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Why Mark Carney should take more toilet breaks
If central bankers had gone to the toilet a little more often, the financial crisis might not have been so bad, says Merryn Somerset Webb.
If central bankers had visited the toilet more often, the financial crisis might not have been sobad
On Friday morning I called the Bank of England and asked if one of its press officers could tell me how far Mark Carney has to walk, and how many people he has to pass, in order to go to the loo.
I know this sounds like a frivolous question, I said to the nice women on the other end of the phone, but it's really important. Honest. They said they'd call me back.
You may be wondering why I care. It's all about a conversation I had with Gillian Tett at the Edinburgh launch of her new book The Silo Effect: Why Putting Things in Their Place Isn't Such a Bright Idea.
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In it, she stresses the importance of thinking outside your own "specialist departments, social groups, teams, or pockets of knowledge". The more time you spend talking to people who already agree with you or look at things in the same way as you the more likely your organisation is to fail to connect the dots of global or corporate change and hence suffer some kind of catastrophic failure.
She lists various companies where this has happened: BP, Sony, Microsoft, GM but notes that it happens at central banks too.
The Bank of England and the US Federal Reserve were both guilty of silo thinking' in the run up to the financial crisis of 2008. If they hadn't been, they'd have noticed the way in which a range of bemusingly complicated new financial instruments were creating the mother of all credit bubbles, even as their own models insisted we were all living through the paradise of Alan Greenspan's Great Moderation'.
Gillian also told me all about how organisations can prevent silo thinking. You'll have to read her book for the detail, but one key way is architectural organisation arranging your office so that people from different departments have no choice but to bump into each other.
I think Gillian had communal coffee machines in mind for this. But a story in The Times suggests another answer. Not everyone drinks coffee, but everyone goes to the loo a few times a day. So, says architects NBBJ, it makes sense to position the lavs in such a place that interactions are forced and "serendipity manufactured". The longer the walk you have to the loos, the less likely you are to end up a silo thinker.
This brings me to Janet Yellen. I suspect she and her colleagues might have what the Americans call an "executive bathroom", one so close to their offices that they have no need to bump into any wandering silo busters in the corridors of the Federal Reserve.
I can't confirm this, because I haven't called the Fed to confirm (I have my limits) and because a Google search on the matter ("Fed toilets") taught me nothing. But the Fed's decision to keep rates on hold has all the hallmarks of silo thinking.
I have no doubt that Yellen is in a tricky situation. One of the main causes of the financial crisis was that the Fed kept rates too low for too long. The solution to this was to print a pile of money and to make rates even lower for even longer. And that will be one of the main causes of the next crisis.
It has given us asset bubbles in some markets (stocks and bonds) and crashes in others (oil) alongside a socially iffy rise in wealth inequality. These situations don't usually end well. It makes sense, then, for those employed by the Fed to stave off the beginning of the end of the bubbles for as long as possible. It's all a bit embarrassing. And no one wants to end their career as a bubble-buster.
Aside from the executive bathroom suite, it looks like it makes more sense to start raising rates than to keep dodging the issue. The US is close to full employment. Inflation is sleeping, but not dead: wage demands are rising and the effect of the commodities collapse will fall out of the numbers later this year. China only has to do a little better than expected (and commodity prices to pick up) for inflation to rise quite sharply.
The markets clearly think the worry about rate rises is worse than an actual rate rise. They know the distorting effects of low rates might be beginning to outweigh their positive effects. So if now isn't the time to raise rates from their 5,000-year lows (yes, really), when on earth is?
This brings me back to Mr Carney. Things probably look much the same to him as they do to Ms Yellen and he is in a similar situation. Will the Bank of England cop out too? They shouldn't, not if the members of the Monetary Policy Committee (MPC) have been getting out and about a bit.
If they have raised their heads from their models long enough to talk to a) the pensioners who aren't spending anything because low rates have slammed their incomes; b) the young people who aren't spending anything because low rates have pushed up house prices such that the deposit saving is all they can think of; and c) the firms that aren't spending anything because low rates have destroyed their pension funds, they will by now suspect that the activity-deadening effects of low rates in the UK outweigh the stimulating effects.
Add that information to the recent good news on wages (growing at the fastest rate in nearly seven years, with the living wage still to come) and employment, and it is hard to see why anyone on the MPC wouldn't vote to raise UK rates.
The only question is: are they silo thinkers or are they silo busters? Gillian tells me the Bank of England has done a lot of work on breaking down silos since the crisis. That's nice and it gives me hope. But not confidence.
In case you're wondering, I still don't know where Mr Carney's loo is. The Bank of England never called me back.
A version of the article was first published in the Financial Times
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