Image by Admit One
Simon Ward in the Financial Times argues that current inflation in the UK (running at 2.4% officially, or 2.75% by his estimates) represents “an overly-loose monetary policy stance” and requires the Bank of England to raise rates sooner than expected.
Now, by any historical standards in periods when everyone was prospering, 2.4% is not high. Neither is 2.75% In fact, because of price and wage stickiness, having low inflation (say at 2%) is anti-growth. It makes it so that sectors in deflation can’t reduce relative costs, because they can’t drop nominal costs. The author does go on to acknowledge that his argument is based on the Bank of England setting inflation targets correctly, but that’s entirely the point: most central banks aren’t, especially in the Western world.
As usual the issue is this: having come of age during the great stagflation spike of the 70s and early 80s, or having been trained and mentored by those who did, current decision makers are constantly fighting the last war, a war that ended almost 30 years ago. They have a fear of inflation which borders on paranoia. This isn’t 1980. Attempts to fight inflation in particular sectors (meso-inflation) as if it is macro inflation, by using clumsy gross macro-tools will do more harm than good. Absent a new great depression across the entire world, riptide inflation, especially in commodities and oligopoly goods, is not going away.
Particularly fascinating is Ward’s claim that since bank lending rates have become disassociated from official rates from the central bank, that a raise won’t effect the British recovery. If it won’t effect rates, then one is hard pressed to understand what effect it will have at all. The answer, according to Ward, appears to be psychological. Raising a rate which does not effect actual rates will harm no one, but still reign in inflation.
This is magical thinking at its best, and deserves a visit from Tinkerbell. Clap, or inflation will kill a fairy!
Tom Hickey
Mainstream economists just make stuff up to suit them. It’s based on a logical fallacy called “assuming the conclusion.” That is the problem with assumption based models. Milton Friedman was an expert at this and even bragged about it, according to one of his students, based on the end justifies the means.
jo6pac
http://londonbanker.blogspot.com/
There’s an interesting story about this here, the Bank of England has no power acording to this or may be I read it wrong wouldn’t be the first time.
S Brennan
Tom H, I am quoting myself from a comment on economists that got me me banned from Mark Thoma’s site:
“…my criticism is not directed at every INDIVIDUAL economist, rather it is directed at those who either support or remain silent while others provide highly complex technical reasons for barbarous behavior. Much of economics today isn’t about truth or near truth, it’s about justifying the rape of less fortunate and the planet itself. Religion once filled this role, but tiring of the indefensible, they’ve turned the dirty work over to “Economics.”
In fairness to Thoma, I also:
“ridiculed a quoted economist, one David Warsh who supported Alvin Roth’s supposition that economists predictions and designs were as reliable as an engineers* I said, “The economics profession would need to go through the equivalent of a Copernican revolution before this would be true”.
Apparently, not only are the high priests of this profession often wrong, they are also pretty thin skinned.
Mandos
Yay! The Magical Confidence Fairy makes an appearance!
S Brennan
And speaking of well paid prostitutes “Let’s Invade Iraq” Ezra speaks for maximizing corporate profits in Health Care by establishing corporate death panels…like Draft boards they will decide who will live or die…..rich kid…life, poor kid…die..rich kid…life, poor kid…die, rich kid…life, poor kid…die, I’m sure it will be fairly apportioned.
Ezra, how’s that public option coming?
http://voices.washingtonpost.com/ezra-klein/2011/02/how_penicillin_fooled_us.html
Sadly, Klein ignores the salient fact that more human lives have been saved through good publicly paid for engineering projects, clean water, sanitation, drainage/mosquito abatement…on and on…than all the medicines combined. In fact, until recently, doctors had negative numbers…they killed more than they saved.
Few Americans know for example that in 1870 Chicago, a leading cause of death was malaria. The willful ignorance of our pundit class is the damnation of this country.
David Kowalski
The people making policy see only what happens to their group, the elite. The stock market is back to pre-crisis levels and corporate profits are fine therefore the “recession” is over.
Root for the Dow to take a tumble folks. That is the only way these creeps will address real problems in the economy rather than “inflation” and the “budget deficit” and “entitlements.” The Dow at 6,300 created a TARP and a stimulus. The Dow at 12,000 creates more war on the lower 95%.
Ian Welsh
Brennan: Yeah, I’d say that’s about right for economics. Mind you pre-Copernican astronomy could predict a number of things fairly accurately, IF you were really really good with its ridiculously over-complex models.
Morocco Bama
They say a picture’s worth a thousand words. This one surely is. It positively stinks.
http://i.imgur.com/aqwTr.jpg
Metaphorically speaking, whilst those fine thugs in Greenbay were beating a harmless purse snatcher to death, the real predatory threat was foreclosing on their home, sweeping their bank, savings and retirement accounts and handing them their pink slips. The elephant is so large, most people just can’t see it. Instead, it’s the mouse in the corner that takes the heat.
Notorious P.A.T.
Wow S. Brennan, that’s quite a column. “Health care is hard! And costs money!” So I guess there aren’t any countries that do it better than America at lower cost, huh Ezra? And if there were, I suppose we shouldn’t emulate them. Meanwhile his commenters are frothing at the bit to turn the US into Logan’s Run. What a country.
Z
David,
You wrote this:
“Root for the Dow to take a tumble folks.”
It won’t tumble becoz the government/fed/wall street won’t allow it. This is far, far from a free market … which I’d imagine you’d agree with … this market is being jacked up from the fed’s printing presses feeding wall street and the federal government totally looking the other way as “our” markets get pushed around any direction the bankers desire. And then, of course, the wall street money gets funneled back into our two corrupt political parties so that it stays that way.
I doubt that this is any revelation to you though, Dave.
Z
S Brennan
Apparently, when economists won’t whore themselves out willingly, pimps just drag them to the street to be paraded naked on astroturf’ed walkways. I can hear it now…”I OWN YOU! Now…get your skanky ass out there”
http://www.ritholtz.com/blog/2011/02/more-astroturfing-ginned-up-study/
If the didn’t have such a vile rep…perhaps somebody would care.
Morocco Bama
Z, you are correct. The “Market” is being held afloat because it contains the Technocrats (those who do the bidding of the Plutocratic Oligarchy) retirement. It’s why 70% of all trades are programmed. Rational Investors are precluded from taking the “Market” down to rational values.
For comic relief, on occasion, I look at Yahoo Finance’s reasonings for “Market” fluctuations. There are a significant number of people who read that satirical shit with a straight face. That’s likened to believing Curb Your Enthusiasm is a drama.
Morocco Bama
It’s the reason I never read, or listen to Economists. Why are others reading them if they believe it’s poppy cock?
bob mcmanus
http://agonist.org/numerian/20110215/machiavelli_ben
Numerian of The Agonist on the Bernanke Put
S Brennan
Speaking of economics, From my FBook
“The US Ministry of Dis-Information has put out a neat little chart to channel our thinking into easily digestible bits. This is a great convenience for some as “Myths which are believed in tend to become true.” For those who like a little realty with their news, see my thoughts in comments.
http://www.nytimes.com/packages/html/newsgraphics/2011/0119-budget/index.html
Here are the Dis-Information that I caught.
DoD is closer to ~800 Billion, not ~ 450 Billion
The two wars are nowhere to be seen, how come? That’s ~300+ billion not counted.
…
SSI is running a ~800 Billion dollar deficit? Bull Poopy, there’s a pile of treasuries that will hold out until 2039.
How can we have a democracy if the governed can not give “informed” consent. This is truly an Orwellian piece of work…well, piece of something. See More
40 minutes ago · Like
BDBlue
On the “up” side, a lower prime rate pretty much guarantees that you can’t earn any return on CDs, t-bills, or similar investments, forcing people who need to earn money on their money (real people, not banksters) to seek it in the crap Wall Street sells. Seriously, banks may charge 30% interest, but they pay less than 2% and sometimes less than 1% on any savings.
S Brennan
Notorious P.A.T.
Here’s somebody that did as Ezra suggested.
http://thelipstickchronicles.typepad.com/the_lipstick_chronicles/2011/02/the-least-of-us.html
She did the honorable thing and died without much expense…thus making it easier for our Mr. Klein to buy that Georgetown row house on one of Georgetown’s most sought after blocks…all before he reaches the tender age of thirty.
After all, Ezra EARNED it by selling the Iraq Invasion in 2003 while still at UC Santa Cruz…I mean what could be harder?
When I was a kid, Alfred Hitchcock had a TV series where characters like Ezra were used as mince meat [literally] to make a moral point.
Cujo359
Morocco Bama writes:
I pay attention to the ones who actually pay attention to what’s going on and learn from it. They’re trained observers, and thus worth listening to. Many, however, don’t pay much attention to such things, and never question their assumptions. This would seem to include an astonishing number of people who write editorials for the Financial Times. Those people are not worth paying attention to.
I used to joke that, based on what I saw on the news on TV, economists were a class of people who sat around in $1000 suits discussing how much unemployment was good for the economy. I don’t think that’s an accurate characterization, but I can’t blame people for thinking it is.
As for economics being like engineering, you’re right S. Brennan, it’s not even close. In fact, I don’t even think it rises to the level of computer programming, a technical specialty with nowhere near the rigor of most branches of engineering. At least in that field people track bugs and learn from them. In economics, it often seems that there really are no bugs, only features.
Oh, and for anyone who thinks that engineers always get it right, I have a reading list to recommend to them…
Mandos
To concern troll their blogs?
someofparts
Just spotted a stunner at Corrente. US/Canada regulatory merger. omg
http://correntewire.com/youve_got_be_farking_kidding_me#more
Formerly T-Bear
@ someofparts
I will up you from FDL:
http://news.firedoglake.com/2011/02/16/teachers-walk-out-in-madison-to-join-protests-over-public-employee-bill-in-wisconsin/
A rolling strike of all public employees is called for until those endorsing the bill are removed from public office. Don’t settle for anything less and for Dog’s sake, don’t wear orange, it’s been done, already.
lambert strether
S Brennan:
I really wish we could abandon the “politician [or economist or bankster] as prostitute” trope. For one thing, it’s insulting to prostitutes, who, whatever their human failings, don’t collapse economies or blow hundreds of thousands of humans to red mist. Our policy elites are far worse than prostitutes.
S Brennan
Lambert while I concede that calling economists whores is unfair to all the hardworking hookers out there…
…from personal experience, men [and it’s men 99.9% of the time] are much more fearful of being called a whore and being laughed at as a result, than being called a murderer and being feared as a result. So will continue to use the metaphor…your aesthetic objections are duly noted.
Notorious P.A.T.
“After all, Ezra EARNED it by selling the Iraq Invasion in 2003 while still at UC Santa Cruz”
Well, that Curveball guy sure sounded like he knew what he was talking about. . .
David H.
I used to joke that, based on what I saw on the news on TV, economists were a class of people who sat around in $1000 suits discussing how much unemployment was good for the economy.
This is actually true, though, in effect. Since the govt abandoned its responsibility to ensure (or at least try to achieve) full employment, the neolibs have very pointedly used unemployment as a tool to fight inflation.
The Modern Monetary Theory-expounding Billy Blog explains in understandable detail how this, and much more besides, has been happening for 30+ years.
Regardless of what one may think about MMT, the non-theory part, which explains how our post-Bretton Woods/gold standard monetary system works today, is invaluable for understanding things like deficits, taxes, public debt and the logical fallacies employed to fool us into fearing things which should not be feared (though there is plenty else to fear.)
grs
Ian, can you expand on “riptide inflation” please?
someofparts
Thanks for the link Formerly T-Bear. Wisconsin public employees rock. Also impossible not to smile at the way the Packers stepped up. What do they put in the water up there? More like this please.
sona
Tom Hickey
“Mainstream economists just make stuff up to suit them.”
mainstream economists – who may they be? stiglitz? galbraith? krugman?
economics is a social science and should always have remained firmly within the ambit of political economy that adam smith understood and keynes identified with
please don’t confuse economists as anything other than the political animals they are – it’s not so much the assumptions, they can be questioned, but the hypotheses that lay bare their ideological slant – and all amount of bogus data do not change that – just try to follow laffer – it’s very easy to amass data to prove a point but much harder to justify the bias applied to select particular data sets