Smarter Policies for Growth
Adaptive Inflation Target
We propose giving the European Central Bank a range-based, flexible inflation target tailored to our unique economic needs.
The 2% inflation target was introduced in the 1990s by New Zealand’s Finance Minister, and has since been followed blindly by central banks without a solid economic basis. This rigid target has proven ineffective for today’s economy.
Our Solution
Balanced Inflation Target
A flexible range-based inflation target — from 1% to 5% — will allow the ECB to adapt to the evolving economic landscape.
This would allow for the gradual increased reduction of debt when needed while promoting economic fairness.
A flexible target gives the ECB the ability to adapt to economic shocks and rising debts, enabling nuanced monetary policy. This adaptability is crucial for mitigating crises and fostering growth. By responding to indicators, the ECB can implement timely measures to prevent disruptions that could negatively impact families.
With more control over inflation, the ECB can help manage housing prices effectively. This will slow unsustainable property price rises and make homes more affordable. A higher inflation target leads to higher interest rates. However, with an EU agreement, all public service wages will rise with the inflation target.
The ECB can set inflation levels that reflect our economic needs by moving away from the arbitrary 2%. Public sector pay must link to the new inflation target set by the ECB each year to prevent governmental collapses like that of the Barnier French Government.
Our Goal
Rebalance the System
Wages that Keep Up with Living Costs
Public sector pay would increase in line with inflation targets as a minimum. This means your wages would better reflect the actual cost of living, so you’re not left behind as prices rise. Whether you work in the public or private sector, this helps ensure your income grows at a sustainable pace. Targeted Good Inflation is the enemy of Debt.
Lower Cost of Living
A more balanced economy means lower pressure on essential costs, like childcare and everyday expenses. With better inflation control, you won’t see prices climbing out of control, giving families more money for the things that matter most.
More Affordable Housing
By managing inflation at a moderate level, we can slow rising property prices, making homes and rents more affordable. If repayments are fixed and wages increase, the ECB’s aim for a structural de-leverage of EU debt targeting 5% could enable wages to rise significantly while housing costs remain stable for fixed mortgage holders. The 2% fixed target has often been near zero, limiting price growth, except during events like a pandemic. With controlled inflation, housing costs decrease as wages rise. Families could allocate more to childcare, education and cultural experiences instead of high expenses.
Rebirth of Main Streets
Since the Lower 2% target was introduced, we’ve stripped people of surplus income, making them slaves to housing costs. If we trust the ECB with structural de-leveraging, it can allow people to spend locally, supporting shops, bars, and restaurants. This gradual de-leverage, over 10 to 20 years, will counter the decline of Main Street seen over the past two decades.
Make Europe Great Again
The Disastrous Impact
2% Inflation Target
We know the 2% Inflation target, was a guess with no science behind it.
Anyone who tells you it’s a good idea has either not done the analysis. This makes them look incredibly foolish. Otherwise, they are snake oil salesmen selling the theory of the World is flat economics.
The acceptance of the 2% inflation target lacks scientific backing. It is the biggest stain on the credibility of the Central Bank in the last 100 years. As we educate the citizens of Europe, they will learn why this 2% target is one of the greatest failed experiments in human history. We will, as collective Europeans, drive the change through our trade unions. This change is required to adjust the inflation target to a 1-5% flexible range set annually by the ECB. This will drive the change we need to get the lives we all deserve to have.
Below is not an exhaustive list of harm the 2% target has done to damage people lives and the future of our Nations. It’s 14 points and there is many many more. But it is a flavour of how the 2% inflation target is the main reason why peoples lives have become so challenging.
Low Inflation target is coupled with low interest rates. The theory is your interest rate should be 1% above the targeted inflation rate. But with the 2% rate being shown to be too low to be inflationary in itself, it has led to interest rates being lower than the target 2% over a prolonged period of time.
Low Interest rates, mean assets prices like housing escalate higher.
This is what drove house prices forward and out of reach for so many.
Before the introduction of the 2% inflation target, mortgage durations averaged 20 – 25 years. Since its introduction they have gone out to 35-40 years and in Japan up to 100 year mortgages.
The time of people buying homes in their 20’s is a forgotten dream. It means they have to be in their 30’s before they can get a home.
As we entered the early 2000’s, the interest rates were too low. This was the primary reason for the credit-fueled bubble of the 2000’s that led to the crash of 2008. If we had entered that period with the flexible inflation target set at 5%, it would have matched what was more accurate for the period. The core interest rates would have been 6%. This would have significantly dampened house price inflation. The credit-fueled bubble of low interest rates most likely would not have occurred. Even though the central banks made errors with the 2% target, adjusting it to 5% after 2008 would have been beneficial. If forced inflation through public sector pay increases had occurred, the over-leverage could have been reduced by structural inflation within 4 years. This would have averted the Sovereign debt crisis of 2011 – 2013 in Europe.
Micheal Barniers government in France probably not have collapsed if the inflation target was flexible. European and most global government have too much borrowings. They need structural inflation at the higher end of the target of 5%. This should be maintained for 6-8 years. It will bring down the debt burdens and allow the governments to function.
The 2% target has made people be slaves to housing cost.
With the proper analysis of all the data, it is clear that Nations that adopted the 2% inflation target experienced a decline in birth rates.
84% of women surveyed by Forbes magazine would love to spend more time at home with their children during their formative years. However, they cannot do so because of unsustainable mortgage costs. This is the main reason they don’t have more children.
Childcare costs were not even heard of pre the 2% inflation target, when people had much larger families. The inflation target forces people to bear heavy housing costs. Both parents have to work constantly. They cannot take any time off work.
People have to devote so much money to their housing costs over longer periods of their lives due to the 2% inflation target. This means they cannot spend money on things that matter most to them, like their children. Other priorities include going to a restaurant with their spouse, going on a holiday with their families, or buying a new car.
Today we are at the most stretched point in the failed experiment of the 2% inflation target. People have so little surplus or disposable income. Elements of culture, such as simple activities like going to a pub or the theatre, have really suffered. We have seen many closures of these venues. The idea that young people have changed their habits due to Instagram was rubbished. It argued they were not going out as much. However, this argument was refuted when the younger generation all received the extra money in Government COVID payments. With the extra disposable money, this younger generation were out having a great time. They enjoyed their youth as they should for that short period when the world re-opened. until they spent all the extra money they had. Then it went back to the norm we live in now which is not the norm our people deserve.
Main street decimation, is being blamed on everything from the internet to Instagram. The retail of 100 years ago to today on main street evolves. In 100 years, it will be very different again. The main reason for the decimation of main street is the 2% target. This target has made our currency over stable. Consequently, it has made people slaves to housing costs. People are left with small, paltry amounts of disposable income.