#BTColumn – Inflation as information

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

by Adrian Sobers

“To write the same things to you is not troublesome to me, and for you it is a safeguard.” – (Philippians 3:1)

It is said that a picture is worth a thousand words. Let us put that to the test by examining a recent cartoon from the Jamaica Observer that depicted a massive sinking ship, aptly labelled US economy and inflation. A much smaller ship, clearly in distress, was nearby with a Jamaican flag and the label: inflation spike. A cry, presumably from the captain, read, “Something is pulling us down!”

That cartoon perfectly depicts our crisis of currency and pairs well with the title from Judy Shelton’s piece in the Wall Street Journal, The Federal Reserve Needs to Remove Its Blinkers, “A monetary mistake based on an outdated paradigm could trigger a recession or even worse inflation.” As it turns out, it is the credibility of politicians and our central planners that is transitory; not inflation.

The “something” pulling down the US and other economies are the blinders – both philosophical and practical – of our central planners and their political masters (friends?). Climate change and COVID now double as convenient scapegoats for the fact that their muddleheaded monetary policy is responsible for the currency crisis.

We can expect more of the same in 2022 unless our captains move away from an outdated enlightenment rationalism.

In Antifragile, under the section “Stressors Are Information”, Nassim Taleb makes the point that in complex systems (human body/economy), information is conveyed through stressors, “not through your logical apparatus, your intelligence and ability to reason, compute, and calculate, but through stress, via hormones or other messengers we haven’t discovered yet.”

As the currency crisis unfolds, we should think of inflation as an economic stressor. (Literally, for the most economically vulnerable.) Taleb explains further, “there are many more conveyors of information around us than meet the eye.” Casual opacity, he calls it, makes it hard to see the arrow from cause wwto consequence.

This renders our usual means of analysis, not useless, but not as useful as we might think. Adam Smith understood this well with “the invisible hand”. Plato didn’t, as evidenced by his ship-as-state metaphor.

Plato’s metaphor implies the need for monitoring (and tinkering) by a select few (captain and crew). This, like the brain as a computer metaphor, is outdated and does more harm than good. Especially given what we know now (namely, that we don’t know that much). The idea that a select few philosopher kings (preferably armed with PhDs) can tinker, direct, and steer the economy is, to put it charitably, ludicrous.

Our ignoring, and by extension ignorance of, the humanities will be the death of us yet. Economic in this case. In Plato’s Trial and Death of Socrates, Socrates found that ignorance was distributed in inverse proportion to the reputation one had for wisdom: starting with the politicians, then poets and craftsmen. The wise proved not to be wise at all, and were most ignorant of, well, their own ignorance.

If the past 25 hundred years of recorded ideas have taught us anything, it is this: Thou shalt not attempt to socially engineer Utopia; and debt, especially of the government variety, comes with plenty of ills. Debt relies on forecasting, and as Taleb explains, “people (especially governments) borrow in response to a forecast (or use the forecast as a cognitive excuse to borrow).” See the price tag on President Biden’s bill for Build Back Better.
Taleb’s thoughts on the 2008 crisis is a clue as to why there will be more crises.

His insight then rings true today and doubles as a reminder that we (still) haven’t learnt our lesson: “the IMF continues to issue forecasts; economics professors still use the Gaussian; the current administration is populated with those who are bringing model error into industrial proportion, making us rely on models even more than ever before.”

None of our captains will accept responsibility for the fact that they are causing inflation. On this point Walter Reed’s opening in, The COP26 Summit and the Global Age of Shams, seems fitting, “If there is one thing the world should take away from the Glasgow COP26 summit, it’s that the most dangerous greenhouse-gas emissions come from the front ends of politicians, not the back ends of cows.”

There is a legitimate beef to be had with central banks (and I like my beef well done). For the love of God, country, currency, and common sense: Monetising government debt ad infinitum will not and cannot end well in any world; especially democratic socialist paradises in the Caribbean.

To understand how we got (stuck) here, we need to revisit the 1893 and 1907 financial panics in the US that led to the formation of the Federal Reserve System in 1914. (But that is for another time.) We have an epistemology problem.

Little wonder Taleb dreams of “a true Epistemocracy”, namely, “a society robust to expert errors, forecasting errors, and hubris [our biggest problem], one that can be resistant to the incompetence of politicians, regulators, economists, central bankers, bankers, policy wonks, and epidemiologists.

As 2022 beckons (looms?), this seems like a dream of the pipe variety. Here ends my summation of the Observer’s cartoon (with just under two hundred words to spare).

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