As our first mortification for anno 2013, we have been reading annual outlook articles in the financial media. The consensus appears to be that by this time next year our economic situation will be worse, better, or about the same. In particular, different world regions may enjoy different rates of growth or decline, by the standard statistical indicators. Several forecasters warn that some major event or events could make a big difference.
We might mention that the Planetary Oeconomical Panel, which meets every day for breakfast up here in the High Doganate, has, after aggregating all available data, & running them through secret formulae in our number crunching machine, come to the conclusion that we have no idea.
There was one fact that stood out, however. At some point during the last few months, a tipping point was reached within the minds of the more fashionable economists, worldwide. The concept of “NGDP targeting” became the new vogue, or prevailing “smelly little orthodoxy” (Orwell’s phrase). The letters stand for, “Nominal Gross Domestic Product” & refer to GDP without adjusting for inflation.
In a crazy way, the idea makes sense. Inflation may be propelled by “quantitive easing” (i.e. printing money), but might also reflect rising prices from a commodity shortage, real estate bubbles, wrong numbers, or a dozen other things. The mix of soi-disant “real” growth & consumer price inflation is thus a bigger mess than first appears (& we won’t go any farther into the details). The central bankers’ device of targeting interest rates to heat or cool the economic machinery has proved a blundering weapon, but their habit of printing money not disastrous, in the recent past.
Why not just say, “Whatever happens, the economy will grow at five per cent a year.” That way, people hoarding cash will take their wallets out — including the corporate persons who are currently reticent to hire anyone — in the knowledge that even if there is no “real” growth, prices & revenue will be “nominally” improving. Indeed, the move could force people to invest, before the value of their cash evaporates completely. (Or else, bury their savings deeper in gold bullion, we observe in our sceptical way.) And if the economy ever did appear to be booming again, why spoil the party? Just ratchet the NGDP target up a few more notches & enjoy the ride. No more “liquidity traps,” no more fear of entering a sudden deflationary spiral a.k.a. Depression.
Shenzo Abe — not a computer virus as widely believed but the newly-elected prime minister of Japan — has led the way into 2013. As we mentioned in a previous post, he has told his central bank to print money faster & faster, or else. The bankers, for their part, understand compulsion. Japan is already flying towards an NGDP target that necessarily involves a beggar-thy-neighbour approach to its currency exchange rate. The yen will be driven down through the floor, no matter what it takes. But the U.S. Fed had already resolved to print another trillion this year, even with Yankee money rather loose; & China has been “adding credit” to fuel its own economy, on a scale that makes our North American gestures seem Scrooge-like & mean.
Let us insert at this point two little facts that the general media-reading public may not know or appreciate. One is that, if someone is borrowing money, someone else must be lending. Savings rates, denominated in cash, bonds, & the like, have been going through the roof since our present, apparently debt-led round of troubles set in around five years ago. That is where all the “monetary easing” has been piling up, & those are the people who will now be burned.
The other little point was hinted above. World economic policy, once spawned in arcane journals, by timid bean-counting men, is now being hatched in the blogosphere. This whole NDGP idea, while it has “ancient” antecedents going back to the 1990s, began to embody itself in earnest only last August, with the coining of the term “market monetarism” by a Danish economist, Lars Christenson. By September it had been taken up on Scott Sumner’s very influential blog. It metastasized from there, & the rest is quick history. The “tipping point” to which we referred must have occurred about late October. Suddenly an idea that had been the fondling of minor economists in obscure universities had a name that made it all seem so plausible.
We remember when, years ago, a merchant banker friend of ours in Bangkok, a certain Antoine van Agtmael (very nice & well-intending Dutchman) launched the term “emerging markets.” The world was suddenly changed by this term. Overnight e.g. Bangladesh was (nominally) transformed from a “basket case” into an “emerging market.” Our impression is that something similar is happening again. The nomenclature changes the way people think, for better, … or for worse.
“Progress” itself has been achieved, over the decades, by changing some words used to describe key phenomena, & changing the meanings of other words.
As a playwright from Warwickshire once observed (himself no slouch in the manipulation of vocabulary), “We are such stuffe as dreames are made on.” This was in his play, The Tempest, & put into the mouth of Prospero, who had just coined the expression “thin air,” as in, “melted into Ayre, into thin Ayre”:
And like the baselesse fabricke of this vision,
The Clowd-capt Towres, the gorgeous Pallaces,
The solemne Temples, the great Globe it selfe,
Yea, all which it inherit, shall dissolve,
And, like this insubstantiall Pageant faded
Leave not a racke behinde. …
“Our little life is rounded with a sleepe”; yet we dream on, creating & recreating for ourselves some “virtual reality,” mounted & remounted in the face of Nature since time out of mind.
As we may have mentioned to gentle reader previously, we are a regressive, backward, reactionary person who is, with respect to drama for instance, not a Brechtian. We require some authorial assistance in the “willing suspension of our disbelief,” & in economics, the restoration of something like the Gold Standard. This is not because we are under the illusion that gold has intrinsic merit. All we would ever say is that it is beautiful & fairly hard to come by; that almost every human born seems spontaneously inclined to prefer small amounts of it to quite large amounts of mud or even fish. It takes a lot of effort to mine & refine, & we cannot foresee it ever becoming cheap, though stranger things have happened.
Rather than compel people to hustle, economically, this way & that, we would allow them some freedom. Let those who wish to save, save their gold, in the knowledge it is unlikely to become worthless. Let those who wish, give it away. Let those who want to spend, spend, & let anyone with the nerve invest in the hope of earning even more gold, within the laws. (These, too, we should like to keep simple & constant.) Let the people offer each other employment, or not; let those offered accept or refuse. And we would not only leave all these decisions to them, but allow local & regional economies to find their own equilibria, responding to inevitable disturbances in their own ways.
Candour requires that we not claim any such system will increase the growth rate. We frankly do not have much interest in the statistical demonstration of anything. The limit of the ambition we propose to our fellow troglodytes is to restore an order in which a man may be left to pursue his own relations with God & with his neighbour, unmolested when he does not molest. The Church we will always need, but the State is seldom necessary at all, as men once realized over the course of a thousand mediaeval years.
Note, incidentally, that the NGDP vogue has arisen entirely within a small international circle of the policy-making elite. Note further, that as all previous “models,” this latest requires them to predict economic trends several quarters into the future, & thereby compensate for them. Note that their collective track record can inspire no confidence in their judgement whatever. Note finally, that our lives will be changed, whether for better or for worse, more by this vogue than by anything we could possibly do for ourselves. And that the word we use for all this is “democracy.”