Re: Interest Rates and inflation

["John O'Donnell" <jackodonnell@xxxxxxxx>]

GGard97342@xxxxxx wrote:
>
> Is not the Phillips Curve a case study for Goodhart's Law?
>
> The story is that Phillips was taken to see Edward Heath, British Prime
> Minister  1970-74, and persuaded Heath to use his theory as a basis of
> policy. The result was the curve jumped several notches to the right on the
> inflation scale.
>
> Most people regard Goodhart's Law as a good joke. I believe it is far more
> than that, and feel it is a pity that the rest of Goodhart's work is not as
> soundly inspired.

Goodhart's Law -- "Any observed statistical regularity will
tend to collapse once pressure is placed upon it for control
purposes" -- is an over statement of the problem. It isn't
that statistical regularity will collapse upon use; it is
only such correlations that lack causal relationships that
will collapse. The Phillips curve is a relationship that
lacks causality, dQ/dM = 0 is not.

--
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