The folly of printing money: The Bank of England is guilty of group think, says ALEX BRUMMER

You would have to travel back decades to hear a leading British economist quote the modern father of monetarism, Milton Friedman.

That’s exactly what former head of the Bank of England, Lord Mervyn King, does in a podcast for Bloomberg.

As Deputy Governor and then Governor, King was largely responsible for setting up the structure of an independent Bank of England in 1997.

He is a voice to be reckoned with. King argues that central banks’ big cost-of-living mistake was to think that “money has absolutely nothing to do with inflation.”

Central banks, he suggests, had a “left-wing view of inflation” that embraced the idea that price increases were “transient” and would automatically return to the 2 percent target over time.

This, he argues, is “demonstrably false.” King says central banks cannot be held responsible for the rise in energy and food prices following the Russian invasion of Ukraine. However, they can be held responsible for creating money during the pandemic.

The Bank of England has printed around £450bn in 2020 and 2021 to support the economy in lockdown. King suggests that his former colleagues were guilty of groupthink.

This is especially true of Threadneedle Street, where the Bank’s former chief economist Andy Haldane was the only member of the monetary policy committee to vote against the latest round of quantitative easing before venturing out into new pastures.

King’s intervention is unlikely to be received with equanimity at the Bank. One school of economists argues that monetary policy is nothing more than astrology.

Perhaps, but interest rates are the tool that tamed the high inflation of the 1970s on both sides of the Atlantic and is now deployed by the Bank.

One of the difficulties Governor Andrew Bailey has faced is the decoupling of the mortgage market and interest rates.

Headlines have focused on the huge threat to incomes posed by rising mortgage rates. There will be consumers who will suffer.

The interest rate weapon is less effective than hoped, as only 28 percent of homeowners have mortgages.

Of those, only about 10 percent are affected by immediate rate changes. Even this group is not hugely vulnerable due to bulging savings in the Covid era.

Nevertheless, there is confidence that the interest rate drug will eventually work and that the total cost of living will fall to 3.5 percent next year.

Machin’s lament

Stuart Machin needs to be careful. Roger Holmes, the last Marks and Spencer CEO to propose demolishing his flagship Oxford Street, was sacked.

The idea of ​​a modern sustainable building of glass and steel instead of the current dated building is attractive.

Some of Britain’s most emblematic buildings, such as the Richard Rogers-designed Lloyd’s of London building, replaced historic buildings.

Machin’s outburst over Michael Gove’s decision to block the redevelopment of M&S’s Marble Arch store is therefore understandable.

Yet it ignores Marble Arch’s place in its mythology. For many years, ‘The Arch’ was the highest-selling store in the empire.

It is a destination for the already estranged regiments of private shareholders, foreign tourists and direct descendants of the founding dynasty.

Machin rightly points to the desolation of Oxford Street since the collapse of Debenhams and House of Fraser.

The cheap candy stores and gift shops are ugly invaders. But Selfridges thrives nearby in a historic building and HMV returns.

The idea that British architect Norman Foster, who designed the glass dome on top of the German Bundestag, couldn’t have refurbished the original site without destroying its character is ludicrous. There is a veiled threat from M&S to close shop.

That would be corporate vandalism.

Pizza index

No one can accuse Domino’s Pizza of rampant profits in India, where the franchisee operates 1,816 stores.

Instead of raising prices to meet costs, it cut them to the bone by selling its basic pizza for 49 rupees, or about 47 pence.

That compares to around £9 in San Francisco and £9.99 in the UK. Old-fashioned perhaps, but price reductions and more works are sold. As Tesco founder Jack Cohen put it, ‘Put it high and sell it cheap.’