Why are the economists supposed to face up a stark reality and not the politicians who are ultimately responsible for what befalls us?
Maybe the economists should have some heart to heart with the politicians and have them see sense.
J Bryant
2 years ago
I like this author. His short articles appear to be Unherd’s limited commitment to covering economic issues (although I have a feeling the economy will soon be the only thing anyone is talking about).
I agree with the author’s analysis. Honestly, did anyone apart from professional economists not see the clear connection between pandemic response measures and inflation?
Here’s what I don’t understand (and I hope I don’t trigger a massive, angry response to my question–some cool analysis would be appreciated): where I live the vaccines do, indeed, seem to be greatly reducing the incidence of serious covid disease and death, although, as the author notes, they don’t stop transmission. I trust the local data I’ve seen. So why are countries like Austria, with high vaccination rates, seeing an increasing death rate? Is it a function of an old and sick population? In other words, do the vaccines reduce serious covid illness or not?
From what I understand in Austria there are relatively few vaccinated (but not THAT few) so you have a larger group of the population to “infect”.
More interesting is Italy with high uptake and very strict vaccine passport, still cases are in the up. Let’s see where hospitalisations follow suit.
The point is, AFAIAC, this is as good at it is going to get, so might as well get on with it.
At this point, my view of the vaccines is that they *may* reduce the risk of serious cases requiring hospitalization in high-risk groups, but that the speed with which COVID-19 mutates negates any sanitizing effects whatsoever. Which should be obvious to anyone with any acquaintance to how coronaviruses and other respiratory viruses act. This is why trying to produce effective vaccines against these viruses that stay the course is so difficult.
But for St. Anthony of Fauci and all the politicos, “when all you have is a hammer, everything looks like a nail.”
Giles Chance
2 years ago
This is a relatively academic point. What is more to the point is that global price inflation has been much higher, and lasted so far for longer than forecasts made early in 2021. Forecasts made today for the period 2022/ 23 are probably also much too optimistic. Interest rates have to rise, and Powell’s comments this week bring us closer to that certainty. For a highly-indebted society (Government, corporations and households), even a small rise in rates will have a large impact – on profits, on Government solvency, on taxes, on asset prices. Stand by for a major shock. I call it Credit Crisis phase 2.
Last edited 2 years ago by Giles Chance
Jon Hawksley
2 years ago
Inflation and deflation depend upon the balance in supply and demand. Generally supply is fixed in the short term so changes in demand have the greatest effect. Demand is limited by available funds so the willingness of lenders matters, which depends upon how expansive or cautious they are to lend. They are also constrained by liquidity requirements set by central banks. Interest rates are generally viewed as a control on demand but in practice fear and greed are far more important and they are driven by sentiment. With the pandemic demand is also driven by opportunity to spend and supply is constrained by disruption to supply chains. Lockdowns reduced the opportunity to spend and whilst many lost earnings there were many who saved. The savings have led to pent-up demand and the disruption has reduced supply – thus inflation.
What is needed is for the pent-up demand to be released more slowly – in step with supply but there is no mechanism to do that – people either have savings or are willing to borrow on credit cards at high interest rates, greed will not be constrained by the bank rate going up. However adding five percent to mortgage rates will hurt borrowers badly because they budgetted for very low interest rates. It will create defaults that will frighten lenders so we may end up with some of the population driven by greed and some driven by fear.
Then there is inflation causing wage increases feeding a spiral in inflation.
This uncharted territory and I doubt that any of the economic models can model this properly.
Why are the economists supposed to face up a stark reality and not the politicians who are ultimately responsible for what befalls us?
Maybe the economists should have some heart to heart with the politicians and have them see sense.
I like this author. His short articles appear to be Unherd’s limited commitment to covering economic issues (although I have a feeling the economy will soon be the only thing anyone is talking about).
I agree with the author’s analysis. Honestly, did anyone apart from professional economists not see the clear connection between pandemic response measures and inflation?
Here’s what I don’t understand (and I hope I don’t trigger a massive, angry response to my question–some cool analysis would be appreciated): where I live the vaccines do, indeed, seem to be greatly reducing the incidence of serious covid disease and death, although, as the author notes, they don’t stop transmission. I trust the local data I’ve seen. So why are countries like Austria, with high vaccination rates, seeing an increasing death rate? Is it a function of an old and sick population? In other words, do the vaccines reduce serious covid illness or not?
From what I understand in Austria there are relatively few vaccinated (but not THAT few) so you have a larger group of the population to “infect”.
More interesting is Italy with high uptake and very strict vaccine passport, still cases are in the up. Let’s see where hospitalisations follow suit.
The point is, AFAIAC, this is as good at it is going to get, so might as well get on with it.
Spot on, Andrea.
At this point, my view of the vaccines is that they *may* reduce the risk of serious cases requiring hospitalization in high-risk groups, but that the speed with which COVID-19 mutates negates any sanitizing effects whatsoever. Which should be obvious to anyone with any acquaintance to how coronaviruses and other respiratory viruses act. This is why trying to produce effective vaccines against these viruses that stay the course is so difficult.
But for St. Anthony of Fauci and all the politicos, “when all you have is a hammer, everything looks like a nail.”
This is a relatively academic point. What is more to the point is that global price inflation has been much higher, and lasted so far for longer than forecasts made early in 2021. Forecasts made today for the period 2022/ 23 are probably also much too optimistic. Interest rates have to rise, and Powell’s comments this week bring us closer to that certainty. For a highly-indebted society (Government, corporations and households), even a small rise in rates will have a large impact – on profits, on Government solvency, on taxes, on asset prices. Stand by for a major shock. I call it Credit Crisis phase 2.
Inflation and deflation depend upon the balance in supply and demand. Generally supply is fixed in the short term so changes in demand have the greatest effect. Demand is limited by available funds so the willingness of lenders matters, which depends upon how expansive or cautious they are to lend. They are also constrained by liquidity requirements set by central banks. Interest rates are generally viewed as a control on demand but in practice fear and greed are far more important and they are driven by sentiment. With the pandemic demand is also driven by opportunity to spend and supply is constrained by disruption to supply chains. Lockdowns reduced the opportunity to spend and whilst many lost earnings there were many who saved. The savings have led to pent-up demand and the disruption has reduced supply – thus inflation.
What is needed is for the pent-up demand to be released more slowly – in step with supply but there is no mechanism to do that – people either have savings or are willing to borrow on credit cards at high interest rates, greed will not be constrained by the bank rate going up. However adding five percent to mortgage rates will hurt borrowers badly because they budgetted for very low interest rates. It will create defaults that will frighten lenders so we may end up with some of the population driven by greed and some driven by fear.
Then there is inflation causing wage increases feeding a spiral in inflation.
This uncharted territory and I doubt that any of the economic models can model this properly.