The unintended consequence of inflation knocks Armenia’s internet off-line
At first glance this story about about a pensioner in Georgia shutting down the internet in Armenia appears to be just a nothing special tragi-comic Eastern European story. But on closer inspection it’s actually a great example of the unintended consequences of inflation, the proper definition of which is ‘a general increase in the supply of money’.
So, just how did a pensioner in another country knock out Armenia’s internet?
“A Georgian interior ministry spokesman said a 75-year-old woman had admitted damaging fibre-optic cables while scavenging for copper”
Now lets take a look at the price of copper and see why a pensioner, presumably on a fixed income, living in a country with a history of very high inflation, might see the attraction of breaking the law and urban-mining some copper wiring.
That’s well over a 600% rise in the past ten years! but of course there is no inflation, if anything we don’t have enough:
“Our expectation at this point is that in the medium term inflation, if anything, will be a bit low. We will monitor inflation and inflation expectations very closely.” – Ben Bernanke, FED Chairman April 2011
This is by no means a unique occurrence, there are many stories of ‘urban-mining’ taking place. Ireland seems to be the latest victim suffering a spate of thefts by ‘sophisticated’ gangs targeting public statues for their scrap metal value.
The reason for the internet going down in Albania and for the Emerald Isle to be bereft of public art is Inflation. We’ve almost been convinced by the central banks to believe that prices going up is inflation – it isn’t. Prices going up can be caused by supply shortages or increases in demand, this is not inflation, this is simply, well, prices going up.
Increases in prices are a symptom of inflation, not inflation itself. When inflation is caused (an increase in the supply of money) it can, but not always, cause prices to rise. The price rises will not be uniform across all things in the economy, with some things going up significantly in price, whilst other things may actually fall in value.
Inflation also causes malinvestments. Because interest rates are artificially held by the central bank below their market rate, this signals to investors and entrepreneurs that there are more savings in the economy than actually exist, which means that that business is unsustainable and will eventually fail. Also bad decisions are made because true prices reflecting supply and demand are distorted because of the excess money.
In fact we can see there are many unintended, largely unseen and entirely denied consequences of inflation, or money printing. Inflation is the internet going down, inflation is incentives for the citizenry to enter into criminal enterprises (such as stealing statues for scrap), inflation is businesses going under and Inflation is, sometimes, prices moving higher.
The symptoms of inflation are many and to a large extent we simply can not numerically measure them. But we’ve been so conditioned into thinking that inflation is just a rise in prices and that inflation can be expressed in a percentage that we largely miss the many other symptoms of inflation.
Any attempts to assign a numerical value to inflation is as futile as trying to assign a numerical value to happiness, or the utility we get some something. All you need to know is that inflation is an increase in the supply of money and that it always and everywhere will, in the long run, have a negative affect on most in society – apart from those who get to spend the new money first of course, and perhaps that’s why we’re told that 2% inflation is good for us.
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- Inflation? or Deflation?
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