Deflationary asides

One generous reader put it best: the reason I’m a “complete idiot” is that I’m panicking about inflation when everyone else is panicking about deflation. We need to “print” money faster so people will spend. (It’s now done electronically, I’ve heard.) We ought to fear a downward spin through the drainhole: unemployment leading to less spending, leading to unsold goods, leading to lower prices, leading to lower production, leading to … more unemployment, even lower prices, and so on. We did that once before, in the 1930s. It cured the inflation of the 1920s.

We have gone into withdrawal from the heroin of inflation, and the answer is to get back on heroin again. Central bankers argue about the right dose, and scold us for not taking our meds.

Larry Summers: “We need to move beyond the Calvinist idea that more savings is always good and borrowing is bad because what we have right now … is a chronic excess of saving.” He accuses Calvinists like me and the Prussians of fostering the “green eyeshade accounting mentality.”

A note for the ages: when someone is lending, someone else is borrowing. … And did you know money saved in banks is lent out? … And can you guess who is borrowing? … Or what a “bond” might be? … And have you ever wondered where all the money that goes into stock markets comes from? … Or why people flip shares, when they used to live patiently off the dividends?

I’m trying to make these Idleposts shorter, I’m not going to write an economics textbook today; maybe I never will. Suffice I say that deflation and inflation are twin heads on the same beast. And that the Japanese have pioneered a system in which we can enjoy both at the same time, and thus have perfect economic stasis, through generations of demographic collapse.

Curiously, as a man of the thirteenth century, I “believe” in the price mechanism. (You know: wheat crop fails, price goes up; too much wheat, price goes down.) As a visitor to the twenty-first, I believe it is no longer working. Nearly one full century into the experiment of unlinking money from things, and linking it to “policy” instead, not one person is left on the whole planet with the fondest idea how our system works.

Some years ago I assembled a little team to study what had gone into the price of a loaf of bread. We had to give up. It was too complicated. Bread was officially “untaxed” in the jurisdiction; yet about the only thing we could establish with any confidence, after looking through the production process, was that more than half the price was cumulative direct and indirect taxes.


And did you know that William Shakespeare lived for several years in Southwark, in the Liberty of the Clink? This was the ward of the (Anglican) Bishop of Winchester, named oddly after his famous prison, not his pretty palace. The Globe and other theatres were also in it, and too, a “red light district” populated by ladies known colloquially as “Winchester Geese.” (Their unconsecrated graves lie under the urban asphalt today; the expression “goose bumps” survives in our language, though no longer with reference to venereal disease.) We also have it, on more than the authority of the Puritans, that bull and bear baiting was also going on.

Gentle reader will know I think Shakespeare was a closet Catholic, but that’s not the only thing I admire about him. He was also a serial tax evader. The beauty of this Liberty of the Clink was that it lay outside the jurisdictions of both the County of Surrey, and the City of London. It was thus a tax refuge. If you owed taxes on the other side of the river, as it seems Mr Shakespeare usually did, the sheriff couldn’t arrest you there.

From what I can see, we lack exhaustive documentation, but have enough to get the gist of the story.