms have been able to evade the sort of scrutiny they ought to be subject to.

It is not a coincidence, for example, that six out of ten Fortune 500 firms in America are registered in Maryland – one of the smallest states in the Union. Why? Because corporate case law in Maryland has, since the 1930s, tended to interpret the rights and duties of board members and shareholders in ways that favour the board members – enabling them to act with less oversight.[1. For more on this see The New Few, Ferdinand Mount, Simon and Schuster, 2012]

A century of favourable court cases, coupled with the increasingly depersonalised nature of savings and investments, means we need a new round of reforms to ensure that once again the capitalists have more control over their capital.

“We pretend that the shareholders still possess powers that they effectively lost long ago”, wrote Ferdinand Mount recently, “and we imagine that the behaviour of the corporation is disciplined by an array of checks and balances that are often no more than decorative today”.[2. Ibid] Without change, shareholders cannot have meaningful control over the companies they supposedly own.

Here are some specific changes that a 21st century version of the Progressive movement could implement right away:

• Require the directors of investment trusts and pension funds to be made legally accountable, on a personal basis, for the proper exercise of their votes as shareholders.
• Redefine director responsibilities in law, so that they side unequivocally with the shareholder. The law should not be ambivalent about the fact that directors are there to represent shareholders to the board, not the board to the shareholders. Directors are, after all, supposed to be appointed, as proxies, by those that own the business to oversee it on their behalf.

Tilting back control towards those that own private capital is genuinely capitalist. To deliver this, corporate law should be amended such that:

• Existing board members are no longer able to decide who gets to join them on the board. A mini-industry has grown up to find suitable placemen and women to join the club. For all the talk about boardroom diversity, little has been done to ensure diversity of opinion amongst boardrooms that are, otherwise, full of group-think. Shareholders should have greater power to nominate new non-executive board members, if necessary irrespective of the views of existing board members. This will deliver the kind of unherding in boardroom thinking that this site exists to promote in business – and beyond.
• Shareholders have the power to veto executive pay packages. Successive governments have toyed with changes, but watered them down to meaninglessness (the UK government’s recent proposal for a register of high pay offenders is a classic example). Shareholder votes should be binding.
• Key decisions about executive pay are no longer farmed out to supposedly “independent advisors”. Again, a mini-industry of such advisors has sprung up to give supposedly impartial advice, but one which seems to have a vested interest in recommending what executives want to hear. Those that own the company should determine the pay of those who run it. At the same time, there is a good case to be made for excluding executive members from remuneration committees that determine… yes, executive pay.
• Executives are no longer able to deploy proxy votes at their discretion. The interests of those that own the business and those that run it are different. The latter cannot exercise votes on behalf of the former.

We need to change the way we regulate

When US progressives wanted to reign in ‘robber baron’ corporations, they looked to regulation to end restrictive practices. But, of course, over the intervening years, big business has learnt to use red tape to enable restrictive practices – as discussed in yesterday’s article, for example, with VW, diesel and the European automotive sector.

Ruth Davidson recognised this in her recent UnHerd essay on rebooting capitalism, noting how producer interests often have more muscle than consumer interests when shaping regulations.

What can we do to ensure that we get the sort of regulation we need – which prevents restrictive practices – but not the kind that tilts things in favour of the producer?

How can we have a regulatory system that is effective, yet prevents the big business interests, and their armies of lobbyists, from rigging the system?

Actually, there is a great opportunity to do precisely that.

Ruth and those that voted to Remain in the EU might be little slow to see it, but Britain’s decision to leave the European Union means that we can reboot the way we regulate.

Over the past half century, a system of regulation has grown up within western economies that is supposed to facilitate trade between nations by imposing a single set of uniform standards. Markets that are notionally free, like the European Single Market, have in fact become permission-based markets. Unless a business produces in compliance with specified rules, they are unable to produce and sell.

When Britain leaves the European Single Market, rather than replicate a model of rule-making from Brussels, we could try something different: regulation based on Mutual Standard Recognition.

British trade policy should be to accept EU or US standards for use in Britain – preferably, or though not necessarily, with the EU and US reciprocating. Rather than requiring businesses selling in the UK to conform with a uniform UK standard, producers would be free to produce and sell – provided they complied with EU, US or UK standards.

“But wouldn’t consumers suffer?”, some will ask. “Won’t there be risks?”

When you go on a family holiday to France or Florida, you drive in a hire car from the airport that has been approved by an EU and US regulator. When you eat out on holiday, the food will have been produced in accordance with rules laid down by an EU or US agency. Should you or your family fall ill, the medicine from a pharmacist or drug store has been approved by the European Medicines Agency or the US Food and Drug Administration.

Why should the UK government outlaw you from accessing any of those things when you return home?

“But there will be a race to the bottom!” some will shriek.

Allowing competition between different regulators will not mean an end of regulation but it might tackle excessive regulation – and encourage some regulatory agencies, such as the US’ FDA, which has been notoriously slow to approve new drug treatments, to focus on what is important to the patient.

And a little bit of competition between regulatory systems is just what we need to prevent narrow vested interests from getting control over the rule-making process and running it to stifle competitors. Under a system of Mutual Standard Recognition, the customer interest would come first.

“This sort of trade arrangement would have to be mutual, though” some will say. “And how do you know that even if this system worked, that the EU or US would agree to it?”

I don’t. New trade arrangements based on a system of Mutual Standard Recognition are certainly possible with the EU and the US, and even likely with Australia and others. But this is the beauty of this idea. Even if no other country was prepared to allow products to be sold in their jurisdictions that they had not specifically approved by their regulatory agencies, it would still be in Britain’s interest to go ahead and accept others’ standards unilaterally. Think of it as the UK’s Unilateral Recognition of Standards.

It would mean that big businesses based in the UK would be able to focus on what their customers wanted, rather than using political graft to grow. The power of producers to rig markets would be curtailed – making Britain a more attractive place for capital, and more genuinely free market.

Thirty years ago, Britain led the world with a privatisation programme that redefined what it meant to have a modern market economy. We need to lead the world again by redefining, and rescuing, free market capitalism.

Since the 2007 financial crisis, there’s been a growing sense among Western states that something’s wrong with free market capitalism. But it’s easier to identify what we don’t like about our economy than it is to offer real remedies. Those that talk about the need to reform capitalism are often a little hazy when it comes to the detail. Or else, if they do sound specific, it’s because they become highly prescriptive. So much so that their idea of a reboot can be boiled down to a free market that is less free.

So here’s what has and hasn’t happened. The increasingly “crony” nature of capitalism is not understood by many pundits, so debates about corporate reform have deteriorated into facile discussions of whether one is pro- or anti- business. Faced with public disquiet about executive pay, politicians have handed down elaborate compliance rules while doing nothing to enable those that own the firms to exercise control over those that run them. In response to a shortage of long term capital, the government has created a British Business Bank to dish out state-backed loans, preferring to allocate resources by top down dictat.

Increasingly aware of the serious housing shortage in the UK, the government has also created a system of state-subsidised mortgages, George Osborne’s Help-to-Buy scheme (to be expanded under Theresa May – to Liam Halligan’s dismay). This has been great news for those allocated subsidised mortgages, but it has not of itself built a single additional house. Instead it has pushed up the price of houses yet further, while establishing a system of mortgage-rationing.

One layer of corporatist interference has been laid upon another. And, eventually, the weight of it all will fossilise rather than free the market system. What we need, instead, is to liberate capitalism. But before outlining how we do that, it’s worth revisiting the history of how free market capitalism came to be.

Historic perspective

For most of recorded human history, economic resources have been allocated by force – or at least some sort of top down direction – and people remained poor. In various river valleys around the world – the Nile, Euphrates, Ganges or the Yangtze – there existed hierarchical societies in which a tiny elite presided over a mass of toiling peasants.

Until remarkably recently, self-organising economic systems – and the intensive economic growth they bring – were rare. Where they did exist, they tended to emerge on the margins, beyond the reach of emperors and warlords. In the Middle Ages, Venice flourished on an inaccessible mud bank off the north-east coast of Italy. In the sixteenth century, the Dutch began to prosper in another backwater on the other side of Europe.

Which is not to say that self-organising economic systems emerged from a state of anarchy. In a capitalist system, capital by definition resides in private hands. And in private hands, capital needs to be able to mobilise labour and other resources to produce wealth that generates a return. Yet in order to do that, there needs to exist an underlying legal order that enables the capital, labour and risk to come together – and to be effectively managed.

The Venetians didn’t become “frankly and efficiently capitalistic”[3. Frederic Lane, Venice, A Maritime Republic, Johns Hopkins University Press, 1973] simply because they were beyond the reach of the Holy Roman Emperor. They had also developed the commenda contract system (the idea having been borrowed, some say, from the Islamic world on the other side of the Mediterranean[4. For more on how the Venetians borrowed ideas from the Islamic world see: Benedikt Koehler, Early Islam and the Birth of Capitalism, 2014]). The Dutch prospered not just because they had kicked out the Habsburgs, but because they devised an early version of the Joint Stock Company, enabling them to emerge as traders, processors and middle men.

Something similar emerged in England, initially with charter companies and then Joint Stock Companies after the 1844 Act made incorporation easier. Limited liability, a privilege, was extended to investors, encouraging investment, defining risks – and placing obligations on those granted such privileges.

Commenda contracts. Charter companies. Joint stock companies. Each was, in its own way, an attempt to address the same question: How do you ensure that those who own an enterprise or business by investing in it, control those that run it day-to-day?

Venetian investors who put up the capital for a voyage wanted assurances that the person captaining the expedition would not diddle them. So, the commenda system set out how profits would be shared, and what cargo the captain might carry on his own account. It even created a form of limited liabilities for ship losses, too.

The charter that established the Dutch Vereenigde Oost-Indische Compagnie did something similar.[5. In the early seventeenth century, shareholders in the VOC constantly complained that they were not getting the full proceeds of profit from trade with the East Indies. One notable shareholder revolt in 1622 was rather reminiscent of some of the shareholder revolts we have seen in the City more recently.] When the English followed suit, creating their own East India Company, there was a similar balance between the interests of those that operated on behalf of the company, and those who had invested in it.

The question of how investors can control those that run their businesses is is as old as capitalism itself. It is not, therefore, anti-capitalist for us to ask the question anew today and explore the possibility of a better answer. It is, in fact, essential if our self-organising economic system is to survive.

Crony capitalism today

Capitalism today is in a mess because capitalists are no longer properly in control of their capital.

Many City boardrooms have become self-serving cliques, the directors no longer acting in shareholder interest. They are stuffed full of group-thinkers and able to select their own membership, ensure a herd-like mentality.

The corporate bureaucrats that the directors are supposed to oversee are often of mediocre ability[6. See for example: ‘How poor management is driving your staff away’, Chartered Management Institute, 1 February 2016] – yet are rewarded for taking risks with other people’s capital.

Soaring CEO pay is not a measure of the free market at work; it’s an indication that the system has been corrupted. Those that run firms are not properly overseen by those that own them.

FTSE 100 executive pay has increased far faster than the returns that investors in those businesses have made on their capital.[8. Weijia Li and Steven Young, An analysis of CEO pay arrangements and value creation for FTSE-350 companies, CFA Society United Kingdom, 2 December 2006] The system is hardly favourable to those that own capital – the capitalists. That’s because it’s not really a capitalist system at all, but a form of crony corporatism.

Investments in publicly listed firms are made through a convoluted chain of ownership that goes from investor, through pension pots, Individual Savings Accounts or mutual funds, via fund managers. Fund managers have little incentive to exercise real ownership responsibilities, acting instead as rentier investors. They claim a share of the dividends, yet assume too little oversight over the corporate bureaucrats in the boardroom, who are free to help themselves to an ever-larger share of the firms’ balance sheet.

It’s not only that capitalists don’t properly control their capital. The businesses in which they invest are often able to avoid free market competitive pressures.

Growth through graft, not competition

In a properly free market, business success should depend on providing happy customers with a product they want at a price they are willing to pay. Under our system of crony corporatism, business success often depends on graft: rigging regulations to oblige customers to take what they are offered at a price that suits the producer.

Across many sectors of the economy – from housing, energy and transport to the credit markets – regulatory compliance is almost more essential for a business’ bottom line than customer satisfaction. Wherever one looks, there are cases of producer regulatory capture and businesses lobbying to change the rules to give them an advantage over others. Here’s a standout example: In the early 1990s, the Germany car industry realised that it had an advantage over its US and Japanese rivals in terms of proprietary diesel engine technology. The only problem was that the market in automotive diesel engines was almost dead. They had an advantage in making something that few people wanted.

Their response?

They set about lobbying EU policy makers to make people buy diesel cars – and as UnHerd’s Harriet Maltby has set out, they had the power over German politicians to get what they wanted.

A whole host of pro-diesel policies were drawn up by the European Commission, often on the basis that diesel engines would help in the fight against climate change, since they emitted marginally less CO2 than ordinary petrol engines.

The system of subsidies and sweetheart deals put in place at the behest of the EC worked. EU consumers switched to diesel, buying more German cars in the process. In 1995, about one in ten cars sold in the UK was diesel. By 2012, over half were.[9. Daniel Hannan, Why Vote Leave, March 2016] But there was one slight problem: diesel is dirty fuel, emitting Nitrogen Dioxide (NO2) and particulates – tiny, toxic molecules that penetrate our lungs, bodies and brains. The move to diesel might have meant some reduction in CO2 emissions but, overall, diesel was far worse for the environment. So how did the German car industry get around this inconvenient truth? Having rigged the rules to make people buy diesel, they also rigged the emissions tests.[10. For a more detailed description of the diesel scandal, see Daniel Hannan, Why Vote Leave.]

Crony corporatism didn’t only harm air quality in European cities and the health of millions of Europeans. It hurt European consumers, who paid for products when they would have been better off buying cleaner alternatives.

And, ultimately, it hurt the industry. While regulatory capture allowed European car manufacturers to take a wrong turn, car makers in Japan and the US have led the way with electric and hybrid innovation. Is it any surprise that the really exciting breakthroughs in automotive technology are taking place outside the EU?

Crony corporatism is bad economics. If regulatory capture by producer interests helps explain the relative decline of the European car industry, it also incidentally helps account for the relative economic decline of Venice and Holland in an earlier age.[11. Textile industries in Venice were heavily regulated, for example, which helps explain why Venice lost market share in the eastern Mediterranean. For more details on the way in which producer regulation led to the economic decline in Venice and the Dutch republic see Douglas Carswell, Rebel: how to overturn the emerging oligarchy, March 2017]

Europe’s recent diesel saga might have hurt the EU automotive industry, but producer capture is a problem in Japan, America and elsewhere. However much regulatory capture might harm prospects for overall economic performance, it happens because it suits the interests of individual businesses and industries – which is why they employ armies of lobbyists in the so-called ‘swamps’ of Brussels and Washington to help write the rules to their advantage.

To revive capitalism, we need reforms to give capitalists more control over their capital (their investments). And we need to re-think the way we regulate to ensure that businesses have to compete for customers to grow – rather than, as now, persuade politicians to adopt forms of regulation that advantage them over competitors. I’ll set out my solution to this challenge tomorrow.

According to one recent survey, a waiter who squirrelled away a tenth of their salary would take over a century before they had accumulated enough to put down a deposit on an average first time property [1. Survey by HouseSimple, quoted in the Telegraph 10th June 2017] .  Without any help from mum and dad, the average cook would have to save for 94 years.  A receptionist, 85 years.

Surveys such as this highlight the way in which home ownership has become a distant dream for millions of people in Britain.  It also tells us something about the real nature of economic inequality in many Western countries today.

Economic inequality

Mention economic inequality, and people usually think in terms of income inequality; the difference in pay between, say bankers on one hand, and waiters, cooks, receptionists and other workers on the other.

But that kind of income inequality in Britain is actually at a thirty-year low.  The Gini coefficient – statisticians’ wonky way of measuring income inequality – shows that income inequality is falling in Britain [2. Office of National Statistics data, July 2017].  In fact, in many Western states the big increases in income inequality happened a generation ago – and income inequality has since slowed or even, as in the case in the UK, gone into reverse [3. For example, in Australia and other Western states income inequality is also declining. See John Slater from The Spectator; “Up the pointy end“]  .

The problem in most Western states is not inequality of income – the gap between what waiters earn relative to bankers.  Rather it’s the gap between what millions of other ordinary workers – such as waiters, cooks or receptionists – earn, and the soaring value of assets, whether those assets are houses or hedge funds [4. Office of National Statistics, Statistical Bulletin, Housing affordability in England and Wales: 1997 to 2016].

You don’t have to listen to a discussion about economic inequality for very long before someone mentions globalisation. But economic distress in the West is caused less by the new-found productivity of Chinese or Mexican workers. Cheap consumer imports have lowered the cost of living for Western workers [5. See HumanProgress.org for more detail, for example on the declining cost of groceries].  Asset prices have not increased compared to ordinary incomes because of globalisation, or foreigners – but thanks to our own central bankers.

The easy-money orthodoxy

For at least the past twenty-five years, central bankers in Britain, America, Japan and much of Europe have kept interest rates low and credit cheap.  The effect of this has been to raise asset prices, with everything from houses to hedge funds rising in price relative to labour.

Its difficult to say when precisely this easy money orthodoxy took hold amongst Western policymakers.  In Britain, it was sometime after September 1992, when we crashed out of the EU’s Exchange Rate Mechanism. While the UK had been members, policymakers had been prepared to raise interest rates to eye-watering levels in an attempt to ensure that Sterling closely shadowed the German Deutschemark at a particular rate.

The low interest rate orthodoxy has dominated for almost all of the period since 1997 – when the Bank of England was made independent by then Chancellor Gordon Brown. This is hugely ironic given that central bankers were granted autonomy because it was feared politicians would use it to offer easy money as an inducement to the electorate to borrow and spend. Independent central bankers, as you can see from the graph below, have presided over a far looser monetary policy than the politicians ever managed.

Of course, this easy-money orthodoxy didn’t just take hold in Britain.  Other countries started it even earlier.  Japanese monetary authorities cut interest rates aggressively from the early 1990s, and have had near negative rates ever since.

The US Federal Reserve has had a policy of cutting or holding down interest rates in the face of almost any perceived threat to output;

• the 1987 stock market panic known as Black Monday;
• the Mexican crisis of 1994;
• the collapse of Long Term Capital Management in 1998;
• the Asian and Russian financial crises of the late 1990s;
• the dot com bubble;
• the September 11th terror attacks…

After the 2007 financial crisis, when the threat of falling output was all too real, rates were cut (to effectively zero) in many Western states.  Unable to ensure more easy-money by lowering the price of credit, central banks began to buy up gilts, Quantitative Easing (QE), giving banks room to lend [6. Quantitative Easing means central banks and corporate banks do a swap; rental banks give corporate banks new money in return for financial assets. Corporate banks give central banks financial assets in return for that new money – which means they have more of it to lend out. Exchanging billions of pounds of bank assets for this new money has increased the ability of banks by billions to lend – as well has pushing up the price of those assets giving banks room to lend] .

Far from causing Western policy makers to seriously question their easy-money orthodoxy, that has prevailed over the decade since the financial crisis, they have doubled down on it.  Why?

The economic consequences of central bankers

In the 1960s and 70s, Western economic policy makers believe that they could and should steer economic growth – and avoid nasty downturns – by spending more.  The current crop of policy makers believe that they can use monetary stimulus in much the same way. Easy money raises output, they say.  And for the past two decades, central bankers have been lauded as the omnipotent gurus, able to conjure credit and growth from no where.

Of course, those old fashioned Keynesians from yesteryear, we now know, never proved quite as good at cutting spending during an upturn as they were at increasing it in a downturn.  So, too, today those who advocate monetary stimulus have proved good at hosing the economy with cheap credit.  They have been less good at finding the right time to raise interest rates and unwind QE.

The kind of critical questions that ought to have been asked have seldom been considered by politicians and financial journalists.  Yet it is becoming increasingly clear that there are downsides to easymoney economics.

The haves have got richer for simply having [7. In many parts of London, for example, someone who bought an average house in 1997 would have earned more for simply owning the deeds of that house than they would have done if they had earned the average income over the intervening years].  With the cost of borrowing so low, there has been an incentive to take out loans and invest the money in assets – the value of which would rise faster than the interest on the loan.  This has been the basic business model from big time hedge funds to buy-to-let investors.

More credit means more debt.  UK household debt is higher now in relation to income than at almost any point since the Second World War [8. See speech by Bank of England’s Alex Brazier, “Debt strikes back or return of the regulator?”. July 24th 2017 and Bank of England’s website for more detail].  Recent Bank of England figures show 140,000 people taken out home loans of more than 4.5 times their income over past year – a sharp rise on previous year [9. Bank of England report.].

Easy money economics means less incentive to save.  Official data shows the savings ratio in the UK has fallen to 1.7% in early 2017 – the lowest rate since records began in the 1960s [10. The Daily Telegraph, 30 June 2017] .

Excess credit encourages excess consumption. It’s perhaps not a coincidence that Western states with the most relaxed monetary policy, such as Britain and America, have had the biggest trade deficits, importing more than they export.

With the price of credit set low, it has been harder for businesses and entrepreneurs to assess risk.  Too many things look like a good bet and as a consequence a lot of bad investment decisions have been made – which will become evident when rates rise.

According to some estimates, 9% of non-financial firms in Europe are so-called zombie firms [11. CNBC report, 25 July 2017: “The plethora of monetary support in Europe over the last 5 years has allowed companies with weak profitability to continue to refinance their debt and stave off defaults”]  – able to service the debt at low interest rates, but unable to pay it back.  As the OECD has pointed out, these zombie firms – kept alive by low interest rates – help explain poor productivity performance and slow growth not just in Britain, but in America and much of Europe too [12. OECD paper, The Walking Dead? Zombie firms and productivity performance in OECD countries].

Easy money economics is also starting to produce political consequences. With little prospect of getting on to the property ladder, millions of young voters in Britain – including no doubt plenty of waiters, cooks and other ordinary workers – are drawn to the radicalism of Jeremy Corbyn’s Labour party. Corbyn’s economic platform, often dismissed as simply old fashioned socialism, can also be seen as an effort to address some of the imbalances and injustices caused by our central bankers.  Instead of QE, for example, the Corbynistas want People’s QE – a kind of massive fiscal and monetary stimulus rolled into one.  Their answer to rising house prices is to toy with the idea of rent controls.

These left-wing interventions might only deal with some of the symptoms of monetary mismanagement.  But unless we want them to become public policy, we need to find an alternative.

THE ALTERNATIVES?

1.Higher interest rates

The price of credit is going to have to go up, whether policymakers choose to put interest rates up or not. Why? Because prices cannot be fixed forever – and artificially low interest rates are a form of price fixing.  There will come a time – sooner or later – when Western governments discover the they need to raise interest rates in order to borrow.

Of course, even a modest increase in interest rates would mean tens of thousands of households going bankrupt in Britain, as the UK Insolvency Service has pointed out.  Firms across Europe and the US would cut payrolls.  Unemployment would rise.  The pain and disruption will be enormous. But we are going to enter a world of least worst options, and easy-money is not going to be sustainable forever. And it won’t be all bad news…

A rise in rates would mean a fall in house prices.  Middle England and America might howl but housing would become more affordable for millions, not least workers of modest means.

The massive transfer of wealth to those with houses or hedge funds or any other kind of asset from those without, would end.  It might even go into reverse.  Good.

Thousands of zombie firms would be killed off.  The bout of creative destruction [13. The term “creative destruction” was coined by the economist, Joseph Schumpeter. It refers to the way in which innovation and change within capitalist systems involves finding new ways to organise finite resources. That creative process necessarily means disrupting some of the older established ways of ordering resources – which is destructive. In this context, the resources currently tied up with zombie firms, unable to expand and innovate, would be reallocated to new firms that were not so mired in debt, and could not only serve their current customer base, but expand and innovate.] that would follow a rate rise would see lots of immediate destruction – but the creative bit would eventually follow and productivity would finally rise.

2. Accountability for central bankers

It is rare that a central banker ever seems to get the sack [14. Charlotte Hogg, Chief Operating Officer at the Bank of England was forced out in March 2017. Why? She apparently failed to declare that she had a brother working at a big corporate bank. Failure to comply with such bureaucratic requirements is seen to be seen as a resigning offence. Setting interest rates recklessly low, or allowing the reckless accumulation of debt in the wider economy does not.]. This is not because they never make mistakes (see the financial crisis of 2007 for details).  It’s because central banker independence has come to mean an almost complete lack of accountability.

Congress and Parliament need to assert oversight over those that make key economic decisions which affect us all.  Somehow the European Central Bank needs to be made answerable for how it runs the Euro, too.

If central bankers were properly answerable, politicians, financial journalists and commentators might at last begin to ask the kind of questions about monetary policy that are long due.  The fact that they have failed to do so is not a case of conspiracy (these aren’t the kind of people competent enough for that), but complacency and group think.  When it comes to reporting on financial matters, the mainstream media too often resorts to cliché (see the BBC coverage of the financial crisis over the past decade for details).

3. Government debt – turning off the taps

If the mainstream media was up to the task of informing and educating us, they would alight on the fact that easy money economics isn’t really about giving the people cheap mortgages and credit. It happens, fundamentally, because it suits big government.

Governments, you see, like to borrow and spend beyond what they take in tax.  Rather than just rely on this year’s tax revenue, governments issue bonds; IOUs in return for ready cash.  Easy money economics makes it easier to borrow this way. In order to normalise monetary policy, we must stop it serving big governments’ fiscal appetites.  As debt becomes more expensive, governments will have to accumulate less debt.

4. Radical bank reform

Government isn’t the only vested interest that favours easy money.  Big banks do rather well out of it, too.  (And, of course, with so many central bankers having a background in corporate banking, why wouldn’t they assume that easy-money economics is a Good Thing?  For their former – and possibly future – employers, it is).

For as long as corporate banks are able to conjure almost unlimited amounts of credit out of thin air, they will have a vested interest in easy-money economics. An end to this lax form of monetary policy will expose the way in which many big banks have been living off a form of state subsidy.  All the more reason to start raising rates and unwinding QE.