The Quest for Stability
Published: September 2002
The UK seems to be enjoying a golden age of macroeconomic policy-making.
Growth is steady; inflation is low and stable, and unemployment is low. After
years of trying to achieve economic stability we seem to have found the answer.
This paper explores the history of policy-making from the late 1950s. For many
years the presumption was that active demand management could be directed at
achieving a desirable (low) level of unemployment. Pursuit of that policy helped
produce the disasters of 1975 and brought the recognition of supply-side
constraints. Progress has been uneven but the system set in place after 1992 and
the move, four and a half years later, to the establishment of the Bank of
England’s Monetary Policy Committee have produced an effective and highly
successful system of policy-making. Ironically, stability of output, and a low level of unemployment, have been achieved when they have ceased to be explicit
objectives of policy.