Does thinking help?

Ruth Lea tries to resurrect Norman Lamont's reputation. In this pdf from the Centre for Policy Studies she says he gave Gordon Brown a "golden economic legacy" of low inflation and stable growth. It was Lamont, she reminds us, who introduced the inflation-targeting which contributed to the UK's fine macroeconomic performance.
In strict consequentialist terms, this seems right. And it is not merely a party political point. In this paper (pdf) published by the Bank of England last year, Luca Benati uses some statistical tests to estimate that there was a structural improvement in inflation and GDP volatility in late 1992 - when inflation targeting was introduced. he says:

It is implausible  that the inflation targeting regime did not play any role in the marked increase in overall UK macroeconomic stability [after 1992]. A reasonable interpretation of the evidence is probably that the introduction of inflation-targeting, in 1992, was one of the key factors behind what the Governor of the Bank of England recently described as the NICE [non-inflationary consistently expansionary] decade.

For me, though, this highlights one of the most curious and over-looked paradoxes in the recent history of UK monetary policy.
We can all agree that the UK's membership of  the exchange rate mechanism in 1990-92 was a disaster, whilst the inflation-targeting that followed it was a success.
Herein, though, lies the interesting contrast. The UK joined the ERM after years of public debate and consideration; "should we join?" was a staple question in exams, job interviews and City lunchrooms throughout the mid-late 80s. Sometimes, I got the impression that I couldn't leave the house without someone asking for my tuppenceworth on the question.
By contrast, inflation-targeting was introduced with barely any prior public debate and during a time of panic and disarry in the Treasury. It was chosen because the government needed some montary anchor and the obvious alternatives - money stock or exchange rate targets - had been tried and failed.
So, my questions are: does this show the validity of George Orwell's famous gibe, that the British ruling class will always do the right thing, once it has exhausted all the alternatives? And does it show that consultation, debate and deliberation are not always necessary to produce good policies?

Comments

[Blimpish]

Orwell's observation is bang-on, as so often. The ruling classes haven't been able to rule since the First World War. So instead, they go for all that consultation and deliberation crap. No leadership, y'see - just management, typically of decline. Good little Right-wing masochist that I am, I long for the day that somebody rules over me like a King. That's why Bush gets on well electorally - you might not like him, but you do know where you stand with him. Doesn't seem likely here any time soon, alas.

Re Black Wednesday: what people don't like to consider is the possibility that the harshness of the monetary regime in late-1992 squeezed out residual inflationary expectations and made any new regime (targeting, in this case) much greater credibility. Another one for unintended consequences, I guess.

Re Lamont himself: to be fair, he wasn't exactly dealt a good hand. Tied into the ERM in the midst of a nasty recession with the potential for a debt-deflation spiral, with Germany doing its reunification trick. It wasn't going to be pretty - and then add in that his predecessor was now his boss, too.