By Dr. Bhaskar Dasgupta

If you work in the financial markets or are connected in any shape or form to economics and business, you will know about inflation. You will know how governments panic about inflation. There is an amazing amount of human brain power aimed at managing inflation. For the great majority of people, though, inflation is known as “price rises”. At this moment, I won’t be exaggerating if I said that inflation makes more people excited than all the gods and religious leaders combined. Inflation, in a nutshell, is the constant reduction in the value of your money. A Dollar/Pound Sterling/Won/Rupee of today is worth more than a Pound tomorrow. A bit of inflation is good for a whole load of economic reasons, but this column tries to keep away from economics and sticks to politics and international relations.

As I mentioned, every government under the sun, irrespective of the political persuasion, worries about inflation and tries to control it. If they lose control, they are dead. The price of basic things is so core to people’s existence that if they are unable to feed/clothe/shelter themselves and are priced out, they will revolt. Look at what the USSR tried to do. They kept the price of bread and basics steady for decades on end, but ultimately fell foul of the laws of economics. Even now, most of the USSR’s successors are suffering badly from bad economies, because of their lack of inflation management skills. Indian governments, the biggest democracy in the world, are deathly scared of the price of onions and basic foods, as the populace harshly treats anybody who is in power during a time of price rises. The gasoline price inflation is a gigantic bug bear in the United States of America, with the price increases being one of the biggest political talking points. House price inflation is an equivalent debating point in the United Kingdom, and the long suffering phlegmatic Englishman was forced to do a very polite revolt when the fuel price escalator went beyond control. But all these are small bits. These examples are for inflation which rises maximum between 2% and at the most 50% annually.

Don’t think that inflation going the other way is bad. Japan had a decade of deflationary behaviour. What it means is that a yen of today is actually worth less than a yen of tomorrow. Weird, no? What does it actually mean? Well, because of frankly silly economic policies, demand collapsed. So to encourage demand, Japanese companies kept on reducing prices. On the other hand, if this is the case, you won’t buy today preferring to wait till tomorrow, when you know that the price is going to be lower. This takes the entire economy into a tail-spin. To simulate demand, Japan had interest rates at near zero for years, but again, it is now showing signs of breaking out and inflation is coming back into positive territory. Another factoid to know is that in Switzerland interest rates turned negative once. So if you wanted to invest in Switzerland, you had to PAY! Go figure!

I am not talking about normal inflation or even deflation. I am talking about hyper-inflation, an economic condition which is terrible when it occurs. Hyper-inflation is a horrible animal; it rips apart the basic structure of a state and ruins it down to its core foundations. It breaks the relationship between a citizen and the state, the citizen and the state institutions. Again, I don’t want to go too deep into the causes, but basically it’s because of serious and disastrous economic mismanagement. Where absolute nincompoops are running the economic policy. Total criminals, people who are basically mentally deficient and have gone beyond the pale. If you print off too much paper money, then it gets devalued dramatically.

How much devaluation? Well, I have used the word “gazillion” in these essays in jest, but consider two famous cases of hyper inflation in pre-war Germany, which issued a note worth 100,000,000,000,000 Marks or the Hungarian 100,000,000,000,000,000,000 PengÅ‘. By the time you count to the end of the zeros, you have run out of breath!

Think of yourself as a Zimbabwean school teacher or a member of the previously flourishing middle class. A middle class member whose earnings are generally fixed on years on end with no bonus and a tiny salary increase. If you have that sort of incoming salary, it is tough even with small inflation. If you have a situation where prices are under hyper-inflation and *doubling* every week or so, then you do not need to be Stephen Hawking to realise how quickly you will run out of your disposable salary, your accumulated savings and finally your assets, like your ancestral property, house or your pension. And when you end up in a situation where your salary is just enough for two days out of an entire month, what do you do then as a middle class man? A dark joke of old Soviet times gives you the answer: “they pretend to pay us for working; we pretend to work for the pay they are pretending to pay”. So you have a choice of either doing 2-3 jobs, do something illegal, become a criminal or simply leave the country. In this case, Zimbabweans have taken the last option.

What is even worse is that this hyper-inflation has impacts on the neighbours. The way Zimbabwe is imploding is impacting South Africa as well. Not only economically, but also the fact that it has to support three million additional Zimbabweans. The last time a migration of this magnitude happened, war broke out and a new country was born (Bangladesh). Old man Hemmingway said it all, and it typifies Zimbabwe. “The first panacea for a misguided nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.”

All this to be taken with a grain of piquant salt!