Thursday, September 24, 2015

Simplistic Complexity

We're often warned that the economy is extremely complex. The meaning of the warning seems to be that we should shut up and let the experts do their thing.

But that's some kind of joke, I think. Because whenever it comes down to promoting growth versus preventing inflation, we unfailingly get boilerplate, like this from Bloomberg Business, waved in our faces:

... not to mention the Federal Reserve's first interest rate increase since 2006 coming as soon as next week. Some economists worry that it's too early to start tightening policy, which carries the risk of crimping growth.

Yes: They always raise interest rates to fight inflation, and raising interest rates always "carries the risk of crimping growth". No duh. But that analysis is painfully, painfully simplistic.

1 comment:

jim said...

Richard Werner says the analysis is not only simplistic but
also wrong.
Werner says the data shows that interest rates do not drive growth.
Instead the evidence shows growth drives interest rates.