Chronic. Most people imagine that they are making reasonable judgments about things because they believe they are in touch with reality – but often they are not. This is one of the observations made in Noise: why we make errors in judgment and how to avoid them (Odile Jacob, 464 p., € 27.90), the new essay published by Daniel Kahneman, Olivier Sibony and Cass R. Sunstein, three specialists in behavioral sciences.
This observation can apply, to a certain extent, to macroeconomics and in particular to the current debate on inflation. Are we on the verge of a painful, widespread price spike, as some analysts fear? Are the price hikes for energy and some commodities temporary, as others claim? Above all: do we really have the right tools – grasping reality – to measure it?
“We do not know if we are living the start of a new era of inflation, sums up Adam Tooze, professor of economic history at Columbia University, in a recent article. What is certain is that we are witnessing a great debate on inflation. “ Observe the observers: this is a clever side step taken by Adam Tooze, rich in lessons. “ Uncertainty fuels real anxiety among decision-makers and the public, he adds. Is this leading to a crisis of authority in the economy? “
Without going that far, the fear of the specter of inflation, reminiscent of the scenario of the two oil shocks of the 1970s, is making a big comeback in the media. It revived the question of purchasing power on the political scene, which could be one of the challenges of the French presidential election. It forces central bankers to repeat in chorus, to temper concerns, that the phenomenon is transitory. While admitting that “Several sources of uncertainty could lead to more persistent inflationary pressures”, according to the remarks made by Isabel Schnabel, member of the executive board of the European Central Bank (ECB), on October 8.
“Intellectual nihilism”
Why such a fog around prices? Because the barometer allowing their evolution to be measured has failed. Before the pandemic, economists were already wondering about the nature of the low inflation observed for a decade. The debates, quickly technical, focused on the “Phillips curve”, establishing that there is an inverse relationship between inflation and unemployment: when the number of job seekers is low, companies struggle to recruit and therefore increase wages for attract candidates, which in turn increases prices. But this relationship has weakened with the rise of globalization and the decline in union density in industrialized economies.
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