The Economics Show
Martin Wolf talks to Mervyn King: why central banks got inflation wrong
Apr 14, 2025
Mervyn King, former Governor of the Bank of England and author, joins Martin Wolf, chief economics commentator at the Financial Times. They dive into why central banks mismanaged inflation post-pandemic and the challenges ahead. King discusses the importance of maintaining independence amid political pressures, especially as the landscape shifts with cryptocurrencies. They also reflect on the economic fallout of Brexit and how it has reshaped fiscal strategies in the UK. This engaging conversation is both insightful and eye-opening!
30:35
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Quick takeaways
- Central banks misjudged inflation by underestimating the money supply's influence, which led to severe post-pandemic economic consequences.
- The rise of digital currencies presents both opportunities and challenges, prompting discussions on regulation and the future of payment systems.
Deep dives
Central Banking and Inflation Mismanagement
Central banks, including the Bank of England and the Federal Reserve, faced severe criticism for their handling of the post-pandemic inflation spike. An intellectual misstep led these institutions to downplay the connection between money supply and inflation, fostering a groupthink mentality that characterized inflation as primarily a transient phenomenon. This faulty reasoning persisted even as significant amounts of money were printed through quantitative easing, ultimately contributing to rising inflation levels. The mismanagement included a misguided response that attempted to boost demand while supply-side constraints were present due to pandemic-related shutdowns.
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