How Rich Countries Die

This is a very fascinating study.

One might also conclude from it that an inflationary money system is a very bad thing to implement, as it allows special interest groups to indirectly claim the wealth of the rest of society (redistribute it) in a manner nearly impossible for most to recognize.

In fact, I had observed a while ago that the unemployment rate (when honestly assessed) seems to eerily mirror the rate of inflation in a particular country. (Note for example that the unemployment rate is very low in the Swiss Confederation; was nonexistant in Hong Kong before the Dollar peg, was under 3% in the US before the Great Depression…)

What I had been missing was the delivery channel between monetary expansion and unemployment. I ascribed it to the vague force of “malinvestment”. I still think that is correct; however, Olson fills in much more detail — perhaps the greatest malinvestment enabled by expansionist monetary policy is the opportunity gained by interest groups to insulate themselves from competitive market forces.

It is enough to make one wonder how powerful all of these interest groups would really be without inflationary (and therefore, perpetually-redistributive) money. Imagine a union attempting to extract above-market wages from a dying GM, without the US government having the ability to “print” tens of billions to bail out GM.

At any rate, I find the old Keynes quote relevant:

“Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

Except Keynes makes one important mistake: it’s not economic forces which are engaged into destruction, it is political forces. Inflation politicizes money, or put another way, de-economizes it, which is exactly the kind of process Olson is explicitly talking about.

Failure to recognize this leads to a whole category of mistakes which dominates economics now: the assumption that greater economizing can somehow come through even more politicization. Hence perpetual bailouts, and more inflation.

-apk