Some of the main drivers of high inflation are supply issues caused by the US-Iran war and American tech giants spending huge amounts on AI, which are not problems a rate hike will solve.<\/p>\n
Goodhart is an emeritus professor at the London School of Economics and a former senior official at the Bank of England.<\/p>\n
He is famous for his adage, called Goodhart’s Law<\/a>, that an observed statistical relationship will tend to collapse once you try to target it for policy purposes.<\/p>\n He turns 90 next month, and to mark the occasion, The Financial Times published an article<\/a> last week that discussed some of his contributions to economic thought.<\/p>\n But Goodhart’s warning, at the top of this piece, was made in July and is worth exploring.<\/p>\n Long-term economic trends<\/p>\n He was appearing as a guest on the Peter McCormack podcast (a British podcast).<\/p>\n ‘Silicon Valley fascism’ is waging war on democracy<\/a><\/p>\n The author of The Nerd Reich: Silicon Valley Fascism and the War on Democracy, has a warning.<\/p>\n Peter McCormack is a bitcoin enthusiast who describes his personal politics as “small-c conservatism with a strong bent toward libertarianism”, and he has had extremely controversial figures on his podcast, including Tommy Robinson and Curtis Yarvin.<\/p>\n But he has had some economists on his podcast too, such as Ann Pettifor and Steve Keen, and his conversation with Goodhart stuck to economics.<\/p>\n If you are unfamiliar with Goodhart’s approach to life, he made this observation at the start of their conversation (while smiling wryly<\/a>):<\/p>\n “I’ve always been a pessimist, partly on the grounds that if you’re wrong, you’re happy, because things are actually better than you feared.<\/p>\n “But if you’re an optimist and you’re wrong it’s doubly awful, because not only were you wrong, but things are worse than you expected.”<\/p>\n He then spent an hour talking about some macro-economic trends that were making life increasingly hard for British workers, which sounded very familiar to Australian ears.<\/p>\n And he said people ought to prepare for a future that would be increasingly difficult to navigate.<\/p>\n Charles Goodhart says we cannot vote our way back to the unusually prosperous period of 1950 to 2020. (Supplied: The Peter McCormack Show)<\/p>\n Inflation targeting and independent central banks<\/p>\n According to Goodhart, the early decades of the UK’s inflation-targeting era, which began in the early 1990s (like Australia’s), coincided with a period of globalisation in which Western countries increasingly pushed manufacturing industries offshore and shifted domestic production to services.<\/p>\n Housing problems will take ‘generation’ to fix<\/a><\/p>\n Property price declines of 7 per cent will not solve Australia’s housing affordability issues, NAB chief economist says.<\/p>\n He said that period saw nominal and real interest rates falling in multiple countries simultaneously, which made it “very easy” for central banks for a while.<\/p>\n “Central banks were doing exactly what governments wanted [by] making life easier for them by lowering interest rates,” he said.<\/p>\n “It was a temporary fortunate period, but people didn’t realise how temporary and how fortunate it was, partly because they thought it was all due to the brilliance and expertise of the central banks in maintaining these inflation targets.<\/p>\n “But the central banks didn’t have any difficulty.<\/p>\n “Indeed, if you take the period after the great financial crisis \u2026 the problem that central banks had was easing monetary policy sufficiently to bring inflation back up to target,” he said.<\/p>\n And unfortunately, he said, that long-term decline in interest rates from the 1990s onwards contributed to the housing anguish younger people feel today, because asset values rose so quickly relative to incomes during those decades.<\/p>\n “As interest rates decline, asset values rise,” he explained.<\/p>\n Tax systems will have to be overhauled<\/p>\n Jump forward to 2026, he said, and younger people are living in a very different world.<\/p>\n He said living standards were still rising, but much more slowly than society was used to.<\/p>\n He said the environment for younger people trying to enter the workforce today was incredibly tough.<\/p>\n Oil prices could surge to GFC levels<\/a><\/p>\n With no sign of de-escalation, there is a higher risk the expanding Iran war will push oil prices even higher than the level it reached during the global financial crisis in 2008.<\/p>\n “I think the conditions for young university leavers at the moment are considerably worse than they would otherwise have been because of AI,” he said.<\/p>\n “And again, add the problem of [how] you can’t afford housing, [and how] it’s increasingly difficult to get a job, and the young potentially white-collar workers are certainly joining the blue-collar workers in feeling that \u2026 the conditions have moved against them.”<\/p>\n In coming decades, he said, aging populations would also put younger workers under an increasing tax burden, and the UK government would have to overhaul its tax system to adjust to some serious demographic and fiscal realities.<\/p>\n “It ought to shift away from taxing incomes and profits to taxing assets, particularly land and property,” he argued.<\/p>\n “We’ve got to shift taxation away from the producers \u2014 the workers and businessmen \u2014 and put it on those whose assets have increased dramatically in value.”<\/p>\n But of course, he warned, any attempt to tax assets and land more heavily would upset some very wealthy people, who would fight the changes.<\/p>\n Growing political polarisation<\/p>\n McCormack asked Goodhart if he thought that was why more people were supporting socialist ideas today.<\/p>\n “I think there’s a lot in that, yes,” Goodhart replied.<\/p>\n Voters ‘losing patience with government as it has always been done’<\/a><\/p>\n Australians still believe in the ideals of their democracy and government, but their declining faith in politicians and the political system is putting that trust at “profound risk”.<\/p>\n “And one of the difficulties [for] somebody my age is that in the old days you always had effectively a two-party system where the difference between the ‘left’ of the Conservatives and the ‘right’ of Labour was pretty small.<\/p>\n “[But] now we’ve got increasing political polarisation with the parties both of the right and of the left \u2026 becoming more extreme, and for somebody who was brought up essentially to be a centrist like myself, [it] feels as though this polarisation makes things more difficult.”<\/p>\n McCormack then wondered whether today’s political polarisation reflected the fact that the “middle ground” had failed in a policy sense.<\/p>\n “Good question,” Goodhart said.<\/p>\n “But when you say, ‘The middle ground having failed,’ it’s not entirely clear to me what else could, or should, have been done.<\/p>\n “If you look at the economics, a combination of the decline in the birth rate everywhere [which has been] very sharp, the rise of China, and the end of the Soviet empire and the inclusion of eastern Europe into the world’s trading system, it was inevitably going to reduce real wages in the advanced economies because it was a huge supply of additional cheaper labour elsewhere.<\/p>\n “So it was inevitably going to reduce equality [in the UK] to some extent,” he said.<\/p>\n Look on the bright side<\/p>\n Altogether, he said he wished more people understood how much the world had changed.<\/p>\n He said we had to accept that we could not vote our way back to the “magnificent period” from 1950 to 2020.<\/p>\n![\"An](\"https:\/\/www.newsbeep.com\/uk\/wp-content\/uploads\/2026\/09\/a8dc6286bfeb042b4fa94c5e5254b768.jpeg\")
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