Archive Note
evergreen 2026-08-22
Goodharts Law in Central Banking
#garden #evergreen #inflation #central-banks #macro
When a Measure Becomes a Target
Economist Charles Goodhart stated in 1975: "When a measure becomes a target, it ceases to be a good measure."
Central banks target a 2% annual increase in the Consumer Price Index (CPI). Because policymakers peg credibility to that gauge, governments continually alter how they calculate the index:
- Substituting cheaper goods when steak prices spike
- Applying subjective "hedonic adjustments" to mask sticker inflation
- Removing housing and energy from "core" readings
The official index stays quiet while everyday grocery bills, rent checks, and healthcare costs climb steadily. Real-world savers must track their own cost of living rather than trusting sanitized government proxies.