Fig. 1 Forty-four countries 1980-89
R2 =0.05; Average inflation=22.6%; Average growth=2.4%; F1(1,42)=0.7; F2(2,41)=1.0; F3(1,41)=1.4
No correlation
SUMMARY. The universal belief is that the answer is and must be "yes". Yet factual evidence for this belief is curiously lacking, maybe even felt to be unnecessary. This paper takes what is thought to be all the, not very voluminous, post-war factual data which exists and which may bear on the matter, and treats this data in every plausible way to find if any convincing demonstration is possible that low inflation is associated with high long term growth rate in GNP. This includes special attention to Germany, the country which is the popular (and sole) paradigm among UK authorities and commentators. The paper concludes that no such demonstration is possible.
Reproduced by permission, from
Cambridge Journal of Economics, Vol. 17 No. 1 March 1993 79-107
Copyright Oxford University Press and Cambridge Political Economy Society 1993
Since this belief is embodied in re-iterated political and editorial statements rather than in academic theory, it is not definable in strict terms. A unusually clear version of it was reported as being given in the House of Commons by the Labour "shadow Chief Secretary to the Treasury" on 26 February 1992. "It is vital to keep inflation low, but while it may be a necessary condition for economic success, it is by no means a sufficient one." The Conservative Chancellor of the Exchequer in 1980 stated, "The main objectives of the government's economic strategy are to reduce inflation and to create conditions in which substantial economic growth can be achieved. Overriding priority must be given to reducing inflation and to strengthening the supply side of the economy" (House of Commons, 1980). F. H. Hahn accorded sufficient weight and universality to this aim to state, "Presumably this sort of belief explains why governments all over the world are busy engineering recessions" (Hahn, 1980).
The following example is taken from an editorial in The Economist on 8th June 1991:
"The best industrial policy is to keep inflation low, real interest rates gently positive and exchange rates stable. Then people will save and businesses will be naturally far-sighted - ie, willing to take a chance on investments that might pay for themselves only after many years. Without these conditions, nobody, not even a bureaucrat with many years' seniority, can guess what long-term investments will turn out to make sense."
On 20 June 1991, Dr. Helmut Schlesinger, the president-designate of the Bundesbank, in a speech in London, was quoted as advising his listeners that "his country's economic success had been built on a firm anti-inflation strategy". These citations justify the formulation of the statement given in the opening sentence above.
The context of the discussion (if it can be called that, given the unanimity of view) did change in that the exchange rate of the pound, and consequently the rate of inflation, were constrained within the Exchange Rate Mechanism. However, the argument was still presented in terms of the desirability of low inflation, not the desirability of being within the ERM.
One might imagine that such a universal and unchallenged belief would be readily demonstrable by reference to well-established factual experience. Examples of such demonstration, other than the constant citing of Germany mentioned above, do not readily spring to mind.
It is the purpose of this paper to present a sustained attempt to produce this demonstration - to attempt, by simple numerical methods and comparisons, to find out whether factual statistical data on inflation and growth do, or do not, tend to support the statement that low or zero inflation is an essential or important condition for high and sustained growth. The treatment is thus empirical, with no theoretical discussion of mechanisms of cause and effect.
Directly relevant previous work is thought to be rather sparse (see Brown, 1985; Friedman and Schwartz, 1982; Thirlwall, 1974; Thirlwall and Barton, 1971), and generally not focussed on the specific objective stated above.
The paper is in two main parts - a comparison of the inflation and growth performance of various countries averaged over a given period of time, and a comparison of the inflation/growth performance of one year (or group of years) with another for each of several countries.
The sources give for each year for each country, the GNP at current prices and at constant prices. They also give either GNP per head of population or data from which this can be derived. Division of constant price values for successive years gives the real annual growth rate. Similarly, the current price values give the apparent growth rate. Division of the apparent by the real growth rate gives the value of the annual inflation rate. The results below are always quoted in the form of annual percentage rates, in the usual way.
The fitted curve is a quadratic of the form y=a+bx+cx2. This is judged in the light of the various displayed results to be more appropriate than a straight-line fit. On the other hand, the data do not suggest that a cubic relation (s-shaped curve) is required. It may be noted that Brown (1985), Friedman and Schwartz (1982) and Thirlwall and Barton (1971) use only straight line regression, and in the case of the first two, without presentation of plots.
On each figure, the value of the correlation coefficient R2 is given. This number, although easily understood and always quoted, is relatively uninformative. The goodness of fit is best indicated by the statistic F, which enables a judgement to be made, with the help of statistical tables, as to the probability that a really random set of points could by chance give the observed pattern.
Three values of F are given on each figure. F1 is related to a straight line fit (not shown), and shows whether there is a significant upward or downward trend. The second, F2, applies to the quadratic fit. It relates to the probability that both b and c in the formula above are in reality zero. F3 is concerned with the significance of the improvement introduced by the x2 term of the formula, i.e., whether the curvature shown is significant.
Each value of F is associated with two whole numbers given in brackets. These are the "degrees of freedom" which are needed to enter the standard F table. As an approximate indication, if F is above 3-4, the related quality as described above is significant at the 95% level. If the condition is satisfied, the F value is followed by three asterisks (***). If all three values are below the relevant threshold, the message "no correlation" is given.
As a further guide, significance at the 99% and 99.9% level is indicated by values of F exceeding 6-8 and 11-13 respectively.
| Ordered by |
|---|
| Increasing inflation | Decreasing growth |
|---|
| Country | Infl | Grow | Country | Infl | Grow |
|---|---|---|---|---|---|
| % pa | % pa | % pa | % pa | ||
| Japan | 1.3 | 4.0 | Thailand | 3.0 | 6.8 |
| Netherlands | 2.3 | 1.3 | Pakistan | 6.9 | 6.3 |
| Germany | 2.8 | 1.7 | Turkey | 40.5 | 5.4 |
| Thailand | 3.0 | 6.8 | Indonesia | 9.4 | 5.2 |
| Austria | 4.0 | 1.8 | Morocco | 7.5 | 4.7 |
| USA | 4.2 | 3.2 | Kenya | 9.7 | 4.2 |
| Belgium | 4.6 | 1.4 | Japan | 1.3 | 4.0 |
| Canada | 5.1 | 3.4 | Tunisia | 8.2 | 3.4 |
| UK | 6.1 | 2.7 | Canada | 5.1 | 3.4 |
| Norway | 6.2 | 3.2 | Colombia | 24.4 | 3.3 |
| Denmark | 6.6 | 1.9 | Finland | 7.4 | 3.2 |
| AVERAGE | 4.2 | 2.9 | AVERAGE | 11.2 | 4.5 |
| Pakistan | 6.9 | 6.3 | Norway | 6.2 | 3.2 |
| France | 7.1 | 1.9 | USA | 4.2 | 3.2 |
| Finland | 7.4 | 3.2 | Australia | 8.1 | 3.2 |
| Sweden | 7.5 | 2.1 | Israel | 116.0 | 3.1 |
| Morocco | 7.5 | 4.7 | UK | 6.1 | 2.7 |
| Australia | 8.1 | 3.2 | Spain | 9.9 | 2.6 |
| Ireland | 8.2 | 2.5 | Paraguay | 22.2 | 2.6 |
| Tunisia | 8.2 | 3.4 | Ireland | 8.2 | 2.5 |
| Indonesia | 9.4 | 5.2 | Ecuador | 31.0 | 2.5 |
| Kenya | 9.7 | 4.2 | Portugal | 18.9 | 2.2 |
| Spain | 9.9 | 2.6 | Italy | 11.3 | 2.1 |
| AVERAGE | 8.2 | 3.6 | AVERAGE | 22.0 | 2.7 |
| Italy | 11.3 | 2.1 | Sweden | 7.5 | 2.1 |
| New Zealand | 11.5 | 1.9 | Brazil | 198.8 | 2.1 |
| Nigeria | 12.1 | 1.2 | Denmark | 6.6 | 1.9 |
| Guatemala | 12.5 | 0.1 | France | 7.1 | 1.9 |
| Phillipines | 13.9 | 1.2 | Costa Rica | 28.4 | 1.9 |
| South Africa | 14.1 | 1.5 | Peru | 82.1 | 1.9 |
| El Salvador | 15.7 | -0.7 | New Zealand | 11.5 | 1.9 |
| Syria | 15.8 | 1.2 | Austria | 4.0 | 1.8 |
| Venezuela | 16.1 | 1.2 | Germany | 2.8 | 1.7 |
| Greece | 18.5 | 1.4 | South Africa | 14.1 | 1.5 |
| Portugal | 18.9 | 2.2 | Belgium | 4.6 | 1.4 |
| AVERAGE | 14.6 | 1.2 | AVERAGE | 33.4 | 1.8 |
| Paraguay | 22.2 | 2.6 | Greece | 18.5 | 1.4 |
| Colunbia | 24.4 | 3.3 | Netherlands | 2.3 | 1.3 |
| Zambia | 27.1 | 1.0 | Nigeria | 12.1 | 1.2 |
| Costa Rica | 28.4 | 1.9 | Venezuela | 16.1 | 1.2 |
| Ecuador | 31.0 | 2.5 | Phillipines | 13.9 | 1.2 |
| Turkey | 40.5 | 5.4 | Syria | 15.8 | 1.2 |
| Uruguay | 53.9 | -0.2 | Zambia | 27.1 | 1.0 |
| Mexico | 73.5 | 1.0 | Mexico | 73.5 | 1.0 |
| Peru | 82.1 | 1.9 | Guatemala | 12.5 | 0.1 |
| Israel | 116.0 | 3.1 | Uruguay | 53.9 | -0.2 |
| Brazil | 198.8 | 2.1 | El Salvador | 15.7 | -0.7 |
| AVERAGE | 63.4 | 2.2 | AVERAGE | 23.8 | 0.8 |
Fig. 1 Forty-four countries 1980-89
R2 =0.05; Average inflation=22.6%; Average growth=2.4%; F1(1,42)=0.7; F2(2,41)=1.0; F3(1,41)=1.4
No correlation
Fig. 2 Forty-four countries 1980-89 (larger scale)
R2 =0.05; Average inflation=22.6%; Average growth=2.4%; F1(1,42)=0.7; F2(2,41)=1.0; F3(1,41)=1.4
No correlation
It can be seen that in this case, the values of F show that this set of inflation data is not correlated at all with the growth data.
This can be seen in a more striking and anecdotal way, perhaps, by looking at Table 1. The "league" tables have been arbitrarily divided into 4 equal groups. In the inflation league, the top 11 countries had an average annual inflation rate of 4.2% and an annual growth rate of 2.9%. In the bottom group, the inflation rates were so high as to make an average (nominally 63.4%) almost meaningless, yet the average growth rate was 2.3%. In the second group, with an average inflation rate of 8.2%, the growth rate was 3.6%, much higher than that of the first group. The third group had an average growth rate of 1.2%. Countries at the very bottom of the table, which on any European view of inflation should be economic catastrophes, had in fact quite respectable growth rates.
Fig. 3 Twelve countries 1980-89
R2 =0.01; Average inflation=5.8%; Average growth=2.4%; F1(1,10)=0.1; F2(2,9)=0; F3(1,9)=0
No correlation
The results are given in Figure 4. The numerical results show that there is no correlation. Visually, it can be observed that five of the nine countries all had average annual growth rates of about 4%, although their inflation rates ranged from 4% to 8.5%. The tendency of the fitted curve to slope in the "expected" direction (which the mathematics in any case show to be of no significance) is seen to be produced primarily by the points for Japan and the UK. Their position, rather than contributing to a trend, would more likely be judged in terms of anomaly.
Fig. 4 Nine countries 1950-87
R2 =0.08; Average inflation=5.9%; Average growth=4%; F1(1,7)=0.6; F2(2,6)=0.3; F3(1,6)=0
No correlation
Turning from the mathematics to matters of subjective interest, it will be noted that Germany is indeed the Wunderkind of low inflation, but it draws no evident benefit from this sustained inflation performance over 36 years, compared with France, Canada, Australia and Italy. The USA virtually shares best position for inflation with Germany, while having a markedly inferior growth rate relative to the above named countries. Japan has a quite exceptional growth record while not being outstanding for inflation control. The UK, with Sweden, is bottom for growth, although their inflation record is as good as or better than that of Australia, France and Italy. With regard to the last observation, it will be remembered that the 1.5% gap separating the UK from the average represents 70% when accumulated over 36 years.
Lucas (1973, ref. 4) surveyed 18 countries over the 15 year period 1952-67. He states without presenting his analysis on this point (his aim was directed elsewhere), "As is evident, there is no association between average real growth rates and average rates of inflation", and he adds, "this fact seems to be consistent with both the conventional and the natural rate views of the tradeoff".
Brown's book (1985, ref. 10) is a complex and sustained discussion of many economic factors in relation to inflation. However, it gives very little attention to country/country inflation/growth comparisons - none at all in Chapter 3 which deals in analytical detail with inflation and growth in 13 major countries including India and Brazil over a 28-year period 1951-1979. A four-page section on inflation and growth (p. 348 et seq.) in a later discussion chapter cites Thirlwall and Barton's paper, and remarks that results for 28 countries over the 6 year period 1973-79 show no significant correlation. At a later point, in a paragraph ostensibly about "welfare losses", Brown gives (p. 363) an unusually emphatic and unqualified judgement, as follows.
"Even at very high rates, inflation has proved compatible with a remarkable growth performance in Brazil (until the combination of over-borrowing, recession, and high world interest rates brought disaster) and at rather more modest levels, still well above the world average over our period, it has gone with outstanding development in South Korea and impressive performances in Spain, Portugal, Greece and Turkey. Among the OECD countries, where attitudes to inflation have been generally more inhibited, it is not obvious that, for instance, France with her 5.7-fold price increase, has suffered any great disadvantage in the development of her economy in comparison with Germany, with a 2.4-fold one. Up to very high levels, it seems that inflation is just inflation."
This remark, unsupported by analytical detail but evidently based on a close familiarity with the statistics over the extensive period 1951-79, strongly supports the comments of this paper.
Figure 5 repeats the comparison given in Figure 1, in growth per head terms. It is seen that although there is no straight line correlation, there is now a weak but significant quadratic one, due to the fact that the strong population increase in countries like Brazil, Mexico and Peru reduces the rate of growth per head to negative values. Moreover, there is visual evidence of a strong negative correlation among nearly all the countries to the left of the figure, an impression which is confirmed if the fit is repeated with Israel and Brazil removed.
Fig. 5 Forty-four countries 1980-88
R2 =0.18; Average inflation=22.6%; Average gr/h=0.8%; F1(1,42)=3.8; F2(2,41)=4.6(***); F3(1,41)=5.0(***)
The fact that this is a misleading conclusion is demonstrated by Figures 6 and 7, which show that if the countries are divided into the rich and the poor (the dividing line having Spain on the upper side and Greece on the lower), then neither group of countries (numbering 19 and 26 respectively) shows any correlation. The indications of negative correlation in Figure 5 are thus due entirely to the fact that the poor, fecund nations have as a group low growth-rate/head, irrespective of their own differences in inflation rate, relative to the rich non-fecund countries, whose growth-rates/head are also independent of their inflation rates.
Fig. 6 Forty-four countries 1980-88 (the 19 most prosperous)
(Israel - inflation=116%, gr/h=1.3% - is included in the correlation but not shown)
R2 =0.08; Average inflation=12.1%; Average gr/h=1.9%; F1(1,17)=1.3; F2(2,16)=0.7; F3(1,16)=0.2
No correlation
Fig. 7 Forty-four countries 1980-88 (excluding the 19 most prosperous)
(Brazil - inflation=199% gr/h=0.4% - is included in the correlation but not shown)
R2 =0.09; Average inflation=30.5%; Average gr/h=0%; F1(1,23)=0.7; F2(2,22)=1.1; F3(1,22)=1.4
No correlation
In the light of these remarks, the data of Figure 1 were re-processed, this time for the same 2 groups of 19 rich and 26 poor countries. This confirmed that there was no correlation in either group.
Figure 8 confirms in growth/head terms the result of Figure 3 for 12 prosperous countries.
Figure 9 is the growth/head analogue of Figure 4 for nine advanced countries over the whole 38-year 1950-88 post-war period, and again shows no correlation. This figure reveals, in passing, the little remarked fact that when growth per head is taken into account, the UK is displaced from its traditional position as dunce of the post-war class by the USA.
Fig. 8 Twelve countries 1980-88
R2 =0.02; Average inflation=5.8%; Average gr/h=1.9%; F1(1,10)=0.1; F2(2,9)=0.2; F3(1,9)=0.4
No correlation
Fig. 9 Nine countries 1950-87
R2 =0.04; Average inflation=6.0%; Average gr/h=3.1%; F1(1,7)=0; F2(2,6)=0.1; F3(1,6)=0.2
No correlation
Thirlwall (1974) presents a very extensive analysis of more than 60 countries, including the developed countries, for the 10 year period 1958-68. This appears to supersede Thirlwall and Barton, 1971, and gives details of fitting parameters involving inflation and growth of GNP per head. The results (p. 218 and appendices) show no significant correlation for rich or poor countries, or for the group as a whole.
It may be concluded from the results of sections 4 and 5 that, comparing country with country, there is no evidence of a correlation between rate of inflation and either growth or growth/head, for the periods and the groups of countries considered.
A sort of curtain raiser for this is given in Figure 10, in which some 350 points are plotted, each one corresponding to one year's inflation and growth for one of the 9 countries. All years and all countries are represented. The points are too dense to indicate the years and countries involved, but an indication of country is given for some points around the periphery.
Fig. 10 All countries, all years 1950-87
While no great weight can be given to an examination of such a conglomerate figure, the following observations are made.
It can be seen at a glance that the points are not disposed in a shapeless cloud. There is a distinct triangular shape. The long vertical edge at the left seems to indicate that low inflation is far from strongly associated with high growth. The long horizontal edge at the bottom similarly shows that low growth is not strongly associated with high inflation. The figure suggests, on the face of it, that if inflation is at any level between 0 and 8 per cent for a year, then growth during that year is as likely to be in the higher as in the lower part of the 0 to 8 per cent range. As noted before, Japan is conspicuous for exceptionally consistent and high growth, not associated with particularly low inflation.
On the other hand, the rather well-defined "hypotenuse" seems to show that single years of very high growth coupled with very high inflation are, for these countries and this time period, unknown. The apparent contradiction with the preceding discussion, which seemed to show that even rampant inflation is no bar to one country's growth, will be discussed later, in section 9.
In what follows, therefore, a parameter denoted grp will be used, this being the number of years grouped together for the purpose of averaging both inflation and growth, and a parameter called lag, which is the number of years by which a growth value lags behind the inflation value with which it is paired for correlation. So, for example, if an averaged value of inflation for years 1951 to 1954 was paired for correlation with an averaged value of growth for years 1952 to 1955, grp would be 4 and lag would be +1.
Naturally, if years are amalgamated by averaging, the number of data points is greatly diminished. So with a period of approximately 40 years, values of grp above 4 or 5 are not practicable. It should be noted that the temptation to conserve data points by employing rolling averages (for example, averaging inflation over 1951-2 and then over 1952-3) has to be resisted since such overlapping averages would be spuriously correlated.
| Grp | Lag | R2 | F2 | Grp | Lag | R2 | F2 | |
|---|---|---|---|---|---|---|---|---|
| 1 | -1 | .08 | 1.4 | 4 | -2 | .34 | 1.0 | |
| 1 | 0 | .37 | 9.9 | 4 | -1 | .80 | 7.8 | |
| 1 | 1 | .45 | 13.3 | 4 | 0 | .82 | 13.8 | |
| ----------- | ----------- | ----------- | ----------- | 4 | 1 | .86 | 18.6 | |
| 2 | -2 | .10 | 0.8 | 4 | 2 | .77 | 8.6 | |
| 2 | -1 | .24 | 2.2 | 4 | 3 | .73 | 6.7 | |
| 2 | 0 | .44 | 5.9 | 4 | 4 | .58 | 3.5 | |
| 2 | 1 | .65 | 13.9 | ----------- | ----------- | ----------- | ----------- | |
| 2 | 2 | .22 | 1.9 | 5 | -5 | .22 | 0.4 | |
| ----------- | ----------- | ----------- | ----------- | 5 | -4 | .31 | 0.7 | |
| 3 | -3 | .24 | 1.3 | 5 | -3 | .56 | 1.9 | |
| 3 | -2 | .34 | 2.1 | 5 | -2 | .81 | 4.3 | |
| 3 | -1 | .46 | 3.0 | 5 | -1 | .68 | 2.1 | |
| 3 | 0 | .70 | 10.4 | 5 | 0 | .77 | 6.8 | |
| 3 | 1 | .66 | 8.8 | 5 | 1 | .93 | 27.2 | |
| 3 | 2 | .43 | 3.0 | 5 | 2 | .97 | 58.9 | |
| 3 | 3 | .44 | 3.1 | 5 | 3 | .91 | 15.0 | |
| ----------- | ----------- | ----------- | ----------- | 5 | 4 | .84 | 7.6 | |
| 4 | -4 | .26 | 0.9 | 5 | 5 | .74 | 4.2 | |
| 4 | -3 | .3 | 1.1 | ----------- | ----------- | ----------- | ----------- |
Figures 11, 12 and 13 show the correlations for 3 of the 35 cases covered in Table 2. In this section, all graphs are plotted on the same axes in order to facilitate comparison. It will be seen that Sweden indeed seems to conform to the popular model. That is, growth lags inflation by about a year, and it correlates rather well with inflation and in the approved negative sense. F2 values of 13 show reliable correlation.
Fig. 11 Sweden 1950-87
grp=1; lag=0. R2=0.37; av. inflat.=6.6%; av. growth= 3.0%; F1(1,35)=12.1(***); F2(2,34)=9.9(***); F3(1,34)=6.1(***).
Fig. 12 Sweden 1950-87
grp=1; lag=1. R2=0.45; av. inflat.=6.6%; av. growth= 3.0%; F1(1,34)=22.4(***); F2(2,33)=13.3(***); F3(1,33)=2.9.
Fig. 13 Sweden 1950-87
grp=2; lag=1. R2=0.65; av. inflat.=6.6%; av. growth= 3.0%; F1(1,16)=29.3(***); F2(2,15)=13.9(***); F3(1,15)=0.1.
The "behaviour" of the other countries varies from the very good (Italy) to the rather bad (USA and Canada), but the amalgamation of all evidence seems to substantiate, certainly not to contradict, the Swedish results. The evidence is discussed below.
Fig. 14 Italy 1951-87
grp=2; lag=1. R2=0.52; av. inflat.=8.3%; av. growth= 4.2%; F1(1,33)=34.6(***); F2(2,32)=17.1(***); F3(1,32)=0.3.
Fig. 15 Germany 1950-87
grp=1; lag=1. R2=0.37; av. inflat.=3.8%; av. growth= 4.2%; F1(1,34)=2.8; F2(2,33)=9.8(***); F3(1,33)=15.6(***).
Fig. 16 UK 1948-86
grp=1; lag=0. R2=0.32; av. inflat.=6.9%; av. growth= 2.5%; F1(1,37)=16.9(***); F2(2,36)=8.3(***); F3(1,36)=0.1.
Fig. 17 Australia 1950-87
grp=1; lag=1. R2=0.31; av. inflat.=6.5%; av. growth= 4.0%; F1(1,34)=10.3(***); F2(2,33)=7.3(***); F3(1,33)=3.5.
There is therefore no doubting the reality of this tendency for these countries, although it must be stressed that even for the strongest correlations, the correlation is still so weak that no one could rationally have based policy on the expectation that a given low inflation year would be associated with a high growth year. In the case of Italy (fig. 14), for example, the fall of the trend line over its whole length is not very much greater than the scatter about the line.
The 3 remaining countries are the USA (fig. 18) with a very weak negative correlation, Canada (fig. 19) for which the correlation is simply non-existent, no matter how the data are grouped or lagged, and Japan (fig. 20), for which the trend is very weakly but quite definitely positive, that is, high inflation years tended to be associated with high growth. (Note that for Japan as for Germany, the strong curvature is produced almost entirely by one markedly isolated point at bottom left).
Fig. 18 USA 1948-87
grp=1; lag=1. R2=0.23; av. inflat.=4.2%; av. growth= 3.3%; F1(1,36)=10.4(***); F2(2,35)=5.2(***); F3(1,35)=0.3.
Fig. 19 Canada 1950-87
grp=1; lag=1. R2=0.1; av. inflat.=4.9%; av. growth= 4.4%; F1(1,34)=1.7; F2(2,33)=1.0; F3(1,33)=0.3.
Fig. 20 Japan 1952-87
grp=1; lag=0. R2=0.31; av. inflat.=5.0%; av. growth= 6.9%; F1(1,33)=0; F2(2,32)=7.1(***); F3(1,32)=13.9(***).
The pattern, then, is of correlations ranging from weakly negative through zero to very weakly positive.
It may further be remarked that the USA has a range of annual inflation -1% to 6%, Japan and Germany (excluding outlying points) -1% to 8%. These three, it may be noted, are economically the strongest or most autonomous countries. The other countries have markedly wider inflation ranges, 0% up to 15%, 20% or more.
Year/year comparisons for one country, and the pattern of growth and inflation against time, seem to have been topics of much greater interest than country/country comparisons.
In their book on monetary trends in the US and the UK, Friedman and Schwarz (ref. 9, 1982) conclude their chapter on inflation and growth for the 100 year period 1875-1975 as follows (p. 463).
"We expected a positive relation between price and output change ... and we searched long and diligently - and we believe not simple mindedly - to uncover such a relation. On the contrary, a negative relation between price and output change is more typical, for both statistical and economic reasons."
Brown, writing 3 years later, surveys 13 countries (the 9 of this paper plus Denmark, the Netherlands, India and Brazil) over the 29 year period 1951-79. Among his conclusions is the following (p. 43), on inflation/growth relationships within one country.
"The other noteworthy consistency is the universally negative correlation in our sample between p and q (inflation and growth rate), which holds over the period as a whole and also for each sub-period we have distinguished in every country except the US; there the coefficient is ... virtually zero for 1953-73".
The results of the present paper are generally in line with the conclusions of these authors, but give more detail on the range of variation, and identify one important case, Japan, of positive correlation.
References 3 and 9 do not treat the question of lags between inflation and growth. Reference 10 discusses the evidence of "scatter diagrams" (charts 3.4 and 3.5), conclusions being found on p. 91. These are rather complex and qualified, and should be read. The opinion may be risked, however, that if they do not clearly and in detail support the remarks of this paper, there is considerable parallelism.
Reference should also be made to Lucas (1973, ref. 4) whose Table 2 appears to indicate quite pronounced 1-year lagged effects for 15 out of 18 countries (1952-67), the exceptions being the UK, Italy and Argentina.
Given that the data analysed above cover a period approaching 40 years, it seemed of interest to look in detail at the growth/inflation pattern in the first and second halves of the period to see whether the 9 countries showed any persistence of economic performance.
Correlations of growth and inflation were done for all countries with no grouping and a 1 year lag. This yielded 18 plots, which in general showed the same types and variations of correlations found for the whole period. Rather than present any of these, suffice it to say that no pattern emerged from comparing the detailed results for successive periods for each country. The only curiosity which will be remarked is that the correlation for Germany for the years 1968-86 was the only one encountered in all this study in which the best fitted correlation curve was a horizontal line with a 0.0% (i.e., less than 0.005) correlation coefficient. That is, for 18 years, in the "low inflation high growth" model country, there was no trace of a relationship between inflation and growth.
An examination of the structure of average annual inflation and growth for the 2 periods did yield some interesting but essentially negative observations. For the first period inflations ranged from 2.4% to 5.5% and growths from 2.9% to 9.4%. The corresponding figures for the second period were 3.2% to 13.2% and 2.1% to 5.8%. For every country without exception, average inflation was greater and average growth was smaller in the second period than in the first, i.e., these were trends common to all the economically important countries.
When the 9 countries were ranked by the various parameters, the following observations resulted (the numerals 1 and 2 refer to the 1st and 2nd periods, i.e., growth-1 refers to growth in the 1st period).
It can be seen from the above, that while there was considerable consistency regarding growth in the 2 periods (e.g., Japan, UK), or (but rather less) regarding inflation, there were important exceptions. There is absolutely no observable pattern relating to a growth/inflation relationship, either as between the periods or within each period. This complements the observations for the whole period given in 5(c) above.
In the only case, Germany, where there was a very distinct change in growth performance between the two periods in relation to the group, there was no corresponding change in inflation performance. Rather to the contrary, while the growth change was markedly for the worse, the inflation position improved somewhat from 3rd to 1st.
In the only case, Japan, where there was a very distinct difference in inflation performance between the two periods in relation to the group, there was no corresponding difference in growth performance.
The results given in sections 4, 5 and 7 above show that for 44 countries compared for the 8 year period 1980-88, 12 major countries for the same period, 9 of the most important countries over the 37 year period 1950-87, and for the same 9 countries over the 17-20 year periods 1950-67 and 1968-87, there is no evidence that low inflation countries tend to have higher (or lower) growth rates than higher inflation countries.
Sections 7 and 8 show, rather paradoxically in view of the above, that a weak but quite definite tendency is detectable for most of the 9 countries (Italy, Sweden, France, the UK, Germany and Australia) to associate higher growth years with immediately preceding (or in the case of the UK, contemporaneous) lower inflation years. On the other hand, even in the countries showing the strongest such tendency, e.g., Italy and Sweden, the correlation is so weak as to have little immediate predictive value, and would be invisible without analysis of data over several decades, and the remaining coutries, the USA, Canada and Japan, show little or no conformity with the tendency.
Japan actually shows a very weak positive correlation of good growth with bad inflation periods. As regards comparison with other countries, it has an anomalously high growth rate coupled with a quite undistinguished inflation rate.
The USA and Germany, in spite of their consistently having the lowest inflation among major countries, have growth rates which are not significantly different from the others, excluding Japan,the UK and Sweden, and examination of these exceptions shows that they are "sui generis" - not part of a coherent pattern.
Germany, which in the conventional presentations always figures as the low-inflation high-growth model to be copied, does indeed have the best overall record for inflation but has drawn no evident benefit from this. In the years 1968-86, the growth rate of Germany was hardly better than that of the UK, and during 1980-88 it was worse. Internally, Germany has shown little tendency to associate high growth periods with low inflation periods.
If Italy, compared with other countries, associates relatively high inflation with relatively high growth, how can this be reconciled with the fact that, internally, periods of high inflation, relative to its own average, tend to be associated with periods of low growth? If the UK, showing the same internal trend, wants higher growth similar to that of Germany or Italy, why should it achieve this better by aiming for a low German inflation rate rather than for a high Italian one, especially given the factual reservations on German performance in the previous paragraph?
It may be noted here that although ref. 10, as shown above, strongly supports, in different places (pp. 43 and 363), the existence of both arms of this apparent contradiction, it does not make it a matter for comment.
Given that factual evidence on the comparatively simple low-inflation/high-growth hypothesis has been exhausted, it does not seem likely that evidence exists which can be brought to bear on such complex questions. A plausible but probably unprovable, explanation for such internal inflation/growth correlation as has been found for some countries, might be found in the administrative actions of these countries. Clearly, if governments actively take steps to deflate an economy if and when there is high inflation (as they obviously try to do), low growth periods would tend to follow high inflation periods. This would stand the usual presentation, namely that low inflation causes, or at least is a necessary pre-condition for, high growth, on its head, but would result in the observed internal correlations for the affected countries. It might then be supposed that these administrative actions cause opposing cycles of inflation and growth while not affecting the long term growth rate which is determined by other factors. (The latter point may have echoes of the position of Friedman and Schwarz, as quoted below at the end of section 9b.)
This hypothesis, although attractive, has a number of difficulties. If there is such action, it seems to be only sporadically effective, since the observed correlations are so weak. It would also have to be explained why the USA, Germany and Canada rarely or never take such administrative action, or if they do, it is with little apparent success. For the UK, there would be an implausibly short lag time between such action and its effect on GNP. Lastly, the case of Japan has to be fitted in. Do they try and fail to control inflation, do they ignore it, or do they foster it?
In order to try to throw light on this hypothesis a time-series plot was done for each country, showing both growth and inflation on the same graph. The axes for growth and inflation are shown separately, since inflation rates, although generally higher than growth rates, are not sufficiently higher to avoid their being confused with the latter when plotted on the same axes. Representative plots are presented in Figures 21-25, and for all countries together in Figure 26. The points to be made are essentially based on visual appreciation.
It was remarked above that Sweden showed the "best behaved" correlation between inflation and growth. Figure 21 reveals a basis for this good behaviour in the quite remarkable regularity with which the shape of the inflation plot shows concavities which "mirror" those of the growth plot. There is also plausible visual confirmation that in this mirroring, the growth pattern lags the inflation one by about the one year which was detected mathematically. The UK plot shows the same sort of regularity, but confirms visually that in this case there is no systematic lag between the two parameters. Plots for the other countries picked out above as having reasonably apparent correlations, Italy, France and Australia, all show in varying degrees the same type of mirroring. Visually, Canada also (Figure 22) appears to belong to this group.
Fig. 21 Sweden 1950-87
Growth and Inflation v. Time
Fig 22 Canada 1950-87
Growth and Inflation v. Time
Germany (Figure 23) and the USA (Figure 24) have rather similar plots, in that they do seem to show some systematic mirroring, but the inflation concavities are noticeably shallower than those for growth, or those for inflation in the countries considered above. This reflects the facts remarked above that Germany and the US shared the characteristics of weak inflation/growth correlation, shared top of the league position for low inflation, and had the lowest range of inflation values. This may mean that these countries have particularly good control of inflation, that control of level may go with control of fluctuations, and may support the notion of the "independence" of the Bundesbank, but these are speculations outside the scope of this paper. What this paper has remarked is that the growth rates of Germany and the USA draw no evident benefit from these shared inflation characteristics.
Fig. 23 Germany 1950-87
Growth and Inflation v. Time
Fig 24 USA 1948-87
Growth and Inflation v. Time
Japan (see Figure 25) shows growth tending to mimic rather than "mirror" inflation, apart from one point for 1973, as already seen above.
Fig. 25 Japan 1952-87
Growth and Inflation v. Time
A glance at the plots showed that there was no difference between any of these countries in the pattern, as opposed to the level, of growth. None manages to produce steady growth. All have "spiky" growth patterns, seemingly with a wavelength of 3-6 years and an amplitude of 2-3%. The USA, Germany and Japan have the same spikes as the others but, apart from the Japanese "anomalous" years of 1972-3, less marked mirroring inflation spikes.
For the UK, the quite exceptionally severe inflation of 1974, by far the "worst" of any year for any country of this group in this 37 year period, is certainly associated with a negative growth spike, but there is in fact no country of the 9 which has not experienced at least one similar year of negative growth. There is also the difficulty, mentioned several times, of seeing episodes of low UK growth as responses to episodes of high inflation (or of seeing, in the more popular model, episodes of high growth as responses to episodes of low inflation), given that in the UK's case, the episodes appear to be synchronous, or within a few months of being so.
If attention is shifted from the detail of the plots to the smoothed trend curves which may be imagined to be associated with each one, it becomes clear that the growth patterns are very similar not only in their "spikiness" but in their general trend over the period. The smoothed curves for inflation are much more varied. Comparison of plots for Sweden and UK, for example, showed this clearly. The markedly more "humped" inflation curve for the UK in the 1970's is not accompanied by any visible corresponding difference in the growth trends for the 2 countries. This observation can be repeated for Italy and France, or for UK and US. Germany seems again to be a mild exception, but in a sense contrary to the usual expectation: in spite of consistently low inflation and low variation in inflation, its growth profile is alone in showing a consistently downward trend over the whole period, albeit starting from a high level.
An attempt is made to illustrate these remarks in Figure 26. Plots for all 9 countries are presented in this figure after smoothing with a 7-point formula, weighting the central point and its 3 neighbours (on each side) with weights of 7, 6, 3 and -2 respectively. The lone high-growth curve is, of course, Japan. High German growth is also distinguishable in the early 50's. As remarked above, the wild variation in the inflation rates of different countries in the 70's and early 80's, is not reflected in any corresponding variation in the growth rates of these countries; rather, indeed, the reverse.
Fig. 26 All nine countries
Growth and Inflation v. Time
All the above observations must tend to put into question whether for any country inflation control, or more neutrally, inflation behaviour, decisively influences growth rate in the long term, or even in the immediate or short term.
Some remarks of Friedman and Schwarz on the US and UK during the 100 year period 1875-1975 (1982, ref. 9, p. 463) would, if correct, seem to be in support of the above observations on the pattern of growth and its tendency towards independence from inflation behaviour. (Note, however, that the changes of price and output in this reference relate to "phase" rather than annual data, phases being of around 2 to 3 years duration.) They are as follows.
"A simple quantity theory that regards price change as determined primarily by monetary change and output by independent other factors fits the evidence for the period as a whole (excluding wars). ... The rate of change of output appears to be a random series. ... Its variability is of the same order of magnitude as that which would be produced simply by measurement error. ... If (the US interwar period) is omitted ... we cannot find any statistically significant difference between the US and UK relations...."
It is concluded, then, that the examination of time-series plots of inflation and growth shows the tendency, in one country, towards a negative correlation between inflation and growth, but at the same time reinforces the view that differential inflation behaviour of one country, relative to that of another, is not strongly associated with correspondingly differential growth behaviour.
Its conclusions are not presented as being for or against any economic theory. Although some economists may, on arguments based on plausibility, lean towards the belief which has been the subject of examination (or its reverse), no economic theory strongly insists on these positions. Reference may be made to references 8 and 11 for a discussion of this. The paper does no more than try, and fail, to find factual evidence to support a widespread but unsubstantiated claim made by others. The conviction this failure carries can only rest on a demonstration of the thoroughness with which the search has been made. The negative result is not, of course, a disproof.
It has nothing to say to those who think, on well argued grounds (see The Economist as cited in section 1, Hahn refs. 8 and 11), that, other things being equal, inflation x is better than inflation y, since, in all the comparisons in this work, all things were manifestly not equal. The onus would be on them to suggest why countries X and Y, with inflations x and y, seem in fact to get on equally well, and they might well be able to do so, on grounds of their many differences apart from inflation levels.
It says nothing on whether inflation due to some causes may be good, while that due to others may be bad, since in the above analysis, all types of inflation are confounded. It does not consider possible goods associated with inflation levels other than rate of growth of GNP - for example, possible welfare aspects, benefits for a particular sector of industry or society, for the feeling of well-being of society as a whole, or for the voting strength of any particular political tendency. It does not touch on the quite separate issue that low inflation may, for any country that is a member of the European Community, be essential or desirable for progress towards the cohesion of the Community, quite apart from whatever effects this may have on the growth of the country's GDP.
The results and analysis of this paper, and particularly the conclusions of the discussion in sections 8 and 9, are essentially negative. No evidence has been found to support the notion that a low rate of inflation has in the past and in various countries been associated with improved growth rate, to support thus the statement that low or zero inflation is an essential or very important condition for high and sustained growth, or that government action to reduce inflation would be very likely to have such an effect.
In particular, the low inflation rate of Germany (or equally of the USA, which is not normally cited in this context) gives no evident reward in terms of growth rate. The question might be posed: Do public perceptions, in identifying model countries to emulate, confuse high level of GNP with high rate of increase of GNP?
If the results of this paper do not support the claimed advantages of low inflation, neither do they provide evidence that there are disadvantages, in terms of growth, or that "the promotion of inflation to the rank of Public Enemy Number One", as Brown puts it on p. 363 of ref. 10, is necessarily associated with reduced growth. If Germany cannot be shown to have drawn any advantages from its "firm anti-inflation strategy", neither can it be shown to have suffered by it.
The evidence of previous work, which is largely not focussed specifically on this subject, appears generally to support, and nowhere to contradict, these conclusions.
Section 9 discusses the seeming paradox that some countries show significant correlations when year is compared with year within the country. Mostly the correlation is weakly or very weakly negative, but in one case, Japan, it is positive. This point has not been resolved, but may be due to the fact that there are influences on growth, other than inflation rates, which differ radically between countries.
What the above discussion does perhaps is to raise (and, within the scope of this paper, do no more than raise) the question of how little is known about how growth is achieved. It is almost as if various countries grow or do not grow for reasons quite unrelated to their general level of inflation, or indeed to the policies being so stridently pursued by their authorities, and that the success of governments may be to have the luck or the skill to appear to be in charge of economic processes which are essentially autonomous, or which are being controlled by multiple interests which (naturally) have goods in mind other than any given country's gross national product.
Brown, A. J. 1985. World Inflation since 1950, Cambridge, Cambridge University Press
Economist, 1989. 100 Years of Economic Statistics, compiled and edited by T. Liesner, London, Economist Publications
Friedman, M. and Schwarz, A. J. 1982. Monetary Trends in the United States and the United Kingdom, Chicago, University of Chicago Press
Hahn, F. H. 1980. Memorandum for House of Commons Treasury and Civil Service Committee, Memoranda on Monetary Policy, London, HMSO
Hahn, F. H. 1990. On inflation, Oxford Review of Economic Policy, vol. 6, No. 4
House of Commons 1980. Memoranda on Monetary Policy, House of Commons Treasury and Civil Service Committee, London, HMSO
Kaldor, N. 1976. Inflation and recession in the world economy, Economic Journal, December
Lucas, R. E. 1973. Some international evidence on output-inflation tradeoffs, American Economic Review, vol. 63
Statistisches Bundesamt, 1990. Statistisches Jahrbuch 1990, , Statistisches Bundesamt Wiesbaden, Stuttgart, Metzler-Poeschel Verlag
Thirlwall, A. P. 1974. Inflation, Saving and Growth in Developing Countries, London, Macmillan
Thirlwall, A. P. and Barton C. A. 1971 Inflation and growth: the international evidence, Banca Nationale del Lavoro Quarterly Review, September
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Abstract. In a previous paper, the author concluded that there was no evidence that
low inflation was associated with improved growth rate. In this note, he examines a
paper by R. J. Barro which tends to the opposing view. He suggests that the evidence
of this paper in fact reinforces his conclusion.
Paper in HTML form
Abstract. In a previous paper, the author concluded that there was no evidence that
low inflation was associated with improved growth rate. In a later note, he examined a
paper by R. J. Barro which tended to the opposing view, and suggested that the
evidence of that paper in fact reinforced his conclusion. In this note he comments on a
paper by W. R. J. Alexander, concluding that time series analysis, especially with
additional variables as in this paper, is unlikely to be able to contradict cross-section
results.
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Abstract:
We all, including economics professors, statisticians and journalists, know just by looking around that our comfort and prosperity is determined by the plethora of objects produced by technical innovations over the millennia, centuries and decades. The earnings of billionaire investment managers may come from their “services”, but their prosperity is manifest in their possession of, or ability to buy, things which have been grown, cooked, mined, constructed, or manufactured. However, by some quirk of social psychology, those economics professors, statisticians and journalists (and no doubt bankers too) apparently believe, simultaneously, that things are not “important”. Agriculture has already been written off as “contributing only 2% of the economy”, and manufacturing is “declining” towards the same invisibility. Recently headlines appeared in the Financial Times and the Daily Mail that “business and financial services eclipse manufacturing” and “the City is supreme as factories fade away”. What was the source of those preposterous views? None other that our Office of National Statistics, whose own press release had been headlined in a similar way. As usual there was no response from any quarter, not even from the CBI Manufacturing Council, to point out that the ONS data had absolutely nothing to do with the only aspect of manufacturing that matters for national prosperity, namely physical output. This note suggests that the ONS should put its house in order. We need not only facts, but a balanced presentation, without attention-seeking headlines.
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Abstract. The general view of the media, bankers, business and politicians, not noticeably contradicted by academics, is that one of the main functions, or the main function, of the central bank is to analyse the progress of the economy, and then to steer it with skilful judgement towards health and growth, by making decisions to change their base interest rate, with carefully chosen timing, amount and direction. The data presented here show that it is impossible to sustain this notion of skilful time-critical steering, or even that the central bank does in fact lead or determine the short term interest rates available to savers or business. The contrary proposition, that commercial short-term interest rates are in fact observed and followed by the central bank, is mathematically sustainable, and generally in accord with the observed facts.
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Abstract: Following on from the note entitled “The Function of the Central Bank” (see above), this note brings the data up to date. It will be re-issued at intervals. It will monitor the tendency of short-term interest rates, give the author's judgement on the likely movement of the central bank rate in the UK, US and EU zones, and enable the reader to make his own judgement. An addendum shows that by the normal standards of statistical testing (which by their nature must always fall short of proof), the 3-month bank rate leads the changes announced by the central banks in their base rates.
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Abstract. Politicians, journalists - commentators on economic matters generally - evolve a sort of quasi-stable rhetoric. They select two or three foreign countries with which they like to compare their own, either as models to be followed, or traps to be avoided. Other countries are rarely or never mentioned. They repeat over and over again mantras such as "we are the fourth largest economy in the world" in the UK, or variants of "the dot.com revolution" or "the new paradigm" in the USA. In arguments in the UK over the replacement of sterling by the Euro, it is almost a daily occurrence to hear growth in the UK contrasted with recession in Eurozone Germany. It appears likely that these stories emerge in part from appraisals of GDP expressed for the purpose of cross-country comparison in a currency unit (the Euro or dollar, say) calculated at the ruling rate of exchange. This calculation can be done instantly. It is "news". The more recent method of using purchasing power is much more complex and its results are published late. They are not "news", and do not affect the established rhetoric. Nevertheless, they are the truth, or as near to that as economic data can be, and often quite strikingly at variance with the current story.
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Abstract. The notion of de-industrialisation arises from the fact that industrial
employment, having risen rapidly, is now in equally rapid decline. This paper presents
the view that agriculture and industry together form, and have always formed, a
"primary" sector which from the beginning, because of its inherent capacity for
productivity gains, has progressively freed labour for non-productive work. The
"industrial" revolution was really a "primary sector" (in the above sense) revolution.
There is no new phenomenon of de-industrialisation, merely a speeding up of a process
of labour-freeing from the primary sector, whose ever decreasing work force produces ever increasing output.
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Abstract. Economic theory is dominated by abstract structures. Underneath, there is no firm foundation. Above, there is a lack of rigorous confrontation with established fact. Basic theoretical concepts have no acknowledged definition. The apparatus of graphs, algebra and technical vocabulary are often vehicles for rhetoric rather than descriptions of truth. In this abstract world, it seems to be accepted without embarrassment that all opinions are possible, while adopting the style of science in delivering each conclusion as if it was a fact. The closest parallel is perhaps with theology, where also each practitioner presents his story as fact, but there are differing stories. This paper illustrates this theme, with particular reference to "deindustrialization".
It points out that it is tangible things which are the primary measure, literally the sine
qua non, of all material, cultural and intellectual progress. Official statistics necessarily
aggregate market transactions involving tangibles and intangibles at monetary
exchange values. However it is an error, in the sense of being a misperception leading
to wrong action, to mistake this equivalencing of things and non-things as more than a
necessary procedural fiction. In this system, one opera performance equals, say, 100
lorryloads of gravel, but the logical reality is that gravel is part of the primary
inventory, opera and all other intangibles are secondary or consequential. This
inversion of the important and the estimable lies behind the paradox of the
deindustrialization which is in process and the deagriculturalization which has already
run its course in some parts of the world - namely that our entire civilisation rests (and
logically and factually must always rest) on the output of this (in employment terms)
disappearing sector. Eventually, the sector which ultimately produces all value
will appear in the statistics as one which adds zero value in current terms.
Fortunately, the real word of affairs shows no sign of acting on this erroneous
perception. For those accustomed to see the world in abstractions, misperceptions still
seem to obscure the reality.
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Abstract: Is industrial production relatively in decline? No, it is not. This note displays the evidence that for the last 40 years, in the 6 largest economies of the world, industrial production has kept pace with total output.
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WoPEc - Working papers in economics - WUSTL December 2002 Paper in pdf form
Abstract: The author of this note takes it as self evident that prosperity and the provision of "things" (buildings, roads, furniture, furnishings, clothes, machines and equipment of all sorts) go together. The way people generally speak and act is in line with this view. If this is so, domestic manufacturing must continually keep pace with gross domestic product, provided that the necessary "things" are not imported from elsewhere. However, many people are persuaded that domestic manufacturing is in terminal decline, and that the lost output is being replaced by imports from the developing world. Almost daily, one may read of manufacturing jobs being "exported" to the Far East. However, it is simply impossible to import goods without a more or less balancing volume of exports, and there is in reality limited scope for exporting a sufficient volume of services. Imports of goods must more or less be balanced by the export of domestically produced goods. How can a widespread perception of decline be reconciled with a reality of growth? The answer is that the "decline" which is perceived is a decline in employment in the industrial sector, but this decline is more than counterbalanced by the rise of productivity, so that the domestic output of goods by and large keeps pace with the growth of GDP. This note summarises the statistical evidence for the accuracy of this view. A substantial footnote discusses the role of journalists and academics in sustaining the perception of the decline of manufacturing.
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Abstract:
When Pigou vigorously attacked Keynes immediately the General Theory was published, he wrote that, “since a detailed running commentary would be both tedious and un-illuminating, I shall not adopt that method”. These reading notes follow precisely this tedious route. The truth cannot always be entertaining. Keynes was one of the most fluent and plausible rhetoricians of his age, and it could be argued that his work can be examined only by dismantling his rhetoric line by line to expose the total logical vacuum which in cold objective fact the General Theory is.
Keynes’ book was seemingly written at speed, contains no bibliography, virtually no mention of factual data, little evidence, pseudo-algebra only for appearances, no attempt at anything which could be called scientific method. His acknowledged greatness lay in his cleverness, and his great skill as a debater, negotiator, journalist, and politician, not at all in his ability or interest in searching out the truth. His “theory” is presented in terms of mechanistic cause-and-effect models of economic society, but quite demonstrably, these models are based on nothing but the repetitious re-statement of Keynes’s prior and evidence-free conviction that the cure for unemployment and recession is to stimulate spending, any spending, useful or useless, either by individuals or by governments. Keynes used every rhetorical trick imaginable to hide the empty centre of his work, from “as I shall show … ” onwards. His mainstay, as Pigou remarked, was a deliberate lack of precision and clarity. The great sociological mystery is - how did this transparently fact-free “theory” sweep everything before it?
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Abstract. It has been said, fairly plausibly, that "Bayesian inference is one of the most
widely known eponyms in all of science". But unlike common scientific eponyms, it is
by no means clear exactly what "Bayesian" means, and what it has to do with Bayes.
"Bayesian", and the dozen or so words and phrases which are usually associated with
it, seem to be more like unspecific words of the English language, deployed by an
author as he wishes, rather than fixed technical terms. The obscurity of the language,
relative to the precise meanings associated with, say, Newton's laws or Heisenberg's
uncertainty principle, is matched by the obscurity of the history - the virtually unknown
Bayes, the posthumous paper, the impenetrable and incoherent style, the muddled
logic, the virtual silence on his work for 200 years, the sudden emergence in the last
several decades, not of new knowledge, but of new Bayesian additions to the
vocabulary. This note surveys the notions and the history. It concludes that the
Bayesian vocabulary is vague and pretentious, and serves no useful purpose.
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Abstract:
Wittgenstein and Russell both in their different ways showed that they believed that ultimately, there were better things to do with one’s life than study or talk about philosophy. Both were remarkable men. The words of both appear in the English translation of the Tractatus, Russell’s in his introduction to Wittgenstein’s book. This note comments on these words, almost one at a time. The lack of clarity, logic and coherence of both authors raises the puzzling question – in what does greatness lie? Is it in personality, debating skill, membership of a mutually admiring elite? This note discovers nothing of interest or importance in anything actually written between the covers of this book.
The note is essentially reading notes, as was my note on Keynes’ General Theory. I recall that when Keynes’ friend and rival, Pigou, vigorously attacked Keynes immediately the General Theory was published, he wrote that, “since a detailed running commentary would be both tedious and un-illuminating, I shall not adopt that method”. The notes below follow precisely this tedious route. The truth cannot always be entertaining. Pigou chose to challenge Keynes on the latter’s home ground, as a debater, a predictably hopeless task. For Wittgenstein, as for Keynes, I might argue that his work can be examined only by dismantling his rhetoric line by line to lay bare its lack of discipline, of coherence, of logical development, and of content.
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Abstract:
These are critical notes made while reading Deborah A Redmans's "Economics and the Philosophy of Science". The philosophy is largely that of Popper, Kuhn and Lakatos. Redman begins in the style of a neutral reporter, but later shows her impatience with the confusions sown by those eminent people. Hutchison supplies the main sceptical comments. My main comment is that neither Redman, nor the philosophers she quotes, appear to recognise that it is simply impossible to discuss "science" if the unstated assumption is that science is whatever anyone chooses to call science. One has to start with the strikingly observed worldwide unanimity of physicists and chemists within their respective disciplines, and take account of the fall-off of unanimity (that is, the widening scope for disagreement) as one moves through biology, medicine, etc. (that is, as the matters studied become more and more complex). Economists are in the absurd situation of claiming to be scientists, or at least, wanting to appear to be scientific, when the matters they study are simply too complex ever to lead to consensus. The absurdity is demonstrated when, for example, Friedman is cited in this book as claiming that there is no fundamental distinction between economics and the physical sciences. At the other end of the spectrum, historians and philosophers do well to ply their trade without making inappropriate claims of objectivity.
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This is my own translation of a work which appears from the bibliography to have a significant English-speaking audience, but of which there seems to be no readily accessible English version.
English translation
Abstract:
E O Wilson’s book "Consilience" is a notably unscientific plea for science to take over the so-called social sciences, from economics to psychology, and extend also into art and religion. The text rambles on, with exalted brilliance according to one reviewer, over this whole field, but the brilliance sheds no new light, and fails to explain exactly what consilience is, how it might be achieved, and what benefit would result if any of these subjects (for example, art) was connected back to genes, biology, chemistry and finally physics. It is not mentioned that such a connection to the "harder" sciences is in any case a pipedream.
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