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Weird economics

It gets worse for central banks when we take a closer look at the nature of inflation, which is mostly imported. Most of the affected imports are essential items such as energy and food. People and firms must buy energy and food, so monetary policy has little effect on the volume purchased.

People can – and do – turn down thermostats, economise on the cut of meat and so on. The idea that food and fuel consumption doesn’t respond to changes in price is ludicrous.

This is also more than a bit weird:

Economic theory says high inflation encourages consumers to increase spending rather than risk hanging on to cash that will be worth less in a year’s time. Higher borrowing costs tame this impulse.

But more recent studies show that shoppers know high inflation is a fairly good signal of a troubled economy and their response is to stop spending and increase saving. They might want a new job and a pay rise, but fears of a recession lead them to stick with the job they have and swallow the pay rise on offer.

That’s very much akin to Ricardian Equivalence. Which is that there’s no point in borrowing to stimulate the economy – for folks will just look at the borrowing, see the higher taxes coming in the future and save the stimulus to pay those taxes.

If you believe that then of course you cannot believe in Keynesian stimulus. The Observer does so believe, of course. But they seem not to realise that they’re here according Good Plain Folk that foresight which means that it doesn’t work. As with so many, they’re not realising the implications of what they say they believe – economics does have to add up.

4 thoughts on “Weird economics”

  1. Has Ricardo heard of Trump, Reagan, Bush tax cuts?

    Why not just print more of the money producers are demanding more of to stop throttling abundant supply?

  2. I’m remember the bizarre sugar shortage in the mid 70s. I simply gave up having sugar in my tea and coffee, and didn’t bother restarting when the shortage ended.

  3. Isn’t it weird how in *every* Western country inflation is imported?

    They all print money, they all attempt their own version of Net Zero, they all splurge money on vanity projects — yet it is only the other countries doing that which causes inflation.

  4. Hence, the proles not spending, could be why Central Banks are dead keen on programmable digital currency. THEIR programmable digital currency =, of course.

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