The Quest for Stability
Alan Budd
Published: September 2002
The UK seems to be enjoying a golden age of macroeconomic policy-making.
Growth is steady; inflation is low and stable, and unemployment is low. After
years of trying to achieve economic stability we seem to have found the answer.
This paper explores the history of policy-making from the late 1950s. For many
years the presumption was that active demand management could be directed at
achieving a desirable (low) level of unemployment. Pursuit of that policy helped
produce the disasters of 1975 and brought the recognition of supply-side
constraints. Progress has been uneven but the system set in place after 1992 and
the move, four and a half years later, to the establishment of the Bank of
England’s Monetary Policy Committee have produced an effective and highly
successful system of policy-making. Ironically, stability of output, and a low level of unemployment, have been achieved when they have ceased to be explicit
objectives of policy.
More Papers From This Author in World Economics:
What Do Economists Know?
How would you respond to a group of high school students when asked
“What do economists know?”. Alan Budd’s answers will be familiar to readers of
World Economics but bear repeating. Economics, unlike, say, Physics, tends to
attract beliefs and opinions by non-specialists held with as much assurance as
those of the experts within the discipline. After all, isn’t economics just common
sense? No, there are facts—which are often surprising and counter-intuitive—that
have been determined only by the special skills of economists. Certainly there
are things economists don’t know. But economists can be confident about quite a
lot of what they do think they know, even when they are disbelieved by large
parts of the public not to mention political leaders and policy makers. Sir Alan
revisits some fundamentals.
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