Norman Lamont, severely under-rated?
Discussion
Wacky Racer said:
Julian Clary reckoned ol' Norman Lamont made a good fist of it 
(anyone remember?)
Julian Clary.................
In 1993 he was the compére of the British Comedy Awards which was being broadcast live on television. A sexual joke involving Norman Lamont, the Chancellor of the Exchequer, received uproarious laughter from the celebrity audience. Although there were only 12 complaints from a viewing audience of 3 million, the next day's press was indignant and called for him to be banned from television.
As a result Julian Clary went on tour in Australia. He returned to Britain in 1995 and took up acting and compéreing again.
I preferred him when he was known as the Joan Collins Fan Club.
MikeyT said:
Lamont' s quite a nice bloke compared to Julian Clary - who's a one-trick pony basically.
And Lamont is a tt.
Trolling again Brucie?
Not really. A little less tongue in cheek than normal. I really think Norman was the fall guy of the ERM fiasco and that he set up the modern methods for managing the economy for stability and growth. He was mainly a victim of not being telegenic. He comes over stiff and awkward whereas I am sure that he is a very clever and nice person. Like Prince Charles he was a victim of our crap press. The pisser is that Labour are going to get in again on the economy and that the seeds for this were sown by Norman Lamont.
Here is an article that pretty much backs up my thesis:
Britain tames the bulls & bears
The Organisation for Economic Co-operation and Development, in its latest assessment, gave it to us straight. Britain, it said, now had a "less cyclothymic" economy, and that was a good thing.
Before you start reaching for your economics dictionaries, let me say I did not know what it meant either, let alone know how to pronounce it. Cyclothymia, it seems, is "a temperament inclined to alternation of high and low spirits". The fact that we have become less cyclothymic means we are less subject to those wild economic mood swings, one moment raging bulls, the next growling bears.
It means, and I keep meaning to remind Tony Blair and Gordon Brown that I hold the original copyright on this phrase, no more boom and bust. An economy once noted for its volatility, and damaged by it, has become remarkably stable.
In this, the last of these columns, some of which have been written at times of great economic turbulence, I thought it worth examining Britain's stability and trying to answer the question on everybody's lips: Can it possibly last?
First, some facts. The economy did not suddenly become stable on May 1 1997. The most impressive piece of economic policymaking in Britain in modern times was, I believe, in the autumn of 1992 when, out of the wreckage of the country's involuntary exit from the European exchange rate mechanism, a new policy framework was hastily constructed.
Thus, the Bank of England was given an enhanced role, both of monitoring and forecasting inflation - the quarterly inflation report - and of openly advising the chancellor on interest rate decisions. And, for the first time, inflation was explicitly targeted, rather than the money supply, the exchange rate or anything else.
Sadly for Norman Lamont, chancellor at the time, the "Norman and Eddie show" never really got going, Kenneth Clarke taking over just as the new framework was bedding in during 1993, and it is the period since then we should take as our measure of the new stability.
Over that period, Britain has achieved the longest unbroken period of economic growth since quarterly records began in the mid-1950s. Growth, has averaged 2.8%, and - this is the most impressive statistic of all - been higher than inflation, which has averaged 2.7%. Employment has grown to record levels, pushing unemployment below 4% on a claimant basis. The 1990s, after a disastrous start, turned into a golden age, an age that, it appears, is continuing.
I have not mentioned Bank of England operational independence, Brown's boldest act. It would churlish to deny that it has strengthened and given greater credibility to the "Ken and Eddie" framework. With the politicians out of the way, people and businesses are entitled to believe that low (2.5%) inflation, with occasional hiccups, is going to stretch into the indefinite future.
I have not mentioned, either, the extraordinary health of Britain's public finances. Again, the roots of this are in the past, and in particular the two massive tax-raising budgets of 1993, one Lamont's, the other from Clarke. These set the public finances on a rapidly improving course. When Brown took over in 1997 he was encouraged, not least by the Treasury, to believe the budget deficit of the early 1990s still had not been properly corrected and tightened further. As we can see from the current embarrassment of exchequer riches, he need not have done so.
What we have had in Britain, then, has been quite unusual. Monetary and fiscal policy have, over a long period, been conducted in a highly responsible manner. It has worked out well, so why didn't we think of it before?
The glib answer is that conditions have been so benign, in particular in terms of global inflation, that it has been easy to run a good policy. Against this, there have been plenty of times in the past when British governments have messed things up without assistance from the outside world.
The real point, I think, is that since 1992-3, macroeconomic policy has been run in an ideology-free way. It is easy to forget that, however impressive the microeconomic achievements of the Thatcher government, they were accompanied by a flawed and badly conducted monetarist experiment. Ideology also got in the way of good macro policy in the 1970s under both Labour (Denis Healey's belief that a Keynesian expansion was the best way through the world oil crisis) and the Tories. When the current framework for policy was hit on in the autumn of 1992, pretty well everything else had been tried, usually with disastrous results.
Can it last? The moment people start declaring golden ages for the economy is usually the time to shift your money to Switzerland. One risk, already apparent in the government's July comprehensive spending review, is that Brown will disperse the proceeds of past prudence too quickly.
I am confident, however, that the longer the current framework delivers low-inflation, the more it will be able to do so indefinitely. Even the most cyclothymic among us will accept that things have changed.
The real worry, and it is a serious one, is that the economic stability of the past seven years or so has been achieved alongside instability in another important area, that of the exchange rate. Would Britain's economy have been so stable without the pound's fall and rise of recent years? Probably not. Could it be so stable in the absence of sterling volatility, which has acted as a safety valve for the economy? Perhaps not. A stable exchange rate could, paradoxically, give us an unstable economy. That, however, is another story.
Britain tames the bulls & bears
The Organisation for Economic Co-operation and Development, in its latest assessment, gave it to us straight. Britain, it said, now had a "less cyclothymic" economy, and that was a good thing.
Before you start reaching for your economics dictionaries, let me say I did not know what it meant either, let alone know how to pronounce it. Cyclothymia, it seems, is "a temperament inclined to alternation of high and low spirits". The fact that we have become less cyclothymic means we are less subject to those wild economic mood swings, one moment raging bulls, the next growling bears.
It means, and I keep meaning to remind Tony Blair and Gordon Brown that I hold the original copyright on this phrase, no more boom and bust. An economy once noted for its volatility, and damaged by it, has become remarkably stable.
In this, the last of these columns, some of which have been written at times of great economic turbulence, I thought it worth examining Britain's stability and trying to answer the question on everybody's lips: Can it possibly last?
First, some facts. The economy did not suddenly become stable on May 1 1997. The most impressive piece of economic policymaking in Britain in modern times was, I believe, in the autumn of 1992 when, out of the wreckage of the country's involuntary exit from the European exchange rate mechanism, a new policy framework was hastily constructed.
Thus, the Bank of England was given an enhanced role, both of monitoring and forecasting inflation - the quarterly inflation report - and of openly advising the chancellor on interest rate decisions. And, for the first time, inflation was explicitly targeted, rather than the money supply, the exchange rate or anything else.
Sadly for Norman Lamont, chancellor at the time, the "Norman and Eddie show" never really got going, Kenneth Clarke taking over just as the new framework was bedding in during 1993, and it is the period since then we should take as our measure of the new stability.
Over that period, Britain has achieved the longest unbroken period of economic growth since quarterly records began in the mid-1950s. Growth, has averaged 2.8%, and - this is the most impressive statistic of all - been higher than inflation, which has averaged 2.7%. Employment has grown to record levels, pushing unemployment below 4% on a claimant basis. The 1990s, after a disastrous start, turned into a golden age, an age that, it appears, is continuing.
I have not mentioned Bank of England operational independence, Brown's boldest act. It would churlish to deny that it has strengthened and given greater credibility to the "Ken and Eddie" framework. With the politicians out of the way, people and businesses are entitled to believe that low (2.5%) inflation, with occasional hiccups, is going to stretch into the indefinite future.
I have not mentioned, either, the extraordinary health of Britain's public finances. Again, the roots of this are in the past, and in particular the two massive tax-raising budgets of 1993, one Lamont's, the other from Clarke. These set the public finances on a rapidly improving course. When Brown took over in 1997 he was encouraged, not least by the Treasury, to believe the budget deficit of the early 1990s still had not been properly corrected and tightened further. As we can see from the current embarrassment of exchequer riches, he need not have done so.
What we have had in Britain, then, has been quite unusual. Monetary and fiscal policy have, over a long period, been conducted in a highly responsible manner. It has worked out well, so why didn't we think of it before?
The glib answer is that conditions have been so benign, in particular in terms of global inflation, that it has been easy to run a good policy. Against this, there have been plenty of times in the past when British governments have messed things up without assistance from the outside world.
The real point, I think, is that since 1992-3, macroeconomic policy has been run in an ideology-free way. It is easy to forget that, however impressive the microeconomic achievements of the Thatcher government, they were accompanied by a flawed and badly conducted monetarist experiment. Ideology also got in the way of good macro policy in the 1970s under both Labour (Denis Healey's belief that a Keynesian expansion was the best way through the world oil crisis) and the Tories. When the current framework for policy was hit on in the autumn of 1992, pretty well everything else had been tried, usually with disastrous results.
Can it last? The moment people start declaring golden ages for the economy is usually the time to shift your money to Switzerland. One risk, already apparent in the government's July comprehensive spending review, is that Brown will disperse the proceeds of past prudence too quickly.
I am confident, however, that the longer the current framework delivers low-inflation, the more it will be able to do so indefinitely. Even the most cyclothymic among us will accept that things have changed.
The real worry, and it is a serious one, is that the economic stability of the past seven years or so has been achieved alongside instability in another important area, that of the exchange rate. Would Britain's economy have been so stable without the pound's fall and rise of recent years? Probably not. Could it be so stable in the absence of sterling volatility, which has acted as a safety valve for the economy? Perhaps not. A stable exchange rate could, paradoxically, give us an unstable economy. That, however, is another story.
Jaglover said:
The article is out of date. It is from when Gordon Brown was still madly in love with Prudence.
Now he has dumped her and is out on the town spending money.
>> Edited by Jaglover on Tuesday 19th April 21:46
Here's one from January this year which gives Norman similar recognition:
Are inflation targets "The End of History?"
Samuel Brittan: Political Economy Club 12/01/05
My forthcoming book of essays entitled Against the Flow (Atlantic Press, £25, publication date Feb .4) covers a variety of subjects, from foreign policy and religion, to individualism and the limitations of democracy. I have however decided to focus on the section likely to be the highest common factor of interest to members of this club, namely Part Four which has the thrilling title of "Economic Management". But I would be more than delighted if anyone here who has had an opportunity to glance at the volume were to raise matters arising from other sections.
There is a non-cynical reason for my choice of subject. Nearly all the other Parts of the book contain fairly substantial essays drawing the themes together. The part on Economic Management contains mainly short articles. They were written during a period when the British authorities, after decades of experiment, seem to have reached a reasonably successful formula under the headline of "Inflation Targets". In these circumstances, to have elaborated a rival conception would have been pointless. But I am glad to use this opportunity to try to draw a few threads together.
My exact title takes off from a lecture given by Sir Alan Budd, formerly chief economic adviser to the Treasury (Black Wednesday - A Re-Examination of British Experience in the ERM, October 5,2004) in which he said that "the current framework for monetary policy in the UK is as close to perfection as fallible man can hope to achieve." I hope there was an element of irony, as well as genuine endorsement, in what he said. Lord Lamont, who was the chancellor who introduced these targets, was fairly modest about his progeny in his contribution to the recent series of lectures by ex-chancellors at the London School of Economics, and remarked that he did not believe that they were "the end of history". Hence my title for this evening’s talk.
He was being over reticent, but he had a point. We need however to be precise about the current regime. The UK did have a form of inflation targets earlier on. These were in the context of an "incomes policy" and were used as an inducement for the unions to accept wage restraint. They were based on an over simple cost-plus view of inflation; and when prices rose above expectations, government assurances could boomerang.
The present form of inflation targets can best be understood as a version of what is sometimes known as "the new consensus" or more technically as "a nominal framework" (this last term was, as far as I know, invented by Lord Burns to characterise the then novel approach to demand management, which concentrated on nominal variables such as prices and did not attempt to targets real variables such as growth and employment.) It is this idea of a nominal framework which is the common element in the monetary targets which were tried first, then the attempt at an exchange rate link via the ERM, my own still untried nominal GDP objective and finally the new regime inaugurated by Norman Lamont in 1992 which continues to this day.
The instrument used for current inflation targets is monetary policy. Some believe that the automatic fiscal stabilisers can play a supplementary role. But pay and price controls no longer come into the picture. The operational independence of the Bank of England granted by the Labour government strengthened confidence in this regime, but did not change its nature. A side effect may have been to foster a belief in the mystical power of central banks over all manner of matters, which is only embarrassing to central bankers themselves.
As nothing in this world is perfect, what are the potential weaknesses of the present regime? The first is mainly presentational. When the Bank takes action to counter a potential economic slowdown, it uses contorted terminology about the danger of inflation falling below 2 per cent within the next two year period. This is surely absurd. There would hardly be riots in the street - even Lombard Street - if it was thought that inflation was going to reach 1½ per cent in the near-term future.
This curious kind of explanation derives from an exaggerated belief in the short term Phillips curve - in other words that a recession normally goes with falling inflation, so that the one objective of a modest but non zero target inflation rate, achieved over a couple of years, will cover all eventualities. The truth is that while the two are often linked together in this way, sometimes they are not. There can be a below target rate of inflation due to say a much longed-for productivity miracle or a fall in import prices. Neither need be a disaster. Surely it would be better for this or any other central bank simply to say that it is following its brief to support government policy (which in every country includes aspirations for growth and employment) but without accommodating inflation.
The next, and already widely discussed, potential weakness of the present regime lies in the limitation of the instruments to very short term interest rates. A year or two ago there was a great deal of discussion, especially in Federal Reserve circles of what was called ZIRB, the zero interest rate bound. Because policy-determined interest rates cannot fall below zero they may not be low enough to fight off a slump, even if the inflation targets permit it.
This possibility was first raised by Keynes under the name of the Liquidity Trap. But note that its existence does not require "deflation" in the sense of falling prices. It exists when, for whatever reason, interest rates cannot be brought low enough to maintain effective demand. (There are far-out suggestions of how negative real interest rates could be produced in practice - eg a combination of fixed interest securities sold at a premium on redemption price plus a tax on bank balances. But I would not count on such devices being available when they are needed.) The only occasion when negative interest rates have prevailed in my adult life has been when a large and unexpected rise in inflation has taken market by surprise as in the 1970’s. But to depend on such malfunctioning is surely a cure on a par with the disease.
The most cautious adjustment of the regime in a slump would be to allow the central bank to operate on longer term securities and thus affect directly the whole interest rate spectrum. But even that might come against the prohibition against using central banks to finance government deficits.
Nor in this situation would it be enough just to relax the rules against government deficit finance, as we see from Japan. The upshot of the debate in the US Fed of the Open Market Committee seems to be that, faced with a large deficiency of aggregate demand, the logical and effective remedy would be budget deficits financed by an increase in the money supply. Neither on their own might be enough. This has been described by the Fed’s Ben Bernanke as the nearest practical equivalent to the Milton Friedman helicopter that drops dollar notes from the sky.
Of all the monetary areas, the eurozone is the least equipped to effect such a combination of remedies. (Not only is the ECB be reluctant to expand the money supply, but there is no European government whose deficit it could finance. And if it had attempted to finance either some existing member governments, it would be breaking all the rules from Maastricht onwards. The ECB would have some understandable suspicions that the threat of a slump was being used as a pretext to fund irresponsible spending programmes). But even in the UK such a combined use of monetary and fiscal policy would require a suspension of Gordon Brown’s fiscal framework and the provisions under which the MPC operates.
In practice however the biggest alleged failing of the inflation target regime has turned out to be different. It is that it does too little to mitigate asset price bubbles. The central banks’ reply is that they can hardly be expected to underwrite either the stock exchange or property prices. They also say that they do take into account asset prices - including exchange rates - to the extent that the latter influence final price levels, and therefore monetary policy, under an inflation target regime.
An objection to this line of defence is that there is extremely long road between asset price bubbles and the ultimate inflation objective. Suppose there is a collapse of house prices in the UK. We would not only have to wait for this to bring about a slump; but that slump would have to bring inflation down below target, which could take a long time especially in a world subject to shocks such as oil price explosions. The main weakness of the present framework is that it implies that the only source of financial instability is inflation or deflation. As one economic analyst put it, "an asset price boom carries with it the risk of a bust that will destroy the value of securities held by financial institutions and thus produce a collateral-induced credit crunch." What are my conclusions? The last thing I am suggesting is that inflation targets and independent central banks should be jettisoned. We have had so many regime changes in rapid succession that we should not rush into yet another one, especially when the present one is still working. But it would help if the central bank operated with some concept of a normal real short term interest rate. This would be perfectly compatible with an inflation target. It merely requires the central bank to be explicit on occasions when it moves above or below a neutral range of interest rates in pursuit of the target. This would take us some way from the present unanchored series of short term policy moves purely dependent on short term forecasts.
There are obvious difficulties in determining the neutral interest rate. But it is not more problematic than the so called output gap of which excessive use is made at present. While we may not know the exact neutral real interest rate, we can be pretty sure that anything below two per cent is stimulatory and anything above four or five per cent is restrictive. What I am suggesting is no more than what Alan Greenspan already does - for instance his present moves towards levering up US real interest rates to a more normal range, even though the conventional wisdom still believes that there is a negative output gap and mainstream forecasts are not all that buoyant.
There are other ways in which a little more common sense could be shown in interpreting the rules. For instance there could be, as in the USA, an explicit concern for growth, so long as this is not allowed to jeopardise the low inflation objective. And we should also be allowed to talk about how to fight a slump as a hypothetical exercise without predicting one round the next corner. Moreover, the time may have come to reincorporate the National Debt Authority into the armoury of economic policy and widening its present narrow mandate of minimising Treasury borrowing costs. In this country the Bank of England separation from the Treasury is now so well established that some overt cooperation would no longer look like a threat. I have no silver bullet to suggest for asset prices. All I can suggest is that central banks acknowledge some specific duty to watch them - over and above the perhaps remote effect on consumer price inflation. This could perhaps be squeezed into the present British regime in terms of the joint Treasury-Bank-FSA responsibility for financial stability.
I would like to end with a more general moral. John Stuart Mill asserted that challenge and debate were just as essential for the exponents of the prevailing wisdom - itself the result of radical challenge a generation back - as for their opponents. For without constant challenge their understanding would atrophy into a formulaic orthodoxy; and it is in this spirit that I would agree that inflation targets are not the end of history.
bruciebabie said:
Lamont' s quite a nice bloke compared to Julian Clary - who's a one-trick pony basically.
And Lamont is a t
Trolling again Brucie?
Not really. A little less tongue in cheek than normal. I really think Norman was the fall guy of the ERM fiasco and that he set up the modern methods for managing the economy for stability and growth. He was mainly a victim of not being telegenic. He comes over stiff and awkward whereas I am sure that he is a very clever and nice person. Like Prince Charles he was a victim of our crap press. The pisser is that Labour are going to get in again on the economy and that the seeds for this were sown by Norman Lamont.
I agree. Black Wednesday was a bit like lancing a boil. From there on things started to improve - steady growth.
Oh good ol Norman. Didn’t he let his basement out to a certain Miss Whiplash.
Definitely Majors fall guy over ERM and said as much in his resignation speech.
Isn’t he now one of the chief ravers in the raving euro-sceptic Bruges Group?
The Bruges Group!! More unofficial Tory policie makers
Definitely Majors fall guy over ERM and said as much in his resignation speech.
Isn’t he now one of the chief ravers in the raving euro-sceptic Bruges Group?
The Bruges Group!! More unofficial Tory policie makers
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