Left Outside

Osborne to the rescue?

Britmouse, otherwise a very informed commenter, makes the mistake of saying Britain would need a new parliamentary act to switch to a nominal GDP level targeting regime. Not so.

Here is the relevant section of the 1998 Bank of England Act:

11 Objectives

In relation to monetary policy, the objectives of the Bank of England shall be –

(a) to maintain price stability, and
(b) subject to that, to support the economic policy of Her Majesty’s Government, including its objectives for growth and employment.

12 Specifications of matters relevant to objectives

(1) The Treasury may by notice in writing to the Bank specify for the purposes of section 11 –

(a) what price stability is to be taken to consist of, or
(b) what the economic policy of Her Majesty’s Government is to be taken to be

The Treasury can, were George Osborne to be interested in re-election, switch to a nominal GDP targeting regime by only resorting to legislation which is already on the books. Defining the objective of the Bank of England as “to maintain price stability…including its objectives for growth and employment” is almost an exact layman’s description of NGDP level targeting.

If Britmouse means merely  that this decision would not be final, I agree, but no decision made by parliament is ever final. No Parliament may bind its successor. There is no way to forever adopt NGDP targeting, because no parliament can bind its successor. Mervyn King himself has written  (in a paper I will discuss when I get round it) that it doing so is likely impossible:

The core of the monetary policy problem is the uncertainty about future social decisions resulting from the impossibility and the undesirability of committing our successors to any given monetary policy strategy. The impossibility stems from the  observation that collective decisions cannot be enforced so that it is impossible to commit to future collective decisions. The undesirability reflects the fact that we cannot articulate all possible future states of the world.

There would be parliamentary fulminations were Osborne to announce an immediate change of policy, but a steep economic recovery would put pay to those. The British legal system is flexible, and by the time a legal challenge were mounted, if it ever were mounted, it would be easy to pass the Bill to formalise an already successful policy.

I don’t like Tory government, but I dislike this depression even more. The Tory have an almost foolproof re-election tool at their disposal, they should use it.

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Filed under: Economics, Politics, , , ,

8 Responses - Comments are closed.

  1. britmouse says:

    Great post!

    Yes, I meant only that an Act would be required to change the legal mandate.

    I agree that the legislation is vague enough to allow the Treasury room to require that the Bank does NGDP level targeting.

    It’s interesting that Osborne has been vocal in calling for QE but is unwilling to change the mandate, what does that suggest? No willing for truly radical policy? The politics won’t work? The Treasury really doesn’t see a demand problem? I’m just not sure.

  2. [...] would be appropriate?  Especially when we are directing our arguments at HM Treasury, which itself has great discretion over monetary [...]

  3. [...] the coalition can still, at any time, prevent doom, by changing the Bank of England’s mandate to target nominal gdp and to ease policy until it returns to [...]

  4. [...] and ejected from his job, if he is unhappy he should make it clear his hands are tied unless the Treasury change his mandate. If he is unhappy with being honest about the limits of what he can delivery legally and what he [...]

  5. [...] I’ve pointed, ad nauseum, the Chancellor can change the Bank of England’s mandate to adopt NGDP level targeting at any [...]

  6. [...] (c), as Left Outside has shown [edit: fixed link], the Treasury already has the legal flexibility to introduce an NGDP target by [...]

  7. [...] stability,” but the Chancellor can change the definition of “price stability” whenever he wants. It’s right there in the 1998 Bank Act. I thought I was the first UK blogger to cover this, [...]

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