Goodhart’s law is an important economic principle that states that when a particular economic indicator (such as inflation or unemployment) is used as a target for government policy, it will inevitably cease to be an accurate measure of the underlying economic reality.
The law is named after economist Charles Goodhart, who first articulated it in 1975.
Goodhart’s law is often cited as a reason why governments should be cautious about using specific economic indicators as targets for their policies.
For example, if the government targets inflation as its main policy goal, this could lead to all sorts of unintended consequences, such as higher unemployment.
Goodhart’s law is a useful way of thinking about the complex relationship between economics and society. It is a reminder that no single economic indicator can ever give us the whole picture of what is happening in an economy, and that we need to be careful about using any one indicator as a target for policy.
Life lesson: We need to be careful about using any one indicator as a measure of success. We should always look at the bigger picture when making decisions.