Wednesday, May 30, 2012

This INFLATION thing

An economist's guess is liable to be as good as anybody else's.—Will Rogers

They say that Christopher Columbus was the first economist. When he left to discover America, he didn’t know where he was going. When he got there he didn’t know where he was. And it was all done on a government grant. – From the Internet

Economics is extremely useful as a form of employment for economists.- John Kenneth Galbraith

Economics is the only field in which two people can share a Nobel Prize for saying opposing things. – Economics joke.

Good morning, my brother. Please, what is inflation?

You, you have come to me again with your silly questions. Why are you always so full of questions? And what exactly do you take me for, a walking encyclopedia?

My brother, please don’t be angry with me. Our elders say that the one that ask for direction will never get lost.

You and all your proverbs; I love them nevertheless. What is your concern with inflation this time?

The past few days have been dominated by the government party, the NDC, and the main opposition, NPP, on the number of digits in our inflation figure. That is why I thought of asking experts like yourself to shed some illumination for simple blokes like me.

You must be a very curious young lad, indeed.

Thank you very much, but, please, you didn’t answer my question.

Oh, you meant about inflation. But I though they say nowadays that Google is your friend. Are you afraid of looking things up on the internet?

The First Law of Economists: For every economist, there exists an equal and opposite economist.

The Second Law of Economists: They’re both wrong.- From the Internet

No, my brother, I’m never afraid to look things up on the internet. I actually looked the inflation thing up.

Why then are you asking me what inflation is?

I come to you because after looking the thing up I get more confused. I need some clarification. I need some explanation. I need some help.

You get confused because of the internet?

No, I get confused because of the definitions I got from the internet, which doesn’t rhyme with what our government is telling us.

Now you are, deviating. You are going political. I have told you times without number that I’m done with political stuffs. You are not going to get any political commentary out of me. Mum is the word as far as myself and politics is concerned.

I didn’t ask you for political commentaries. Actually, I myself am totally done with politics. I will appreciate it if you just will explain to me the concept of inflation to me. What do we mean by inflation; do you have a layman’s explanation? I just couldn’t make sense out of all that I read on the internet.

And what did you come up with that is confusing you?

According to Wikipedia: “In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a loss of real value in the internal medium of exchange and unit of account in the economy

“And according to investopedia: Inflation is defined as a sustained increase in the general level of prices for goods and services. It is measured as an annual percentage increase. As inflation rises, every dollar you own buys a smaller percentage of a good or service.

“The value of a dollar does not stay constant when there is inflation. The value of a dollar is observed in terms of purchasing power, which is the real, tangible goods that money can buy. When inflation goes up, there is a decline in the purchasing power of money. For example, if the inflation rate is 2% annually, then theoretically a $1 pack of gum will cost $1.02 in a year. After inflation, your dollar can't buy the same goods it could beforehand.

“There are several variations on inflation:
• Deflation is when the general level of prices is falling. This is the opposite of inflation.
• Hyperinflation is unusually rapid inflation. In extreme cases, this can lead to the breakdown of a nation's monetary system. One of the most notable examples of hyperinflation occurred in Germany in 1923, when prices rose 2,500% in one month!
• Stagflation is the combination of high unemployment and economic stagnation with inflation. This happened in industrialized countries during the 1970s, when a bad economy was combined with OPEC raising oil prices.”
We have 2 classes of forecasters: Those who don’t know and those who don’t know they don’t know. — John Kenneth Galbraith
I see that you have been busy. What then is the problem, here, young man?

My brother, can’t you see my dilemma. Wikipedia and investopedia said that inflation is sustained increase in the general level of prices of goods and services. Our government people say that they are beating inflation and have managed to reduce it to a single digit. The opposition parties, for their part, faulted the government and claimed that the government figures are unreliable. Do we have inflation or not, that is what I would like to know?


Is that all you can say?

An economist is someone who doesn’t know what he’s talking about – and make you feel it’s your fault. – From the internet

It is really a difficult thing, this inflation thing. And as you know, governments are very powerful entities; they can make things happen the way they want. That’s what the late Nigerian musician, Fela Anikuplao-Kuti, called ‘Government Magic.’ To do these magical tricks, government employs quite a number of tools among which is statistics. And you know what they say about statistics?

No, I don’t know. Kindly tell me.

Oh, some wise man says that statistics is just government arithmetic. Another bright fella said that you can prove anything with statistics. Another great aphorist said: "There are three kinds of lies: lies, damned lies, and statistics."

But, sorry, I thought you were going to explain inflation to me, now you are talking about statistics. What has inflation got to do with statistics; I thought inflation was in the domain of economics?

Ah, you thought wrong, dear fellow. Inflation and economics have a lot to do with number crunching. And whenever you crunch number, you get statistics.

Sorry, but all these are far above my head. I need just a simple explanation as to why government says that the rate of inflation is going down and the opposition says that it is not.

You have not been listening; you’ve not paid attention. I told you what the wise man said about proving anything with statistics. The government is right; the opposition is also right.

How can both be right when they are so opposed?

"Economics is the only field in which two people can share a Nobel Prize for saying opposing things." Specifically, Myrdal and Hayek shared one. - Roberto Alazar

Interpretation, interpretation. Everything has to do with interpretation.

With all due respect, what I’d like to know is why the government can say that they are taming inflation when the prices of goods and services are rising. I can give you specifics like the prices of commodities like garri, plantain, tomatoes, fish and so on. These are everyday necessary food items people need in order to survive. And the God’s honest truth is that their prices are far above last year prices. For example, an olonka of garri was sold last year between one to one point two Ghana cedis. Today, it cost between two point eight and three cedis. The prices of fish are so high that they have disappeared from my menu. Plantain is so pricey nowadays that very few Ghanaians can afford it. Even prices of imported chicken which was the only affordable meat for my household has more than doubled in the last year. My wife said the sellers blame it on the rising dollar. And when we take high-budget stuffs like cement, it has gone up by several percentage points. So, what exactly is the government talking about? Where do they do their own shopping? Which market do they go and find that prices are coming down or are stable?

An economist is an expert who will know tomorrow why the things he predicted yesterday didn’t happen today. — Laurence J. Peter

You really talked like a layman. Economics is a science and requires scientific tools. It is not something that can be explained without utilizing the scientific tools of the trade. To layman like yourself, when you go to the market and found out that the price of garri has shot up, you automatically shout ‘inflation.’ But economists do not operate like laymen. They go about the trade in a systematic, scientific way. They collect prices of various goods and services over a long period of time, put them into their computers and come out with figures of inflation which they rigorously analysed for the government. A lot of imponderables go into the analyses and these, for obvious reasons, are beyond simple folks like you to understand.

So, you are telling me that I cannot understand inflation figures. So, why is the government bandying those figures in my face?

Bentley’s second Law of Economics: The only thing more dangerous than an economist is an amateur economist!

Berta’s Fundamental Law of Economic Rents: The only thing more dangerous than an amateur economist is a professional economist.

Ah, it looks good during electioneering campaign. Government says that it has beaten inflation and comes up with the figures to back up its claim. Government paid press rush to town to congratulate government. The opposition gets their own economists who go town, collect and crunch their own figures which are diametrically opposed to the government figures. The hired press of the opposition parties also rushes out to bash government. It is all part of the political game the elite play on the rest of us. So, I will advise that you get a life. Listen to the advice of an elder, get something better to do with your life than listen to politicians.

So, do you mean that we should not get concerned with how we are governed?

Ah, you asked a very dangerous question. I didn’t say that you shouldn’t get involved in how you are governed?

What did you say, then?

You should get involved only when you are ready to play the political game and you are prepared to lie trough your teeth, lose your sanity and is ready to play government magic. Politics is a game. Some say it is a dirty game, some say it is not. But I say that until you are ready to understand that it is a game and is prepared to follow and obey its inane rules, you should leave it strictly alone.

Economics is the painful elaboration of the obvious.- From the Internet

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Wise saying:

" Never use both feet to test the depth of the sea." - African proverb