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An uncomfortable truth: the Bank of England wants to create unemployment.

LAST week, the Bank of England’s Monetary Policy Committee (MPC) decided to increase the base interest rate to 5%. It seeks to control inflation with the only tool it has. Interest rates.

To put this in real-world actions: it attempts to control aggregate economic demand by increasing unemployment. For double clarity: its job is to make the most marginal in our society unemployed. How and why we were persuaded that this was not just the best way to control prices, but the only way, almost beggars belief. So let's get to know the members and the framework that guides them.

Ann Pettifor, Isabella Weber and fellow National columnist Richard Murphy have had significant coverage debunking the relationship between wages and inflation and interest rises and inflation. Please follow them on Twitter and subscribe to their updates!

In summary, wages are not causing inflation and raising interest rates won't reduce inflation. So with that covered, we decided to lift the lid on the inner workings of the Bank of England, as a typical central bank.


Collectively the MPC represents the views and beliefs of one section of the economics profession. They are all orthodox economists. On the board, there is one long-term appointee of the UK Government, the governor, four BoE staff and four members appointed on rotation by the UK Government. 

Governor Andrew Bailey is a lifelong employee of the central bank. He has not worked anywhere else. The other four BoE employees have had previous jobs as varied as chief European economist at Goldman Sachs and senior European economist at Goldman Sachs. A former global chief economist at Citibank also pulls up his seat at the most exclusive of tables.

Other previous positions include chief economic adviser to the Treasury, head of the government economic service and a former prime minister’s adviser on Europe and global issues. Members of the current MPC held these government positions during the harshest years of austerity. 

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Three of the four academics on this rotation either gained their PhD or are currently lecturers at the same university, the London School of Economics. Most of the members schooled in Britain went to Oxford or Cambridge. 

There is no better way to ensure groupthink than to ensure that all members are from a set of institutions that only supports the one-dimensional view of the economy. This is not by chance. It is by design. All central banks follow a particular framework. They consider no dissenting voices. 

A democratic deficit

By raising interest rates, it is clear that their decisions have a crushing impact on many individuals and households. These nine “masters of the universe” are unelected and not democratically accountable. In a supposed democracy, how did we get here? 

In 1997, Gordon Brown, as chancellor, granted the Bank of England its formal independence. The argument made by neoclassical economists (the extreme orthodox economists) was that control of the economy must be taken away from politicians in case they went rogue and enacted policies that people voted for.

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Financial stability could not be guaranteed if governments were able to control monetary as well as fiscal policy. "Financial stability" trumped democracy. This paragraph is worth reading again. As a society, by electing a Labour government, we actually voted for it, like turkeys at Christmas. 

An independent central bank?

Five of the nine members of the MPC are government appointees, and this demonstrates clearly that the BoE has less than full independence.

A University College of London analysis of government expenditure in the United Kingdom found that: “The UK Government’s power to spend independently of the central bank’s monetary policy position is much less constrained than is commonly thought.”

But this "independence" suits both parties. The bankers gets to stroke their ego, and the politicians get to abdicate responsibility. It is only the public that loses out. 

The policy framework

This article can only address a tiny part of that framework to support the charge that the BoE wants to increase unemployment.

This charge sits uncomfortably with most of us. We know that many unemployed people want to work, and many want to work more.

But under this framework, it is possible to have too many people employed. Or, to look at it another way, to have too few people unemployed.

The BoE is a typical central bank. This week ABC News in Australia “applauded” the Australian Reserve Bank for admitting it wants more unemployment. This statement might make you shudder. It makes me sick. 

The Computable General Equilibrium model used by governments and central banks considers that the economy works with a "natural rate of unemployment". This is an unobservable concept. It is theoretical fiction but with real-world impacts. If the economy is "running hot", this buffer stock of unemployed people must be increased.

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And when this happens, who feels the pain? The poorest in our society. Imagine being unemployed because of the central bank's policies and then dealing with a society that blames and forces you on to the thinnest social security nets. The model is truly breathtaking and almost unspeakably cruel. 

The CGE model follows this logic. As the "business cycle" always levels out in the long run, inflation must come from wages. Increasing the number of unemployed people will put pressure on wages, and workers will have less bargaining power to bid up wages.

Hence the idea of a "wage spiral" causing inflation. According to the model, the only input that causes inflation is wages. Therefore the policies can only attack the "cause". 

Please note that there is no "profit spiral", "shareholder buyback spiral", or "asset inflation spiral". It is as if those who designed the model had a political rather than an economic motive. 

Join us on June 28 at 2.30 pm to discuss this month's topics: Adam Smith, privately created money, the Economist's article on Scotland and today's topic of central banks.