The Abysmal Science of the Inflation Deniers

The difference between dismal science and abysmal science is that the first is true but discouraging while the second is encouraging but false. Climate change notwithstanding, abysmal science is clearly predominant when it comes to questions about the economy.

We can easily see obvious special interests at work when “big oil” pays scientists to prove that emitting massive amounts of carbon into the atmosphere has not caused [or meaningfully contributed to] rising air and ocean temperatures. However, we praise central bank scientists [who work for “big money”] for their faithful service in the public interest when they assures us that pumping trillions of units of “financial carbon” [aka fiat credit] into the global economy has not caused [or meaningfully contributed to] inflation  … and that, in fact, we need even more of it. The reason for this inconsistent response is that Americans no longer think scientifically [at least in economics] … we do not take the time [or do not possess the ability] to consider the economic facts which make a strong case for the proposition that

• the price of  essentials is rising much faster than what is officially reported and
• this [intentionally?] under-reported inflation is ravaging the largest part of our society.

So what are these facts?

In "The Middle Class Squeeze", Charles Moore makes a statement that is confusing to those who think about it, because it is bad science … comparing apples and oranges.

"My own children, who started work in London in the last two years, earn a little less, in real terms, than I did when I began in 1979, yet house prices are 15 times higher."

 

 The Apples

The "real" wages Moore's children earn today are "a little less" than his real wages were in 1979, because for 30 years the nominal prices of the things some government considered essential to a family [and thus included in its official price index] have risen "a little" faster than the nominal wages of Moore and his children [which nominal wages were also rising during those 30 years but at a lower rate]. In other words, even though his children's wages are nominally much higher than his were in 1979, the current "purchasing power" of his children's wages is really "a little" lower than the purchasing power of his wages 30 years ago ... and this is due to the difference between the rates of increase [over 30 years] in the nominal wages and the nominal prices of those things included in the government's official price index. Now that is good science !

 

The Oranges

However, when it comes to the price of housing, which is NOT included in the government's official price index, Moore sadly and unscientifically groans that nominal housing prices have risen 15-fold over the same 30 years. If Moore were a good scientist, he would have noted that his children's real wages when considered in terms of the explosion in nominal housing prices since 1979 had virtually "collapsed" when compared with his real wages in terms of housing prices in 1979. And this collapse of real wages in terms of exploding housing prices is important, since housing has always been a large percentage of the average family's overall cost of living. And those seeking to explain this wage collapse can find the easy answer in unreported housing price increases which were officially excluded from the government’s price index causing it to be dramatically under-reported. Bad science is dangerous !

 

Alchemy Redux

But there is more … something other than wages and prices had changed over those 30 years which may help explain the effects Moore observed ... and that was credit and interest rates. It turns out that in the 1980's the scientists at the Federal Reserve, foremost of which was America’s own Alan Greenspan, began live experimentation with a new monetary theory which, simply stated, claimed that:

The correct financial injections of fiat credit into the real economy would somehow [Greenspan claimed it was through the mysterious forces of free markets] make everyone's life better ... faster ... with no downside for anyone.

This theory, if proven true, would be the realization of an economic dream as old as kings ... make base materials into gold suddenly without work … mint your way to prosperity … politicians loved it … business leaders praised the Maestro … this was to be the previously unimaginable achievement of financial alchemy ... which Wikipedia defines as:

"chemistry of the subtlest kind which allows one to observe extraordinary operations at a more rapid pace – operations that require a long time for nature to produce."

 

GNP=QE²

And so was born the new science of fiat credit with rapidly increasing consumption, investment and faster economic growth. Of course, there were some unanticipated bumps along the road:

• American jobs first went to Japan ... then to Mexico ... then to China ... then to India ... and soon now to a new group of Asian nations under a secret international trade agreement.
• And even when everything seemed great, there were sudden unexplained collapses in the economy ... as if it was exhausted and needed a rest.
• Furthermore, as Moore [and most everyone else] observed, wages and prices of all sorts began to rise [with some like housing soaring] year after year though at different rates causing complex socio-economic effects across the globe.

 Nevertheless, central bank scientists considered the overall results of their theory to be acceptable ... even desirable [although for whom remains unclear] ... and proudly persisted in their real-time experimentation ... increasing the injections of fiat credit whenever the economy showed any signs of weakness. By the time of the unanticipated great recession in 2008, the head American central bank scientist, one Ben Bernanke, radically posited that unlimited and infinite injections of fiat credit were the only reasonable response to recurring and more severe bouts of economic weakness. Bernanke’s theory of quantitative easing took Greenspan’s “doubling down” to an exponential order of magnitude never imagined [much less attempted] by scientists before him … this, the pundits proclaimed, was true and bold genius ... and the theory spread across the entire globe.

 

Another Unexpected Development: Temperatures Rising

Meanwhile in the late 20th century, climate scientists began to form a new theory that rapidly increasing carbon dioxide emissions [resulting from rapid economic consumption and growth] were building up in the oceans and atmosphere and might, at some critical point in the future, via an already known and proven greenhouse effect, cause global water and air temperatures to rise ... with potentially disastrous [although not yet completely predictable] effects. However, it was not long before other scientists [mostly hired by big oil and big business] began to present opposing theories denying that increased human carbon emissions were causing or meaningfully contributing to change in the planet’s climate.

 

The Unthinkable ? ... not again !

Science has a long history of the unthinkable being proven true. But often that has required scientists across disciplines to think together ... because our planet's bio-chemical and socio-economic systems are complex and more interdependent that we have thus far been able to imagine. But, for the sake of argument, let’s posit a theory of our own.

• We have become the victims of bad science in central banking.
• Pumping trillions of units of “financial carbon” [aka fiat credit] into the economy has not only caused a consistent rise in global prices overall [causing real wages to collapse] but has resulted in massive and accelerated emissions of real carbon into the atmosphere causing [or meaningfully contributing to] a consistent rise in global temperatures overall [causing the overall quality of human life on the planet to fall].
• Thus the unanticipated consequences of bad central bank science have now extended beyond the economy per se ... into the planet's physical oceans and atmosphere.
• The dire socio-economic and atmospheric extremes [including such seemingly unrelated things as income inequality, market crashes, droughts and floods] which the planet and its people are experiencing with increasing frequency and severity are inter-connected … and ultimately caused … by the bad [and still largely unchallenged] science of conflicted central bankers working on behalf of “big money”.
• We must dismiss [even prosecute violations of law by] the abysmal central bank scientists who intentionally mislead us so that they [and their constituents] can profit [even temporarily] at our expense.
• We must be willing to become [for awhile at least] dismal scientists who honestly listen to the evidence even though it  consistently points to the need for painful changes to our socio-economic and atmospheric behavior.

From the Mouths of Two Witnesses

Perhaps, it is no coincidence that Pope Francis, who appears to be a thoughtful and reasonable [if simple] man, is warning Americans that our socio-economic and atmospheric lives are interconnected and that we must radically change our behavior if we are to avoid devastating economic and biological consequences. Does this simple man somehow suspect a real connection between economic and ecological forces which our greatest scientific minds are missing? It would not be the first time that simple powers of unbiased observation discovered truths that the greatest thinkers missed even though, in retrospect, the truths appeared obvious to any thorough but unbiased person.

 

Go Big or Go Home

Perhaps, it is time for everyday Americans to stand up and break the shackles placed on us by the bad science of special interest controlled central bank alchemists and to re-engage honest [albeit dismal for the moment] science in our economic lives. For who knows the breadth and significance of the goodness which the virtuous actions based on good science might once again [not suddenly but over time] bring to us [and our progeny] economically and in the quality of our lives on the planet.