Last Chance Saloon?
[If you’re not interested in aimless musings skip this post and wait for 10:30am tomorrow.]
Maintaining optimism about UK monetary policy has been a masochistic experience in recent years. Lars excepts to be disappointed tomorrow and yet finds reason for optimism in the medium term. I’m the other way round. I am hopeful the MPC will not screw up tomorrow.
But if the MPC do disappoint, perhaps they’ll do so in a similar way the Fed disappoints now. We’ll get a mediocre recovery and that will be sufficient, as Simon says, to remove any political motivation for further macro policy reform; possibly for a long time. We are already five years on from the worst AD collapse since the 1920s, and for the first time now contemplating a real policy reform. Maybe somebody believes Ed Miliband is hiding an inner Shinzō Abe? I don’t.
Duncan Brown urges caution. In my view, the cautious thing to do is to follow a path which is least likely to leave an extra million people unemployed and many more underemployed, not to worry about whether there “could be” structural issues in the UK economy. And I agree with all the reasons to believe in structural issues which Duncan gives – they could all be true. But running inflation as “high” as 6% didn’t cause Tory voters to collapse in the streets in the 1980s, the last time we saw NGDP growth north of 8%. They’d all cope again for a couple of years now; if that makes me one of Mervyn King’s hopeless “dreamers“, so be it.
But back to tomorrow. Osborne’s Treasury has invited the Bank of England to adopt something close to Michael Woodford’s ideal of optimal policy. I think that’s way ahead of what the average UK economist thinks should or could be achieved with UK monetary policy, and Osborne & co. deserve credit for that. (See the FT year-end survey for a nice range of views; from Adam “The Dove” Posen saying that flexible IT has “served us well”, to the guy from the “NEF” blabbering on about a Green Investment Bank.)
If our nine elite macroeconomists reject “Plan Woodford”, what does that say about the state of macroeconomics – or our macroeconomists? Nothing very impressive, I feel.
T-12hrs and counting… good luck, everybody.