patrick.net

Call it Crazy says

So, how do you get inflation from that?

You need to actually understand how an economy works. It's called demand/pull inflation.

http://en.wikipedia.org/wiki/Demand-pull_inflation

Call it Crazy says

Demand-pull inflation is a theory that simply does not exist in reality.

Don't tell the Ks that...

Call it Crazy says

You think Joe 6-pack, who lives pay-check to pay check, would not go out and splurge given the opportunity, buy a vacation, a new car or an iphone?

So, how do you get inflation from that?

Either it can be produced at the same cost and it's real growth or it leads to inflation.
Either way nominal growth.

tatupu70 says

Obviously. Inflation hurts those that need a job, however.

So if you are unemployed under inflation your savings buy less and less. Under deflation your chances of getting a job (and the salary it might pay) get less and less.

Which is worse again?

New Renter says

So if you are unemployed under inflation your savings buy less and less. Under deflation your chances of getting a job (and the salary it might pay) get less and less.

Which is worse again?

If you have no money, it doesn't matter if prices are inflating or deflating.

But the point is that you are MUCH more likely to be unemployed under deflation than inflation.

tatupu70 says

But the point is that you are MUCH more likely to be unemployed under deflation than inflation.

That puts the cart before the horse. Unemployment can cause deflation, especially in subprime real estate and liar loans written to finance it. Deflation does not generally cause unemployment, except in the FIRE sector. Through decades of deflation in the tech sector, AAPL has continued to employ ever more people, both directly and indirectly. The FIRE sector tells you to fear deflation for the same reasons that the regime of Kim Jong Un tells North Koreans to fear South Korea.

curious2 says

Deflation does not generally cause unemployment, except in the FIRE sector

Of course it does. It has nothing to do with the FIRE sector, it's just Econ 101. Unless you are experiencing very high productivity gains throughout the entire economy(and it's highly competitive), deflation results from lack of demand. The same lack of demand that causes deflation also causes unemployment. And it's a positive feedback--deflation leads to unemployment, leads to more deflation, leads to more unemployment, etc.

Everyone likes to bring up a small subset of the tech sector and point to it as if the same thing could happen to the entire economy. Unless you can generate the same productivity gains elsewhere, it cannot happen.

tatupu70 says

deflation results from lack of demand. The same lack of demand that causes deflation also causes unemployment.

Congratulations, you've just refuted your own argument. Deflation and unemployment may be two children of the same parents, but the existence of the children did not cause the existence of the parents.

tatupu70 says

it's just Econ 101... it's a positive feedback....

No, it is neither of those things. You might believe those false assertions, having been unduly influenced by propaganda emanating from the FIRE sector, but they remain false. It's funny you mention Econ 101 though, it brings back fond memories for me, because I loved that class and got an A in it.

curious2 says

Congratulations, you've just refuted your own argument. Deflation and unemployment may be two children of the same parents, but the existence of the children did not cause the existence of the parents.

I refuted the argument I made about 50 posts ago? Really? I'm well aware that lack of demand is the root cause....

curious2 says

No, it is neither of those things. You might believe those false assertions, having been unduly influenced by propaganda emanating from the FIRE sector, but they remain false. It's funny you mention Econ 101 though, it brings back fond memories for me, because I loved that class and got an A in it.

OK--care to actually refute it? How would lack of demand not cause unemployment?

It is not lack of demand it is a lack of production. Keynesian myth # 2842

Think of it like this: When Robinson Crusoe wanted to trade with Friday he first had to produce something to trade or even to consume what he had produced, right?

Somehow yous think that this does not apply to a modern economy, but it do.

indigenous says

It is not lack of demand it is a lack of production. Keynesian myth # 2842

Meeting end-demand is the goal of all production.

More like an obvious fact.

Otherwise we would pay people to dig holes with a spoon and other people to fill them with a fork.

Heraclitusstudent says

More like an obvious fact.

You would think so...

Heraclitusstudent says

Otherwise we would pay people to dig holes with a spoon and other people to fill them with a fork.

Currently, we pay agribusiness to fatten people with corn syrup, then pay the medical industrial complex to manage the resulting diabetes. It "creates jobs," or so we are told, as people get fatter and sicker. (Conversely, actually curing or preventing diseases would eliminate jobs, so instead we convert diseases into chronic revenue models.) While productivity gains in other sectors (e.g. tech) cause prices to fall, we can count on the medical insurance sector to produce inflation every year, as legislation written to maximize revenues puts new technology to work for that purpose.

curious2 says

Currently, we pay agribusiness to fatten people with corn syrup, then pay the medical industrial complex to treat the resulting diabetes. It "creates jobs," or so we are told, as people get fatter and sicker.

Yes they also lend to people without checking their ids, and then sell you "identity theft protection". They create problems and charge you for the solution.

That's an interesting point but I'm not sure it addresses what was discussed:
- If demand slows, production slows, employment is down.
- If employment is down, demand slows.

Heraclitusstudent says

That's an interesting point but I'm not sure it addresses what was discussed

You're right, it was just a thought after your spoons and fork. I already addressed the OP topic, and a spurious claim about employment. Tying the two together, I would point out that GDP and other macroeconomic measures (including CPI) were developed for the purpose of generating objective data that could inform policy choices. Alas, these indicators have become fetishized at the behest of certain industries. As your spoon & fork metaphor showed, increasing "employment" does not necessarily result in value (or greater overall utility), and the medical sector amplifies that point by producing many examples of people who are objectively worse off because they produce more demand and employment. The FIRE sector mouthpieces want inflation, so they love perennial inflation in the medical insurance sector and hate deflation driven by productivity gains in other sectors.

I still think the goal of economic activity is to fill the needs.
It so happens that industries that are not exposed to international competition have been disproportionately inflated compared to those that are. Sometime with the complicity of authorities. Still we are not down to my spoon and forks example.

The fault of keynesians is to assume you can compensate a persistent problem caused by globalization: low wages, with a solution which was always meant to be temporary by nature: debt. End demand may indeed be the problem in the US, but in the long term it can only come from wages.

Plus anyway if you really want international trade, you have to deal with nations saving half of what they take in (China). If this wasn't the case, the issue wouldn't be so bad.

Heraclitusstudent says

The fault of keynesians is to assume you can compensate a persistent problem caused by globalization: low wages, with a solution which was always meant to be temporary by nature: debt. End demand may indeed be the problem in the US, but in the long term it can only come from wages.

Is that what Keynesians believe? I think that's what our politicians have foisted upon us because they AREN'T actually Keynesians at all.

tatupu70 says

Is that what Keynesians believe? I think that's what our politicians have foisted upon us because they AREN'T actually Keynesians at all.

Definitions.
What matters is how Keynes ideas are translated in the real world.

Heraclitusstudent says

What matters is how Keynes ideas are translated in the real world.

I understand what you're saying, but it seems wrong to call it Keynesian as it's not at all what Keynes advocated.