And indeed one of the benefits of low inflation is that price signals carry more information, making price comparisons worthwhile. Understanding what is happening is relevant to monetary policy. To the extent that a fierce competitive struggle is squeezing retail margins, it is likely to affect the shortrun outlook for inflation. While such a squeeze won’t have an effect on inflation in the longer term, it could herald a lasting improvement in productivity across the sector as a whole. This brings me to my final issue: whether productivity in the UK will accelerate as it seemingly has in the US.6 Since 1995 the growth of US productivity has doubled and the improvement has been sustained through the stock market crash. This is directly relevant to current thinking about US monetary policy. If faster productivity has indeed helped to create a high level of spare capacity and contributed to a higher growth in underlying supply, holding interest rates at historically low levels for some time should not add to inflationary pressures, even if demand grows rapidly. This is a key reason why the Fed believes it can be ‘patient’ in raising interest rates. The US evidence does seem to suggest that productivity has accelerated and that ICT has played a substantial role in raising productivity in non ICT sectors. This answers one puzzle, neatly posed by US economist Robert Solow when he commented that ‘You can see computers everywhere but in the productivity statistics’.
Without evidence about what works best, governments end up effectively running a mass experiment on everyone, but without the appropriate controls and therefore without learning as much as they could do to improve their policies. In this regard, the "causal revolution" of the past 30 years has also been characterised by the increasing attention that researchers have devoted to justifying causal interpretation of their research findings. In parallel, the appearance of new data, together with new concepts to be measured and new measurement techniques, have multiplied the opportunities to provide convincing descriptive analysis, even in the absence of experimental data. The influence of these approaches has been immense and has given rise to empirical results capable of shaking the most entrenched beliefs of economists. The truth is that there are still wide disparities in data availability across countries. At one extreme there is Denmark and other Scandinavian countries, with a culture that encourages the use of public data by the research community for the common good. But, in most cases, even if public administrations are repositories of enormous wealth in the form of individual data, the administration that holds the data is not capable of exploiting their full potential. Analysing this data is not their main priority and information is usually scattered among various administrations that do not readily communicate with each other or are very reluctant to share their data, even with external researchers.