Economists suffer from Apoplithorismosphobia

[Jaimine]

check out my nickel a quarter thread. The whole thing can be adjusted with a gradual increase in the minimum wage. My idea is a $.05/hr raise every three months. We've already tried trickle down and zero interest rates. Corp is not going to invest in cap x and the government can't make them do so as long as there is no demand (check out Spain, they spent billions building new roads, airports and bridges. Now they have good infrastructure but no demand to use it.) For crying out loud, many corporations no longer pay tax, so there is not much of a tax credit carrot to dangle in front of their mouth to get them going.

No, as much as I hate the minimum wage and realize it is just taking money out of one pocket and putting it in another, it could be a useful tool to increase demand. If you are sitting on cash and you are not going to invest, then we the people are going to force you to pay the few remaining employees you still have more. We are at a stalemate and somebody needs to blink first, and a nickel an hour isn't going to kill you. As one astute poster pointed out, it is about what we have been doing anyway.

The problem is http://www.readoo.in/2015/04/how-interest-rates-rob-you-in-an-unseen-way/

 

[Jaimine]

yes, but just remember, it is happening at Walmart and McDonalds with no help or mandate or law or decree from the federal govenment. Kind of messes up Pelosi and the democrats who think all men (especially white men) are greedy and evil. So now all we are arguing about is speed. I doubt if the confederate slave states refuse to progressively raise their minimum wage like the progressive democrats in progressive cities like Seatle and progressive states like California it will have much progressive affect on our progressive GDP.

Amen to this http://www.readoo.in/2015/04/central-bankers-monstrous-policy-an-unseen-phenomenon/

 

[loyek590]

and if I am elected God, I will pass the nickel a quarter act and it will stay in place until you elect a congress that will repeal it.

But way before that happens, the democrats will complain, "A nickel a quarter is just not enough in these tough economic times when we are living paycheck to paycheck and have to choose between rent and food (even though they are obese and on foodstamps) we need more like a dime. And so it goes. If the Americ

When it comes to deflation, mainstream economics becomes not the science of common sense, but the science of nonsense. Most economists today are quick to say, “a little inflation is a good thing,” and they fear deflation. Of course, in their personal lives, these same economists hunt the newspapers for the latest sales.

The person who epitomizes this fear of deflation best is Janet, chairman of the Federal Reserve. Her interpretation of the Great Depression has greatly biased her view against deflation. It is true that the Great Depression and deflation went hand in hand in some countries; but, we must be careful to distinguish between association and causation, and to correctly assess the direction of causation.

A recent study by Atkeson and Kehoe spanning a period of 180 years for 17 countres found no relationship between deflation and depressions. The study actually found a greater number of episodes of depression with inflation than with deflation. Over this period, 65 out of 73 deflation episodes had no depression, and 21 out of 29 depressions had no deflation.

The main argument against deflation is that when prices are falling, consumers will postpone their purchases to take advantage of even lower prices in the future. Of course, this is supposed to reduce current demand, which will cause prices to fall even further, and so on, and so on, until we have a deflation-depression spiral of the economy. The direction of causation is clear: deflation causes depressions. You can find this argument in almost all introductory economics textbooks.

Deflating the deflation myth: https://mises.org/library/deflating-deflation-myth

The St. Louis Fed recently wrote:

“While the idea of lower prices may sound attractive, deflation is a real concern for several reasons. Deflation discourages spending and investment because consumers, expecting prices to fall further, delay purchases, preferring instead to save and wait for even lower prices. Decreased spending, in turn, lowers company sales and profits, which eventually increases unemployment.”

There are several problems with this argument. The first is that, regardless of how low prices of consumer goods are expected to fall, people will always consume some quantity in the present and in order to do so, they therefore need to spend in the present on investment to ensure the flow of consumer goods into the future. We can see that many high technology products have had brisk demand despite living in a deflationary environment. Apple has been able to sell its latest version of the iPhone, although most people expect the same phone to be much cheaper in six months.

The second mistake with this argument is that it assumes that we base our expectations only on the past. Falling prices makes us anticipate prices to continue to fall. Of course, our expectations are based on a multitude of factors, of which past prices is just one. I am sure that the economists at the Fed are surprised that we did not react to lower interest rates as we did after the dot com bubble of 2001. Human actions simply cannot be modeled as you would the reactions of lab rats in a biology experiment.

A third mistake is that if we are consuming less, we must be saving more. Investment must therefore be higher. Therefore increased saving that can lead to deflation does not reduce aggregate demand but simply alters the composition of demand. The demand for consumption goods will decline, to be replaced with demand for capital goods. If anything, this will lead to growth and more consumption goods in the future, since the economy has more capital to work with.

Inflation is much worse than deflation because it robs wage earners and the poor. Central banks are the primary cause of inflation and are the main reason for the growth of income inequalities, as the rich get richer and the middle class sinks toward poverty. This income trend has been self-evident and growing since the demise of the Bretton Woods system in 1971 and its replacement with fiat currencies. Central bank power depends on the ability to generate inflation.

This is why central banks have been so generous supporting economic research in so many academic institutions that serve to theoretically justify the central bank’s current inflationary policies. The common fallacy of “a little inflation being good” has been expounded by the media and economists for a reason. Inflation is theft as you sleep, since it robs the value of the dollars in your wallet. Two-percent inflation over 35 years reduces the value of money in your pocket by 50 percent. If anything, evil has a new face; it is called a central bank.

Read: Deflation, the biggest myth: https://mises.org/library/deflation-biggest-myths

Many times deflation follows a period of central bank inflation. Deflation is part of the deleveraging process that is necessary following such an excessive policy by the central bank. As Austrian economists have always said, “fear the boom, not the bust.” Delaying the deflation by extending the bubble or creating new bubbles by printing more money only delays the adjustment making it much more painful.

The real solution is to end fractional reserve banking and central banking. A world without fractional reserve banking and central banks would be a world of gentle deflation, which should be hailed as indicative of one of mankind’s greatest achievements: the raising of living standards for all.

some people bitch that energy and food are not considered in inflation stats

what about S&P share prices?

what about taxes?

what about gold?

 

[piezoe]

Jaimine, I'm afraid you've missed the major reason why significant deflation in a society with substantial public and private debt is to be avoided. Deflation raises the real interest rate on debt! (Real Interest rate= nominal interest rate - inflation rate, or alternatively Real Interest rate = nominal interest rate + deflation rate.) Assuming you have some personal debt, which should you prefer, inflation or deflation?

A mild amount of deflation as experienced alternately with mild inflation , was not particularly harmful in the U.S. during the 19th century when the country's currency had a relatively stable value and debt levels were lower. Today however even mild deflation is potentially dangerous as it increase the possibility of the country suffering both public and private, as Richard Koo puts it, "debt trauma!"

 

[loyek590]

Jaimine, I'm afraid you've missed the major reason why significant deflation in a society with substantial public and private debt is to be avoided. Deflation raises the real interest rate on debt! (Real Interest rate= nominal interest rate - inflation rate, or alternatively Real Interest rate = nominal interest rate + deflation rate.) Assuming you have some personal debt, which should you prefer, inflation or deflation?

A mild amount of deflation as experienced alternately with mild inflation , was not particularly harmful in the U.S. during the 19th century when the country's currency had a relatively stable value and debt levels were lower. Today however even mild deflation is potentially dangerous as it increase the possibility of the country suffering both public and private, as Richard Koo puts it, "debt trauma!"

no kidding, for us it is just a hobby to debate, but if you owe 18 trillion, a couple of basis points means a lot. And everybody knows there will be hell to pay if interest rates were ever to normalize before (or if) we start growing again.

 

[loyek590]

that's why I say the safest least disruptive way to introduce inflation is to start at the bottom with the min wage.

 

[loyek590]

Some would say lighting a fire under a mule is poor animal husbandry, but it can be an effective tool to combat stubborness.

 

[i960]

yes, but just remember, it is happening at Walmart and McDonalds with no help or mandate or law or decree from the federal govenment.

Yes because it looks good from a social aspect. Unfortunately if they're at the same time reducing jobs and hours then it's not costing them a damn thing (while of course continually costing the little guy).

 

[loyek590]

Yes because it looks good from a social aspect. Unfortunately if they're at the same time reducing jobs and hours then it's not costing them a damn thing (while of course continually costing the little guy).

gotcha! Totally agree. So the idea is to live your life in such a way that you never become a "little guy."

 

[i960]

gotcha! Totally agree. So the idea is to live your life in such a way that you never become a "little guy."

I think we need to improve the standard quality of life for the little guy or we forever descend into jungle mentality where those at the top have a ton and those at the bottom have extremely little. The way it's been going has definitely been heading toward the latter. Trickle down is idiotic - it does not work with inherently greedy structures in place. Trickle UP works a lot better - the only problem is the rich are just not as rich. As far as I'm concerned that's not a problem worth caring about. Increase the overall baseline and distribution of income to more people and we'll have more net happiness. On top of that people WILL actually spend money if they have more money. Having an economically enslaved middle class only helps the rich and the renters and as far as I can tell they're not exactly crying into their champagne glasses over the hardships of others.

The fed thinks they're doing trickle up via jacked down rates except they're not considering that lowered interest rates only go so far - particularly towards entire classes of people who arent even exposed to te benefit of these low rates. On top of that the exposure they do have via credit cards, etc. doesn't necessarily result in them even seeing these lower rates. People living paycheck to paycheck are not checking the latest mortgage rates not are they out shopping for new cars or student loans.

It's very simple: collectively spread more of the money around or you'll kill all the plants in the garden.