Home > History, Monetary Policy > Bring Back Nigel Lawson

Bring Back Nigel Lawson

How often do we see a discussion of nominal GDP in modern British politics?  Hands up everybody who thinks George Osborne could explain the difference between the nominal and the real?  What, no hands?

This is Nigel Lawson presenting the 1985 Budget – “money demand” being the traditional parlance for “nominal demand” (my emphasis throughout):

In my Budget speech I emphasised the undertaking that I gave to the National Economic Development Council, last month, that the medium term financial strategy is as firm a guarantee against inadequate money demand as it is against excessive money demand. I hope that Opposition Members fully understand the implications of those remarks and will now unreservedly endorse the benefits that will flow from wage moderation.

In other words, Lawson wanted to stabilise the growth rate of NGDP.  He continues later:

The Government are pursuing a responsible path for the growth of money demand.  During the past few years it has grown by 8 per cent. a year. That is more than adequate for any reasonable increase in demand in the economy. It provides ample scope for both inflation and unemployment to fall. There might be an inadequate real demand, but the notion that the solution is an increase in money demand is a profound fallacy. Money demand is the only instrument on the demand side that the Government can manipulate.

That is why it is so important to deal with the problems on the supply side. One of the main problems that we have seen there has been the failure of pay and prices in the economy to adjust to the growth of money demand, leaving more room for output and employment to rise. The tragedy is that too much of this growth of demand has gone in higher living standards for those in work at the expense of those without jobs. I repeat my claim that there is no shortage of demand.

That is in the Budget speech. 

A few years of 8% NGDP growth, Mr Lawson?  Yes please.  And some supply-side reform?  Sure, why not.

Categories: History, Monetary Policy
  1. Bill le Breton
    April 29, 2012 at 16:10

    I have never understood why the policies advocated in late 70s and 80s to reduce AD are not appropriate (when reversed) to increase AD.
    It is as if post-Lawson all that knowledge has been eraised.
    The DCE equation pressed on Healey by the IMF equally well illustrates how a fiscal and monetary stimulus could be achieved now in one go to increase effective demand.
    Is it that Central Bankers don’t want their secret to get out? Is it their belief (see your earlier quote from Turner) that only realtively low rates of inflation are capable of being controlled?

  2. May 2, 2012 at 21:06

    Thanks for your comment, Bill. I don’t know about the Central Bankers. It is sometimes hard to avoid the conclusion their views are poisoned by their self-interest, that they must believe that 2008 was not a simple policy failure, but caused by forces beyond their control. But it is easy to be cynical. I’m not sure.

  1. December 13, 2012 at 17:49

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