Tuesday, July 14, 2009

It wasn't our fault

Adam Posen's candidature for the MPC is currently being reviewed in parliament. However, his evidence to the Treasury sub-committee should be sufficient to disqualify him having any influence over UK monetary policy.

Clearly, he doesn't understand the current financial crisis. Apparently, the Bank of England got it right all along...

It is important to recognize, though, that those failures on the financial stability side were not the result of inflation targeting or of central bank independence. The rise of the bubbles in the UK and elsewhere were driven by a combination of regulatory and supervisory failures with structural factors not entirely under UK policymakers’ control.

In fact, the continued anchoring of inflation expectations above zero under the current circumstances, without tipping either into deflation or being pressured upwards by temporary large public deficits, represents a triumph of the inflation targeting regime of the Bank of England.

Both the direct economic outcomes of the current crisis would have been worse, and the ability to respond with macroeconomic stimulus would have been far more limited, had this system of control over UK monetary policy not been in place.

This is classic public sector blame-shifting and evasion. First, he points the figure at regulatory failure, which means the FSA. Then, he uses the old unprovable counter factual - "things would have been much worse if we hadn't acted".

The plain fact is that the Bank of England controlled interest rates. For far too long, rates were too low, and this encouraged a speculative bubble that almost destroyed the financial system. True, the FSA are deeply implicated, but inflation targeting was a disastrous policy regime that pushed us into our current calamitous predicament.


  1. Alice, do you spot a trend here?

    " In 2006 he was on sabbatical leave from the Peterson Institute as a Houblon-Norman Senior Fellow at the Bank of England. Adam is the author of the book Restoring Japan's Economic Growth (Institute for International Economics, 1998), and the coauthor with Ben Bernanke et al. of Inflation Targeting: Lessons from the International Experience.

  2. Pathetic post by Alice. Why does she persist in her inane belief this is solely a British problem, and not one shared in most Western economies?