#BTColumn – Economics: a thorn for many (Part 1)

Disclaimer: The views and opinions expressed by this author are their own and do not represent the official position of the Barbados Today Inc.

by Adrian Sobers

“Inflation is how governments rob the [poor and] middle class while proclaiming the intent is to tax the rich.” – Stephen Gardner. I was recently reminded of why I stopped watching Bloomberg Television; they invite officials from the Federal Reserve.

I happened to be watching (momentary lapse), when one of the regional Fed presidents was offering his take on inflation jitters. I instinctively tuned out, but remember him toeing the usual line: we have it under control. He ended by likening inflation jitters to the rush for toilet paper in the early stages of COVID-19.

As it turned out, we didn’t need to stock up then but we will need plenty of it now to clean up the Fed’s, well, let’s go with crap. The Wall Street Journal editorial, Powell Gets His Inflation Wish (May 12, 2021), addressed Mr. Jerome Powell’s “transitory” inflation, reminding us that, “inflation is always and everywhere a monetary phenomenon, as Milton Friedman put it. For more than a year the Fed has been pursuing an expansionary policy for the ages.”

They continue, “It has been keeping rates near zero and expanding its balance sheet to record levels with bond purchases in an economy that has been growing fast for more than nine months.”

Ending, “Better for the Fed to reassert its independence by moderating its policy now, rather than risk more damage down the road.” Not holding breath.

As one commenter put it, “Jerome, like Janet before him, has revealed he is a political animal. Both of them denied inflation and are now eating crow.”

The Journal’s editorial board ended on a note that everyone knows will never be played: “The Fed needs to return to its apolitical roots.” Again, do not hold your breath. From Obama to Trump to Biden: same crap.

But one commenter asked a question that doubles as a good place to start in earnest: “Something for nothing economics [“stimulus”] always ends up producing more of nothing and punishing most of those whom the ivory tower residents [Fed] claim to champion. Always. Why do we let this happen?”

That is a very good question. I think it comes down, very broadly of course, to two things: arrogance on their part, and unfortunately, a degree of ignorance on ours. I will leave the latter for another time and briefly deal with what I think is the primary contributing factor: their arrogance.

Economics has an epistemological problem that is unlikely to be addressed, and will therefore continue to be a thorn in the pockets of ordinary folks.

As one commenter pointed out, the Fed is home to (mostly) former professors “who are detached from the real world and instead are very sensitive to their theoretical economic models.

Unfortunately as anyone that has worked with models knows, they never incorporate all effects and are 100% incorrect in accurately forecasting into the future”, in any real or meaningful sense.

This misplaced confidence has been with us for a long time, but its effects are more devastating (and seemingly being compounded), as economies grow more complex.

In his excellent book Veblen: The Making of an Economist Who Unmade Economics, Charles Camic shows that these seeds were sown long ago. Describing the intellectual state of affairs of the discipline in the 1880s, he writes, “They knew that physics and astronomy rested on a simple set of theoretical laws (Newton’s laws of motion) […].”

“So economists, aspiring for scientific legitimacy, veered away from separate laws of distribution, embarrassed that this practice was, as Frank Fetter eulogised it, a scientific ‘anachronism’ and ‘laughing stock.’”

This “aspiring for scientific legitimacy” or physics envy (call it what you wish), has been a perennial thorn in our pocketbooks to this day.

It smacks of scientism, and is rooted (like the rest of our problems) in a deeper philosophical issue that won’t be addressed because, well, pride.

One could be forgiven for thinking that officials from the Federal Reserve (and the ECB) penned J. Cole’s hook: “Pride is the Devil / Think it got a hold on me / Pride is the Devil / It left so many [economies] R.I.P.” Pride, says J.Cole, “make a n—a flash a thousand like he hit the lottery.”

(They will soon need to flash a lot more the way things are going.) But, since we cannot do much about their arrogance, the least we can do is to chip away at our ignorance. It is to that we turn to next.

Adrian Sobers is a social commentator and prolific letter writer. This column was offered as a Letter to the Editor.