David Cameron, Your Country Needs You
… to change the damn target.
Cameron in Manchester today, my emphasis:
Getting our debt under control is necessary for growth. But it’s not sufficient. Our responsible fiscal policy is being matched by active monetary policy. That’s the best way to support demand and help rebalance our economy away from debt-fuelled consumption and towards exports and investment. And the independent Bank of England is able to do more to support the economy if necessary or if inflation falls below their target.
Fiscal responsibility and monetary activism is the right macroeconomic mix for our over-indebted economy. But the additional ingredient that government will deliver and needs to do even more of is a radical programme of microeconomic reform to make our economy more competitive – including competitive tax rates, planning reform and deregulation.
Note that he wants the Bank to do more “if necessary” OR if inflation falls below their target. Over to the Bank of England, at yesterday’s Inflation Report:
Dear People of the United Kingdom,
Inflation is too high, and is going to stay too high. Later on, it might crash and burn, but we’re going to wait and see.
Good luck everybody.
The Bank have again allowed the 2-3 year CPI forecast to fall below target, so are failing to consistently “target the forecast“. Professional monetarist Simon Ward is also puzzled, but has a more cogent analysis: the Bank is holding fire until Europe blows up.
That somebody like Simon Ward cannot predict the behaviour of the MPC is to me the key argument against the efficacy of fiscal stimulus in affecting AD. The central bank reaction function is totally unknown under flexible inflation targeting. We can’t accurately predict what the MPC will do at any time, even if we know all the input variables.
(Yes, I am pointedly ignoring all the rubbish in Cameron’s speech about interest rates.)