Is the expression often used by the powers that be just as if they are something closer to objective certainty rather than best guess. Indeed I remember this was the phrase used by the Treasury in the reply to my original query, a few years ago now, on spend and tax.
So it was interesting to watch this YouTube talk by Frances Coppola, Scott Fullwiler and Karl Whelan, on inflation.
Frances Coppola’s piece was in my view, the most interesting and she comes to the conclusion that runaway inflation is simply an indication of failing government – something pointed out before on this blog. But what she does in addition is to ever so delightfully skewer the illogicality of the alleged ‘control’ of inflation.
Why she wonders, is it rational to believe that Central Banks can manage inflation when they’ve been unable to do so for the last decade? Why suddenly is there reason to believe that the next decade will be different?
Low unemployment is supposed to mean high inflation and yet recent years in the UK and elsewhere, have shown this not to be the case.
When bank loans are used overwhelmingly to buy second hand assets – invariably houses (and even business loans are usually secured against housing) why is it rational to think that increasing interest rates will dampen consumer demand (and thus potentially subdue inflation). She might have added that when existing housing loan interest is somewhere around 4% whereas my credit card interest rate is closer to 20%, how is fiddling around with the bank base rate supposed to adjust consumer behaviour?
Crazily too housing is absent from inflation figures so the fact that housing prices have increased by ten times or more since the 80s but wages have not – goes unremarked and ignored.
Why is thought to be logical that government professes targets for inflation – and of course the deficit – when they are in power for no longer than five years and we know that one Parliament cannot bind another?
Then there is the bizarre idea that government can somehow not be trusted not to cause runaway inflation. And yet the central bank is supposed somehow to be able to prevent it – potentially in spite of the government. This is a central bank that is mandated by – and of course owned by – that same government.
Her conclusion is that inflation control is about credibility – the population must have trust in its government in order to prevent inflation.
Indeed Scott Fullwiler makes the point that the Indonesian government has inflation control teams – including regional ones – all tasked with keeping the lid on inflation. Overkill perhaps, but I suggest it is at least a more honest approach than farming it out to a central bank. Teams feed in directly to government to make government responsible.
Karl Whelan from University College Dublin suggested that the all-round fear of central bank money creation was a form ‘learned helplessness’.
He might have added that the fear of inflation is an essential tool in that ‘learned helplessness’. The fear is highly effective even if the control is illusory.
Austerity helps too to damp down inflation – simply by spending less, there is less opportunity for it.
But what really keeps down inflation is of course taxation – and it may be just worth reminding ourselves that government spending in large part eventually gets back to the government in any case.
Look at these charts (click to enlarge), where the arrows indicate how many exchanges it takes before 99.9% of government money gets returned to it. This is real spending revenue – in the sense of revenir to come back:
Responsible politics produces a responsible government which is trusted to both issue currency in order to get things done on behalf of all society and in so doing to get most currency back in order to prevent excessive inflation.
That’s my inflationary expectation…