Even the best central bankers are below average

One of the world's greatest central bankers, Sir Mervyn King of the Bank of England, is, in fact, an idiot, according to the Financial Times. This morning the FT had a special section on his reign in which they commented: Mervyn King was confident as he celebrated the 10th anniversary of Bank of England independence at the Royal Bank of Scotland five years ago. The economy was sound, the governor believed the risk to financial stability “appeared to be low” and lauded BoE independence as “the dramatic constitutional change” that convinced financial markets that Britain would run a stable economy. Life at the BoE was sweet. Five years on, Britain’s economic and financial stability has hit the rocks. Yet the BoE has emerged as the big winner of the crisis. Legislation to make it one of the most powerful central banks in the advanced world is passing through parliament. And its governor received not just a knighthood in 2011 but the highest form of that award, the Knight Grand Cross. How can so many of the BoE’s intellectually powerful figures have misdiagnosed Britain’s economy so badly? How can the country feel secure it will not happen again? And did Sir Mervyn’s personal style – dominating the BoE – contribute to the crisis? The study from the two economics professors that I previously sent you establishes that the distribution of human ability has fat tails, There are outliers at both ends of the spectrum. In fact, the ability of the most able is so high relative to the others that the great majority of people are below-average. This, according to the FT, applies to central banks as well as to athletes. Sir Mervyn is one of the world's best central bankers but he is still below overage. It one uses a reference population of not only living but of all central bankers who have ever lived, it is likely that all living central bankers are below average. Q.E.D. These are parlous times.