People have more important things to do in their lives than think about interest rates and bank regulation, about price and financial stability. Or at least I hope they have. Indeed, central banks would be failing in their job if people were spending too much of their lives thinking or worrying about these issues. Nonetheless, the actions of central banks are important for most people at key decision points in their lives. At those points, a trusting and understanding relationship between the central bank and the public matters. It matters for people when making good decisions. It matters for the economy when following a good course. It matters for policymakers when setting good policy. That is why everyday economics, terrible title and all, matters to the Bank of England. 16  All speeches are available online at www.bankofengland.co.uk/speeches  16  Annex  Figure 1 – Study of Mathematics  Per cent of total population at each age  1%  Undergraduate level  12%  A-level  75%  GCSE  100%  Pre-GCSE  Sources: HESA, Joint Council For Qualifications, ONS and Bank Calculations Notes: As mathematics is compulsory at younger ages, we assume that the percentage of students studying it pre-GCSE is 100%. Undergraduate level includes of the professional graduate certificate in education, foundation degrees, HND/DipHE and other undergraduate qualifications. This chart does not include Scottish qualifications.
But if this model is right, higher rates would not help either, as rates substantially above equilibrium would mean that demand for loans from banks would decline sharply and the riskiness of future projects would increase, and even currently viable projects might turn into unviable, nonperforming ones. But let’s go back. What is a real problem, and take it as a criticism of our own club, is that we are unable to explain this story, this narrative. I have long pondered why this is the case. Recently, I caught a glimpse of an answer in the work of the young German economist Benjamin Braun. Like him, I feel that people have simply stopped understanding us. After 2008 we started to tell a different “monetary story” – a different narrative about money and central banks – to the one people were used to. Public confidence in the monetary system was and is grounded in the previous narrative, which in turn is based on three building blocks. One, the central bank is the sole creator of money and thus has perfect control over the quantity of money; money is therefore exogenous, to use the language of economics. Two, commercial banks do not create money but merely convert existing deposits passively into loans. And three, the lower the growth in the price level, the better. This narrative, which some would term imprecisely “monetarist”, did a very good job of reconciling public preferences and central bank decisions when bankers were fighting inflation and subsequently working successfully to stabilise it, i.e.