Goodhart's law

Ennunciated by, and named for Charles Goodhart (a chief economic advisor to the Bank of England), Goodhart's Law is the equivalent in the social sciences of the Uncertainty Principle in physics. Though it has been expressed in a variety of formulations, the essence of the law is that once a social or economic indicator is made a target for the purpose of conducting social or economic policy, then it will lose the information content that would qualify it to play such a role.

The law was first stated in the 1980s in the context of the attempt by the United Kingdom government of Margaret Thatcher to conduct monetary policy on the basis of targets for broad and narrow money, but the idea is considerably older. It is, to some extent, implicit in the economic idea of expectations and can also be recognised in one of the two postulates of Isaac Asimov's imaginary science of psychohistory.

It has been waggishly asserted that the stability of the economic recovery that took place in the United Kingdom under John Major's government from late1992 onwards was a result of Reverse Goodhart's Law: that, if a government's economic credibility is sufficiently damaged, then its targets are seen as irrelevant and the economic indicators regain their reliability as a guide to policy.