Simply incredible stuff from the BoE’s Andrew Bailey yesterday (a.k.a Thursday). Is it really truly conceivable that Bailey hasn’t come across how and why Diocletian’s maximum price edict failed? He has got a history degree from Queen’s College, Cambridge, after all?
Yet here’s his stance on how best to moderate UK inflation. From, the Telegraph:
Mr Bailey said that restraint on pay would help stop the inflationary spike becoming embedded in the economy.
Asked in a BBC interview if he was implicitly asking workers not to demand a large pay rise, the Governor said: “Broadly, yes.”
He added: “In the sense of saying, we do need to see a moderation of wage rises, now that’s painful.
“I don’t want to in any sense sugar that – it is painful. But we need to see that in order to get through this problem more quickly.”
In terms of market signalling, this is suboptimal. If I was struggling to make ends meet, read that, I would immediately go ask my employer for a raise. (Or up my subscription rates.)
Which got me thinking, just how much has the Diocletian precedent actually been studied by central banking types? They’re always citing weird episodes from history. So surely the maximum price edit must be up there.
A quick Google search with the site:bis.org parameter however drew an unbelievable SINGLE hit.
It’s a 2015 transcript of the opening remarks by Ms Maja Kadievska-Vojnovik, vice-governor of the National Bank of the Republic of Macedonia. And even that doesn’t mention what should be the relevant part of the Diocletian episode, notably the fact that the maximum price edict (punishable with death) didn’t just not work, but made the whole affair much worse.
A search of the Bank of England material doesn’t fare much better. It yields exactly zero hits.
The Fed site at least yields one relevant draw. But it’s a submitted comment from the Convergence Law Institute on a Federal Reserve notice of proposed rulemaking on debit interchange fees and routing from 2011.
What’s more, the author seems to be making the same observation I am, but more broadly with respect to “price controls” in general. Which can only lead me to conclude the voluminous research catalogues of the world’s central banks may have a Diocletian blind spot.
From comment submission:
The entry goes on to recount the failure of and damage caused by Diocletian’s initiative. The FRB is the government’s premier economic agency. If there is any proposition upon which professional economists would agree, one would think it is the pernicious effect of price controls, and the reality that there is no way to avoid deleterious effects. If evasion is not possible, then withdrawal from the market is inevitable.
Yet one searches the NPR in vain for the term “price controls” or for any recognition that imposing them is a dubious exercise, or that it might set off dislocations that the FRB or the Congress might find unpleasant, or that if this price control law works without evil consequences then the entire FRB staff should demand a refund of the costs of their Ph.Ds.
Bizarre. (Though it’s also possible I’m not googling properly. If you find any relevant hits that I’ve missed please do drop them into the comments below.)
Either way, you can check out the translation of the original edict here, and compare and contrast with Bailey’s comments accordingly.
(P.S. thought it would be at least mid Feb till I had to invoke the Romans. So thank you Andrew Bailey for giving me the opportunity to live up to my stereotype so much sooner than expected.)