MARK CARNEY FORGETS THAT SELF INTEREST IS EVERYWHERE — EVEN IN THE PUBLIC SECTOR.
In his new book Value(s), former Bank of Canada Governor Mark Carney claims we have moved from a market economy to a market society that overvalues money and private goods while systematically undervaluing public goods such as protecting the environment, building infrastructure, and caring for others, a hackneyed argument dating back to John Kenneth Galbraith’s 1958 book, The Affluent Society.
Carney acknowledges that “Both value and values are judgements. And therein lies the rub.” The problem is knowing which values are important and should be incorporated into decision-making. The answer is unclear. Carney argues the necessary values include “solidarity, fairness, responsibility and compassion,” all of which surfaced during the pandemic. However, the pandemic also brought out the worst of human nature, including piling mountains of debt onto future generations, vaccine nationalism as countries hoarded supplies, Russia and China leveraging dubious vaccines for strategic gains, massive bureaucratic incompetence as the EU and Canada botched vaccine distribution, xenophobia and racial hatred towards Asians, and shorter global supply chains that will damage emerging nations for years. There is no assurance the best values will triumph, especially in a crisis.
It is revealing to compare the values Carney champions with those that Nobel-economist Edmund Phelps shows are key to innovation and economic growth. Carney lists fairness, solidarity, resilience, responsibility, sustainability, humility, and dynamism (although not all these are values). In his recent book, Dynamism, Phelps emphasizes independence, initiative, achievement, and acceptance of competition. Carney’s values are arbitrary and politically motivated, while Phelps’ are validated by both the historical evolution of innovation and statistical evidence. Carney’s shallow analysis belies his book’s back-cover boast that he is “one of the great economic thinkers of our time” and reflects how in our society self-confidence is increasingly divorced from competence.
Economists won’t be surprised that a former central banker holds a jaundiced view of free markets. The very existence of central banks is premised on correcting intermittent but recurring financial market failures. This makes central bankers susceptible to a cynical assessment of how markets operate, just as veteran police officers, after years of witnessing its worst manifestations, can develop a misanthropic view of human nature.
Carney’s misgivings about free markets go far beyond the typical central banker’s, however. He subscribes to many narratives widely shared by the left. Carney rewrites his own account of the Great Financial Crisis of 2008 to fit today’s liberal narratives. At the time, he diagnosed its origin as “a re-pricing of risk,” suggestive of a severe but isolated malfunction in markets. He now blames it on “a crisis of values” and misaligned incentives, supporting the narrative that capitalism is fundamentally flawed because self-interest blinds it to broader social problems — as if the welfare state version of capitalism had never existed.
Excessive self-interest is hardly unique to the private sector. There is copious research about how government bureaucracies increasingly pursue their own interests at the expense of the broader public good. Carney also overlooks how character is both an input but also an output of capitalism. He quotes Adam Smith’s prescription that high levels of honesty and trust are necessary for markets to function but ignores Smith’s ideas about how capitalism develops independence, self-reliance, accountability, competition, and originality.
Value(s) repeatedly decries the growing marketisation that puts a price on everything. But the only obvious replacement for market prices is arbitrary valuation by elites such as Carney. Given this choice between the collective wisdom of markets and Carney-style elitism, most people are likely to agree with William F. Buckley’s assessment that “I would rather be governed by the first 2,000 people in the telephone directory than the Harvard University Faculty.”
Carney blames market prices for the “growing exclusivity of capitalism and the rise of populism.” On the contrary, France’s “Yellow Vest” populism was ignited by the rising fuel taxes favoured by eco-technocrats like Carney who obsess about climate change without regard for their favoured policies’ impact on the working class. But it was just a dry run for the pandemic lockdowns’ casual disregard for low-income, front-line workers. More broadly, the easy-money policies of central bankers like Carney fanned populism by helping to inflate assets prices, thus enriching a privileged few while doing little for working-class people who lost their jobs.
Carney tells the story of how he came to remove Montagu Norman’s portrait from the Bank of England. Norman was the governor of the Bank who in 1925 convinced Winston Churchill to put the pound back on the gold standard at its prewar price, a move that plunged Britain into a long recession. One day, Carney received a call from George Osborne, then Chancellor of the Exchequer, asking if Osborne could borrow the picture to hang in his dining room. Asked why, Osborne said the painting would remind him “never to listen to the advice of the Governor of the Bank of England.” Readers should heed Osborne’s advice when pondering Carney’s critiques of markets and values.