The road to Ballymena
John Moran gets a hat tip for his Sept. 2 Community Voices explaining agnotology (“COMMUNITY VOICES: Agnotology related to oil, gas industry”). It turns out neither my old Webster nor my spell check recognizes the word. Agnotology, “culturally induced ignorance,” once recognized is more common than many would have imagined. However, ignorance comes in many flavors.
Moran’s reference focused on the oil production business. Enter Goodhart’s law, a tool in the methodology of ignorance as derived from misinformation that applies to economics, finance, science and political arenas. British economist Charles Goodhart’s law is described by anthropologist Marilyn Strathern as, “When a measure becomes a target, it ceases to be a good measure.” A byproduct of which is statistically induced ignorance. This applies to measurements of human actions that can and are elevated into targets that can be nudged and tweaked for economic or political advantage. The term goal-seeking statistics comes to mind. Examples might be the Dow Jones as a measure of the economic health of the nation. Another could be COVID-19 statistics tossed around that fast became a measure and target of how many freedoms should, or could, be removed. An example of the process is contained in the body count mechanism during the Vietnam War, in which this writer had experience at its most basic level. Wherein enemy casualties were a measure of a winning war strategy, thus higher casualties became the target, all for naught.
The grand prize for statistically induced ignorance in finance must surely be in the area of inflation. The ignorance in part resides with Ph.D. economists that accept the government’s inflation report — consumer price index — as gospel in policy determinations. In order to tie this up, keep in mind that the Fed’s pet measure for monetary policy guidance is inflation, CPI in their world.
There is a school of thought that argues that CPI and the actual cost of living increases are two different numbers. Per blogger Tom Luongo, “The original definition of inflation was an expansion of the money supply. If you create more money while keeping everything the same, ceteris paribus, then prices should rise accordingly.” In August 2000, the M2 Money supply (cash, demand deposits, money market funds, savings, etc.) was $5.2 trillion. In August 2010, the figure was $8.6 trillion. As of the recent report, August 2020, it is $18.4 trillion.
The overarching point is had the distribution of the “new” money been evenly dispersed (see the Cantillon Effect, mentioned in a previous piece) then all items priced in dollars, including labor, ought to be about double compared to 10 years ago. In order to test this theory, think through the economy’s reaction if the above trend trillions of dollars is removed from the system over the next decade.
Yet the Federal Reserve Bank contends that inflation is too low, hence its mandate for ultra-low interest rates with an outward objective that this will move consumers to borrow themselves into prosperity, at the cost of punishing savers. Government bean counters have so jacked up the calculations that make up the CPI that such essentials as power bills, insurance, medical expenses, housing, etc. increasing on a steady basis get lost in translation. For a more detailed account, check out www.chapwoodindex.com.
Tying together the cultural and statistical conditions as described, on the one hand we have a central bank that lends money it doesn’t have to people who don’t really need it under the umbrella of the state feeding itself. On the other hand, we have by the words and deeds of the peaceful rioters, referred to as rent-a-riot in some circles, which can be described by a word my Webster’s does recognize: sedition.
The recipe for a meaningful solution regarding the above, especially for the belabored American middle class, reminds me of the story of the traveler in Ireland. The traveler stops and asks an Irish farmer how to get to the village of Ballymena. To which the farmer replies, “Well if I was going there I wouldn’t start from here.”
Americans, who believe that larger central government is the answer, may rest easy. For the rest of us, storing wealth in assets that won’t need a federal government bailout becomes more meaningful with each passing crisis.