PROFESSOR DAVID BLANCHFLOWER

24 MAY 2006

  Q1 Chairman: Professor Blanchflower, welcome to  the Committee and congratulations on your appointment. Maybe you have read the papers this week and think you have been prejudged; let me tell you, as Chairman, you have not been prejudged and you have got a very fair hearing here, as any witness has, so we welcome you on that basis. At the appointment hearings we focus on two issues, in terms of your professional competence and your personal independence, and it is those angles from which we are coming; so welcome. As well as that, we have quite a range of questions. How were you appointed to the MPC and when did the appointment process begin and what did it entail?

  Professor Blanchflower: I was contacted first by the Permanent Secretary, who asked me if I was interested in the appointment; then there was a period of about a week where I had a return conversation with him and they suggested that they would like to offer me the appointment and further conversations took place. Eventually I talked to the Governor and we made sets of arrangements and eventually I agreed. The whole process took about 10 days and it was done prior to the announcement in the Budget.

  Q2  Chairman: Thank you. It has been reported that you have agreed to travel from the USA for the purposes of attending MPC meetings. Do you intend having your main residence in the UK or will you commute from the USA?

  Professor Blanchflower: My main residence is going to be in the US, my family and my children are there, but I am going to be here for the time of the appointment, so the arrangements are that I will be here for the 12 days a month that are necessary for my appointment, to do all the meetings.

  Q3  Chairman: Your time commitment to the UK will be 12 days every month?

  Professor Blanchflower: The appointment is three days a week and I will be here for those, but I have no other teaching responsibilities and so I will be doing work as well while I am at Dartmouth.

  Q4  Chairman: You have a link with Stirling University?

  Professor Blanchflower: I am going to teach a couple of classes a year to the Scottish Economics Graduate Programme.

  Q5  Chairman: You envisage yourself being here for more than 12 days a month?

  Professor Blanchflower: I think so, yes.

  Q6  Chairman: Probably half and half?

  Professor Blanchflower: Yes. My daughter is at college here, my family are here, my eldest daughter is here, so the intention is I will be here to do my commitments to the MPC but my family are all here.

  Q7  Chairman: Who will bear the cost of your travel from the USA; has that been arranged?

  Professor Blanchflower: Yes. The Bank is going to take account of that.

  Q8  Chairman: How do you respond to concerns that your teaching and consulting commitments in the USA will make it difficult for you to have the same level of knowledge of the UK economy as that of other members of the MPC?

  Professor Blanchflower: I have no teaching commitments in the US. I simply have an office. I am on what is called `leave of own charges' so this is my primary responsibility. I have just an office and no responsibilities there. My consulting work is essentially on the other two days a week but entirely flexible, with very few commitments, other than one or two days a year I have to attend hearings. My focus in most of my research over the last 25 years has been primarily on the UK, it has been on other things but if you look at my publications, either in the title or in the content, they have been greatly about the UK, often UK-US comparisons, but I have been very close to movements in the UK labour market and other markets too, and to others, including the US. My focus I think certainly can be fully here.

  Q9  Chairman: You have some arrangements, I think, with the Chicago public schools; is that your consulting business?

  Professor Blanchflower: I have been doing consulting work over the years for the city of Chicago and currently for the city of Detroit. I have been their expert in a number of matters particularly to do with school segregation and programmes for small businesses. I advise those cities, yes.

  Q10  Chairman: Again, concerns are expressed that maybe you will not have your ear close to the ground. How many UK regional visits do you plan to undertake each year?

  Professor Blanchflower: I intend to do a lot, actually. The great tradition in labour economics, unlike in monetary theory or other things, is really to be very close to the ground and to hear about how businesses behave and how individuals behave. Currently I have two visits being organised now; my intention is to do four or five, or more.

  Q11  Chairman: Where are they to?

  Professor Blanchflower: The plan is to go to Scotland for one and to Wales for one, and they are being scheduled at the moment, that is between now and November, and obviously when I am in post more will come about.

  Q12  Chairman: You will be doing English regional visits?

  Professor Blanchflower: Yes; that is my intention. It just happened that Wales and Scotland were available so I said I would do those and I was happy to do them.

  Q13  Chairman: On that basis, how important are regional considerations in setting monetary policy, say, in the USA, which you know well, and to what extent do regions of the USA differ in terms of inflationary pressures and expectations and can you have a read-across to the UK?

  Professor Blanchflower: That is a tough question. I think the strength that I bring, in many ways, is that my research has a great deal to do with regions. I   have spent a lot of time worrying about disaggregation of things. I think my expertise is in the micro foundations of macro. I have studied a lot of regional stuff in the UK, and most recently in the US. It is very hard really to get very good details on inflationary pressures by regions, but I think the expertise that I have is relevant in that regional things are important. An example would be the current issue about net migration. Migration from the US to the UK of, say, 250,000 people has very different implications if all those folks came to London from if they went to Scotland. I have regional knowledge. We have relatively little information about inflationary pressures area by area, but I have expertise in those areas.

  Q14  Chairman: You are described as a happiness guru and one of your researches indicates, and I am reading here: "Increasing the frequency of sex for women from once a month to once a week generates as much happiness as would a $50,000 per annum pay rise." Does that apply in all cases?

  Professor Blanchflower: No, I would not say I was a happiness guru. My interest is a technical one. I have been interested in well-being and trying to understand what impacts well-being and trying actually to measure the effect that money has on happiness. That happens to be just one part of what I do, it is one small paper of many that I have written. It is about really trying to value well-being, trying to think about how much happiness a unit of money would bring and then trying to scale it  against other things. It has been fairly sensationalised but it is a very small part of what I do.

  Q15  Chairman: We will describe it as empirical determinants of happiness?

  Professor Blanchflower: I think that is how we would describe it. I am a type that measures things.

  Q16  Chairman: To what extent do you believe that   your appointment signals a greater official recognition that growth should not be measured solely in monetary terms?

  Professor Blanchflower: Obviously, I do not know what the Chancellor's thinking on it was, but certainly my research has to do with trying to think about well-being, distress and thinking about growth, in a sense that, as an intermediate good, if you like, growth per se is not the thing we care about, it is well-being, living standards, impacting on people. I think you might signal obviously that there is an interest in it, because that is the kind of work that I do and obviously it is of current interest. I know about some of these issues. How you should signal it I am not exactly sure, maybe you should ask the Chancellor.

  Q17  Chairman: The Committee have been discussing this issue amongst ourselves, so maybe at some future date you could be an expert witness?

  Professor Blanchflower: I would be happy to do that. I think this is a growing area and obviously interesting questions come from this kind of work. I was one of the early people to work on it, so I know about it.

  Q18  Chairman: I do not want you to offend either myself or Mr Thurso, but you have said that "Scots may be brave, but they are neither healthy nor happy." Why? We have a balance of numbers: half the Committee are getting upset here.

  Professor Blanchflower: Chairman, this is not a value judgment, this is merely an observation in the data. In a sense, it related to your previous question.

  Q19  Angela Eagle: It is the fried Mars Bars.

  Professor Blanchflower: The Scottish Parliament had said that we need to push for growth in GDP and I had tried simply to look to see what were the other measures, what other things did there appear to be in the data, and on happiness measures the Scots did not appear as happy as some others. It is not a value judgment, Chairman, it was just what the data said.

  Chairman: You will find a buoyant, happy bunch here. Over to Michael.