#BTColumn – Powell’s great expectations (Part 1)

The views and opinions expressed by the author(s) do not represent the official position of Barbados TODAY.

by Adrian Sobers

“Inflation at these levels is, of course, a cause for concern. But that concern is tempered by a number of factors that suggest that these elevated readings are likely to prove temporary.” – Jerome Powell

In his speech delivered at the Library of Congress in 2007, CSME: A Historic Necessity, then Prime Minister Mr. Owen Arthur, made reference to his role on the evening as historian, “not so much an economist.”

The speech can be found in, The Essential Owen. A reading of which will make clear that the former Prime Minister was very well read. If we read recent events, it is clear that the current Prime Minister is very, well, Red. (I leave it to the reader to decide if that Red is a display of loyalty to a party headquartered in Barbados or Beijing. Put the BBC reporter in her place they said. Really now.) Peter Canellos (The Great Dissenter), tells the story of John Marshall Harlan and recalls when a young Harlan first hit the speech circuit.

The Kentucky Tribune reported, “We do not think that a speech better calculated to increase the true American sentiment, more abundant in sound argument, or better supported by sound proof, has been delivered during the present canvass.”

The Louisville Daily Courier agreed: “It is a pleasant thing to sit under the sound of such a voice, modulated as it is to please the most cultivated ear, and still more cheering to listen to words fraught with sound reasoning, strong argument […].”

The same can be said of the speeches selected for The Essential Owen. Sound argument and reasoning in abundance. If you get nothing else from this, at least add this title to your library.

A recent post on the Instagram page of the Jamaica Observer read, “The signal from the Bank of Jamaica (BOJ) that it could increase its benchmark interest rate at the end of this month as it seeks to contain inflationary pressures, is seen as a wrong move at this time by at least two economists and an investment banker.”

One person commented, “Inflation is killing the people dem out there.” A TikTok video from @ willylondon showed him in a supermarket: “Things a get outta hand … [lost in translation], six meals that”. He then showed a package of salt fish (0.840 kg) with a price tag of JMD $1,392.73 JMD (about BBD $20). Another man overheard him and said, “life hard”. Indeed, and it will only get worse.

To understand why the symptoms of inflation in the form of general price increases will continue to kill “the people dem”, not only in Jamaica but in Barbados, and elsewhere, I draw your attention to another speech. On August 27, Federal Reserve Chairman Jerome Powell delivered his address at the annual Jackson Hole meeting.

It was titled, Monetary Policy in the Time of COVID; but it could easily have been: Powell bets your house, car, and purchasing power on “transitory” inflation.

There are several points in Mr. Powell’s speech that are worth discussing but I want to focus on the historical: “History also teaches, however, that central banks cannot take for granted that inflation due to transitory factors will fade.”

Mr. Powell argues that he does not want to repeat what he deems to be a mistake on the part of his (unnamed) predecessors by preemptively fighting inflation that turns out to be transitory. But Lord have His mercy, there has never been a point in history when interest rates, now at 0 percent, have been artificially suppressed for so long. So even if Mr. Powell’s transitory narrative is correct (and it isn’t), it is not an adequate justification for this prolonged suppression.

There is no basis, historical or otherwise, for this supposed fear of being too aggressive in fighting inflation, when truth be told, the only time we had “tight” money was under Paul Volcker. Mr. Powell referenced the period from “1950 through the early 1980s” as providing lessons for “managing the risks and uncertainties we face today.”

He then blamed the public’s inflation expectations as a possible reason for inflation, “One likely contributing factor was that the public had come to generally expect higher inflation—one reason why we now monitor inflation expectations so carefully.”

It is true that the price of food and energy spiked back then, only to later return to normal(ish) levels, but general consumer prices rose (which is where his “inflation expectations” come in).

Very briefly, prices rose because of public expectation, people demanding higher wages and so forth. But this is, to put it mildly, an incomplete reading of history and omits the most important part of an otherwise useful historical lesson.

As Mr. Arthur put on the hat of historian for his speech at the Library of Congress, we too must follow suit if we are to understand and respond to (or at the very least navigate) the latest economic debacle that is unfolding before our eyes.

I end, for now, with two lines from a poem recited by Mr. Arthur at the end of his 2007 budget: “And build, O build, where we but dream / Expose, undo, repair, extend.” It is to that task that we turn to next.

Adrian Sobers is a prolific letter writer and commentator on social issues.