Charles Albert Eric Goodhart, (born 23 October 1936) is a British economist. He worked at the Bank of England on its public policy from 1968 to 1985, and worked at the London School of Economics from 1966 to 1968 and 1986 to 2002. His work focuses on central bank governance practices and monetary frameworks. He also conducted academic research into foreign exchange markets. He is best known for formulating Goodhart's law, which states: "When a measure becomes a target, it ceases to be a good measure."
Charles Goodhart was born on 23 October 1936 in Oxford, England, to Arthur Lehman Goodhart, an American residing in England, and his English wife, Cecily Carter. His father studied law at Trinity College, Cambridge, eventually becoming a law don at Corpus Christi College. Following the family's move to Oxford, Goodhart's father became the Professor of Jurisprudence in 1936 and the Master of University College (1951–1963). While their father was Jewish, Cecily Carter brought up her three sons (Philip Goodhart, William Goodhart and Charles Goodhart) as members of the Church of England. During World War II, Arthur Goodhart's outspoken opposition to Nazism led to Charles (aged 2) being evacuated alongside his two elder brothers to the United States. Upon their return, Charles joined his brother William Goodhart at the St Leonards branch of the (Oxford) Summerfields School. Charles was then accepted to Eton College where he focused on the study of history and languages. After he finished school, he completed two years of compulsory national military service (1955–1956) in which he was involved with the Hungarian Revolution of 1956 and the Suez Crisis and earned the rank of second lieutenant in the King's Royal Rifle Corps.
In October 1957, Goodhart started studying economics at the University of Cambridge, where he was a member of his father's college, Trinity. In his first year, he came first in his course. He learnt under economists such as Nicky Kaldor, Richard Kahn, Joan Robinson, Michael Farrell, Frank Hahn and Robin Matthews. In his final year of study, he was paired in supervisions with James Mirrlees. He completed his undergraduate course with first-class honours. After completing his undergraduate degree at Cambridge, Goodhart moved to the United States in 1960 to begin research at Harvard University studying trade cycles. In June 1962, following the completion of his doctoral thesis, which analysed United States monetary history (specifically why the economy rebounded in 1907 but not in 1929), Goodhart and his new wife travelled back to Cambridge. He took up a Prize Fellowship at Trinity College and became an assistant lecturer in economics (1963–1964). He spent the next two years interpreting English monetary history by cumulating and analysing the monthly reports of the London Joint Stock Banks, which were published after the Baring crisis of 1890.
London School of Economics (1966–1968)
In 1964, Goodhart briefly joined the Department of Economic Affairs. During this time, he worked on white papers, planning the growth of the energy, construction and housing sectors in England. Goodhart left the Department of Economic Affairs in 1966 when he joined the London School of Economics as a lecturer on monetary policy. During this time, he contributed to a study on English monetary policy "Monetary Policy in Twelve Industrial Countries", which was commissioned by the federal Reserve Bank of Boston. He also co-authored an article in the field of political economy alongside R.J. Bhansali, which featured in the journal Political Studies. He stayed at the London School of Economics until 1968.
Goodhart left the London School of Economics to work a temporary two-year assignment at the Bank of England. He found his expertise in monetary economics and his knowledge of Milton Friedman's ideas to be of high value. He was allocated to the Economic Intelligence Department, which was responsible for calculating and simulating economic statistics as well as writing the Bank of England's Quarterly Bulletin. His first job at the Bank of England was to explain the concept of domestic credit expansion to individuals within the Bank, while conveying the Bank's viewpoints on such issues to outside economists. In 1970, he was tasked with empirically assessing the predictability of the demand for money, and had the results published in the Bank of England's Quarterly Bulletin in a paper called "The Importance of Money". During this time, Goodhart served as the first secretary of the Monetary Review Committee, who provided summarised views of monetary developments to the Chancellor of the Exchequer and HM Treasury.
While attending a conference held by the Reserve Bank of Australia in 1975, Goodhart wrote in his footnotes "whenever a government seeks to rely on a previously observed statistical regularity for control purposes, that regularity will collapse". This quote became known as Goodhart's law; it is commonly expressed as: "When a measure becomes a target, it ceases to be a good measure". In 1979, Goodhart jointly wrote a paper, which was published in the Bank of England's Quarterly Bulletin. It advised the new Thatcher government against implementing monetary base control. In the early 1980s, Goodhart joined the home finance division of the Bank of England, under John Fforde. In 1980, he was promoted to Senior Adviser at the Bank of England and stayed at this role until 1985. Following the events of Black Saturday, Goodhart travelled to Hong Kong to assist in implementing a currency board system that was linked to the United States dollar. This system helped solve the Hong Kong monetary crisis. Goodhart served on the Hong Kong Exchange Fund Advisory Council (an advisory board for the Hong Kong Monetary Authority) from 1983 to 1997).
London School of Economics (1986–2002)
Following Goodhart's departure from the Bank of England, he re-joined the London School of Economics as the Norman Sosnow Professor of Banking and Finance. He co-founded the Financial Markets Group alongside Mervyn King, in 1986. In late 1987, he gave his first lecture, "The foreign exchange market: a random walk with a dragging anchor", which was reprinted later in Economica. During this period (1988–1995), his work focused on foreign exchange markets, specifically analysing the efficient-market hypothesis. To help with this research, Goodhart (with the help of Reuters) built his own data series. He then collaborated with Swiss firm Olsen and Associates to lead conferences about the importance of high speed data analysis and collection. His results from his work were published in his book The Foreign Exchange Market: Empirical Studies With High-Frequency Data. Questions he asked Neil Shephard around 1991 encouraged the latter to work on problems in financial econometrics.
Goodhart helped advise and publicly supported the Reserve Bank of New Zealand Act (RBNZ) 1989, which permitted the Reserve Bank of New Zealand to vary interest rates to help meet agreed inflation targets. In 1990, Goodhart was elected as a Fellow of the British Academy. In 1997, he was appointed a CBE for services to monetary economics. From late 1997 to May 2000, he was a member of the Monetary Policy Committee.
He retired from the London School of Economics in 2002 at which point he was appointed Emeritus Professor of Banking and Finance. Following his retirement, Goodhart continued to write academic articles and books. He assisted in the British Parliament's review of approaches to monetary policy in 2007. Four years prior to the 2008 financial crisis, Goodhart identified how the global economy was financially unstable in his Per Jacobsson lecture "Some New Directions for Financial Stability?". In the years after the 2008 financial crisis, much of his work has focused on fixing regulation to provide financial stability for the economy, specifically providing reforms that "diminish the extent and volatility of the credit and leverage cycles". In an article included as part of the South African Reserve Bank Conference, Goodhart assessed the actions taken to provide global financial stability and concluded: "proposed reforms are incomplete and/or partially misdirected". In 2015, Goodhart critiqued the Warsh Review of the Bank of England's policy on monetary process.