Rodney Responds: Economists need to understand how things work
Some of the points raised by the economists Jenny Ruth interviewed in her article on www.goodreturns.co.nz dated 29 June 2011 warrant comment.
The economists Jenny interviewed were more interested in branding my idea of keeping the OCR more stable as "left field" or clinging to the tradition of how things have been done than they were in looking at the facts. No wonder economics is called the dismal science.
Any reasonable consideration of the facts reveals that the way the Reserve Bank (RBNZ) operates monetary policy creates major instability in interest rates and economic activity, and massive instability in housing market activity. Most importantly, this instability has little if anything to do with the RBNZ achieving its medium term inflation target. This is contrary to what the RBNZ is supposed to be doing and more importantly it has a major negative impact on everyday Kiwis and Kiwi businesses.
If some of the economists took more notice of how things actually worked in the economy rather clinging to how monetary policy is currently operated because that is how it has been done for a long time it would be refreshing.
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