The “shimmy” effect in the economy, or why it is important for the authorities to show inflation below 10%

In systems theory there is a concept of “catastrophe”, which means an abrupt qualitative change in an object with a smooth quantitative change in the parameters on which it depends.

Article Editor: Yan Beygelzimer, Dr.Sc., Professor
 

If you gradually increase the speed of water flow in a pipe, then when a certain threshold value of speed is exceeded, a “catastrophe” occurs: smooth, regular flow becomes turbulent, chaotic.

If you gradually increase the speed of a car, a “catastrophe” occurs when a certain speed threshold is exceeded: the front wheels start wiggling with increasing amplitude, and the driver's attempts to stabilize the movement only worsen the situation (the “shimmy” effect - from the English word “shimmy” describing oscillatory movements in various mechanical systems).

If inflation gradually increases, then starting from a certain threshold value - usually 10% per year - a “catastrophe” occurs: inflation becomes virtually uncontrollable, there are sharp fluctuations in prices with a general tendency to their unstoppable growth.

This process is called “galloping” inflation. It resembles the “shimmy” effect, because it also tends to self-reinforce due to positive feedback. The point is that when producers expect high inflation rates, they may increase the prices of their products in advance to offset future costs and maintain their profits. This price increase leads to higher costs for other market participants, who also begin to raise the prices of their goods and services. As a result, inflation accelerates, confirming entrepreneurs' expectations and creating cyclical fluctuations.

One of the important factors provoking “galloping” inflation is the understanding by market participants of its high values. That is why the Russian authorities and Rosstat deceitfully try to convince the public that inflation does not exceed 10%. This is not just a defense of the psychological threshold, it is an attempt to weaken the positive feedback, which causes a “shimmy” effect in the economy.

But... people can be deceived, but the laws of Nature cannot: it is possible to push back the threshold of “catastrophe” by tricks, but with strict restrictions on changes in the system it is impossible to avoid it. A tightly closed lid will slightly increase the temperature of the beginning of boiling of water in the pot. But if you continue to heat the pot, the ever-increasing vapor pressure will rip the lid off or rupture the pot. To avoid disaster, you must change the system, take the pot off the fire.

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