Wednesday, 1 August 2012

About targets

What is really commendable is the governemnt's fixation with inflation. Not only BoE does a poor job at controlling it but it is a questionable target.

For a few reasons:
First the 2% target is a self-enforced myth.  There is no evidence this produces sustainable growth, financial stability or hapiness for that matter. Even if we accept the concept of "natural" unemployment rate that keeps people alert, wages down and profits up, there is no magic number to be fixated on. Short or long term. 

Secondly it shows the government is obsessed with capital and not with people. Inflation is primarily a consequence of monetary policies and not a goal. Unemployment level coulsd be a goal, e.g. maximize human capital utilisation would be a pretty sensible goal for a citizen-oriented government.

Thirdly in an efficient economy a low inflation rate suggests high unemployment (and vice versa).  In theory high unemployment = higher deficit because of lower revenues (even assuming we live in Tory Fantasy Land where there are no out-of-work benefits).

What we actually had over the past few years was a government induced inflation that acted as a tax on savers, consumers and investors in sovereign debt at the same time with growing unemployment and national debt.

There is not a single country which has achieved full permanent empoyment and had lost inflation out of control, and which had increased foreign debt to punishing levels of borrowing costs.

To summarize, in the UK we have a successful government who managed to "bring inflation back under control*, and meanwhile keeps people out of work, erodes their purchasing power, does not invest in their ability to conduct business or improve their skills, provides fewer and poorer services to them and demonstrates a crass ineptitude to manage its most cherished domain: big business.

It makes sense to persevere in bringing inflation and government spending down. And with that, the ordinary people and their livelihoods on their knees.

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