Monetary policy is not all about pulling levers

My latest article for City A.M.

I’M A big fan of the Bank of England museum. I find the way it attempts to educate children about how monetary policy is conducted to be charming. There is an exhibit with a tube of clear plastic containing a ball. The tube is “balanced” when the ball is level with a marker for 2 per cent inflation, and there is a lever labelled “interest rate”. As you pull down on the lever, the tube rotates and the ball shoots over 2 per cent. If you pull up, the tube moves in the opposite direction. Just as you grasp the mechanistic relationship between the target and the tool, “economic shocks” are added to send the tube into constant motion.

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  • John says:

    I found the Bank of England exhibit to be most disappointing. Its history was not well elucidated at all – even if its history had murky bits, they could’ve done a better job given how the British pound used to be the premier currency of the world.

    Among central bank and monetary exhibits, I’ve enjoyed Perth Mint’s gold exhibit the most.

  • Anthony J. Evans aje says:

    Thanks John
    I have to confess, my expectations were probably a bit lower than yours!
    I’ve not been to the Perth Mint but I think it’s telling that mints rather than central banks might be better sources of historical education.

    • John says:

      Central banks have to do a certain degree of ‘white-washing’ of their performance record. Not all central banks have exhibits, but among the ones I’ve visited the most honest one i.m.o. is that of the Hong Kong Monetary Authority.

      The Perth Mint exhibit would make goldbugs happy. Largest monetary gold exhibit apparently, sponsored by Rothschild.

    • John says:

      btw I remember the CPI chart at the Bank of England – the CPI was at a constant level throughout the gold standard era, with a minor dip during the Great Depression period (they soon went off the gold standard). Post-WW2, the CPI just exploded… I’m not sure if there’s more convincing evidence of the futility of monetary central planning.

  • Bogart says:

    A more accurate game would be one where you attempt to drive a truck at an average of 20km/h in a fog where both the fog randomly becomes more or less dense and the road snakes through curves and into and out of urban areas.

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