Some of us admire people for being "tough guys" -- who see life as a series of hard, stark choices. When it comes to economics, Paul Krugman argues, that admiration can be misplaced:
Some economics textbooks used to define their subject as the “science of scarcity.” Maybe some still do. That’s actually quite wrong: Some of the most useful economics involves telling people that they need not settle for less — for example, that we don’t simply have to accept recessions as a fact of life, that we can and should fight them with expansionary monetary and fiscal policy. Still, a fair bit of economics does involve explaining limits and constraints — for example, that you can’t sustain a Denmark-style system of social benefits without something like Denmark-style tax rates.
But accepting the need for hard choices can turn into a kind of trap itself. You might think that everyone is always looking for easy answers, but that’s not actually how it works: In some professional contexts you get reputational points for sounding realistic and tough-minded. (I can’t help thinking about the foreign policy “realists” who assured us that Ukraine had no chance of fighting off a Russian invasion.) As a result, some economists and economic commentators seem to positively exult in prescribing harsh economic medicine (for other people, of course); after the 2008 crisis, the U.S. economy suffered badly at the hands of Very Serious People who moralized about debt in the face of persistently high unemployment.
There are those who are given to Manichean Analysis. There are only two choices. One is good and one is bad:
Which brings me to the furor created by some tone-deaf remarks by Huw Pill, the Bank of England’s chief economist (what is it with the B.O.E., anyway?), to the effect that British inflation — which has been running higher than inflation here — reflects a general unwillingness on the part of workers and others to “accept the fact that they’re worse off.”
What Pill got right was describing inflation as a game of “pass the parcel”: Everyone is trying to get ahead by raising prices, but because everyone else is doing the same thing, on average, any gains people get from higher prices for the things they sell are offset by higher prices for the things they buy. So the overall effect of efforts by individual players to make gains at others’ expense is inflation, which hurts everyone. A few months ago I wrote about the football game theory of inflation, in which everyone stands up to get a better view, with the result that nobody’s view is improved but everyone is less comfortable. That still seems right.
But there is much more involved in Britain's inflationary problems than just workers' demands for higher wages:
Now, Britain, which relies a lot on imported natural gas, has taken a much bigger real income hit from Russia’s invasion of Ukraine than the United States, which is a gas exporter. So the British story may be different. But my guess is that for the most part the overall picture is similar: Inflation mainly reflecting the combination of various disruptions and an overheated economy, rather than the obstinate unwillingness of ordinary workers to face reality.
In economics, there are always more than two choices. The problem is not what is the right answer. It's what is the best answer.
Image:ZekeFilm
