(Not to mention Overton’s Elephant and Overton’s Mouse)
With inflation stuck at 4%, what a terrible problem that it will probably take a deliberately engineered recession to get it back into target. If only the optimal rate of inflation were 4%. Oh wait … No-one can be sure what the optimal rate is, but from the flimsy knowledge we have, 4% is a better guess than 2-3%. Yet to even say so is to play the role of the ‘wet’, the soft-headed person who won’t make hard choices. Welcome to Overton’s gradient.
Named after the American free-market policy analyst Joseph Overton, the Overton Window defines what policy options can be seriously considered and what is regarded (without further thought) as beyond the pale. Thus when Cambridge Economics Professor Cecil Pigou suggested confiscating a portion of the wealth of the richest Britons to pay for WWI, the suggestion was not within the Overton Window, not worthy of serious consideration.
The Overton Window is policed by a committee known as the VSOWP — which, as we all learn in Public Policy 101 stands for Very Serious Overton Window People. The VSOWP are convinced for instance that we couldn’t have inheritance taxes in Australia. So no mainstream politician goes so far as to mention them. Why not? Well because, and did I mention that no politician mentions them? Anyway, look over there.
Of course other things being equal the VSOWP are correct. If you just get up in Parliament and say ‘what this place needs is death duties’ you will not be treated as a political mastermind. But the same can be said of raising any tax. But introduced as the least painful of available options next time there’s a crisis and a fiscal crunch — it could easily squeeze its way into the Overton Window. Except that it won’t because … well you have to put your application into the VSOWP.
In any event, I’ve previously expanded the use of the adjective Overton to allow for the Overton Juggernaut — that’s what every Very Serious Person knows, just knows whether it’s right or not. You know, like it certainly wouldn’t be good to change course and move interest rates sharply lower when forecasters are predicting rising unemployment. And this is itself an example of the Overton Gradient. The Overton Gradient tells you, that when you have a choice, there’s a soft option and a hard one. And soft-options are for weakly, ill-formed folk with no moral or even intellectual fibre.
And the nature of the Overton Gradient explains the more specific phenomena of Overton’s Elephant and Overton’s Mouse. The elephant is the fact that 4% is a good guess at the optimal inflation rate. So it looks like the best inflation target. And the mouse is all the other things the Reserve and the other Serious Folks are talking about instead — more productivity, investment, innovation and wellbeing. No problem with any of those, but they should be addressed on their merits. They’re not substitutes for better macro-economic policy.
Over to John Quiggin.
The release of recent data suggesting that inflation appears to be stuck at 4%, above the Reserve Bank of Australia’s target range of 2% to 3%, has raised plenty of concern among economic and political commentators.