Mark Carney: Lambda

Speech by Mr Mark Carney, Governor of the Bank of England and Chairman of the Financial Stability Board, at the London School of Economics, London, 16 January 2017.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Good evening. It is a pleasure to be at the LSE and an honour to share the podium with Amartya Sen.

Professor Sen is rightly recognised for his many contributions, not least to welfare economics and social choice theory. He has posed, and in many cases answered, some of the most fundamental questions facing economists. For example, given the diversity of people's preferences, is it possible to arrive at coherent aggregative judgements about how society is arranged? If there are as many preferences as there are people, is reasonable social choice possible at all? And how do we value public goods?

His work underscores the value of empirics - informational broadening - to help make the interpersonal comparisons necessary to understand, and act upon, the force of public concerns about poverty, inequality, even tyranny. And his insights have been applied to the most pressing economic and ethical questions, such as the prevention of famines.

His insights are also relevant to social choices about macroeconomic stabilisation, including inflation control, and what society is prepared to do to achieve it.

What level of inflation does society wish to achieve? How aggressively should inflation stabilisation be pursued when doing so imposes costs in terms of lost output and higher unemployment?