The retreat of German rigour

CHARLES Goodhart, the distinguished British economist and former member of the Bank of England's monetary policy committee, and Volkswagen, the German car giant, were both born within a few months of each other, in October 1936 and May 1937 respectively. There, you might think, the similarities end. But there is more to it than that.

Our good and now not-so-distinguished friends at VW have just demonstrated - in a striking way that is reverberating around Europe and the world - the fundamental truth of a "law" that Prof Goodhart formulated, with regard to monetary targets, about 40 years ago: "Any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes."

In other words, when the authorities start to measure some kind of variable and use it as a barometer of policy and performance, the parameter ceases to hold meaning. Once a measure becomes a target, it loses its validity, as VW - in literally breath-taking manner - has shown with its clinical use of engineering and software to sidestep controls on harmful emissions.