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by Adrian Sobers
“Crisis is no stranger to the Caribbean. Our small societies have always lived a difficult and hazardous existence.” – Owen Seymour Arthur, Small States in Stormy Weather.
A proper reading of the period referenced by Mr. Jerome Powell in Monetary Policy in the Time of COVID, specifically the 1960s and 1970s, explains our current inflation woes. The reason for high inflation today and its symptom of higher prices, is the same thing that caused it back then. It is not “transitory”, has nothing to do with public expectations, or supply side/chain issues associated with the reopening of the economy; it has everything to do with the actions of the Federal Reserve.
The Fed printed too much money to finance government deficits back then and they have been doing the same thing in response to the 2007–2009 crisis under the moniker of “stimulus”.
And, as Mr. Owen Arthur said in aforementioned speech: “It is even more distressing that the proposed solutions which are focused on corporate bail outs and conventional macro-economic stimulus programs are hardly likely to get the job done.”
He later added, “A stimulus presumes that the system is fundamentally sound, and that all which is required is a boost of purchasing power.” Finally, “It is to enter the theater of the absurd to believe that structural defects of this magnitude can be corrected by merely adding a stimulus to existing activity.” We have been living in said theater since the previous crisis and the time for a curtain call on this comedy of errors is long overdue.
Forget Powell’s great “inflation expectations” and ask yourself this: What was the reason for the deficits during the 60s and 70s in the U.S.? Well, President Lyndon Johnson had to finance The Great Society program. As it turns out, Amity Shales’ Great Society: A New History, is a good resource for understanding not only the economic history of that period, but its implications for our current circus, crisis (call it what you wish). Shales’ unsettling analysis of the U.S. also applies to Bim, “Today, though, the 1960s are catching up with us. Medicare and Medicaid, undertakings that sounded reasonable at a time when life expectancy was lower, now cost the country trillions it cannot afford.
“Younger generations can expect no pensions: the budget of Social Security, the national pension fund expanded so dramatically in the 1960s, will be exhausted before it is time for those generations to retire.” In, Transforming the Barbados Economy in the Age of Liberalisation (February 2010), Mr. Arthur made an important point on the need to distinguish between “investing in the creation of social capital, and funding entitlement programmes to give out benefits.”
“An increasing proportion of Government’s recent expenditure”, he said, “has been devoted to funding social entitlements rather than creating social capital.” I am convinced that at this stage of our development it is the legacy of socialism, not so much slavery, that is the enemy of the good that keeps us from the better.
Every Emancipation Day we quote Bob Marley’s Redemption Song, yet seem unfazed by the fact that we are on Friedrich Hayek’s Road to Serfdom. As Thomas Sowell and Walter E. Williams have repeatedly argued, the black family has survived slavery (and its much bemoaned legacy); but has proved powerless in the wake of the welfare state. What is true of the U.S. context is a billion times more true in the Caribbean.
The most painful lesson that Barbadians are now learning is that the 1960s have finally caught up with us. If conditions seemed reasonable (and necessary considering our history) then, and it was deemed fit for the government to bear the bulk of the responsibility in creating this social capital, it should be painfully clear that these conditions no longer hold.
Private individuals and the private sector, less burdened by Leviathan, who benefited from that initial investment will have to bear more of the responsibility (and cost). Practically and briefly, at the very least this means contributing to legitimate charity cases.
The best hope for states, whether of the small island or large established variety – lies in maintaining a healthy relationship between markets and morality. On this point, especially, Mr. Arthur’s analysis in Small States in Stormy Weather, is worth noting: “It now appears that any sense of morality or respect for the public interest has vanished from the conduct of the main corporations that are responsible for the largest proportions of the global economic activities.”
While Adam Smith is most famous for his economic treatise in Wealth of Nations, his most important work comes as moral philosopher in Theory of Moral Sentiments. And Gregory Collins’ title on the great Edmund Burke is not simply “Commerce”, but Commerce and Manners in Edmund Burke’s Political Economy. (Some businesses flounder and ultimately fail ‘cause wunna ain’t got nuh manners. Period.) In 2008 the question was how low can rates go, the question today is how much longer can they stay at these artificially suppressed lows before the house of cards comes tumbling down. Again.
I leave you with a quote from a piece by C.L. R. James that Mr. Arthur often used in his speeches: “Nobody knows what the people of the Caribbean are capable of. Nobody has attempted to find out.” We need to find out, and fast, how to muster the intellectual honesty and political will to compassionately wean ourselves off government playing such a large role in our economic lives.
Especially in the context of Mr. Powell’s revisionist history. A signal that the Fed is prepared to continue (literally) papering over systemic cracks with fiat paper. Expect more of the same regarding inflation and its symptoms.
Adrian Sobers is a prolific letter writer and commentator on social issues. This column was offered as a Letter to the Editor.