Yet proponents of the current regime (of which I was one) justified it not only on the proposition that it would stabilise inflation, but that it would help stabilise the economy. It failed to do so. In terms of lost output, the current slump is far worse than the inflationary 1970s and disinflationary early 1980s. Even with growth at 1.5 per cent a year from now on, output would return to its level of the first quarter of 2008 only in the first quarter of 2015: in brief, seven lost years. This is abysmal, even if a productivity collapse (with worrying longer-term implications) shielded employment.
Moreover, even if one believes that today’s fashionable nostrum – “macroprudential regulation” – would have prevented this dire outcome, what should be done today, while the economy is trapped in a post-bubble slump? In written evidence, Simon Wren-Lewis of Oxford university argues that there is now “a clear conflict” between what a sensible UK monetary policy would be doing and what is actually happening. “Inflation targeting in the UK is not working, and something needs to change,” he writes. I agree.