Driving to work, I stop at the "tee" and make the left. But there is a pothole right there that's hard to miss. So I got in the habit of looking for the edge of the pothole and staying to the left of it, every morning.
And then one morning I didn't see the edge. I thought it odd that I missed it. The next day I noticed they patched the pothole. So, the odd thing was not that I didn't see the pothole, but that it was gone, and I didn't even notice!
But I wasn't looking for the pothole, you know? I was looking for the edge.
That minor event reminded me of the Darwin story related by Lionel Ruby in How the Scientist Thinks. I wrote of it before:
Darwin and a fellow scientist were searching for fossils in the north of England. They were not aware of the glacial theory at the time. Years later Darwin revisited the area, and he was now astonished to discover how clearly marked were the glacial ridges on the rocks. He had not noticed them on his earlier visit because he was not looking for them.... Darwin was able to appreciate the glacial markings only after he became aware of the glacial theory.
We see -- or maybe, don't see -- what we're looking for. But we can easily overlook things we're *not* looking for.
We know there is a relation between money and inflation. So that's what we see. That's what we see even when it isn't money that is causing inflation. That's what we see, even if we have to jigger the numbers like Friedman did to see it.
But if, for example, there is also a relation between credit use and inflation, and we are not looking for that relation, then we are very likely to overlook it.
The inverse corollary is that we tend to find what we are looking for - whether it is real or not. This is why Libertarians cherry-pick the data for the few data points that support their view point.
ReplyDeleteit may well be that credit use correlates with inflation, but that proposition, to the best of my knowledge, still waits to be proven.
I showed a non-correlation in my October 6 post, and you never answered my Oct 7, 9:39 p.m. response to you in comments.
Let's see the correlation that backs up your claim.
Cheers!
JzB
My Oct. 6 post.
ReplyDeleteJzB
Probably if you take TCMDO and divide it by nominal output and then multiply it by a price index, you could show something that looks like the price index.
ReplyDeleteThe relation -- not "correlation" -- between credit and inflation is more complex than that between money and inflation.
1. credit becomes money the moment it is spent.
2. credit creates a drag on the economy which money does not: the cost of interest and principal repayment.
1. credit becomes money the moment it is spent.
ReplyDeletePresumably inflationary (in the short term)?
2. credit creates a drag on the economy which money does not: the cost of interest and principal repayment.
Presumably deflationary (in the medium-long term)?
Looks like a push me-pull you. How does this balance?
I know you believe debt causes inflation. I'm trying to coax a line of evidence from you.
Cheers!
JzB
"I know you believe debt causes inflation. I'm trying to coax a line of evidence from you."
ReplyDeleteI get that (this time.) That's good. I need the prodding.
To be... fussy... I prefer to say that credit use causes inflation, and that debt is the record of credit use.
Or that a dollar of credit (at the moment it is borrowed) consists of two layers: a dollar of money and a dollar of debt. At the moment the credit is spent, the two layers peel apart. The money goes into circulation, while the debt remains with the borrower.
Hey, I want to do more on reading trends of graphs. Thanks for the feedback on that one.
What I said about trend line construction comes from stock price analysis.
ReplyDeleteIt can be helpful looking at other types of time series data.
Cheers!
JzB
Art.
ReplyDeleteYou night be interested in this post at Mike Norman's - Bank loans surge as government spending slows