Finance & Fury Podcast

Welcome to Finance and Fury Talked about the inflation targets, interest rates and monetary policy over the past few weeks – Today – go further into looking at a completely controlled economy by Central Banks – To start – look back to an RBA paper from 1975 – this was where a thing called Goodhart's law originated – from economist Charles Goodhart – Phrased as "When a measure becomes a target, it ceases to be a good measure."  Applied in economics – based on the economic idea of rational expectations Entities who are aware of a system - rewards and punishments - will aim to optimise their actions to achieve their desired results E.g. employees whose performance in a company is measured by some known quantitative measure (cars sold in a month etc.) will attempt to optimise with respect to that measure regardless of whether or not their behaviour is profit-maximising – Sell all the cars at $100 – looks good for your performance but sends the company bankrupt – now your performance doesn’t matter as you don’t