THE PSYCHOLOGIST

Some prophecy that is looking good

On 30 April, 2012 I asked "Where has that inflation gone?" I reproduce below the answer I gave then. The answer did contain some predictions so one might ask how have those predictions worked out? I give below the original predictions followed by a 2018 update:

2012

Something of a puzzle to many commentators is that Obama's vast money printing binge has not produced rapid inflation. A greenback buys less than it used to -- particularly overseas -- but not spectacularly less.

Jerry Bowyer wisely remarks that it often takes a long time for an influence to work its way through the system and he is undoubtedly right so that is clearly part of the story.

But I think the major factor is a straightforward example of what economists call the "velocity of circulation" effect. Price inflation is a product of the amount of money on issue multiplied by its velocity of circulation and the velocity of circulation has fallen precipitously just as the money supply has increased -- the one influence largely cancelling out the other.

My apologies for introducing a bit of economic jargon into a general political blog but I have been puzzled that none of the discussions of the matter that I have seen have mentioned the role of the velocity of circulation. Perhaps it is just that other writers have better manners than I do.

To make amends, let me put up a somewhat oversimplified version of my suggestion: Most of the money Obama has issued is just sitting still in the reserves of banks, other financial institutions and major companies. It is not being spent or lent out. Its velocity of circulation is nil. It might as well not exist as far as the economy as a whole is concerned.

And because of general nervousness that is not going to change soon. But if and when it does change the party will really be on -- a party for everyone except people who have savings.

Let me suggest a scenario. Suppose Romney is elected and fires all the Obama cronies running the EPA and other business-obstructing agencies. That suddenly gives everybody more confidence in doing business. So the banks start lending again and businesses with reserves start using their reserves to expand. The money starts flowing again. The velocity of circulation rises. There is now a greater demand for resources: both labour and capital goods. People might even start building new houses again. For a little while that greater demand for resources will be met from presently idled resources: Unemployed people will get employed and shuttered mines and manufacturing facilities will reopen. So everyone will be having a party.

But parties like that tend to feed on themselves and breed yet more optimism -- and so the demand for resources will soon go beyond what can be met by reactivating idled resources. With the money now flowing again, prices will be bid up as everybody wants a piece of the action. And an expanded volume of money chasing a relatively fixed resource base can only lead in one direction -- to price rises. Inflation will be underway. How far it will go is anybody's guess but with everybody now using the extra money that Obama has created, it could be a whopper of an inflationary process. What a greenback will buy could easily drop to (say) half of what it will buy today.

So Romney will inherit Obama's inflation and will probably be blamed for it. And savers will rightly feel utterly betrayed by the political system that has cut the value of their savings in half. "Spend it while you can" will become the new wisdom. My personal hint: Put most of your savings into blue-chip company shares NOW. I did so long ago.

2018 UPDATE: I am writing this update in December 2018 so it is still early days yet but we do seem to be seeing some of the effects under Trump that I predicted for an incoming conservative administration.

A great boom has unquestionably arrived and is reactivating idled resources. Coal and steel production are headlined as up but the striking transformation is in the labor market. All slack there seems to have been taken up. Previously intransigent sectors -- blacks, Hispanics and the over 50s -- suddenly seem to be back into full employment. Labor markets have become so tight that employers have been forced into their last ditch strategy,

Employers are now competing for the available workers. And how do you do that? Offer higher wages. The Trump economy is at last producing higher wages for many American workers. So the process of bidding up prices has already begun. That must to some extent flow through to consumer prices but how far we have yet to see. How far it goes will be interesting, to say the least.

The banking sector is yet to show any sign of exuberance. They were heavily burned in the recent past (2008 etc) so caution may now be entrenched in them. If so, a big inflationary explosion could be avoided -- JR

2 comments:

UnknownDecember 18, 2018 at 4:10 AM
No nailed this one 100%. Here in the US a little inflation--especially in the form of higher wages--is a welcomed sign of prosperity that we haven't seen in quite awhile. Much of the newly minted money was never seen on Main Street but mostly on Wall Street.
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faizanDecember 18, 2018 at 11:57 PM
he morning hours are when you have the most focus
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Background

The essence of conservatism is caution. The essence of Leftism is anger

This blog is written solely by John Ray, who has a Ph.D. degree in psychology and 200+ papers published in the academic journals of the social sciences. It does occasionally comment on issues in psychology but is mainly aimed at giving a conservative psychologist's view on a broad range of topics. There are very few conservative psychologists.

The blog originated in Australia and many (but not most) posts discuss Australian matters. Australians have an unusually good awareness of events outside their own country. Australian newspapers feature news from Britain and the USA not as an afterthought but as a major part of their coverage. So Australians do tend to have a truly Western heart, which is the reason behind the old name for this blog. So events in Australia, Britain and the USA all feature frequently here, plus occasional coverage of other places, particularly Israel.

A primer in American politics for non-Americans:

SCOTUS is the Supreme Court of the United States, the highest court in the land

The "GOP" stands for "Grand Old Party" and refers to the Republican party. The GOP is at present center/Right, while the Democrats have been undergoing a steady drift Leftwards and now have policies similar to mainstream European Leftist parties.

The ideological identity of both parties has however been very fluid -- almost reversing itself over time. In the mid 19th century, the GOP was the party of big government and concern for minorities while the Democrats advertised themselves as "The party of the white man" -- an orientation that lasted into the mid 20th century in the South. The Democrats are still obsessed with race but have now flipped into support for discrimination AGAINST whites.

Was Pope Urban VIII the first Warmist? Below we see him refusing to look through Galileo's telescope. People tend to refuse to consider evidence— if what they might discover contradicts what they believe.

Global warming

Calibrated in whole degrees. Larger graph here

Climate scientist Lennart Bengtsson said. “The warming we have had the last 100 years is so small that if we didn’t have meteorologists and climatologists to measure it we wouldn’t have noticed it at all.”

The term "Fascism" is mostly used by the Left as a brainless term of abuse. But when they do make a serious attempt to define it, they produce very complex and elaborate definitions -- e.g. here and here. In fact, Fascism is simply extreme socialism plus nationalism. But great gyrations are needed to avoid mentioning the first part of that recipe, of course.

Two examples of Leftist racism below (much more here and here):

Beatrice Webb, a founder of the London School of Economics and the Fabian Society, and married to a Labour MP, mused in 1922 on whether when English children were "dying from lack of milk", one should extend "the charitable impulse" to Russian and Chinese children who, if saved this year, might anyway die next. Besides, she continued, there was "the larger question of whether those races are desirable inhabitants" and "obviously" one wouldn't "spend one's available income" on "a Central African negro".

Hugh Dalton, offered the Colonial Office during Attlee's 1945-51 Labour government, turned it down because "I had a horrid vision of pullulating, poverty stricken, diseased nigger communities, for whom one can do nothing in the short run and who, the more one tries to help them, are querulous and ungrateful."

Defensible and indefensible usages of the term "racism"

The book, The authoritarian personality, authored by T.W. Adorno et al. in 1950, has been massively popular among psychologists. It claims that a set of ideas that were popular in the "Progressive"-dominated America of the prewar era were "authoritarian". Leftist regimes always are authoritarian so that claim was not a big problem. What was quite amazing however is that Adorno et al. identified such ideas as "conservative". They were in fact simply popular ideas of the day but ones that had been most heavily promoted by the Left right up until the then-recent WWII. See here for details of prewar "Progressive" thinking.

R.I.P. Augusto Pinochet. Pinochet deposed a law-defying Marxist President at the express and desperate invitation of the Chilean parliament. He pioneered the free-market reforms which Reagan and Thatcher later unleashed to world-changing effect. That he used far-Leftist methods to suppress far-Leftist violence is reasonable if not ideal. The Leftist view that they should have a monopoly of violence and that others should follow the law is a total absurdity which shows only that their hate overcomes their reason

Franklin Delano Roosevelt was a war criminal. Both British and American codebreakers had cracked the Japanese naval code so FDR knew what was coming at Pearl Harbor. But for his own political reasons he warned no-one there. So responsibility for the civilian and military deaths at Pearl Harbor lies with FDR as well as with the Japanese. The huge firepower available at Pearl Harbor, both aboard ship and on land, could have largely neutered the attack. Can you imagine 8 battleships and various lesser craft firing all their AA batteries as the Japanese came in? The Japanese naval airforce would have been annihilated and the war would have been over before it began.

FDR prolonged the Depression. He certainly didn't cure it.

WWII did NOT end the Great Depression. It just concealed it. It in fact made living standards worse

Joe McCarthy was eventually proved right after the fall of the Soviet Union. To accuse anyone of McCarthyism is to accuse them of accuracy!

The KKK was intimately associated with the Democratic party. They ATTACKED Republicans!

People who mention differences in black vs. white IQ are these days almost universally howled down and subjected to the most extreme abuse. I am a psychometrician, however, so I feel obliged to defend the scientific truth of the matter:

The average African adult has about the same IQ as an average white 11-year-old and African Americans (who are partly white in ancestry) average out at a mental age of 14. The American Psychological Association is generally Left-leaning but it is the world's most prestigious body of academic psychologists. And even they have had to concede that sort of gap (one SD) in black vs. white average IQ. 11-year olds can do a lot of things but they also have their limits and there are times when such limits need to be allowed for.

America's uncivil war was caused by trade protectionism. The slavery issue was just camouflage, as Abraham Lincoln himself admitted. See also here

Did William Zantzinger kill poor Hattie Carroll?

Did Bismarck predict where WWI would start or was it just a "free" translation by Churchill?

Leftist psychologists have an amusingly simplistic conception of military organizations and military men. They seem to base it on occasions they have seen troops marching together on parade rather than any real knowledge of military men and the military life. They think that military men are "rigid" -- automatons who are unable to adjust to new challenges or think for themselves. What is incomprehensible to them is that being kadaver gehorsam (to use the extreme Prussian term for following orders) actually requires great flexibility -- enough flexibility to put your own ideas and wishes aside and do something very difficult. Ask any soldier if all commands are easy to obey.

A good article on Leftist hate

The real history of social Darwinism

Some personal memoirs

Memoir highlights