Jeremy Clarkson as central bank

In all that's been written about Jeremy Clarkson, nobody has pointed out that there's a close analogy between him and central banks.

Mr Clarkson's critics seem to believe that he should have followed the rule "don't punch people." They are wrong. If he'd obeyed this rule, he would not have twatted Piers Morgan. There would therefore have been a sub-optimal amount of twatting.

Equally, however, Mr Clarkson should not be free to hit whomsoever he wishes. This would create the danger that he would sometime hit the wrong person, and it would generate uncertainty among his acquaintances.

We have exactly the same problem with central banks. If these follow a rule* - such as "keep inflation at 2%" - there will sometimes be a suboptimal level of stimulus. For example, if commodity prices surge or if a financial crisis doesn't immediately reduce inflation, a strict inflation-targeting central bank would not loosen policy sufficiently.

Equally, though, giving the Bank full freedom to do what it wants would create uncertainty. In the classic Kydland & Prescott paper (pdf), this leads to unnecessarily high inflation.

What we have in both cases is a debate about rules versus discretion. Rules such as "don't punch people" or "target 2% inflation" can sometimes be suboptimal. But discretion also has costs.

One possible solution to this is what Ben Bernanke called "constrained discretion." This is what the Bank of England has. Its remit (pdf) says:

The actual inflation rate will on occasion depart from its target as a result of shocks and disturbances...Attempts to keep inflation at the inflation target in these circumstances may cause undesirable volatility in output due to the short-term trade-offs involved, and the Monetary Policy Committee may therefore wish to allow inflation to deviate from the target temporarily.

The hope is that this gives us the best of both worlds. The 2% target anchors expectations and so gives us certainty. But allowing the Bank to  respond to shocks gives us more discretion to stimulate growth when necessary.

Again, there's an analogy with Clarkson. A better rule than "don't punch anyone" would be: "punch nobody but we'll allow some exceptions to this."

Herein, though, lies the problem. We cannot precisely specify what these exceptions might be. In the case of central banks, Daniel Thornton has explained why:

The economy is too complex to be summarized by a single rule. Economies are constantly changing in ways difficult to explain after the fact and nearly impossible to predict. Consequently, policymakers seem destined to rely on discretion rather than rules.

Much the same is true in Clarkson's case. We cannot say in advance whom he should be permitted to hit. Piers Morgan, Robbie Savage and Nigel Farage are obviously permissible targets, but there are many potential others some of which have yet to achieve public prominence.

In both cases, therefore, it seems that discretion is best.

But this too has a potentially heavy cost. As Adam Gurri says, people are "terrible" at using their judgment. Again, this is true both for central banks and Clarkson. The ECB seems to have delayed QE until the economy is recovering, just as Clarkson (allegedly) mistakenly punched an innocent man - or as innocent a one as a BBC producer can be.

I suspect one solution to this might be to have form of level targeting of the sort advocated by Scott Sumner:

If you target NGDP to grow at 5% a year, and it grows 4% one year, you shoot for 6% the next.

In effect, if (or rather when) you make an error once, you must aim for the offsetting error later. The analogy for Clarkson would be that, having hit an innocent man, he must err on the side of passivity in future. Sure, this would entail the significant cost of not hitting Piers Morgan again. Luckily, though, what's true for Clarkson should also be true for everyone, so there should be an optimal amount of twatting of Mr Morgan - by which, of course, I mean a very large amount.  

* There is a useful distinction between target rules and instrument rules. I'm ignoring this. 

Comments

[Dave Timoney]

Wouldn't it be safer if he just twatted himself?

[Andrew]

Huge fan of Clarkson and his show, and of course Morgan is a pillock.

But in any working environment, in any company I have worked for or would consider working for, if you hit someone you get fired.

He will not starve in the gutter

[redpesto]

An interesting choice of analogy, since the more obvious one is that Clarkson is 'too big to fail' when it comes to the income of the BBC. Yet, like the banks and investment, it appears difficult to get Clarkson to punch the 'right people' (e.g. green investment bank/climate change deniers).

[Luis Enrique]

In clarksons case the rule is punch sideways

[Steven Clarke]

I think Clarkson should apply Scott Sumner's idea to twatting Piers Morgan.

Let's say (conservatively) he should twat Piers Morgan once a year.

However, he's only done it once, ever. So to make up for all those years he hasn't done it, he'll need to twat him, say, 15 times next year.

[Nick Rowe]

Chris: I am so pleased! You link to me and Scott Sumner in a post on Jeremy Clarkson as central banker!

This is right up there with Chuck Norris as central banker: http://worthwhile.typepad.com/worthwhile_canadian_initi/2011/10/monetary-policy-as-a-threat-strategy.html

[Patrick R. Sullivan]

H.L. Mencken once proposed that citizens should be allowed to assault government employees who'd done them wrong. You could be arrested and tried for so doing, but it would be a valid defense to assert that they deserved it.

'I propose that it shall be no longer malum in se for a citizen to pummel, cowhide, kick, gouge, cut, wound, bruise, maim, burn, club, bastinado, flay, or even lynch a [government] jobholder, and that it shall be malum prohibitum only to the extent that the punishment exceeds the jobholder’s deserts. The amount of this excess, if any, may be determined very conveniently by a petit jury, as other questions of guilt are now determined. The flogged judge, or Congressman, or other jobholder, on being discharged from hospital — or his chief heir, in case he has perished — goes before a grand jury and makes a complaint, and, if a true bill is found, a petit jury is empaneled and all the evidence is put before it. If it decides that the jobholder deserves the punishment inflicted upon him, the citizen who inflicted it is acquitted with honor. If, on the contrary, it decides that this punishment was excessive, then the citizen is adjudged guilty of assault, mayhem, murder, or whatever it is, in a degree apportioned to the difference between what the jobholder deserved and what he got, and punishment for that excess follows in the usual course.'

"The Malevolent Jobholder," The American Mercury (June 1924), p. 156

[Guano]

As Redpesto says, the fitting analogy would seem to be that Clarkson is "Too big to fail".

It is quite remarkable the number of people who, in one way or another, are saying that they will have difficulty in coping without Clarkson on Top Gear and have difficulty in coming to terms with the fact that, if they are deprived of him on their TV in future, it will be Clarkson himself who will have deprived them of that pleasure.

Guano

[redpesto]

The irony is that the BBC may have been in this position before, re. William Hartnell as Doctor Who (if the drama An Adventure In Space and Time is any guide).

Unfortunately, however, getting Clarkson to 'regenerate' (i.e. casting someone else) is proving difficult.