Et in Arcadia Inflation*

October 22, 2014
Posted by Jay Livingston

What do you do when your published predictions prove wrong? How do you resolve the dissonance between your ideas and the facts?

In a blogpost earlier this month (here), I looked at the responses of twenty-three economists who had written an open letter to Ben Bernanke warning of inflation unless he ended quantitative easing and tightened the Fed’s monetary policies. Bernanke ignored the warning, and inflation didn’t happen. I made the analogy between their responses and those of the religious millennarian cult described in When Prophecy Fails.

When asked about their error, none of the economists even considered that their ideas might have been wrong. Instead, their reactions to the reporter’s questions were:
  • Ignore. Several of them didn’t respond to the query.
  • Deny. Some said that everything they had predicted had indeed happened.
  • Equivocate. Some said that they had not issued a prediction but only a “warning.” Others pointed out that they hadn’t specified a date that the inflation would start.
  • Proselytize. Most are still trying to convince others that their  ideas are correct.
I added that for purposes of reducing dissonance, it helps to get others others to confirm your ideas by agreeing with them, publishing them, and especially paying for them. These affirmations from other people  seem to be as effective as confirmation from the facts. Now Amity Shlaes, one of the 23 letter-signers,  has expanded her reaction, and the National Review has published it.*

Well, inflation hasn’t come on a big scale, apparently. Or not yet. Still, a lot of us remain comfortable with that letter, since we figure someone in the world ought always to warn about the possibility of inflation. Even if what the Fed is doing is not inflationary, the arbitrary fashion in which our central bank responds to markets betrays a lack of concern about inflation. And that behavior by monetary authorities is enough to make markets expect inflation in future. [source: NRO]

I’m struck by the moralistic overtones, which suggest that this isn’t just a matter of economic theory. It’s about faith, about good and evil.  Inflation is sort of like Satan – supremely evil and always lurking even when you can’t see it. Note the “apparently” at the end of the first sentence – a bit like a millennarian saying that apparently the earth had not been destroyed, and apparently the UFO aliens hadn’t landed to save the faithful.  But it will still happen (“Or not yet.”) So we must not let our guard down. Bernanke and now Yellen “betray” a lack of concern. 

The distrust of quantitative easing sounds as much like Puritanical ethos as economic theory.  With their policy of “easy money” – as opposed to money we must work hard for – the Fed chiefs are luring us toward sin and ultimately destruction (or at least inflation), much like the governors of Pleasure Island in Disney’s “Pinocchio.”**

* The title of the post is variant of in arcadia ego.  “‘Even in Arcadia, there am I’. The usual interpretation is that ‘I’ refers to death, and ‘Arcadia’ means a utopian land. It would thus be a memento mori,” a reminder of death. [Wikipedia]

** Earlier posts using this Pinocchio-and-political-Puritanism analogy are here
 and here.

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