Post by agito on Feb 21, 2010 0:42:51 GMT -6
I'm having a backwards economics day, one where I encounter some economic theories and reasoning that have turned my understanding of some basic economic assumptions on their side ( if not upside down, but I want to take some time before I decide if I want to swallow it)
first incident came by way of a dkos diary explaining (somewhat poorly) the difference between demand side and supply side economics. I know I don't need to preach to the choir here when I say that trickle down economics doesn't work.
The diarist made that point obviously, but what he said next floored me:
holy shit, if someone had told me "the economy is heating up, we need to cut taxes on the rich" - I would have shot them. Yet here is the logic and I have to admit, arguing with it would require a lack of integrity in my belief of keynesian theory.
.... However, I would like to point out that I've always believed there was a difference between the velocity of money and inflation. So I don't necessarily agree that a rapidly expanding economy leads to inflation, (especially if the expansion is coming as a result of breakthroughs of efficient use of materials. More on this in a minute).
well- enter my second enlightening of the day, a very good explanation of the events surrounding hyper-inflation in zimbabwe. The funny thing here is the author's attacks on those trying to use zimbabwe as an example for hyper-inflation here in the US is comfortable reading by my standards, I've always been shy of gold as an investment (maybe some of you have noticed).
But the kick in the head came in the comments:
Rowdy says:
Also, Eric Jansen of itulip.com believes that there will be high inflation in the US, not hyperinflation, for the one of reasons that you outlined above. The GFC has seen credit cut for many businesses, sending them out of business and thus removing productive capacity from the economy and thus seeing the US arriving at point C on your graph.
Holy fuckin double shit. Here I was thinking that the credit contraction was a monetary contraction, and the chief cause for deflation, but it's being pointed out that, indeed, that money was important and used for a reason, and if those uses dissappear. then sure enough we have inflation for the same reasons zimbabwe did (although nowhere near the magnitude).
Ironically, because of an article that I believed was going to trash gold as an investment (and somewhat does) has actually provided on path of understanding one way (not an overly compelling one) that gold may indeed win out over other investments.
oh yeah, and just to quickly return to my earlier comment: I don't necessarily agree that a rapidly expanding economy leads to inflation, especially if the expansion is coming as a result of breakthroughs of efficient use of materials.
No doubt, the biggest inflationary threat to america is not the monetary supply and abuse of the monetary system (when the banks hoard the cash, the monetary explanation of inflation goes out the window). The biggest threat of inflation is the supply shock of the lack of production in america. (recent uptick in imports before our economy actually gets off the ground should be ringing a few bells). Once the economy does get rolling though, the biggest issue will be competition for resources (with china especially) and in this context, all of our recycling and reuse programs are seen in a new light, as something that helps keep our inflation costs down.
Take oil for example. How much easier would it be for our economic system if you could take the oil, use the energy, and then put it back when you were finished using it?
I know, crazy idea isn't it.
first incident came by way of a dkos diary explaining (somewhat poorly) the difference between demand side and supply side economics. I know I don't need to preach to the choir here when I say that trickle down economics doesn't work.
The diarist made that point obviously, but what he said next floored me:
Named for long-ago FDR advisor John Maynard Keynes, this theory holds that economic activity is driven by demand for goods and services. Moreover, money in the hands of the middle and lower classes has greater inherent VELOCITY -- meaning that a given dollar will be spent and then re-spent more often, if the middle class is passing it around with sequential purchases, than if it is stockpiled in a rich person's portfolio.
(Mind you, by this theory, tax cuts for the rich might actually make sense when rapid inflation in an overheated economy calls for decreased monetary velocity! I never said that such cuts are NEVER called for. Indeed, JFK's tax cuts did achieve all of its intended goals.)
(Mind you, by this theory, tax cuts for the rich might actually make sense when rapid inflation in an overheated economy calls for decreased monetary velocity! I never said that such cuts are NEVER called for. Indeed, JFK's tax cuts did achieve all of its intended goals.)
holy shit, if someone had told me "the economy is heating up, we need to cut taxes on the rich" - I would have shot them. Yet here is the logic and I have to admit, arguing with it would require a lack of integrity in my belief of keynesian theory.
.... However, I would like to point out that I've always believed there was a difference between the velocity of money and inflation. So I don't necessarily agree that a rapidly expanding economy leads to inflation, (especially if the expansion is coming as a result of breakthroughs of efficient use of materials. More on this in a minute).
well- enter my second enlightening of the day, a very good explanation of the events surrounding hyper-inflation in zimbabwe. The funny thing here is the author's attacks on those trying to use zimbabwe as an example for hyper-inflation here in the US is comfortable reading by my standards, I've always been shy of gold as an investment (maybe some of you have noticed).
But the kick in the head came in the comments:
Rowdy says:
Also, Eric Jansen of itulip.com believes that there will be high inflation in the US, not hyperinflation, for the one of reasons that you outlined above. The GFC has seen credit cut for many businesses, sending them out of business and thus removing productive capacity from the economy and thus seeing the US arriving at point C on your graph.
Holy fuckin double shit. Here I was thinking that the credit contraction was a monetary contraction, and the chief cause for deflation, but it's being pointed out that, indeed, that money was important and used for a reason, and if those uses dissappear. then sure enough we have inflation for the same reasons zimbabwe did (although nowhere near the magnitude).
Ironically, because of an article that I believed was going to trash gold as an investment (and somewhat does) has actually provided on path of understanding one way (not an overly compelling one) that gold may indeed win out over other investments.
oh yeah, and just to quickly return to my earlier comment: I don't necessarily agree that a rapidly expanding economy leads to inflation, especially if the expansion is coming as a result of breakthroughs of efficient use of materials.
No doubt, the biggest inflationary threat to america is not the monetary supply and abuse of the monetary system (when the banks hoard the cash, the monetary explanation of inflation goes out the window). The biggest threat of inflation is the supply shock of the lack of production in america. (recent uptick in imports before our economy actually gets off the ground should be ringing a few bells). Once the economy does get rolling though, the biggest issue will be competition for resources (with china especially) and in this context, all of our recycling and reuse programs are seen in a new light, as something that helps keep our inflation costs down.
Take oil for example. How much easier would it be for our economic system if you could take the oil, use the energy, and then put it back when you were finished using it?
I know, crazy idea isn't it.