Goodhart's law, although it can be expressed in many ways, states that once a social or economic indicator or other surrogate measure 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 that role. The law was named for its developer, Charles Goodhart

Charles Goodhart

Charles Albert Eric Goodhart, CBE, FBA is an economist. He was a member of the Bank of England's Monetary Policy Committee from June 1997-May 2000 and a professor at the London School of Economics . He is the developer of Goodhart's law, an economic law named after him...

, a former advisor to the Bank of England

Bank of England

The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694, it is the second oldest central bank in the world...

 and Emeritus Professor at the London School of Economics

London School of Economics

The London School of Economics and Political Science is a public research university specialised in the social sciences located in London, United Kingdom, and a constituent college of the federal University of London...

.

The law was first stated in a 1975 paper by Goodhart and gained popularity in the context of the attempt by the United Kingdom

United Kingdom

The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...

 government of Margaret Thatcher

Margaret Thatcher

Margaret Hilda Thatcher, Baroness Thatcher, was Prime Minister of the United Kingdom from 1979 to 1990...

 to conduct monetary policy

Monetarism

Monetarism is a tendency in economic thought that emphasizes the role of governments in controlling the amount of money in circulation. It is the view within monetary economics that variation in the money supply has major influences on national output in the short run and the price level over...

 on the basis of targets for broad and narrow money, but the idea is considerably older. Closely related ideas are known under different names, e.g. Campbell's Law

Campbell's Law

Campbell's law is an adage developed by Donald T. Campbell:The social science principle of Campbell's law is sometimes used to point out the negative consequences of high-stakes testing in U.S...

 (1976), and the Lucas critique

Lucas critique

The Lucas critique, named for Robert Lucas′ work on macroeconomic policymaking, argues that it is naïve to try to predict the effects of a change in economic policy entirely on the basis of relationships observed in historical data, especially highly aggregated historical data.The basic idea...

 (1976). The law is implicit in the economic

Economics

Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...

 idea of rational expectations

Rational expectations

Rational expectations is a hypothesis in economics which states that agents' predictions of the future value of economically relevant variables are not systematically wrong in that all errors are random. An alternative formulation is that rational expectations are model-consistent expectations, in...

. While it originated in the context of market responses the Law has profound implications for the selection of high-level targets in organisations.

It has been asserted that the stability of the economic recovery that took place in the United Kingdom under John Major

John Major

Sir John Major, is a British Conservative politician, who served as Prime Minister of the United Kingdom and Leader of the Conservative Party from 1990–1997...

's government from late 1992 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.

Alternative expressions

• Any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes.

(Goodhart's original 1975 formulation)

• A risk model
  Risk modeling
  For risk modeling in general see risk modelingFinancial risk modeling refers to the use of formal econometric techniques to determine the aggregate risk in a financial portfolio...
  
   breaks down when used for regulatory purposes. (Daníelsson, 2002)

(Daníelsson formally labels this a corollary of Goodhart's Law.)

• Goodhart's law is a generalized social science expression of the more well-known and economic
  Economics
  Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
  
  -specific Lucas critique
  Lucas critique
  The Lucas critique, named for Robert Lucas′ work on macroeconomic policymaking, argues that it is naïve to try to predict the effects of a change in economic policy entirely on the basis of relationships observed in historical data, especially highly aggregated historical data.The basic idea...
  
  .