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Good News, Bad News

Inflation is low and the oil price is plunging.  Good news, eh?

Well you would think so. 

We always used to think so.  Not that either of these events occurred very often.  I’m harking back to the days in the eighties and nineties, and before that, when inflation was rampant, which economists said was potentially ruinous, and the OPEC oil cartel, dominated by greedy Arabs, ruthlessly held the world to ransom by keeping the oil price soaring through production cuts.

How we longed for stability, as we watched news footage of panicked motorists lined up at petrol stations, as President Carter slashed the speed limits on Federal highways and told us to turn our thermostats down to 65 degrees. (I was living in the United States at the time.  In Britain, the inflation rate soared above banana republic rates of 20 per cent.)

How times have changed, or at least the economic theories have. For today I keep reading in the newspaper that inflation is so low that we are ‘in danger’ of suffering a serious spell of deflation, and that a sharp fall in the oil price, the latest in a steady year-long decline, far from being welcomed as an unforeseen boon, has sent world stock markets into a tailspin.

I’m no economist, as no doubt you have gathered, and I’m confused.  So, I suspect, are many of my fellow citizens.  Why, we ask plaintively, isn’t low inflation a good thing?   Why is it bad that the essentials we buy are becoming more affordable, especially at a time when wages have fallen behind prices?  And why should we not rejoice, when filling up the jalopy, that it costs a fiver less than it did a month ago?   Think of the benefits to transportation companies and to small business enterprises that rely on delivering their products by road.

The explanation, according to those who know more about such matters than I obviously do, is that these once beneficial developments may well push the world economy into deep recession, with all the inevitable consequences of rising unemployment, falling property prices, and so on. 

China and India are witnessing a slowdown in demand after years of rapid expansion.  The euro-zone is already verging on the brink of recession, and may even lose some of its weaker members, like Greece and Italy.  Even Germany is losing its export-driven economic vigour.  Only the United States and Britain remain in a growth phase.  But even those economies are illusionary, the experts tell us, built as they are on the flimsy components of artificial monetary stimulation and the shifting sands of consumer debt.  They too will be dragged down if the rest of the world goes into an economic swoon.

In short, having sailed perilously close to the rocks of an economic catastrophe just five years ago, the world now finds itself back on the same hazardous course, without captains or helmsmen to steer the ship away from it. 

I don’t know the answer, but then apparently neither do any of our esteemed political and financial leaders charged with the collective management of the world’s economic affairs. Whatever the lessons learned from the credit crisis of 2008-2010, none seem to be convertible into serious coherent policies. 

We live in troubled economic times, made all the more fearful because nobody in power seems to know quite why that is.

And so, to quote F. Scott Fitzgerald, we beat on, boats against the current, borne back ceaselessly into the past.

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