Inflation

I have been reading Paul Donovan on inflation, in a short book in which he tells us the truth about inflation, a phenomenon which he claims has been badly misrepresented in the past and on which he is going to put the record straight.

Having been moved by him to two posts already (reference 1 and reference 2), time to wrap the man up.

Donovan, a PPE man from Oxford, is an economist with UBS, so not that far removed from the economists whom I used to service at the Treasury. He is also a senior member of St Anne’s College, one of the more modern elements of Oxford University, one which was only invented in 1879 and I am not sure that Chief Insepector Morse would be seen taking tea there. Donovan's present duties include being wheeled out to give talks to important clients, something which I understand he is very good at. I suspect that the present book ('The truth about inflation', Routledge, 2015) is a lightly edited version of some of those talks. A down side of this is the rather chatty style, well larded with witty asides about economists, which I found rather irritating. As a way to liven up the after lunch slot of a one day seminar fine, irritating on the printed page. Also rather irritating was the way in which he claimed to be expounding a complicated topic without using any long words, inflation for dummies as it were, the dummies books being yet another of my pet hates. They might be fine books - although I dare say that quality has suffered with quantity - but the packaging annoys me: I am not a dummie yet and I do not like to be talked to as if I were. But he rather smooths things over with the quote illustrated above, used to head up the last chapter.

Further smoothing in that he devotes quite a lot of space to explain that the statisticians are doing the best they can to produce simple measures of a complicated business. Smoothing in that I used to be acquainted with several such statisticians, in the course of my time with the Department of Employment, such departments being traditionally in charge of inflation, then seen as a scourge of the labouring rather than of the rentier class.

He also managed to claim that the Duc de Saint-Simon had views on central banks back in 1716. The things you get to learn when you do PPE. I am excused from checking the reference as neither of my editions of the great man's memoirs make it as far as 1716.

But putting all this aside, there is plenty of good stuff here for the saloon bar economist to feed on.

So, for example, he demonstrates beyond all reasonable doubt that putting all your dosh into gold is not a good plan.

He demonstrates that governments cannot inflate their way out of debt by printing money. A demonstration which caught my eye as, not having much thought about it, I had thought that they could. One of the reasons why not being that most government debt is short term, and the cost of rolling that debt over will rise with inflation, quite possibly by more than inflation as bond buyers will add something in for increased risk.

He explains why printing money does not necessarily feed through into inflation. I think he mentions the Jenkins of the Guardian panacea of printing money and handing it out to the labouring class to be spent, rather than to be hidden away in the balance sheets of banks, but I forget what his verdict was already. Time for a second read.

Various excursions into ancient history. Mildly entertaining first time around, but they pall with repetition.

I got lost in his discussion of the labour cost content of inflation. Perhaps he was paying the dummies price for going very easy on graphs and equations.

I did not find anything about why a certain amount of inflation - say around 2% - is now thought to be a good thing. I shall continue with my guess that it provides a relatively pain free path for the ever ongoing adjustment of relative prices.

By the end, I was not sure why the average investor would need to know so much about inflation. But it was all presented in a reasonably accessible way and I dare say it was as good an introduction to the subject for the layman as you are going to get. A good antidote for a lot of the stuff which appears in other media.

PS: attempting to check the Coleridge quote, the best that google could do was to refer me to this very book. But I did learn that Coleridge was born in Ottery St. Mary, a village I know slightly as having a very fine church and a very fine off license. Or at least it did on our last visit - although. a quick check at the other place suggests that I was disappointed by the stained glass. November 2009.

Reference 1: http://www.psmv2.blogspot.co.uk/2015/10/on-price.html.

Reference 2: http://www.psmv2.blogspot.co.uk/2015/10/on-account.html.