| Editorial |
The winning essay from this year’s Rybzcynski Prize entries opens this issue of the Journal. It is about inflation, as is our other article by Tim Congdon. That may seem a misplaced concern when all the talk is of recession. But these times have a whiff of the 1970s about them, they bring back memories of ‘stagflation’. History may not repeat itself, but it can be instructive. And the instruction from the 1970s is that the central issue for macroeconomic policy is indeed inflation. The world was then, too, awash with money and was confronted with structural shocks from resource shortages, although both for different reasons.
The temptation, to which British governments succumbed, was to focus on mitigating the effects of the shocks on employment and incomes by expansionary policies, while controlling inflation, well, by controls. They cannot be said to have had much success on either front. Those economies fared better where policy remained focussed on fiscal and monetary restraint, and so pushed consumers and businesses into adjusting to the real changes the shocks had brought. |
But how should we see the challenge of inflation? Marco Annunziata and his colleagues say we should begin by seeing it as a global problem and not simply as a separate problem for each country. They approach this by a sophisticated statistical analysis which uncovers a very substantial commonality between the inflationary experiences of the, mainly developed-world, countries they examined. They go on to consider how far this is the result of the common impact of the sometimes dramatic movements in the prices of globally-traded commodities, and of oil in particular.
They conclude that, although they have their effect they are not central; instead they round up the usual suspects: liquidity, interest rates and the aggregate pressure of demand. In a world without barriers to the movement of goods or capital excess demand or lending in one country will have its effects on others, but they also recognise that it will be these same factors locally that will shape the immediate decisions of each central bank. |
And that is where Congdon takes up the debate: would the central bank do well to have regard to the money supply, broadly defined, in making those decisions? All familiar with his work will know that he thinks it would, but in this article he is concerned to demonstrate, against those who believe otherwise, that, on the evidence available in this country, there is a significant and stable relationship between the money supply and income and expenditure.
He finds that, of course there are lags between change and response and of course there are changes in institutions, products and preferences that affect the relationship, but there is a clear relationship, and that it has a vital part to play in macroeconomic analysis. And so we come full circle: in a world where credit has expanded so dramatically inflation risk must remain a concern even while that credit is being squeezed. |
Echoing this theme, a particularly splendid Book Reviews opens with a review of Alan Greenspan’s memoirs, which asks the question whether the present crisis might have been "a more muted affair" if Greenspan had taken a different view of how to respond to the ‘irrational exuberance’ he famously identified; the reviewer was not convinced by the explanations offered in the book. And another eleven books are noticed on a wide and interesting range of topics.
Your editor would only pick out Christopher McKenna’s book on the rise of management consulting for its wry observation that it owes as much to fending off government regulation as to promoting efficiency, and Philip Booth’s work on Catholic social teaching to remind you that you read it first in the Journal!1 |
| Jim Hirst Editor |
| 1 The Rt Rev Vincent Nichols, ‘Money and Morality’, The Business Economist, Vol 29, No 1, 1998 |
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