Tuesday, December 06, 2016

A seed of populism

The current political context in Europe calls to mind a missed sign of divergence between the general public and technocrats that occurred with the introduction of the Euro single currency in 1999. There was a widespread public perception that businesses used the conversion from national currencies to the Euro to round up prices, resulting in generally higher prices than prevailed prior to the switchover.

Economists patted simple hoi polloi on the head and told them that they'd made the same mistake as Nigel Tufnel in Spinal Tap, namely confusing numbers ("well it's one louder, isn't it?") with the reality that whether prices went up or down was a purely arithmetic exercise based on the currency conversion factors.

Subsequent research found scattered but tantalizing evidence that some prices really did increase but at the same time indicated that perceptions were the dominant influence in whether people thought this happened or not.

Yet that sense that the Euro had done strange things to national economies despite what experts said looks like a prophecy of what was to come in 2008 -- and part of the explanation for why credibility has been so difficult to restore.

Nigel's amp, By Source, Fair use, Link

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