Once bitten twice shy baby, once bitten twice shy

A certain portion of economics is just the observation of what we humans do written up into expensive language. There should be little surprise at this given that economics attempts to describe what we humans do and we humans are, by necessity, pretty good observers of what our fellows are likely to do. How else would we know how to interact with each other?

At which point Ian Hunter explains a matter of the macroeconomics of debt to us. Americans will be more familiar with Great White doing the same. Hunter having repeated the point more recently.

Or in that more expensive language:

Britain should not kid itself that soaring national debt can be addressed by high inflation because roughly a third of the £2 trillion debt stock is linked to the retail prices index, the incoming chairman of the Office for Budget Responsibility has said.

Richard Hughes, a former Treasury official who has been nominated to succeed Robert Chote, told MPs that UK public finances had a peculiar vulnerability to inflation because about 30 per cent of gilts were inflation indexed.

“There has been a lot of somewhat idle chat about the prospect of inflating our debt away, that we don’t have to worry about elevated levels of debt because we can pull the same trick as in the 1950s and 60s of using inflation to erode the real value of our debt,” he said. “That is not going to work. We have lost one tool we have used in the past.”

Why is so much of the debt index linked? Because that dispossession of investors through inflation is something we recall, remember. Therefore once the trick had been used there was a certain difficulty in financing government debt without removing that inflation risk. So, it is inflation linked and thus it cannot be inflated away.

Sure, Ian Hunter’s singing about groupies but that lesson clearly applies to investors too. My, my, my, humans actually learn through experience - once bitten twice shy baby, once bitten twice shy.