Press Release: BoE must abandon inflation targeting to avoid another banking crisis, says new report

For further comments or to arrange an interview, contact Head of Communications Kate Andrews: kate@adamsmith.org | 07584 778207.

  • The Monetary Policy Committee should be scrapped and replaced with a simple rule for the Bank of England to target nominal GDP automatically.
  • Quantitative Easing should replace interest rates as the Bank’s main tool for conducting policy.
  • In the long run, the Bank should be stripped of its powers to control monetary policy and private banks be given currency-issuing powers instead.

The Bank of England should abolish the Monetary Policy Committee, use Quantitative Easing instead of interest rates to conduct normal monetary policy, and switch from an inflation target to targeting the total amount of nominal spending in the economy, also known as nominal GDP, argues a new paper from the Adam Smith Institute released today.

The Bank should prefer a rules-based system like this to the discretionary system it currently uses but, the paper argues, it should ultimately look toward ending monetary intervention altogether. The UK’s monetary regime should eventually aim towards the ‘free banking’ systems that brought financial stability to 18th and 19th century Scotland and elsewhere.

The paper, Sound Money: an Austrian proposal for free banking, NGDP targets, and OMO reforms, is a comprehensive critique of the flaws in the way the Bank of England currently does monetary policy and offers a superior means of achieving their goals of macroeconomic stability.

Quantitative easing should be extended to the market generally rather than being an interaction with a few preferred dealers, so as to minimise distortions caused by buying from select financial institutions, it says. It should be made open-ended, with the purpose of stabilising the growth path of nominal GDP—the total amount of spending in the economy—letting the market determine how much of that nominal GDP is real output and how much is inflation.

Author of the report, Prof Anthony J Evans, concludes that, after a century of failure, it may even be time to strip central banks of their powers over monetary policy entirely entirely, and let private banks issue their own notes.

The paper takes inspiration from the free banking systems of the 19th century, especially those in Switzerland and Scotland, but also from the monetary economics of Nobel Prizewinners Milton Friedman and Friedrich Hayek, who both argued that central bank discretion tends to push the economy away from rather than towards stabilisation.

Friedman showed how the central bank’s unwillingness to accommodate massive spikes in money demand in the late 1920s and early 1930s led to the US Great Depression—and how industrial production rocketed at the fastest pace in history when Franklin Delano Roosevelt raised the money supply to meet market demand by going off gold in 1933. This has played out again in the recent financial crisis, where a free banking system would have seen less fanning of the pre-crisis flames and more water afterwards—tighter policy in the run up and easier policy during and following the crash.

The paper’s author, Prof Anthony J Evans, said:

Since the financial crisis The Bank of England have made important changes to how they conduct monetary policy - such as the introduction of Quantitative Easing and Forward Guidance - and the government have made bold interventions into the banking system. However these drastic measures have failed to identify the root cause of the problem, which is the monetary regime.

Whilst inflation targeting has been discredited, and all but abandoned, it has not been replaced by a coherent and consistent strategy. This paper not only provides constructive advice on how to reform current policy, it places this in the context of a more comprehensive programme for sound money.

If you're going to engage in QE, make it adhere to Bagehot's law. If you're going to target a macroeconomic indicator, target NGDP. But if you want to stop central banks from introducing monetary distortions in the first place, move to free banking.

ASI Director Eamonn Butler added:

The Bank of England – and America’s Federal Reserve – have done a very poor job of managing our money. They have created artificial booms, followed by genuinely painful busts, through decades of following their unreliable ‘discretion’. You cannot fly a modern economy by the seat of your pants: it's time to replace the Bank’s bumbling with rational rules.

ASI Head of Research Ben Southwood added:

With oil price shocks that lead the Bank of England to ‘look through’ first above-target, then below-target, inflation for dozens of consecutive months, inflation targeting has become extremely flexible.

We should go from this de facto abandonment and make it de jure as well, with a simple, clear goal that’s easy for markets to understand and plan based on.

Notes to Editors:

To read Sound Money: an Austrian proposal for free banking, NGDP targets, and OMO reforms click here.

The Adam Smith Institute is a free market, libertarian think tank based in London. It advocates classically liberal public policies to create a richer, freer world.

New ASI paper "A Garden of One's Own" features in the Financial Times

New ASI report A Garden of One's Own: Suggestions for development in the metropolitan Green Belt featured in the Financial Times:

David Cameron’s efforts to raise the rate of home building will fail to solve the housing crisis, raising an urgent need to build on greenbelt land, a free market think-tank said on Friday.

The greenbelt, which limits development in and around Britain’s cities, acts as a “green noose” around urban areas, the Adam Smith Institute said, pushing up the cost of living, reducing the quality of lives and harming the environment.

While acknowledging the value many people put on greenbelt land, the think-tank’s report sought to find areas of land in and around London that were close to existing transport links and of little use in providing green recreational space for residents.

Read the full article here.

The new ASI report, “A Garden of One’s Own: Suggestions for development in the metropolitan Green Belt“, seeks to provide location-specific examples of land under green belt protection which, if built over, would provide enough housing to solve the current crisis and meet all additional housing need until 2030.

ASI paper "A Garden of One's Own" featured by Bloomberg Business and IBTimes UK

New ASI report A Garden of One's Own: Suggestions for development in the metropolitan Green Belt has been featured by Bloomberg Business and the IBTimes UK. From Bloomberg Business:

Soaring demand means London and its surrounding counties will need at least one million new homes in the next 10 years to meet demand and prevent values and rentals from spiraling higher, the Adam Smith Institute research group said in a report on Friday.

Building on less than 4 percent of the city’s Green Belt, the spaces around the city where development is limited, would provide the homes needed, the report said. Almost all of the homes could be provided within 800 meters of a commuter train station, it said.

Read the full article here.

From the IBTimes UK:

Build on the green belt around London to end the housing crisis and take the heat out of rising rents and house prices, argues a new report from the Adam Smith Institute, a free market think tank.

House building in London is running at around half the level needed to meet demand as the city's population grows ever nearer to 10 million. House prices and rents have spiked because there are not enough homes. The average London house price is £531,000, says the ONS. For England, the average is £300,000, including London. Rents in the capital are up by over a fifth since 2011, well ahead of wages.

Read the full article here.

The new ASI report, “A Garden of One’s Own: Suggestions for development in the metropolitan Green Belt“, seeks to provide location-specific examples of land under green belt protection which, if built over, would provide enough housing to solve the current crisis and meet all additional housing need until 2030.

Exclusive: ASI report "A Garden of One's Own" features in the Evening Standard

The Evening Standard ran an exclusive piece on the ASI's new paper: "A Garden of One's Own: Suggestions for development in the metropolitan Green Belt".

London will turn into a “Dubai on Thames” dominated by skyscrapers for the wealthy unless restrictions on building homes on the Green Belt are lifted, the author of a report claims today.

Tom Papworth, of free-market think tank the Adam Smith Institute, said the “unsustainable” policy of protecting Green Belt land from almost any development would lead to further high-rise blocks having to be built in the capital, and house prices continuing to soar.

Currently, more than 260 towers of over 20 storeys are being built or planned in London, with most providing flats for professionals and investors.

Mr Papworth said there were only enough brownfield sites left in the South-East for about a third of the estimated 1.8 million homes needed for the region by 2030 — and some open green space will have to be sacrificed.

Read the full article here.

 

The new ASI report, "A Garden of One's Own: Suggestions for development in the metropolitan Green Belt", seeks to provide location-specific examples of land under green belt protection which, if built over, would provide enough housing to solve the current crisis and meet all additional housing need until 2030.

Press Release: New paper reveals where London's Green Belt must be built on to curtail housing crisis

For further comments or to arrange an interview, contact Head of Communications Kate Andrews: kate@adamsmith.org | 07584 778207.

  • London and surrounding counties need at least one million new homes in the next ten years to meet housing demand, and to stop rents and house prices from soaring higher.
  • Many of these new homes will have to come on greenfield or Green Belt sites because not enough suitable brownfield land exists; we estimate that this will require roughly 20,000 hectares of green belt space.
  • Almost the full amount of space (20,000ha) can be found within a 10 minute walk – 800m – of existing commuter train stations.
  • This paper explores some of the best areas to build on low quality Green Belt around London. Locations include: East of Theydon Bois station, around Redbridge, Pinner Park Farm in Harrow, and some of the hundreds of Green Belt golf courses.

London must build on low quality Green Belt spaces around existing commuter infrastructure to solve its housing crisis, according to a new paper from the Adam Smith Institute which identifies many of those areas.

Building on 20,000 acres of the Metropolitan Green Belt (roughly 3.7%) would create room for the 1m new homes needed, estimating 50 houses per acre; nearly all of which could be built within 10 minutes walk of a station.

The paper, A Garden of One’s Own: Suggestions for development in the Metropolitan Green Belt, identifies specific areas where tens of thousands of dwellings can be built, and points out how providing the housing Londoners need does not require ‘concreting over’ the countryside, destroying amenity, or overcrowding.

The author of the paper, Tom Papworth, considers the five main justifications given for the green belt: to check sprawl; to prevent towns merging; to safeguard the countryside; to preserve historic towns; and to force land recycling; and notes that many pieces of land currently designated that way do not meet any of these.

For example, there is an area of land between Hainault, Barkingside, Chadwell Heath and Colliers Row, totalling about 1,200 ha—or 60,000 dwellings at standard densities outside of London—where none of these purposes apply. It is already swallowed by Redbridge, it would have no impact on merging with London, there are no historic towns, and land recycling is irrelevant.

The table below lays out the total land available of different types that could be used to fill the 20,000 hectare demand, assuming standard densities. At inner London densities of 120 dwellings/ha it would take much less land, and at lower densities of 30-40/ha it would take more.

Screen shot 2016-01-08 at 11.05.17

Screen shot 2016-01-08 at 11.05.17

The author of the report, Tom Papworth, said:

London and the surrounding counties need 1 million new homes over the next 10 years, but there is only enough ‘brownfield’ land for a third of that. ‘Greenfield’ development is no longer a question of ‘if’ but ‘when’.

Green Belts are unsustainable. Green Belt policy pushes up the cost of living, reduces people’s quality of life and actually harms the environment. Yet it has become an article of faith among politicians and is staunchly defended by the (generally wealthier) citizens who live near the Green Belt, and those who value the notion but ignore the harm it does to others.

We have to choose whether to protect valuable inner-city green space or sacrifice our parks for the sake of low-grade farmland, golf courses and already-developed sites that happen to have once been classified as Green Belt. With London’s mayoral election due in a few months, it is time to put housing at the top of the political agenda.

Executive Director of the Adam Smith Institute, Sam Bowman, added:

London’s Green Belt is a corrupt subsidy to the middle class that hurts ordinary Londoners. It doesn’t provide amenity to most Londoners, who rarely even see it, and it drives up land prices which makes houses and inner-city green spaces unaffordable for everybody but the rich. To solve the housing crisis, we need to build more homes. To build more homes, we need to free up some of London’s green belt. It’s as simple as that.

This doesn’t have to mean less green space. More green belt land available for development means cheaper land, cheaper gardens, and bigger public parks and sports fields. Those are green spaces that Londoners actually use. Right now London is being strangled by the Green Belt, and freeing up more of that land for development of houses, gardens and parks would give all of us more room to breathe.

Notes to Editors:

For further comments or to arrange an interview, contact Kate Andrews, Head of Communications, at kate@adamsmith.org | 07584 778207.

To read A Garden of One’s Own: Suggestions for development in the Metropolitan Green Belt, click here.

In January 2015, the Adam Smith Institute released The Green Noose: An analysis of Green Belts and proposals for reform, which looks at the Green Belt’s impact on England’s housing shortage. After a comprehensive review of the causes of the housing crisis, it concludes that the planning structure is out of date and in need of radical reform.

The Adam Smith Institute is a free market, libertarian think tank based in London. It advocates classically liberal public policies to create a richer, freer world.

Meet Ted Cruz: The dark horse who could pip Trump | Kate Andrews' election column in City AM

Kate Andrew's latest City AM column on the US elections, 2016:

Senator Ted Cruz is the most interesting candidate in the US presidential race right now. As a darling of the Tea Party, in 2012, he swept into the Senate, representing Texas, having campaigned on deeply conservative principles and policies. At the time, many dismissed him as a rabble-rouser who would wind up as a less successful version of George W Bush. Now, not only is he leading in the polls in Iowa, but he has also beat out senator Marco Rubio as the dark horse of the race thus far.

Cruz has been criticised for having some of the most conservative views in the contest. Though his conservatism is rooted in a strict interpretation of the US constitution – not the modern populism that has propelled candidates like former senator Rick Santorum and former governor Mike Huckabee to call for heavy defence spending and further government interference – his extreme views on abortion and the death penalty have many questioning if he can appeal to moderate Republicans, let alone independents.

Read the full article here.

Forget Barack Obama's tears, his gun clampdown is pure politics | Kate Andrews writes for the Telegraph

The ASI's Head of Communications, Kate Andrews, wrote an analysis of President Obama's executive action on gun control for the Telegraph, arguing he is playing politics more than anything else:

President Obama has not met a speech he didn’t like; or, let’s be more generous, speeches tend to treat him well. The President has always had a knack for presentation, and his comparative advantage has been to come across likable and relatable in front of crowds, when it’s on his terms, and his topic of choice.

Yesterday, the President was in his element, and the world seemed to pause for his emotional 45-minute speech, detailing his new gun control provisions, which will be carried out through executive order. And his emotional bluntness seems to have come out as the top line of the news story – the clip of the President shedding tears for the victims of gun violence has gone viral.

The President once claimed he wakes up and learns about domestic and foreign happenings on TV news channels like everyone else. At the time, this seemed like the weakest excuse one could come up with for failing to address a scandal that led to hundreds of deaths in veteran’s hospitals. But after watching the President’s address yesterday, I’ve started to believe this is really the case.

Read the full article here.

Banning Trump from UK endores illberal immigration system|Kate Andrews for The Times Red Box

Head of Communications at the ASI, Kate Andrews, wrote for The Times Red Box on why calling for Trump to be banned from the UK is just as bad as him calling for muslims to be banned from America.

Who could have guessed that after Trump called for an illiberal immigration system that keeps people out of a country based on their beliefs, over half a million people in the UK would sign a petition to show their support for such a policy.

Those who signed the Ban Trump campaign must think his exile would be a punishment to fit his crime. Unlike Trump’s view on Muslim immigrants, their views on Trump are undoubtedly correct, which makes revoking his freedom of movement morally permissible from their perspective.

Read the full article here.