The galloping engine

 

A Zimbabwean bank note, earlier today

Janet Yellen is the Secretary to the Unites States Treasury, and has stated publicly (or at least on CNN) that she was wrong about inflation. In November of 2021 she was of the opinion that this financial event was the equivalent of a bad cold or perhaps a touch of COVID-19. Transitory, was the key word used at the time. It now appears that it is much worse than that.

I have to say that economics has always fazed me. I simply don't have a mind that deals well with mathematics and the kinetics of figures, being a thinker who works better in the atmosphere of the abstract. I wish that I could find the provenance of the greatest description I have ever read of economics, which is as follows.

"Alchemy became chemistry. Astrology became astronomy. I wonder what economics will become".

It has been suggested that the great scholar of the history of Islam, Bernard Lewis, came up with this stroke of genius, but I can find no proof, and it seems somewhat off-piste given Mr. Lewis's area of expertise. But I digress.

What we do know is that quantitative easing (aka printing money) leads to inflation. More money is worth less. The end of this process is hyper-inflation, where ridiculous denominations of currency leads to a bucket load of coin and note for a loaf of bread.  Now, when this happens in countries such as Venezuela and Zimbabwe, it is a tragedy for all concerned, but it is not a global threat. However, when it happened in Weimar Germany in the 1930s, there was a rather more serious chain of events, usually referred to as the Second World War.

So, what happens if America succumbs to hyper-inflation? Perhaps a possible scenario might be best illustrated by the metaphor of the galloping engine.

Twenty or so years ago, I owned and lived on a canal boat in England. It was powered by a low-revving diesel engine made in the 1970s by the famous British engine makers, Lister. This engine is well known to boat owners, and Listers can be found in strange places. A London acquaintance of mine went to India on business in the 1980s. There, he saw a Lister engine at the head of a mine-shaft and there to pump out rain-water. The engineer proudly told my friend that the engine had been running continuously for 25 years. Any necessary repairs were made by taking the revs down as low as possible and then making the necessary changes while the engine was still running.

I used to be able to get my engine down to 60 RPM, and it would still push me along the canal. Mind you, the speed limit on these British waterways is 4 MPH, so the propellor doesn't have to turn that fast, but it is testament to an engine manufacturer that it can produce an engine that seems almost not to be working at all, but still does what it was installed to do.

Then there is the other end of the RPM scale. Diesel engines can 'run away'. or 'gallop', and they become uncontrollable and one boat engineer told me he had run away from a galloping engine because they will blow and bits of cast iron will start flying in all directions. So best make yourself scarce.

What if the US economy becomes a galloping engine? As noted, with Venezuela and Zimbabwe there are local effects - Zimbabwe was often described as 'the bread-basket of Africa'. because of its maize production, and Venezuela has oil - but the ripples are not going to reach the banks of the mill-pond. But the USA, in terms of the Western economies, G7 etc., pretty much is the mill-pond. They used to say that when America sneezed, the world caught a cold. In this age of the pandemic, this image may be more pertinent than ever.

As we are all well aware, governments manipulate statistics. Crime rates, immigration levels, unemployment, all of these stats are air-brushed to give cosmetics to the current regime, which seems to change but remains the same. As English rock band The Who sang, meet the new boss, same as the old boss.

But inflation is a tricky genii to keep stoppered up in the bottle. If you use an aggregate, you soon realise that no one gives a damn about the rise in prices of rivets unless you run a business that needs some rivetting done. And when there isn't much rivetting being done because demand is down, rivets stay the same price because demand is low, even I can see that.

But housewives - if they still exist in this modern Gomorrah - don't go to the store for rivets, they go to the store for food, on the whole. When that starts to leap in price, there will be hoarding and, effectively, runs on shops the same way there are runs on banks. Americans are paying record prices for gasoline - or 'petrol', as we Brits call it - but the thing about gasoline is you can't hoard it like like you can rice or tinned fruit. If hyper-inflation hits food, there will be food riots and armed guards at supermarkets.

I hate to be what the great English journalist Julie Burchill called an 'amockalyptic', a sort of prophet of doom just trying to get attention, but mathematics has a way of getting away from the mathematician, just like the falcon cannot hear the falconer in the poem by Irish poet W B Yeats and which is so famous I have forgotten its name. We must hope that the engine doesn't gallop.