#BTColumn – The multiverse of economic madness

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

by Adrian Sobers

“I’m sorry, Stephen. Your desecration of reality will not go unpunished.” – (Baron Mordo)

It is an eerie coincidence that the release of Marvel’s Dr. Strange in the Multiverse of Madness coincides with a plot twist in our own movie, The Multiverse of Economic Madness, starring the world’s monetary authorities as Sorcerers Supreme. (It’s more plot thickening than twist.) The Chief Sorcerer in our horror is the Federal Reserve Chairman (nothing personal, purely philosophical). And more importantly, practical.

The Wall Street Journal reported that a former senior Fed official said “the central bank would need to raise its benchmark interest rate over the next year to at least 3.5 per cent or to even higher levels that deliberately slow economic growth to bring down inflation.” (Behave do.) This is why I find it hard to take these guys seriously. So, in the words of TikToker @savagemomlife: “To the comments!”

“They have absolutely zero idea beyond the basic common sense fact that printing money causes inflation. All their fancy correlation models are more often wrong than right and they have zero idea about any causes let alone the numbers.”

This apt comment was greeted with an equally apt reply, “You’re giving them too much credit. They do not even understand printing money causes inflation.” (Zero lies detected, although I suspect they understand it better than we do but for political reasons will never publicly admit it.)

Ever one to toe the party line, our monetary magicians and political wizards attribute record levels of inflation to any and everything, except, the reckless abandon with which central banks have been increasing the global money supply since 2008 or thereabouts. Bluntly: we are being punished for their desecration of reality. Another commenter, equally stupefied by the multiverse of economic madness, is also worth quoting.

“Seriously? This guy is talking in terms of 3 per cent inflation in a few more months? What the heck is he smoking? Inflation at first is monetary policy and supply shortage driven. Then it becomes psychologically driven.

It’s this second stage that is so difficult to deal with once the momentum of inflation takes hold.” You can bet the rent that The Multiverse of Economic Madness will be held over by political, not popular demand.

The decisive action needed to curb inflation is politically untenable so that President Biden’s Build Back Better initiative should be renamed Build Back Bitter, for that is the taste it is leaving in the pockets of not only US, but global consumers.

The recent rate hikes by the Fed to “fight inflation” is akin to firemen trying to out a raging wildfire in California with a nanodropper. (If you still haven’t, read chapters 6-8 in Volume 2 of Meltzer’s magisterial History of the Federal Reserve.)

A line from Damian Marley’s Caution doubles as a description of the actions of our monetary policy wizards: “Have you white collar extortion.” Moving from the streets to the scholarly, (no truth/rigour/depth is sacrificed in transitioning to the latter); Mary Anastasia O’Grady (Food Economics in One Argentine Lesson), gave an example of how political action leads to economic madness in our multiverse. She is worth quoting at length.

“President Alberto Fernández’s government, in long-standing Argentine tradition, has been deepening the country’s indebtedness to finance its deficit spending. According to Pablo Guidotti, a professor of economics at Torcuato Di Tella University in Buenos Aires, since 2000 government expenditures, as a percentage of gross domestic product, have doubled to 40 per cent from 20 per cent. Government debt as percentage of GDP is now about 100 per cent. To pay the bills, the central bank prints pesos with abandon, sending prices through the roof.”

Contrary to modern day Pontius Pilates who wash their hands and suggest otherwise; the pandemic, Putin, and petrol are not causes but accelerants of their inherently inflationary policies. It is worth repeating, this is at root a governance issue and the most visible symptom is manifesting itself in the economic realm. I recently finished William Novak’s New Democracy (or rather, it finished me); a difficult but rewarding read. Mr. Novak opened his introduction with two quotes.

The first from Jane Addams: “The cure for the ills of Democracy is more Democracy.” The second from Alexis de Tocqueville (the subject of another book I just started, The Man Who Understood Democracy by Olivier Zunz).

Tocqueville was describing the US, but this quote now describes much of the wider world: “We are being daily carried along by an irresistible movement toward—what? Despotism perhaps, perhaps a republic, but certainly toward a democratic social state.”

As the plot twists and thickens in The Multiverse of Economic Madness we should not lose sight of the fact that our economic issues are grounded in democratic (governance) deficits, which in turn enable astronomical fiscal deficits. Both deficits strike at the heart of our “democratic ideals”.

And, as Novak reminds us in his penultimate chapter, democracy is never settled (even, nay especially, in the face of back-to-back clean sweeps).  “Democratic vigilance was as necessary as it was eternal.” He returned to Jane Addams, “The solution to the crises of modern democracy, in short, was ever more democracy.”

I suspect the economic and other relief we seek will be found, not in any economics textbook or tutor, but in fixing the political. Spoiler alert: when you know what hits the fan, far from “doing something”, governments will need to undo.

Undo the ease with which elected political officials can hide behind unelected monetary officials and wrongly cast the blame elsewhere for their inflationary policies; undo the artificially low interest rates that only serve to prop up a false economy and feed the government’s appetite for deficit spending while eroding the public’s purchasing power. Undo the, in fact, let me behave.  If you doubt anything I have written, ask Alexis, the man who understood democracy (I certainly don’t). Zunz writes, “What makes Tocqueville’s work still relevant is that he defined democracy as an act of will on the part of every citizen—a project constantly in need of revitalization and of the strength provided by stable institutions. Democracy can never be taken for granted.”

Perhaps the reason Bajans are “always complaining” is because they recognize that democracy is a journey, not a destination.  It has a constant need for “vigilance, redefinition, and reinforcement.” To take democracy for granted is to commit to paying a higher price, not only at the pump, but also in parliament.

Adrian Sobers is a prolific letter writer and commentator on issues of national interest.