As I provided a detailed analysis of the National Accounts release yesterday, today, I am writing less via the blog and am shifting the Wednesday music feature to Thursday. That makes sense. Today, I am bemoaning the creation of the Bank of Goldman Sachs, formerly known as the Bank of England. Groupthink seems to plague this institution. And then, to restore equanimity, we have a music tribute to Lee ‘Scratch’ Perry who died in Jamaica this week.
Bank of England Groupthink – redux
In this blog post – Bank of England Groupthink exposed (January 8, 2015) – I discussed the response by the Bank of England to a report from the UK Treasury Select Committee (House of Commons) demanding the Bank act in a more transparent manner.
The Select Committee Report (November 8, 2011) – Accountability of the Bank of England – noted that even with reforms to the committee structure within the decision-making bodies of the Bank:
Groupthink will inevitably remain a potential risk … [and] … The avoidance of groupthink is the responsibility of the Bank of England …
At the time, the Bank published the almost complete minutes of the meeting on January 7, 2015.
The press release – Bank of England Court Minutes June 2007 – May 2009 (January 7, 2015) – is still available.
However, quite amazingly, the Bank no longer provides this document in the usual place where the minutes are published.
But, if you do some detective work (I am reading the Maigret books at present in my spare time!), then they are still available in non-consolidated form here:
So something odd is going on there with respect to these documents. The juiciest ones return an error when the link provided is clicked and the Bank has removed the consolidated document from the original (and easily accessible) location.
What I learned from the Minutes at the time was that the former governor of the Bank, Mervyn King, did not fully inform the governing body of the bank of the impending collapse associated with the GFC, despite acknowledging that a liquidity crisis was approaching.
As the crisis approached during 2007 and 2008, the Court, which is like a board of directors, were obsessed with discussions about open days, which mates they could install on the Monetary Policy Committee, and senior executive salaries and pensions for senior staff.
Just after BNP Paribas revealed how exposed it was to the sub-prime market (the first real public disclosure that would then precipitate bank failures across the world), the Court was being assured that the system in place in Britain – the so-called ‘triple oversight’ model run by the Bank, the H.M. Treasury and the Financial Services Authority – was robust and ensured there would be no crisis.
A few days later, they reconvened after Northern Rock signalled failure and the need for a massive bailout, and the Court voted to bailout their pals.
The Minutes reveal that, even when specific questions were pursued by individual, non-executive directors of the Court, the executive members played a ‘straight bat’, deflecting the questions with a sort of unified resistance.
The Chair of the Commons Select Committee said that:
Even when questions were asked by individual non-executive directors, the executive usually presented a unified front to the Court, apparently rendering it of little or no use as a forum for creative discussion and constructive challenge
The Minutes revealed that the Bank of England has become trapped in a destructive and dysfunctional Groupthink.
In 1972, social psychologist Irving Janis identified group behaviour he termed ‘Groupthink’, which is a:
[Reference: Janis, I.L. (1982) Groupthink: Psychological Studies of Policy Decisions and Fiascoes, Second Edition, New York, Houghton Mifflin].
… mode of thinking people engage in when they are deeply involved in a cohesive in-group, when the members striving for unanimity override their motivation to realistically appraise alternative courses of action (Janis, 1982: 9).
It “requires each member to avoid raising controversial issues” (Janis, 1982: 12).
Groupthink drives a sort of ‘mob-rule’ that maintains discipline within the group or community of decision-makers.
These communities develop a dominant culture, which provides its members, with a sense of belonging and joint purpose but also renders them oblivious and hostile to new and superior ways of thinking.
the governance of the Bank of England clearly fell prey to the neo-liberal belief in the efficiency of private markets and the need for deregulation and freedom from oversight that emerged in the 1970s.
The surge in Monetarist thought within macroeconomics in the 1970s, first within the academy, then in policy making and central banking domains, quickly morphed into an insular Groupthink, which trapped policy makers in the thrall of the self-regulating, free market myth.
At the time, the Court was comprised of a number of people who the Bank itself eventually acknowledged “had standing conflicts of interest, and there was no provision for a non-executive chairman (to compensate for that”.
You will get a better impression of the breathtaking Groupthink on display at the senior levels of the Bank of England by reading my discussion in the blog post cited above.
One of the best ways an organisation can insulate itself from the tendency to get trapped in this sort of destructive group dynamic is to ensure there is diversity of background and opinion expressed at the decision-making levels.
The Bank of England continues to ignore that well-founded advice.
As informed readers will know, the Bank has appointed Huw Pill to replace Andy Haldane as its chief economist.
Why is that a problem?
For three reasons:
1. His previous work indicates that he is another vanilla New Keynesian/Monetarist type and all that flows from that.
2. He is another former Goldman Sachs employee (formerly Chief European Economist), who now occupies a senior position at the Bank – importing one ‘unified’ corporate culture into another institution.
3. He is a white, anglo saxon male from an Oxford University background (one of them).
The selection panel for the job had a former Goldman Sachs economist on it.
Former Bank of England Monetary Policy Committee member David Blanchflower wrote an Op Ed in the Financial Times (October 13, 2019) – Bank of England is a captive of groupthink – which was consistent with my earlier writings on the topic.
He wrote that:
When I sat on the MPC, I was the only person who had not been to Oxbridge and did not live in London or South East England. I was a lone voice when I argued early on that the data showed that a recession was spreading to the UK from the US. I am concerned that the current MPC is similarly homogeneous and the tyranny of the consensus continues to reign.
Former Governor Mark Carney came from Goldman.
The current Deputy Governor of the Bank, who will be the boss for Pill came from Goldman.
The British Chancellor worked for Goldman.
The British Chancellor’s former boss at Goldman is now head of the BBC.
The article in the Times (September 2, 2021) – Another Goldman veteran lands senior position at Bank of England – quoted a former Bank economist as saying:
The Goldman Sachs takeover is beginning to seem like more than a coincidence. You don’t want any institution to be so strongly bound up with the central bank. It starts to look unfortunate.
Another former Bank economist claimed, by way of deference to the decision, that Pill is “too opinionated and steeped in his own views” to be influenced by his Goldman background.
But that is why I listed three reasons for the problematic nature of the appointment.
We often read that a Report comes from an ‘independent’ think tank etc.
This just means independent of ‘government’ in some way.
But they never question the paradigmic diversity of a viewpoint.
A New Keynesian working at Oxford is no less independent than a New Keynesian working for some charity or for Goldman.
The paradigm unity is the problem when that is the only voice we hear.
Anyway, it doesn’t look like the Bank of England has learned much over the last 20 years – Groupthink persists.
To give you an idea of what we are working on at present, at – MMTed – here is a short update.
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3. We are rebuilding the MOOC that we ran in conjunction with the University of Newcastle through edX in March 2021 and we hope to launch that again in late 2021 or early 2022.
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Music – Studio One – RIP Lee ‘Scratch’ Perry
The maestro of Studio One in Kingston, Jamaica – Lee “Scratch” Perry – died this week (August 29, 2021).
Rainford Hugh Perry was a Jamaican record producer and singer who was an early developer of the – Dub style – in reggae music.
His early days saw him work in – Studio One – in Kingston run by the omnipresent C.S. Dodd.
It was the leading recording studio and record label in Jamaica and most of the famous Ska, Rock Steady, and Reggae artists have recorded there.
He subsequently moved on to work with Amalgamated Records founded by – Joe Gibbs.
Later he opened his own studio, the famous – Black Ark Studios – where he started working with Bob Marley and the Wailers (again), the Heptones and others.
His catalogue is very long.
I first started listening to his work when he was releasing material on is own label working with the band – Upsetter Records – in the late 1960s and early 1970s.
I came across this music in the mid-1970s through the distribution arrangement Lee Perry had with Trojan Records.
The houseband was called – The Upsetters – and included all the big stars of the Jamaican scene and were Bob Marley’s original backing band before they became The Wailers.
I particularly can recommend the 1970 album – Clint Eastwood.
That album was before he had really refined his Dub techniques.
This album – Roast Fish Collie Weed & Corn Bread – which he released in April 1978 during his Black Ark days features Lee Perry on vocals and captures the degree of experimental recording and producing techniques that he had developed throughout the 1970s.
It features Geoffrey Chung – guitar, Earl Chinna Smith – guitar, Winston Wright – organ, Boris Gardiner – bass, Michael Richards – drums, Sly Dunbar – drums, Noel Simms – percussion and Billy Boy on guitar.
It is a very cool album.
This UK Guardian article (August 30, 2021) – Lee ‘Scratch’ Perry: 10 of his greatest recordings – is worth reading.
That is enough for today!
(c) Copyright 2021 William Mitchell. All Rights Reserved.