The Bank of England’s chief economist has made a name for himself as a free-thinking contrarian in recent years, even publicly siding with Occupy activists and likening the need for simplicity in banking regulation to a dog catching a Frisbee.
“He’s an original thinker,” says Robert Jenkins, a former colleague of Haldane’s on the bank’s Financial Policy Committee. “If the facts take him in a direction that’s not politically fashionable, he nevertheless has the courage to make his statement.”
The 47-year-old Haldane’s latest untraditional stance is that the BoE’s next interest rate move could just as easily be a cut as an increase. That’s a far cry from the views of his boss, BoE governor Mark Carney, who says the next move from the current 0.5% will probably be up-the first hike since 2007. Haldane, in fact, happens to be the only member of the bank’s nine-person Monetary Policy Committee who’s publicly countenanced a possible reduction, even after more than two years of growth in the UK Haldane says he’s not convinced the recent wage gains will persist, and the strong pound may stifle an inflation pickup. The rate unexpectedly dropped to zero in June.
Carney said last week the timing for the first interest rate increase will be clear by the end of the year. Minutes of the July policy meeting published on Wednesday showed that for a number of members, if the Greek crisis were excluded, the decision on raising rates was becoming “more finely balanced.”
The question of how, or if, to change UK policy is a pressing one. More than six years of record-low rates risk skewing borrowers’ expectations, and the prospect of an increase by the US Federal Reserve as soon as this year could heap pressure on the BoE to start unwinding emergency stimulus. On the other hand, the UK’s inflation rate has been below the bank’s 2% target since January 2014, and the Greek chaos could scupper demand in the euro area, Britain’s biggest trading partner.
Jacob Nell, chief UK economist at Morgan Stanley, says Haldane’s reasoning isn’t so far-fetched. “The idea that he could equally go for a cut as a hike reflects a view that the costs of a persistent bout of low inflation, or even deflation, are much bigger than the costs of inflation shooting up if they keep rates this low for too long,” says Nell.
Haldane has been at the BoE for 26 years. (“I’ve only had the one job interview,” he says.) He became the bank’s chief economist in June 2014, after Carney-who had arrived from the Bank of Canada 11 months earlier moved him from the financial stability department to head of research and forecasting. Since then, Haldane and Carney have opened an advanced analytics unit, pushed into big data, and even launched a staff blog.
In his new role, Haldane is helping push the boundaries of central bank forecasting and monetary analysis. Technology, demographics, inequality, and climate change are all on the agenda now, says Haldane.
“These are not topics that you typically think of as being home base for central banks,” he says. “But they are the factors that will shape productivity and growth and living standards.”
Productivity, in particular, has become something of a puzzle in the UK It’s mysteriously stalled since the financial crisis, jeopardising growth and living standards as a result. “The surprise isn’t so much that we had a flatline period, because that’s what happens after crises, but that it’s persisted,” says Haldane.
Ever since Haldane’s Yorkshire childhood, where he witnessed the pain wrought by the soaring unemployment of the 1970s, he’s believed in the ability of economics to improve public policy and make people’s lives better. It’s still true now: “I’m a great believer in the power of ideas and analysis as a mechanism for getting the answers right,” he says.
Haldane says he didn’t grow up in an “intellectual hothouse,” and was the first in his family to attend university. His father played trumpet in the orchestra at some British seaside resorts, and when Haldane was very young he and his mother accompanied him around the country, waiting backstage during the performance. At home, his father would practice in the living room, though his enthusiasm for music didn’t catch on. “My family going right back is a long succession of trumpet players, and I’m basically the black sheep in the family because I packed it in, in my early teens,” he says. “That would definitely be one of my biggest regrets.”
However, he says both his parents and the staff at the Guiseley School he attended as a child gave him enough space to pursue the areas he was interested in. One of the teachers, Peter Bates, inspired his interest in economics. After Guiseley, Haldane chose to attend Sheffield University, in the north west of England, for two reasons: That’s where Mr Bates had studied economics, and it was near home. “I was playing a lot of cricket at the time, and it was within spitting distance of where I live, which meant I could travel home every weekend and play cricket,” Haldane says. “These were all unworthy reasons, academically.”
Alec Chrystal, his professor of economics at Sheffield, remembers Haldane’s talent for the subject, and encouraged him to study for a master’s degree at Warwick University. They later worked together at the BoE after its 1997 transition to independence from government in setting monetary policy, and he’s assessed how Haldane thinks.
“He tries to understand the conventional views and then he tries to think from different angles if there’s some other way of looking at this particular problem,” says Chrystal.
Haldane joined the bank in 1989 after receiving his MA, and had a knack for finding himself on the front lines of some of its biggest challenges. He was on the foreign-exchange desk when Britain’s departure from the European Exchange Rate Mechanism hammered the pound; Russia’s default and the emerging markets crisis coincided with his oversight of the international finance team; and his time in the financial stability department spanned the collapse of Lehman Brothers Holdings.
His years in that division saw him make his name with speeches that analysed policy problems through comparisons with subjects as diverse as biology, information technology, and frisbee catching. He says his speeches help him figure out what he thinks about a subject.
“The starting point in writing any of this stuff is a question to which you do not know the answer,” he says. “This is not always the way that central bankers approach speech-writing, where you use the speech as a way of describing your view of the world.”
His decision to settle on an unorthodox rate call doesn’t sit well with everyone, though. “I don’t really understand Haldane’s position on this,” says Andrew Sentance, senior economic adviser at PricewaterhouseCoopers and a former BoE policy maker.
“There’s not much lower you can go, and a cut to 0.25% isn’t going to have a significant impact on the economy.”
Still, Carney will have to get used to the dissent. The fact that MPC members have equal votes gears the system for disagreement – unlike at the Bank of Canada, where Carney, who was governor from 2008 to 2013, took sole responsibility for policy changes.
Haldane’s commitment to producing better answers to challenging questions extends beyond the BoE’s walls, too. He co-founded a nonprofit organisation that helps economists work with charities to analyse the effectiveness of their services, and he has worked to overhaul the teaching of his discipline.
Haldane even appeared in Boom Bust Boom, a 2014 film directed by Terry Jones (of Monty Python fame) about the shortcomings of economics in predicting the crisis. “His call for the old banking rule book to be ripped up and replaced with a simple set of standards made him someone we wanted to talk to,” Jones says.
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