Wednesday, 8 May 2019

Should central banks target unemployment?

A problem with much of the political left is that they are keener on virtue signalling than thinking up policies that actually benefit those they claim to be concerned about, i.e. less well off. For politicians (left or right of centre) that virtue signalling does of course make electoral sense: it wins votes.

But it’s disappointing to see a non-politician getting involved in the latter nonsense. Ann Pettifor in this article claims that central banks should target unemployment as well as central banks’ traditional target, i.e. inflation. John McDonnell, the Labour Party finance spokesman advocates the same.

Well “targetting unemployment” sounds very caring and saintly, but what does it actually mean? After all, central banks already target unemployment in that they target inflation. That is, inflation and unemployment are inversely related, thus the inflation target, which consists of keeping inflation down to 2% actually amounts to targeting unemployment: that is, it consists of minimising unemployment in as far as that is consistent with acceptable inflation.

Moreover, if say inflation was at 2% and unemployment was above target, what’s the Bank of England supposed to do? Abandon the inflation target? Neither Ann Pettifor nor John McDonnell tell us.

McDonnell actually went even further down the “daft targets for central banks” road when he suggested the BoE should target productivity! Well I ask you: what’s the BoE supposed to do if productivity increases are below target? I’m all ears, but I don’t seriously expect to hear anything inspiring from McDonnell.

1 comment:

  1. Well the Fed is set up with this dual target. They can allow the inflation target to be breached if they are worried about umemployment being too high. It's just a bit of a buffer in target setting .Bill Mitchell uses the word "context" and I suppose the balance between ten tow targets depends on the wider economic context and outlook. The BoE also justified inflation above 2% recently as down to other outside influences. No one should stick rigidly to targets but they should have to justify the decision in public if they do.


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