Wednesday, May 18, 2011
In fact this is all smoke and mirrors. Inflation is now at 4.5% and though the MPC's weapon to keep inflation low is setting interest rates they keep official interest rates at 0.5% which everybody knows is never going to bring inflation down. So have all the MPC been replaced? Of course not. Whatever the official rules they are government appointees and are going to do whatever government really wants (as opposed to officially wants) which in this case is to keep credit cheap (though the market is increasingly not fooled) and pretend government policies are getting us out of recession, or will real soon now. Despite the nominal reform the MPC is less independent than a left sock.
This is a common problem with all government appointed "independent" experts. People get appointed not because they have a record of being right but because they have a record of saying whatever the government of the day want to hear.
So here is my proposal:
All appointees to senior bodies or positions described as independent and involving future policy must have a record of accuracy. Anybody wishing to be considered for such appointments must first be listed over a 5 year period where annually they answer 2 or more predictive questions. Appointments may only be drawn from those in the most accurate 1% or from the top 3 individuals for every post available. In the event of the person twice making a prediction or decision that proves to be wrong their position shall be terminated.This would apply to things like the monetary policy committee, chief science advisor, immigration advisers, policing advisers, Met Office chair etc. So if the met office predicted a "barbecue summer" followed by the recent "mild winter" it would have a new chair and if the MPC consistently failed to get inflation close to 2% all those who voted for the chosen policy of keeping interest rates at a historic low would be replaced by people with a history of getting it right.
This is not a particularly high standard of accuracy to require. It would not require 2 bridges to fall down before the engineer who designed them was out of a job - one would do and he would probably get sued or charged with manslaughter as well.
The difference between economics & political "science" and the hard sciences is that in the latter answers are a matter of fact which you have to get right whereas in the political "sciences" (including global warming) the answers that get you promoted are the ones the politicians want. If appointment to the MPC were by proven competence the economy would be much better run.
The present state of affairs with inflation is ridiculous. The inflation is caused by Government increases in tax and sneaking up utility bills etc.
Who will blink first? Put up interest rates and feel the pain? Leave inflation and feel the pain?