Vol. 18 No. 24 · 12 December 1996
pages 30-31 | 3708 words
Down with deflation!
Paul Seabright
The power of central bankers – about which Edward Luttwak wrote in the LRB of 14 November – arises not just from their control over important aspects of economic policy, but also from the acceptance by the rest of us of what they may legitimately do in the exercise of this control. Until recently, our acceptance of the notion that central bankers should be committed to price stability has been entirely uncritical; and price stability (not low, but zero inflation) is what the European Central Bank will be required to maintain. But now that European Monetary Union suddenly looks a real, even an imminent possibility, a skirmish has broken out among economists about whether price stability is what monetary policy should be required to achieve.
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Letters
Vol. 19 No. 2 · 23 January 1997
From Tim Sanders
I enjoyed reading Paul Seabright’s reflections on the representations, in economic orthodoxy, of inflation as a kind of sexual addiction requiring staunch restraint (LRB, 12 December 1996). It both reminded me and made sense of a speech by Patrick Jenkin, then Margaret Thatcher’s Secretary of State at the DHSS, at the Cambridge Union Society in 1980. The subject of the debate was the acceptability or otherwise of a moderate level of inflation as a corollary of economic growth and full employment. I remember Jenkin describing inflation in terms of a disease that ‘corrupts the relationship between man and man’. Rather bemused, I commented to a friend that it sounded as if he was talking about syphilis, and put it down to the pre-debate hospitality.
There is perhaps a parallel between UK economics and the sexual double standards evidenced by ministers’ failure to live up to the pronouncements of ‘back to basics’. This is the perceived acceptability, even desirability, of inflation in house prices. During the Lawson boom-years, when this phenomenon tended towards incontinence, and thereafter when interest rates were soaring, the Treasury came up with an ‘underlying rate’ of inflation in an attempt to pretend that rising mortgage payments weren’t really inflation at all. Perhaps when ministers appear publicly with wives and children, having been caught in moments of weakness, they are trying to demonstrate their ‘underlying’ family values.
Tim Sanders
Leeds
