How Mainstream Economists Harm Your Wealth

This morning your editor writes from the Gold Coast. We’re here for the next few days to relax. And we’ll try our best not to look at financial markets.

Furthermore, we won’t pay any attention to the ‘mortgagee sale’ signs on the investment properties up here either.

But even so, we’re not relaxing too much. We’ve managed to sneak the lap top computer into our carry-on luggage without the missus spotting so we’ll write Money Morning from here until we’re back in Melbourne on Tuesday.

Anyway, on most mornings we like to flick through the Australian Financial Review (AFR). Only, we’re too tight fisted to buy our own, so we’ve only got yesterday’s copy with us which we read on the flight.

The headline that caught our attention was, “These days it seems inflation can be too low.”

Let’s be honest, it doesn’t surprise us to see such a ridiculous headline from the mainstream media. And neither does it surprise us to see Michael Pascoe blathering on again, calling on the expertise of Rory ‘Output Gap’ Robertson from Macquarie.

Before I go on, just a quick reminder on the Output Gap. It’s a nonsensical economic theory embraced by Robertson and the other cronies in the economic mainstream that states inflation (they really mean rising prices) is impossible when ‘actual GDP’ is below ‘potential GDP.’

We tore their theory to shreds a few months ago, but it’s still used by mainstream economists to say that inflation shouldn’t be worried about for another couple of years.

Pascoe doesn’t use the term Output Gap in his article, but that’s really what he’s implying when he writes:

“Our economy is still operating below capacity in most areas, so inflation for now is no big deal for the RBA.”

Pascoe then goes on to quote Robertson:

“The latest four year-to readings for the “trimmed mean” CPI are 4.7%, 4.2%, 3.9%, 3.6% and, today, 3.2%. There’s a pattern there [Ed note: Genius!]. The trend in inflation remains down, so inflation worry-warts can cool their jets for another several months at least.”

Don’t worry Rory, our jets have been fired up on this one for a while, and we’re in no rush to cool them down.

But his comments are really nothing more than the typical mainstream nonsense we’ve come to expect from the banks – ‘Don’t worry about inflation now, we’ll deal with it later.’

Anyway, I won’t go into the full Output Gap argument again, but if you click here, here, and here you can read what we had to say about it in previous articles.

Anyway, let’s get back to the article in yesterday’s Australian Financial Review (AFR) which I’ve conveniently brought with me.

A lot of things baffle your editor, I’ll be honest about that.

Some things I just don’t get. Even if I try to play devil’s advocate and imagine I’m a mainstream economic Muppet, I still can’t get the hang of it.

The biggest baffler for us is the mainstream attitude towards inflation.

If you’ve still got a copy of yesterday’s paper, it’s worth a read. You’ll find it on page 29. It’s full of gems like these:

“Lately, I’ve noticed an emerging theme among economists searching for answers to this challenge. They’re saying it may be time to let in a little inflation. We’re not talking anything too dramatic. But the case for targeting 4 to 6 per cent inflation is certainly growing.”

The column written by Glenn Mumford also quotes economist Kenneth Rogoff, formerly of the International Monetary Fund (IMF):

“I’m advocating 6 per cent inflation for at least a couple of years…”

He then quotes Morgan Stanley economist Spyros Andreopoulos:

“There is a reason why a rational and forward-looking, independent central bank may want to consider generating [some] inflation…it may be preferable to create limited inflation early on…”

Then there’s the central bankers themselves. San Francisco federal reserve economist John Williams is quoted:

“A 2 per cent steady-state inflation rate may be insufficiently high to stop [zero-bound rates] from having significant deleterious effects.”

They were also at it over at The Australian newspaper as well. Arguing who’s better at manipulating the economy – the RBA or Treasury. In our mind it’s probably a dead heat. A photo finish at least.

But it’s hardly a surprise that these arguments mostly come from fans of Keynesian economics or from the banks.

And that’s hardly surprising either, because the banks need inflation in order to keep their indebted gravy train on the rails. As soon as deflation hits then they’re in big trouble as it makes it more expensive for borrowers to repay debt.

But the whole idea of embracing inflation is the equivalent of making friends with the devil. There is absolutely no circumstance whatsoever in which inflation should be encouraged…

None. I’ll repeat that in case you’re unsure – None. Not one.

That economists such as Robertson, Rogoff and Andreopoulos believe they can turn inflation on and off like a light switch is a joke. The fact is, the inflation switch is always turned to ‘on’ whenever banks and central banks are involved.

They never turn it off. In fact, it’s more like an inflation dimmer-switch. All they do is adjust the ‘brightness’ but never actually turn it off.

But aside from all the supposed economics arguments for inflation – of which there are none that make any common sense – we’ve never seen an economist explain how inflation is good for you in the real world.

No one wants to pay higher prices for things. No one wants their wealth to be eroded by central banking and government fraud. Yet still the mantra from the central banking and banking thieves is “more inflation please.”

If you stop and think about it and apply it to a real situation then it’s clear the case for inflation is built on lies and deception.

For instance, let’s take Rogoff’s case for a 6% rate of inflation. What does that actually mean to you?

Well imagine it this way. Imagine we lived in an economy where prices for goods remained constant forever. That four litres of milk is $4 today, and it’s still $4 in two years time.

Or that petrol is $1 per litre today, and the same price next year and the year after.

Prices neither rise nor fall.

Also imagine that you’re looking for a new job. So you turn up for the job interview and your prospective boss says to you:

“Right, the salary is $100,000 in the first year. Then in the second year we’ll pay you $94,000. In the third year we’ll pay you $88,360. And in the fourth year we’ll pay you $83,058.”

Would you take the job? By the fourth year your purchasing power has slumped by 17% yet your living costs are the same as they were four years previously. That’s what a 6% inflation rate will do to you.

And the mainstream economic love of inflation is forcing that lifestyle on you right now. The economists and economic commentators that plead for more inflation are doing nothing less than aiding and abetting the theft of your wealth.

Remember, inflation is not your friend, it is the enemy, and there is no way it can be harnessed for your benefit… Despite what the mainstream economic drones claim.

Cheers.
Kris.

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Tagged as: mainstream economists