The upcoming BoE Governor made a huge intervention yesterday

9:02 am - December 14th 2012

by Left Outside    

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Mark Carney was poached recently to replace Mervyn King as Governor of the Bank of England. As though replacing an incompetent central banker with a competent central banker wasn’t good enough, the news just kept on getting better.

In a speech he said the Bank of England may be better off targeting economic output instead of inflation.

From our perspective, thresholds exhaust the guidance options available to a central bank operating under flexible inflation targeting.

If yet further stimulus were required, the policy framework itself would likely have to be changed. For example, adopting a nominal GDP (NGDP)-level target could in many respects be more powerful than employing thresholds under flexible inflation targeting. This is because doing so would add “history dependence” to monetary policy. Under NGDP targeting, bygones are not bygones and the central bank is compelled to make up for past misses on the path of nominal GDP

It is potentially huge news. Remember that under inflation targeting if you crash an economy but get inflation back up to a positive but low value then you’re more or less out of stimulus options. Hello lost decade. With a target for the level nominal GDP you must make up for any shortfall. Hello recovery summer.

When NGDP is Depressed, Employment is Depressed

Increase NGDP, Put These People Back to Work

Now, Mark Carney isn’t saying he wants to implement NGDP targeting, he isn’t even saying other people might want to implement it. He is merely saying that it is an option and central bankers need more options.

The Government is replete with figures who already find this option attractive. Giles Wilkes, much missed blogger, now my favourite coalition apparatchik (low praise indeed!), wrote the book on this from a UK perspective in 2010 in his paper “Credit Where It’s Due.” His Boss, Vince Cable is also sympathetic.

Indeed, even George Osborne “said he was pleased Mr Carney was discussing such ideas.”

What makes this exciting is that implementing this policy revolution is really easy given the laws on the books in the UK.

Politically, it would cement austerity as a fiscal and social policy measure, but would likely dramatically improve private sector job and productivity performance. As demand picked up underutilised resources and resources (stuff and people, basically) shed from the public sector would find it easier to find work.

However, it would dramatically improve the economy’s performance, so even the anti-Tory in me agrees with Britmouse when he says “Tories Should Embrace Nominal GDP Level Targeting.”

In 1931 the UK blazed a trail by abandoning the gold standard and ending the Great Depression, in 2013 maybe we will get a chance to end the Little Depression and one last moment as a great power.

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About the author
Left Outside is a regular contributor to LC. He blogs here and tweets here. From October 2010 to September 2012 he is reading for an MSc in Global History at the London School of Economics and will be one of those metropolitan elite you read so much about.
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Reader comments

Pretty useless article since it in no way explains what concrete actions could or would be taken on the basis of tracking NGDP.

Leaving the gold standard was indeed a great idea. What’s not great, and hardly ever mentioned in such articles, is the acceptance by most economists and financial experts of the ludicrous concept of delegating the supply of a nations money to commercial banks intje form of interest bearing loans. If we ever wish to have a fair and accountable money system, the power to create money must be taken from private banks and given back to a public body.

They’re doing this now aren’t they…as much as they can.
(As #1 says – what else can they do?)
They’ve certainly abandoned any pretence of controlling inflation over the past few years.


Private banks can’t create money, only central banks can.

1. Probably the best proponent of NGDP tracking is Scott Sumner. He may have some answers for you here:

Compare Ben Bernanke’s recent speech outlining the US Fed’s policy for 2013. By that account, the Fed is going to put greater emphasis on getting the unemployment rate down than on curbing inflation:

This is more a recognition of adjusted policy priorities for the times in which we are living than going soft on curbing inflation. The fact is that higher unemployment rates and lost GDP growth are permanent economic losses as well as sources of social pain.


Stephanomics: A new target for the Bank of England
The Bank of England has had a formal inflation target since the mid 1990s. Is it the time for it to target something else?

The way things are moving is a great victory for the econ blogosphere. Moreover, it is highly unusual for an economic policy to enjoy support from the left and the right, that is when they understand the idea. NGDP level targeting is not a new idea, Hayek supported something like NGDPLT. The British Nobel winning economist, James Meade developed the idea after WW2. Sir Samuel Brittan regularly wrote about the subject in FT articles throughout the 1980s. Giles Wilkes does deserve credit for pushing the policy idea through Cable, but Giles before he was an apparatchik was an early follower of Scott Sumner’s blog.

This is why it is great victory for the blogosphere and the new power of the internet. To get the most powerful human beings on the planet to change their policies or at least consider alternatives through blog arguments is an amazing achievement. The contemporary dead tree journalists who started to write on the subject were picking it up from the econ blogosphere. I stumbled across Scott Sumner’s blog in February 2009, just a few days after he made his first post. Nobody had ever heard of him or even knew the obscure U.S. college where he taught. In the so-called classless U.S. society status is everything. No one in high policy positions pay attention to economists in the U.S. unless they teach at Ivy League universities. Yet, nearly four years later the Foreign Policy magazine named obscure Scott Sumner at no. 15 in their global thinkers for relentlessly pushing NGPLT and causing the most powerful people on the planet to reconsider monetary policies. Before the internet, Scott Sumner would have remained unknown even amongst economists. He could have held the same ideas and they would have gone nowhere.

IMO we will need to see what happens to the inflation rate before joy over the change in the BoE’s monetary policy target is unconfined.

The worry is moving into situations where the unemployment rate is on a rising trend and where the BoE’s forecasting models are predicting a high likelihood of rising inflation downstream when the BoE’s interest rate is already at its lower bound of half a per cent so softening monetary policy will mean more QE and/or more funding for lending.

Recent movements in both the unemployment and employment rates have been encouraging but the trend rate of long term unemployment is also rising.'s_k-percent_rule

With so many experts why is know one talking about what is causing all the problems in the first place Milton Friedman’s k percent rule.

Slowly people are waking up to the fallacies of the World Bank and IMF.

John Maynard Keynes quit his post in Germany in 1923 over these policies.

Shipping factories from country to country with low inflation and forcing upon them WTO rules only serves the Waltons and other MegaCorporations which they don’t remember the Douglas Clan of Scotland nor do they understand Adam Smith and the small business model.

Applying statistics to the flow of money is not economics it is working so well even the guardian has articles about the failure of QE.

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