The side box entitled "Assets, the missing QTM variable" has been updated to reflect the current state of knolwedge on this important topic. The previous model was tested by SEEL only to identify that the projected outputs were not as predicted. This led to a re-examination of the Cambridge Model which also turned out to inappropriate as a predictive model on the impact of savings. We have updated the side box with the latest development of the model. This still includes assets as the currnely missing variable but as part of a formula that can be simulated. This area requires additional development as stated in the latest research paper on this topic released today. The side box has a link to this document.
Question The introduction of coherence, resilience and carrying capacity is well over due. Coherence has long been an OECD concern with respect to policy, it is vital that this becomes part of project planning. For some reason, OECD DAC recently introduced the term cohesion as an additional evaluation criterion, which is less exact.
Answer The term cohesion is difficult to translate into project level metrics whereas coherence can be assigned specific indicators. The OQSI strategy is to pull high level objectives down to practical project level implementations. After all what is achieved nationally is the sum total of operational level performance.
Question The observation and explanation concerning assets missing from the quantity theory of money equation is somewhat alarming. This equation is used to justify monetary policy decisions. Why has this been overlooked for so long since it is apparent that this has undermined the real economy?
Answer This gap in the logic of the QTM (Quantity Theory of Money) was identified as part of the work developed under the real incomes approach (Rio-Real incomes objective) to economics. This issue had been raised in relation to savings by economists at the University of Cambridge over 80 years ago. Paradoxically this included Keynes. However, the Rio analysis introduced assets to the QTM and this exposed the negative impact of assets on real incomes and exacerbation of income disparity. Even Mervyn King, the ex-governor of the Bank of England, admitted to this impact of quantiative easing within 3 years of it having been introduced. There is a general admission that this policy has favoured financial intermediaries and banks.
We have probed for reactions to these facts but so far no one has come up with an explanation to justify this phenomenon. It is notable that central banks continue, even now, quantiative easing which continues to undermine the real economy. There appears to be a reluctance on the part of politicians to question this policy because central banks have the image of being independent. But does that make sense? It is worth raising these points with community and constituency representatives