This site has recently carried two stories: one about inflation, and one about driving test delays. Of course, they are in fact manifestations of the same problem – the destructive insanity of blanket lockdowns (except in Downing Street) resulting from the Government abrogating responsibility for decisions about dealing with the pandemic by listening only to a narrow group of well-paid and insulated epidemiologists and modellers fixated by one issue.
On February 19th 2021 I drafted an article about inflation for this site that I spiked, something I now regret. I thought I was being too pessimistic (instead I made a passing allusion to it here). This is how I concluded the spiked piece – nearly 16 months ago:
There is much talk on this site about how the Government cannot continue to rely on mitigation measures like lockdowns and restricting movement. Printing and borrowing money is something else that cannot go on at the present rates either. You’ll note that the Government says as little as possible about this, but you can be absolutely certain that behind closed doors a great deal is being said.
It’s worth bearing in mind that the politicians driving us down this route are unlikely ever to weather the consequences professionally. Many will have left Parliament within five to 10 years and very few will be left in 20 years, but the consequences of crippling an economy and bankrolling it by printing money will last for a very long time, saddling their successors and everyone else with the fallout. It’s also quite likely that more than a few of the lockdown zealot scientists have little understanding of the financial consequences of the policy beyond an awareness of individual hardships (from which they are of course personally exempt).
Funnily enough, I hadn’t foreseen the Ukraine War, and nor did I anticipate how the drive to push many jobs into working from home would become apparently permanent and make a bad situation even worse than it was already going to be.
Unfortunately for all of us, from early 2020 on far too much power and influence were allocated to one type of ‘expert’. However well-intentioned their input might or might not have been, their expertise was very limited. Most lacked either the general knowledge or three-dimensional minds to understand that whatever problem they were trying to solve, their solutions might make it far worse because of consequences they did not understand. Nor did they seem inclined to consider anyone else’e views.
In my view, the more focused and narrow their professional spheres, the more likely they were not to understand the damage they might cause in other areas if they were over-listened to.
And that become immeasurably worse once lockdowns were turned into a way of life, egged on by a cabal of scientists and aided and abetted by the Government.
It’s almost exactly a century since the hyperinflation that destroyed the economy of Weimar Germany in 1923. The French invasion of the Rhineland in January 1923 to seize funds for the reparations due under the Treaty of Versailles wrecked German industrial output. The Weimar Government’s solution was to print money, and in those days that meant literally print money.
Within a few weeks the currency had collapsed. We’ve all seen the pictures of people pushing wheelbarrows full of money to pay for a loaf of bread. Only when the Americans stepped in with the Dawes Plan to bankroll a new currency with loans was the disaster headed off; but even then it only bought time – the 1929 crash led to the American loans being called in, and Germany’s economy not only collapsed but this time a large number of ordinary Germans were inclined to listen to the extremist policies of the Nazis to dig the country out of the hole.
It is stunningly easy to understand how inflation happens at a basic level. If there was such a book, it would be a chapter in the Noddy in Toyland Guide to Economics. There is no such book, so I will explain.
The inflation equation works like this: m×v = p×q where:
- m is the supply of money in the economy, literally the amount of money available to go around. In the old days you had to print it. Nowadays you can just type it into an electronic balance sheet. Hey presto!
- v is the rate at which each unit of money is used in transactions. Put simply, this means a £5 note can sit in a drawer all day or it can take part in one or multiple transactions in a single day.
- p is prices.
- q is the quantity of goods and services in the economy.
Obviously, this is a very simple way of looking at it. But the principle is unaffected.
The equation is never balanced. It is always trying to balance, and the result is that some inflation is almost inevitable, and even normal. But it can go very wrong very easily, which is why the last person you would hire to advise you how to run a country in a pandemic is an epidemiologist or anyone associated with either epidemiology or modelling.
It’s absolutely fine to increase the supply of money if the quantity of goods and services in your economy has increased too. Indeed, you have to do so in order to make it possible to buy and sell those extra goods and services. It all goes hideously wrong if you start increasing the money supply when the goods and services haven’t increased or even worse when they’ve actually diminished.
Sound familiar? Got it in one. In 2020, the British Government, like many other governments, enacted a whole series of measures that started reducing the availability of goods and services and then started printing money (‘quantitative easing’) to compensate for the goods and services that weren’t being made. That meant more money standing for less in the way of goods and services. And it wasn’t alone – all over the world other governments dived headfirst into the abyss. We are nowhere near 1923, but we have certainly started down that road.
The equation demonstrates easily what happens next. Since m (money) has gone up and q (goods) have gone down then prices (p) must rise to balance m. Result: accelerating inflation, caused by more money chasing fewer goods. By increasing demand at a time of declining supply, the automatic response is for prices to rise until demand is reduced enough to balance supply.
And what happens when inflation takes off? People see their money diminishing in value so they are encouraged to spend it before they can’t afford what they want or need to buy. Result? v starts going up: people try to shift their money more quickly.
And since q (goods) aren’t going up, then p (prices) go up even more.
The real catch is that governments which have overspent love inflation. It wipes out their debts and encourages people to blow their savings. So, don’t think for one minute that Rishi Sunak and his henchmen aren’t secretly helped by inflation. This is how they’ll bankroll the lunacy of 2020.
And what about driving tests? Here’s the rub. Civil servants are by definition unproductive – they don’t usually make things or perform services that drive the economy. But they do service taxation which redistributes money in the economy in a very wide range of different ways. This includes funding defence, food standards, policing, hospitals, and schools – the people who work in those jobs earn money and spend it.
But the civil service isn’t always fulfilling its remit. Driving tests are a metaphor for making the inflation equation worse. By making it difficult or impossible for thousands of people to book driving tests, the civil service is making it harder for those people to become economically productive. That further diminishes the availability of q (goods) in the economy. Every other civil service delay in untold different contexts further inhibits economic activity. People without passports can’t buy air tickets, for example.
These examples are just small parts of a whole vast teetering and self-inflicted catastrophe. And the Ukraine War? Putin might have made a terrible misjudgement, but you can be sure that one of the reasons he went ahead was that he must have spotted a beleaguered and badly damaged West that would be far less able to withstand the economic fallout of his invasion. We have yet to see how the West might splinter when national self-interest takes centre stage.
Is there a reason to be optimistic? Only in the sense that I don’t think we’ll see 1970s levels of wage rises driven by unions chasing inflation, and I hope we don’t see an economic collapse that will lead to the rise of extremist politics. But we’re in a tight corner and both are technically possible. And there really isn’t any doubt about who’s to blame, and it should have been screamingly obvious to them from the day they locked us all up in our homes.
The supreme irony is that the economic fallout ultimately has the power to ruin the lives of those who were most susceptible to the effects of Covid. That’s not least because the NHS depends on an economy that can fund the astronomical quantity of staff and resources needed.
The big question is: did they have a choice? That’s another debate, but one thing is certain: the day U.K. and other governments started shutting their economies down they set in motion a train of events that has contributed directly to the parlous state we are in now, while the scientists who were so oblivious to the possibility of this outcome have disappeared like rats up drainpipes. Incredibly, there are still some keen to wheel out lockdowns again at the drop of a hat.
Every one of us will be paying for this in some way for the rest of our lives, from the elderly who see their savings destroyed to the young who will be unable to afford the luxury of saving anything at all.
I’ll end with a reminder of what the Imperial College team said back in their report of March 16th 2020 when they recommended “epidemic suppression” (lockdowns): “The social and economic effects of the measures which are needed to achieve this policy goal will be profound.”
At least they got that right, but it will surely go down in history as one of the greatest understatements of all time.