To demonstrate this illness, I will start by describing some symptoms, and the most practical, objective, and obvious that affects us all: inflation.
The increase of gasoline price in the US has been dramatic. The price of gasoline in the United States went from 2.5 to 5 USD dollars a gallon from January 2020 until today, an increase of 100%. Indeed, inflation has hit 8.6% in May in the US – the highest rate in four decades.
The general public, particularly the poorest in society, has been bearing the most pain with this increase, since, in Fedspeak, they have the highest share of their expenditures on food and energy (in plain English, they live at subsistence levels). The richest sectors of society seem also to have high stakes in this crisis. As an example, more than 7 trillion US dollars have been wiped out from the stock market this year (so far), though this is rather an indirect effect of rising inflation (I will later address this).
History has been filled with soulless charlatans, mysticism, propaganda, and wishful thinkers, all claiming to know the causes and solutions to the problems of their time. Today, this is unfortunately no exception. You will hear time and again explanations of why inflation is real, but most frequently whom or what it is to blame. And who is blaming who appears, sadly, to highly depend on their world views and political ideologies and personal or institutional interests.
You will hear that inflation is driven by “wage pressures” (pejorative Fedspeak term for the pesky poor people who dare to react to threatening hunger and ask for a wage increase), or the greedy 1% that own business and will oppose a price cap, or “supply chain disruptions caused by the unreasonable, communist Chinese Zero-Covid policy”, or the “brutal Russian war on Ukraine, which has disrupted energy markets”, and so on.
A perspective you will not as frequently hear is that starting from January 2020, the US government has increased its debt by 7 trillion US dollars (USD) and the Federal Reserve (Fed) has increased its balance sheet by 4 trillion USD (the Eurozone and Great Britain followed the same path). The money supply has consequentially increased more than 40%, from 15.4 to 21.8 trillion USD from January 2020 to May 2022 – a pace of increase never seen in the US since world war two.
Indeed, supply chain issues and de-globalization, trade- and actual wars, and, of course, the Covid pandemic, have affected our productivity. In the same period, the real US gross domestic product hasn’t increased as much – only approximately 11%.
The result is that we have more money chasing fewer goods, price levels increase and we get inflation. Price stability ought to be a task of the Federal Reserve, which is ought to be controlled by the US Congress. The US Congress and the Fed (the same applies to the European Central Bank and the Bank of England), thus, have been failing the American people, the dollar – the main international reserve currency – and, as a consequence, the whole world price and economic systems are increasingly chaotic.
What I find most fascinating is that this is not something new, or unpredictable. Nobel Prize laureate Milton Friedman, after studying the history of money in the US and different countries over centuries, has famously stated that “inflation is always and everywhere a monetary phenomenon”. I would translate it as “inflation is preceded by money printing”. Friedman is a divisive figure for his advocacy of neoliberalism, and the heavy popularity of Ad hominem today might tempt you to immediately dismiss what he had to say. But apart from being a neoliberal advocate, I see him as a human being that worked on and studied empirical data and made accurate predictions based on them, so I would humbly suggest listening to what Friedman had to say. His description of the inflation phenomena back in the 70s – and the political reaction to it – is, sadly, very much applicable to our present times. During a 1978 speech at the University of San Diego, Friedman stated that:
“Now, the first step toward understanding the cause of inflation is to recognize that it is always and everywhere a monetary phenomenon. It’s always and everywhere a result of too much money, of a more rapid increase in the quantity of money than in output. Moreover, in the modern era, the important next step is to recognize that today governments control the quantity of money so that, as a result, inflation in the United States is made in Washington and nowhere else”.
His take on government’s reactions to inflation:
“Of course, no government, any more than any one of us, likes to take responsibility for bad things. We are all of us human. If something bad happens, it wasn’t our fault. And the government is the same way, so it doesn’t accept responsibility for inflation. If you listen to people in Washington talk, they will tell you that inflation is produced by greedy businessmen, or it’s produced by grasping unions, or it’s produced by spendthrift consumers, or maybe it’s those terrible Arab sheiks who are producing it. (…)But none of them produces inflation for the very simple reason that neither the businessmen, nor the trade union, nor the housewife has a printing press in their basement on which he or she can turn out those green pieces of paper we call money. Only Washington has that printing press and therefore only Washington can produce inflation. If you listen to the people from the communist world, they will tell you inflation is a capitalist phenomenon. That’s not true. If you look at Europe today, one of the most rapid rates of inflation in Europe has been in Yugoslavia which is a communist country. One of the lowest rates of inflation has been in Switzerland which is a capitalist country. So inflation is not a capitalist phenomenon, but neither is it a communist phenomenon.”
It appears that some settings do change, but the issue stays be the same: print too much money, and you get inflation.
I believe a major question that arises is: since inflation has been already studied, described, and accurately predicted in the past, and it threatens to lead society to a great amount of suffering and even collapse, why has the US government repeated the same mistake?
Proponents of liberalism will tell you that a great advantage of a democracy is that it is capable of acting scientifically, that it is capable of learning, and that it has plenty of self-correcting mechanisms. So how come a democracy has repeated such a crucial error?
Well, for one, it is not only in the economic sphere that it is clear that democracies aren’t working as intended. I will now address the political side of the illness, which is the most important. A key sympton of it is a lack of trust in institutions across the board, perhaps triggeded by grievences and a general feeling – to be greatly worsen by the return of inflation and the incoming recession – that a social contract has been violated.
In case of the economic violation of this social contract, a major driver that I believe will be more easily seen in restrospect is the adherence of elites to dogmas, its failures, and the following slow but steady realization – and threatening revolt – of the public that they are not getting what they were promissed and that the dogmas upon which elites base they privillege are what they are: dogmas.
Let’s start with the example, again, of inflation, but include Wall Street. We heard from the Federal Reserve’s Chair Jerome Powell – a former investment banker – back in February 2021 (when inflation was already above the Fed’s 2% target and after the Federal Reserve, through its Open Market Operations, has continued to expand its balance sheet substantially to provide financial markets the liquidity they need for stability – Fedspeak for printing 4+ trillion USD) that we should unlearn the lessons of the past. There appeared to be little to no concern about inflation getting out of controll as a possible result of a massive increase in money supply despite all centuries-long evidence that the contrary should be true. “But don’t look at history, this time is different, there is no inflation risk”, we were told yet again, as we were told that there was no tech bubble back in the 2000s, no housing bubble from 2000 to 2007, only to see the system shattering thereafter – and here is inflation. What do central banks have to say to that? “We now understand how little we understand about inflation” is the version told by Jerome Powell yesterday.
Interesting. Because there was ample criticism, though not mainstream, that the Fed’s actions of money printing after the stock market crash of February 2020 protected rather the asset-owning elites and even exacerbated the gap between rich and poor. Indeed, the wild money printing can be seen as a perverse wealth transfer from the poor to the rich, as asset prices rose and the purchasing power of the masses lowered. Central banks claim that Quantitative Easing (Fedspeak for money printing) is an “experiment” and, as shown by Powell’s statement, that they don’t understand much about inflation; But I believe people in central banking, in all likelyhood, know exactly what they are doing and/ or are being literal wishful thinkers, as stated by the Bank of England’s former Governor.
One must be deeply delusional to believe such a structure can be anywhere near to sustainable, but “markets” are playing along, also as wishful thinkers. We hear that many markets agents “hope that the economy will show signs of weakening so that the Fed will print more money to stimulate it so that asset prices will increase again”; such short-sighted expectations are insanely unsound but are a possible explanation why asset bubbles have not completely popped yet (a 5% Fed rate increase leads, on average, to halving the SP 500 PE ratios over the past 60 years; valuations have only fallen about 20% so far, and earnings are expected to be impacted through the incoming recession). So much for the dogma (it should be not more than a hypothesis) of efficient markets and the non-existance of bubbles (by the way, who do you think will bear the most burden once they burst again?).
A second, very fundamental shattering dogma for our economic system, other than “markets are efficient”, is the illusion that success in a free-market economy is a result of hard work. Well, you’ve worked hard and saved your money in the past few years? Inflation – driven by people in Washington – will wipe it out. You’ve got a loan for your business, or for studying, or whatever other human or physical capital investment? A recession is sure to come – in the most optimistic outcome to correct and reform, and not revolutionize, our economic system – resulting from tightening monetary policy (Fedspeak to slow down a bit the money printing), so you’re way more likely to default, lose your job and business, health insurance, your home, etc., and be sent directly into poverty and bellow subsistence, for considerations and decisions you were not asked about and did not participate in. Are we to believe that a poor person in this condition is morally reprehensible, that the poor ought to be poor and they deserve it? This would be similar to say that the nobility ought to be rich, and that the Tsar ought to be Tsar, and that we all ought to give the Church the tithe, etc., a quite well-known medieval way of thinking.
The reverse is also true. The shattering of dogmas I am referring to consists in that we believed that democracies self-correct, represent the will of the people and foster open debate, that markets are efficient, that central banks act independently and are scientifically driven, and that a free-market society rewards hard work, and we are astonished and confused that this appears not to be the case. We are yet again confusing is with ought to be. Democracies ought to represent the will of the people, foster debate and self-correct, markets ought to be efficient and productive, central banks ought to act independently and be scientifically driven and controlled by congress in people’s interest, and people ought to be rewarded for their hard work. But there is nothing obvious, automatic or magical behind this. It is up to each and every one of us to, first, define what ought to be, and secondly, make sure we have healthy institutions that work as intended. You’ve listened to this before, but it is about holding the people in power accountable for their actions. Liberty and democracy come with a price, and it is eternal vigilance.
Unfortunately, we have not been willing to pay this price and to hold people in power accountable. We have been forming tribes and factions, and we are following them blindly; we are a crew of a sinking ship, too occupied – and entertained to unhealthy levels – with hating and killing each other, instead of realizing we are on the same ship and we have, at the end of the day, the same interest: that the ship doesn’t sink.
But we are not seeing the ship’s crew talk about finding strength together, steering the ship’s wheel and mastering the incredibly stormy waters we facing.
What we are seeing is elites acting based upon unscientific postulates or shattering dogmas, behaving in a disastrous, short-sighted fashion oblivious to the public’s grievances, debt-financing unpopular wars, taxing (inflation is a form of taxation without legislation) its subjects bellow subsistence. We see the left and right increasingly radical, and an overall lack of trust in established authority, we see signs of widespread cultural war, all fueled by the newest forms of information technology. Basically, we are seeing multiple red flags that appeared at various times during modern history that preceded great disasters. While the Enlightenment and popularization of the printed press allowed for massive technological progress – as the internet allows us to order stuff online, work from home, and you to read this essay – they have also led humanity to profound, not always positive social changes, resentment, revolutions, wars, famines, and the worst tragedies of human history.
But there is no need to worry. Don’t look at history. This time is different. Democracies self correct and don’t fight each other, markets are efficient, so things will be fine and peaceful. Nevermind the steering wheel and the sinking ship. Let’s now all go back to social media and complain about how stupid and unbearable our opposing political faction is, and how they are to blame for all the problems of this world.
P.S. here is a Python code in case you want to filter out the time stamps of transcripts of Youtube videos (you first need to show the transcript in YouTube and then download it):
def filters_youtube_transcript(full_file_path):
'''
### INPUT:
full_file_path(str): path of the file that contains the transcript, which
has the following structure: "content \n time stamp \n content \n"
### OUTPUT:
str_(str): filtered transcript
'''
# opens file and reads content
with open(full_file_path, 'r') as file:
str_ = file.read()
# splits string
a = str_.split('\n')
# gets rid of odd indexes, i.e. time stamps
del a[1::2]
# joins list
str_ = '\n'.join(a)
return str_
GBG 