Where Is The Knowledge In Economics?
The first text-book on economics which I read, as a first year university student in chemistry, physics and mathematics, informed me that inflation was caused by too much money chasing too few goods and services; that in such circumstances customers were willing to pay numerically more currency units for such goods and services as are available than they had previously needed to pay; that consequently the unit value of the currency decreases accordingly; and that alternatively when there is a surfeit of available goods and services, their selling prices decreases and the unit value of the currency increases accordingly. Thus, for example, readers were encouraged to note that were the number of units of circulating currency to double for any reason, the selling price of goods and services would reduce to one half of their former level, were they to remain available at such a price. Again, the reader was encouraged to note that the growth of an economy was the growth in availability of goods and services and the growth in the circulating units of currency which thus maintain their value with respect this increasing level and diversity of the goods and services. Again, as to interaction of one national economy with another, the rate of exchange of their currencies comes into play in so far as one country can devalue its currency with respect to another to make its exports cheaper to purchase by another of higher unit value. This became observable during exchange rate mechanism which preceded adoption of a single currency by the EU, a mechanism which enabled the nations of weaker currencies to devalue with respect to the German mark, in order to increase their exports to Germany and other members of the EU, a practice which ought to have raised questions as to the wisdom of a single currency for the EU as a whole.
However, in an article of the Business section of the Sunday Telegraph of 2/5/21, entitled “We are perilously close to another inflationary age, but no one cares”, Jeremy Warner opens by stating that ‘Jes Staley, chief executive of Barclays, thinks that the UK economy is going to boom (grow) for the remainder of this year, with the strongest rate of growth since 1948’; that ‘this would be great stuff if it does’; but that ‘with the economy still around 8 per cent smaller than its pre-pandemic state, it is actually only what would be required to meet Andrew Bailey’s suggestion that all the ground lost to the pandemic might be clawed back by the end of the year’; that ‘the Bank of England Governor made that prediction back in February’; that ‘the outlook has further improved since then’; and that the bigger question is not how long it takes to repair the Covid-related damage’; but that rather it is what happens thereafter’. ‘Does the economy simply return to the lacklustre, pre-pandemic levels of growth, or does it continue to motor, causing things to overheat and a consequent surge in price and wage inflation’? At this point, I ask what meaning attaches to “inflation” in this context. Is it inflation caused by an increase in the circulating units of currency as defined in paragraph 1 above, or is it something else? Again, I ask in what ways has the economic outlook further improved since February. Indeed, he goes on to say that ‘the Bank reckons that Brexit has made it more expensive to trade with Europe’; that ‘the new arrangements will reduce GDP by 3.25 per cent over the long run relative to where it would otherwise have been, around two thirds of which will be felt by the end of 2024’,to which Warner opines that ‘the Bank is being too gloomy about the prospects for growth and therefore too complacent about the emerging inflationary pressures’; and that to ignore the warning signs for too long would require sudden handbrake action by the Bank to correct the problem’; and that ‘any abrupt change in policy might tip the economy into recession, given the still high levels of public and private debt’
At this point, I could go on with my comments on other aspects of this Warner article, but I here conclude that economists and economic commentators continue to debate opinions and counter-opinions which are merely beliefs/counter-beliefs supported by partially selected facts/counter-facts, evidence/counter-evidence and news/false-news, no set of which is ever debate-terminating conclusive knowledge; that this is the basis of all political debate; and that Section 3 of this website will proceed to show how knowledge-only policies which would work in reality, could displace all current belief-only policies which have never worked in reality and never will. 11/5/21.