#BTColumn – Our false economies (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

“We’ve got to bring home to the public at large, that they are being taken to the cleaners.” – (Milton Friedman, Speech on There’s No Such Thing as a Free Lunch)

Although the symptoms mostly manifest themselves in the economic realm, our underlying condition has to do with governance.

This was well documented by former Deputy Governor of the Bank of England, Paul Tucker in Unelected Power: “The problem — and so the book — is by no means limited to Britain, or to central banking.

Concerns about similar delegations exist across the developed world, affecting huge swathes of public life given the extent to which elected politicians have been shedding their powers.”

An example of the shedding to which Mr. Tucker is referring, one that is still negatively affecting our economic life, is the over reliance of our political masters on monetary policy– sedative marketed as stimulus–as a response to the 2008 financial crisis.

And, contrary to the Federal Reserve’s narrative, inflation is anything but “transitory”. As the opening of a recent editorial in the Wall Street Journal put it, “The meaning of “transitory” is getting longer all the time.”

One interpretation of the title of Tucker’s text suggests that when unelected officials wielding tremendous power(s) take action, it can jeopardise our economic life and liberties.
Central banks in this context, but, as Mr. Tucker points out, the issue is not limited to central banking.

The broader problem he alludes to can be described by a chapter title from James Otteson’s Seven Deadly Economic Sins: There Is No Great Mind. The effects of central planners’ penchant for this particular economic sin, as we are now seeing, can be devastating.

The Wall Street Journal ran a story, A Key Gauge of Future Inflation Is Easing. The “key gauge” turned out to be “inflation expectations”. In a word that doubles as a TV show: Ridiculousness.
When Janet Yellen was heading the Federal Reserve and the quantitative easing sedative was being applied to the US economy, she made a comment to the effect that inflation wasn’t too bad.

One commenter asked when was the last time she bought bread. A commenter on the aforementioned story expanded that pithy query.

“Have you gone to the store lately . . . Bought toilet paper and cleaning supplies…milk, meat and fish . . . Let’s talk about gas . . . You have your statistics, I have my paycheck . . . I don’t vote on your statistics…I vote on what is in my paycheck and what is in my stomach.”

The reference to “your statistics” is a reminder that the numbers/narrative from officialdom seldom lines up with the everyday realities of consumers. Why? This disconnect from reality is directly connected to economics’ epistemological problem. As another commenter quipped, “Just believe my [economic] models and not your lying eyes.” And therein lies our problem.

This problem is not new and is well documented, most recently by Robert Skidelsky (What’s Wrong with Economics?) where he explains, “why the most influential discipline for making public policy is so often cut off from reality.”

An example of how this disconnect works comes from the US: “The gross domestic product (GDP) increased at an annual rate of 6.5 per cent in the second quarter of 2021, according to an advance estimate from the US Bureau of Economic Analysis.”

This number was largely driven by consumer spending, not private business investment (the best indicator of actual/ potential economic growth), which fell.

People are spending more money, not because the economy is recovering/booming, but because the price of meat, milk, fish, you name it, have all risen. Rising prices, not actual economic growth, is behind the inflated GDP figure reported in the US (and probably elsewhere). It is illusory and should not be taken as a good sign, especially when we factor in the source of the money being spent.

Namely, the Federal Reserve monetizing US government debt, not persons being paid for producing goods/services.

Since nothing was produced for this money, we have more money chasing fewer goods which leads to higher prices, which leads to cries from consumers, who instinctively blame “greed” and call on the Government (who created the problem) to “do something…anything!”

Save us from these “greedy capitalists!” But, as the late, great Walter E. Williams explained in What’s Inflation? (November 2005), “Increases in money supply are what constitute inflation, and a general rise in prices is the symptom.”

(General prices, not comparison shopping.) Consumers should not perpetuate the intellectual and moral fraud by defining inflation as rising prices, since it frees politicians (and their central bankers) of any culpability.

Ask yourself this: Who is in charge of the money supply? Is it the supermarket owners? Street vendors? Restaurateurs? Farmers and poultry producers? Fishermen perhaps? Retail store owners? Of course not.

The time Government (generic) spends “looking into the matter” of rising prices would be better spent looking into their monetary policy and the cancerous effects thereof at the supermarket, pump and elsewhere.

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