L’affaire Adani reminds us of the ironic difficulty of discerning what is real1 min read . Updated: 30 Jan 2023, 12:45 AM IST
The information age has granted us no relief from the ‘money illusion’. Being human, we’re all too easily misled by retail and asset inflation. L’ affaire Adani reminds us to stay aware
In a world where the opposite of real is not just unreal or imaginary—it could be fake, artificial or inflated—how well we fare could turn on our ability to spot and account for reality distortion fields, the proliferation of which is an ironic paradox of the Information Age. In daily life, we must confront a ‘money illusion’, a term made famous almost a century ago by Irving Fisher. Being human, we tend to focus on the nominal value of money rather than its real worth. This can distort all that we evaluate in terms of, say, Indian rupees. Figures in the past look smaller than they really were and those in the future loom larger, unless we adjust for inflation, which shrinks what our currency can buy over time. Sharply rising prices can turn old-age savings into a paltry sum by the time we get there, its adequacy doomed by endless cost escalation. It could also dupe us into an illusory sense of progress, as nominal trends look sharper than they would if rupee data were duly deflated to reflect reality. And if the rate of inflation stays unsteady for long periods, it can pivot an economy into a moving maze of distortions. With everyone forced into a grand hall of mirrors, signals sent by economic agents could get warped too wildly to attain the multiple equilibria that market theory says we need for efficient resource allocation.