Why Paul Tucker joined Bank of England? (Some insights from central bank history)

Gillian Tett has an interesting piece which has been abstracted from her recent book on silos in economic thinking.

Paul Tucker rose to become the deputy governor of Bank of England. The article has a story on why he joined the central bank. Just for public service!:

The tale of Paul Tucker’s own journey through the tribal world of economics illustrates the problem of silos well. He went to Cam­bridge to study mathematics and philosophy, and never set out to be an economist. He vaguely liked the idea of public service, so in 1979 he applied for a job at the Bank of England, and though he lacked an economics degree he was accepted. “In those days nobody thought that everyone had to have a Ph.D. in economics to work at a central bank,” he ex­plained. “We had people who [majored in Greek and Latin], history, and things like that.”

That reflected the particular vision of economics at that time. The root of the word “economics” comes from two Greek words: the noun oikos, meaning “house,” and the verb nemein, mean­ing “to manage.” Originally, oikonomia was considered separate from markets and trading. It referred to “the imposition of order on the practical affairs of a household,” or putting one’s “house in order,” as the anthropologists Chris Hann and Keith Hart have pointed out. Echoes of that original sense have appeared in subsequent decades: Jane Austen writes about her female characters being “skilled at economics,” while cooking and sewing classes in 20th-century American and British schools were sometimes called “home economics.”

This vision of “economics” being akin to “stewardship” influenced the development of the Bank of England in its first two centuries of existence. However, as Tucker ascended the Bank’s hierarchy in the 1990s, he started to notice a subtle shift in how economics, was perceived—and practiced. Economists started to use increas­ingly complex quantitative mathematical models to identify and make sense of economic trends. Most ordinary on­lookers had little idea how economists actually made these seem­ingly impressive predictions. The mathematical models they used were as mysterious to nonexperts as the Latin that priests spoke in the Catholic Church in Europe during its Middle Ages. To outsiders, these models seemed powerful and the economists almost priestlike.

A short neat description of the way economic thought has changed over the years. Now one cannot enter a central bank until he has degrees in economics/finance from selected universities in the world. Enormous hype is created when some person from these elite places joins a central bank. Not knowing all that is happening is same silo, tribal thinking.

Then the article goes on to say how justlooking at basics made Tucker realise something was wrong in the economy in 2006:

In 2006, to most observers, the West seemed to be experi­encing an economic golden age. Conditions seemed so upbeat that economists had christened the first decade of the 21st century the era of “Great Moderation” or “Great Sta­bility.” If you imagined that the economy was like an airplane, it was heading in the right direction, with most of the dials on the pilot’s instrument board signaling that all was well. Everyone could relax.

But there was one other economic statistic, or dial on that instrument board, that made Paul Tucker uneasy. This was the statisti­cal series called “broad money,” or M4, which showed how much cash and credit was floating around the economy.

Tucker asked some of his staff to carry out some detective work, to work out why M4 was expanding so fast. His team had told him that the main reason was a rapid increase in the amount of borrow­ing and lending by a group of entities labeled “Other Financial Corporations” in the statistics. This OFC bucket was essentially the “miscellaneous” box, where statisticians put anything that did not fit into the normal classification system. These were entities that were defined by what they were not—not banks, brokers, insurance companies, or the other entities that statisticians knew well.

Tucker asked his staff to dig into that miscellaneous OFC box. They uncovered a second miscellaneous category of unidentified entities inside the OFC box called “Other Financial Intermediar­ies.” Tucker later summarized his findings in a December 2006 speech: “Over the past year, the largest contributions to OFC money growth have, in fact, come from . . . what the statisticians label ‘Other Financial Intermediaries’ (con­tributing a whopping seventeen percentage points),” he said.

Did that have any significance for the economy as a whole? It seemed impossible to tell, since the people doing macroeconomic analysis had not tried to link the trends in the core economics statistics to what was happening in this murky OFC world. The area was a blank space on the map. Economists spent hours questioning the finer details of their mathematical equations. However, they rarely pondered the classification system they used or noticed the boundaries this imposed.

Analysis of monetary aggregates has long become unfashionable. It did not require something exotic really.


From time to time, Tucker wondered what might have hap­pened if he and others had spoken out more forcefully about his concerns. Might the Bank have been able to prick the bubble at an early stage? Nobody could know. But what Tucker did know was that it would take more than a bureaucratic reshuffle or rhetorical declarations to fix the prob­lem of insulated experts. “Breaking down silos isn’t about series of actions but an at­titude of mind—it’s about having curiosity and a generosity of spirit [to listen to others],” he explained, and went on, “When things are working well, no one wants to know about silos.” Or to put it another way, the really crucial time that a group of experts needs to start a debate about how they classify the world is not when there is a crisis. Instead, it is at the moment of success.

Lessons for Indian policymakers?


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