Ashley Lait interviews Professor Sir Charlie Bean, former Deputy Governor of the Bank of England.
Charlie Bean is a professor of economics at the London School of Economics and former president of the Royal Economic Society (2013–15). He was deputy governor of the Bank of England from July 2008 to June 2014. Prior to that, he was executive director and chief economist from October 2000. Charlie has also held positions at HM Treasury and Stanford University. In addition, he has published widely — in both professional journals and more popular media — on European unemployment, on European monetary union, and on macroeconomics generally.
AL Where did you first study economics?
CB I did economics as a subsidiary subject at school (my main subjects were mathematics, further mathematics and physics). I started out by doing mathematics at Cambridge University but switched to economics in my second year after I had discovered that quantum mechanics was very beautiful and elegant, but I didn’t have the foggiest notion what was going on!
AL What attracted you to the subject and what keeps you interested?
CB It is the mix of analytics, history and empirics. Moreover, there are few social sciences where a practitioner has so much scope to make a difference as an active policy-maker.
AL Which economist has influenced you most? Why?
CB Including those who are dead, it surely must be John Maynard Keynes. He was a truly remarkable man, who not only laid the foundations of macroeconomics as we know it but also played a major role in public policy-making.
AL Did you have any particularly memorable economics teachers and what made them memorable?
CB It is a close-run thing between Robert Solow, who was my PhD supervisor at the Massachusetts Institute of Technology, and Stan Fischer, presently vice-chairman of the US Federal Reserve, who also taught me there. Two truly inspiring and good men.
AL Which economics concepts would you rate most?
CB The basic microeconomic insight that it is marginal costs and benefits that matter, not averages. And the basic macroeconomic insight that everything can affect everything else!
AL And least?
CB The idea that an economy can be realistically modelled as a perfectly competitive equilibrium peopled by optimising, rational and well-informed representative households and businesses (these are the assumptions underlying so-called dynamic stochastic general equilibrium macroeconomics).
AL What do you think will be big and exciting research areas in economics in the next few years?
CB The 2007/08 financial crisis has revealed the inadequacies of mainstream macroeconomic models in which the financial sector plays a negligible role. There is a lot of interesting research underway right now to rectify this. In the microeconomic arena, I think behavioural economics, which tries to incorporate the insights of psychology and neuroscience into economics, is a promising development.
AL At a recent event at the Bank of England, there was talk of making economic predictions from ‘big data’, such as what’s available from Google. Should we be teaching students how to use, interpret and visualise data like these?
CB While there is a lot of potential in the use of big data sets, there is also a danger in expecting too much from them. Big data sets may aid us in uncovering suggestive correlations between data series, but we need to be careful not to immediately leap to the unwarranted conclusion that such correlations are structural and can be exploited for policy purposes. It is important also to understand both what the data really mean and the nature of the economic relationships that tie series together.
AL Until 2014, you were the deputy governor at the Bank of England, could you tell us a bit more about what the role entails and which aspects of it you found most interesting?
CB It was pretty varied. Although I was deputy governor for monetary policy, only a quarter of my time was actually spent on monetary policy. This encompassed preparation for the monthly meetings of the Monetary Policy Committee and overseeing the production of the bank’s quarterly Inflation Report. But I also spent about a quarter of my time on issues related to financial stability, including the meetings of the bank’s Financial Policy Committee. Another quarter of my time was engaged in general bank management. And the remainder of my time was spent on international meetings: I was the bank’s representative at regular G7, G20, IMF and OECD meetings. When I left the bank, someone worked out that I had done the equivalent of a return trip to the Moon travelling to international meetings.
AL In the macroeconomic policy world a lot of economists are talking about macroprudential policy. What does this mean and why is it important?
CB Prudential policies are policies that are designed to ensure that individual financial institutions can absorb a reasonable level of losses on their loans and investments. Chief of these is the requirement that they must have a sufficiently large cushion of loss-absorbing capital (such as equity) relative to their assets. But the financial crisis made us realise that it was not enough to ensure that banks were individually sound because the interactions between individually solvent institutions could nevertheless lead to problems for the system as a whole. Macroprudential policies are meant to deal with these system-wide vulnerabilities and risks. In the UK, the Bank of England’s Financial Policy Committee is the body charged with implementing such policies.
AL You are currently undertaking a review of UK economic statistics. Could you tell us more about this project and its aims?
CB The chancellor of the exchequer has asked me to look at three issues. First, the UK’s current and future economic statistics needs, particularly in the context of the rapid technological and other economic changes that are taking place. Second, I have been asked to assess the Office for National Statistics’ capacity to meet those needs, including the scope for greater use of administrative and big data in their construction. And third, I have been asked whether the governance arrangements are appropriate. I am expected to produce interim recommendations before of Christmas 2015, with the full report due around the 2016 Budget.
AL What do you think is the best way to engage students in economics?
CB Do not start with the theory but rather with the real-world issues that the analytic tools can then illuminate. And keep a focus on how the economics can be used in practice to design better policies.
AL If you hadn’t been an economist what career would you have chosen?
CB I played junior representative cricket for Essex, so an early ambition of mine was to be a professional cricketer. But perhaps it is for the best that I turned out to be a rather better economist than I was a cricketer!
AL Which five people (dead or alive) would you invite to your ideal dinner party? Why these individuals?
CB Jane Austen (for her insights on the human condition); Augustus Caesar (to hear how the Roman empire was forged); Richard Feynman (a scientist of insight and wit); Simon Schama (a historian of insight and wit); Arthur Wellesley (Duke of Wellington and a great military commander with a broad hinterland).
» Next post: Universal Basic Income: Debunking the Scaremongering