INFLATION GOOD, STAGNATION BAD

INFLATION FEEDS SELF EXAMINATION, EMPLOYMENT, FUTURISM.

Moderate Inflation Optimizes Consumption, Self Examination, A Questioning Attitude, Full Employment, New Economy, Technology & Science, Enough Money For What’s Needed.

Why?

1) Inflation advantages the implementation of more advanced technology, because inflation forces people to a continual reevaluation of their old habits.

2) Inflation stirs the economic soup and advantages workers relatively to rentiers. (A rentier, by definition works from a rent; rentiers’ existence is less active than that of workers, they have to do less. Advantaging them is advantaging laziness. Activity ought to be more encouraged by a better income than the one received by doing nothing; it’s harder to negotiate the augmentation of a rent than that of a salary.)

3) Inflation insures that those who want to work, in particular with the future, have enough money to do so.

Inflation creates, de facto, negative interest rates. With inflation turned on, the very rich and corporations could not sit on the money, or lend it to each other through “dark pools“. The money would have to be invested profitably in the real economy.

Putting inflation back in gear is ONLY PART of the return to the winning recipe of the 1950s. But a master piece. It fights economic stagnation.

Conventional economic theory has it that people look for the cheapest products, or for better products, or a mix of these characteristics. Right. That fantasy is called the “market”. As in a real market, people are supposed to go down the alleys, and pick up what they deem to be the best.

In the imagination of vulgar economists, the “market” is supposed to solve everything (including health care in Obama’s Financial Times addicted mind). Let’s leave aside for now the problem that what they call a market is rather a jungle.

Before comparing products, people have to want to bother to look at them. Comparing is tiring, risky, and involves training (be it of a slightly new taste). Be it to buy sushi, a car, a new TV, or a vacation. In a steady state economy, with always the same prices, why would people want to look?

And what about, not just comparing old products, but looking at completely new products? Say you always bought apples and never looked at oranges? Why would people want to look at those? Curiosity? What about adding necessity to curiosity? Inflation insures the latter, because inflation introduces an element of discomfort with one’s old world. 

Inflation forces people to look and make comparisons, not just between the products that are offered, but between the habits they themselves hold (and that, left unchanged, would lead them to yesterday’s products). Continually rising sticker shocks spur a more demanding demand that questions one’s old demands.

Socrates said that the unexamined life was not worth living. Inflation says that one cannot afford the unexamined life.

Verily, conventional economic theory had forgotten that detail: if consumers don’t need to bother, they will not bother. MENTAL INERTIA RULES, and turns into generalized economic inertia. Inflation is a spur that forces economic participants to reconsider their relationship with the economy, and all values, and makes actually the entire public into savvy , even philosophical, economic participants, lest they drown in rising prices, and an unaffordable past.

Having more demanding consumers (that nominal price inflation creates), in turn incites would be suppliers to offer new products, as they know consumers are continually examining not just the products offered, but examining if the habits they have make life as worthy as possible.

Indeed, old habits depend upon old values, and old consumption patterns. When inflation permeates the economy, all prices rise, and force a dynamic ecology, by changing continually the environment, forcing speciation of new technology, that serve new habits.

It is similar to what happens when speciation in biology is forced by environmental changes.

Increasing prices force people to continually look afresh at whether their old habits are WORTH IT. People see the costs and prices of what they used to like, go up, and they ask themselves: why not to try something better?

Inflation continually swirls the economy, for higher performance. It creates an ever changing world, never boring, always valuing work

It’s no coincidence that the period of the 30 years of gloriously expanding economy after World War Two was characterized with significant inflation. Nor is it a coincidence that a depression is characterized by years of deflation.

As one can see today, or one has seen in Japan, deflation is hard to fight. Work programs in infrastructure financed by the government in Japan, over two decades, resulted with a government debt to GDP basically the highest in the world (more than 200%). And still Japan is stuck. Maybe what’s lacking in Japan, are animal spirits.

How is inflation controlled? By not expanding the money supply too much. What does that mean? Those who have the money keep it, others can wait for the grave. In other words no inflation profits first the established order.

Some will say: oh no, you don’t understand, with 4% inflation, the rich will get richer. Question: how come did the rich not become richer during the post war forceful expansion? High margin tax rates (93% under that well known Marxist, President Eisenhower). Just reinstitute those and redistribute to the indigent (including victims of inflation).

The “market” has been the paradigm of economics, and it’s made possible by the fractional reserve private-public money creating banking system. The latter has been ignored by most thinkers (except for president FDR and his men, who regulated it cleanly… and which the Clinton and his weasels destroyed). 

Of course the FDR reforms ought to be reestablished (this is what the inchoating “Banking Union” is about in Europe, and the various fines given to EU & USA banks in recent weeks… although jail sentences would have been better).

But more generally, the very image of the free economy as a “free market” is meek.  And irrelevant.

There is no “free market”. Most of the impulsion for new technologies was given by governments (even cans and microwaves were initially military programs; actually the question ought to be inverted: which new technologies were started as non-governmental programs, or not governmentally supported? Good luck to find any!) 

Through the (mostly private) bankers, the (plutocracy captured) government regulates the money supply, and has opted to restrict the new flow to old money.

A better picture of reality than the “free market” is the jungle. The genus Homo evolved through war, in the jungle. It’s hypocrisy and obfuscation to pretend that it’s otherwise in today’s economy. Once one has admitted this, and only then, can one mitigate this efficiently. Let’s bring some light to that obscure and tragic reality.

And let’s bring fresh money, enough money to employ youth well and irrigate the future. That is, allow enough inflation to insure this.

Could that create problems? Sure. And it did, in the roaring post-WWII expansion. However, corrective mechanisms were then applied: help to first time home buyers, construction programs, free universal health care and education, anti-plutocratic taxation.

One ought to argue that inflation is progressive, as it forced the implementation of these progressive measures (otherwise society would have exploded in rage; whereas now its put to sleep in the torpor of stagnating plutocratization).

Last, but not least: in the unprecedented confrontation between human technology and the biosphere, stagnation is not an option. Missing out on inflation, and the reality of the jungle it makes obvious, and the progressive answers it requires, maybe missing out on the animal spirits we need to survive.

***

Patrice Ayme

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16 Responses to “INFLATION GOOD, STAGNATION BAD”

  1. Old Geezer Pilot Says:

    “Inflation stirs the economic soup and advantages workers relatively to rentiers. (A rentier, by definition works from a rent, and being is less active than a worker, has to do less.” – PA

    Or, howabout this?

    A rentier has to do NOTHING; he lives upon the backs of actual workers.

    So inflation is merely another way of restoring the capital which has gravitated to the top 1 % which it always does under laissez-faire, since we are incapable of resorting to progressive taxation like we did in the 50s.

    • Patrice Ayme Says:

      dear OGP: I am not sure I completely understood what you say. Let me make a few things more precise (I am still tinkering with the essay, which I want to become my reference essay in the need for 4% inflation; I have had several essays on the theme in the last 11 years… But i want this one to gather the shock themes handily).

      I knew a guy who owned an appartment building in the Bay Area. He actually had to do SOME work to keep the rents coming and the apartments in order. He whined a lot doing the little he did, though (and then got infuriated against me because as he put it the French cowards did not defeat Hitler in 1939, and I was denying the reality they did not go at it like real men…)

      Inflation would be part of a whole package of keeping money out of politics, and taxation supportive of democracy. In an inflation environment, salaried workers get automatic rises, leaving the parasites behind (they have nobody to negotiate the augmentation of their parasitism with!)

      Non progressive taxation IMPLIES PLUTOCRACY.
      PA

    • Old Geezer Pilot Says:

      Your friend deserved compensation for fixing things up. He was acting as a maintenance man. He IMPROVED the building, which benefited the tenants in particular and society in general by improving the housing stock.

      But the rest of the rent he got for doing NOTHING.

      Lemmeesee now; 4% inflation means a dollar is worth 50 cents in 24 years.

      Unfortunately, if he keeps his building, it will have “appreciated” by at least that amount.

      There is no solution to this problem.

      • Patrice Ayme Says:

        As i pointed out in a slight adjustment of the essay, inflation is equivalent to negative interest rates. Putting inflation back in gear is ONLY PART of the return to the winning recipe of the 1950s.

        But its a master piece.

        Indeed take the example above. Suppose … OK, let me open another comment about that a bit later…
        PA

      • Patrice Ayme Says:

        Dear OGP: To say he got it for nothing is not fair. He bought the building for several million dollars, then he had to invest significantly to make it rentable (codes keep on evolving, for example elevator codes, materials disintegrate, if nothing else).
        BTW he borroed some of the money from banks, which had to be paid back with interest, in turn.
        PA

    • Old Geezer Pilot Says:

      You are right, PA. Somebody actually built the building and probably would not have done so without there being an after market in which to sell it. And, the landlord is providing a service (shelter).

      But I cannot feel the same about banksters – money lenders who did NOT build that money. They acquired it, likely the old-fashioned way – INHERITANCE.

      One aspect of the Islamic Tradition which resonates with me is the prohibition of interest. It forces all “lenders” to be equity partners in a venture. If we all did this, we would make better investments (knowing there was no bailout) and would be fairer payees in the event of a bankruptcy as we would line up with all the other creditors as equals.

      Just my 2 cents.

      • Patrice Ayme Says:

        Thanks OGP. I actually thought about what you were saying, and wrote an instructive little fable, comparing 2 landlords, one lazy, the other not, in 2 different universes, one with inflation, the other without. The model is actually pretty elaborate, and I had no time to finish it to my satisfaction.

        Some people in fundamental physics started to take what I am saying there seriously, I had been waiting for this decades, and I am working on that a bit, afresh, writing some of my basic ideas down.

        The bankers’ problem is still something else. Bankers are, in truth, agents of the state. The whole problem with finance right now is that they are treated as if they were not.

        BTW significant inflation makes bankers less relevant, as the velocity, and profusion. of money augments.
        PA

    • Old Geezer Pilot Says:

      I am afraid that the states are the pawns of the banksters. I remember well Dick Durban;s comment back in 2009 –

      “And the banks — hard to believe in a time when we’re facing a banking crisis that many of the banks created — are still the most powerful lobby on Capitol Hill. And they frankly own the place,” he said on WJJG 1530 AM’s “Mornings with Ray Hanania.”

  2. Dominique Deux Says:

    “(even cans and microwaves were initially military programs; actually the question ought to be inverted: which new technologies were started as non-governmental programs, or not governmentally supported? Good luck to find any!)”

    In cans the actual invention was that of appertization, using glass containers; tin cans were only a later improvement.

    Nicolas Appert was not a Govt employee but a foodstuffs merchant. He was well aware of the military prospects of his invention and spent much effort peddling it to the French navy (Napoleon’s). The navy never sponsored or funded him but loved the stuff and he was given a choice between applying for a patent or freely disseminating the technology, receiving a cash prize as compensation – which he did, on account of its potential for improving the lot of all mankind.

    English businessmen instantly picked up the idea, improved it with canning, and their competition eventually drove him to destitution. Canned goods, especially vegetables, vastly helped the colonization of the Wild West, so the beneficial effects were not equally distributed… (I once found a manual printed for American settler convoys; it included tips for calculating the total number of mules to be used, taking into account their being put to the pot as their load was eaten away, and providing recipes for substituting gunpowder to salt on their meat… and it insisted on a substantial reserve of French canned vegetables).

    http://fr.wikipedia.org/wiki/Nicolas_Appert

    Back to topic: as much as I concur with your general opinion that State impetus is central to technological progress, private operators do play a large part as well. Fostering the right climate for them is also part of Govt responsibility.

    • Patrice Ayme Says:

      Thanks for the history I was unawares of, Dominique. All I knew is that the usage of appertization was advertized by its benefits in the French military.

      I make very clear always that the government set-up the playground called the free market. Now, of course, the government sets also playgrounds for full adults.

      An ongoing example of this Colbertism, besides all of China and much of India, is the enormous USA governmental efforts to make successors to NASA and ULA (United Launch Alliance, which uses Russian engine and just launched MAVEN to Mars). The USA government is heavily helping and financing SpaceX, Sierra Nevada, and now, through DARPA will finance a spaceplane… With the private sector as “collaborators”, grandly announced DARPA.

      Aerospace would not exist without government support.

      In related news, LLL achieved in October 2013 break-even thermonuclear fusion by inertial ignition. That, of course, is a NATIONAL lab.

      But regulation is crucial, especially of finance (which is another PARA-governmental system!). I’m going to add some comments that way…
      PA

    • Patrice Ayme Says:

      “Fostering the right climate for them is also part of Govt responsibility.” Indeed. Moderate, but significant CPI inflation would help foster a climate more conducive to progress, including economic progress.
      PA

  3. hazxan Says:

    Interesting viewpoint! Especially as a child of the 60’s, I heard continually about this awful inflation that was ruining us all. It’s a good point about in reality, western economies boomed with high inflation. And eventually, after a long low inflation spell, crashed completely.

    Actually, in the UK we had a situation of politicians and economist bragging that they’s “solved the inflation problem as it was so from the 1990’s to just after the 2008 crash. Yet the elephant in the room – even I didn’t notice it at the time – property prices rising at crazt rates, they must have been higher than 30% in some years! So the inflation *was* there all along, just being absorbed by one part of the market..or that one part was growing so rapidly, it absorbed the rest.

    I agree totally about the “rentiers” need to be rewarded less. I am increasingly believing that a land value tax would be a huge benefit to the economy as a whole. But oh, how those few who live off rent now would squeel!

    So now we know why *they* are so keen to keep inflation down at any cost, such as high unemployment.

    Oh, in “economists and utility” did you know there are several studies showing that economists do not think and behave like most people? That economists share the dry “utliitarian” value outlook with sociopaths and pretty much noone else. I heard it’s common that in surveys at colleges, the economists are often deliberately left out, as they are so out of synch with “regular” people.

    As a recent example, did you hear of Harvard economist Greg Mankiw, who just caused a stir by comparing having a child with buying a Porsche? To him, having a child is the same decision process as buying a car. Really, these people should be prevented from having power, as it is, they are the “soothsayers” of our day, whispering the omens and fates to the powerful, while building there own power.

    • Patrice Ayme Says:

      Yes Hazxan, the point is that by removing the global inflation they removed having enough money for the real economy. As you point out, that did not prevent inflation where it really hurts. Property taxes exist in the UK, but they are ridiculously low.
      I did not hear of Mankiw equating a gas engine and a human child, but i am not surprised: that’s what plutophilia means. I did not hear formal studies showed economists were psycho, but I am ready to bear witness…
      PA

  4. hazxan Says:

    Sorry for all the typos, Patrice, feel free to correct if you like!

  5. Patrice Ayme Says:

    Dear OGP: The Nazis used to own states, too. Actually they had been put in place by a process where JP Morgan contributed to, even before WWI. No less!
    PA

  6. Patrice Ayme Says:

    Economy is whatever the government wants it to be. I am not sure the value of the pound did not change for centuries. Closer by, the “30 glorious years” had persistent inflation. I have reasons to love inflation.
    In any case, there few weapons against deflation, short of a massive command economy.
    And I have a technico-ecoomical reason for inflation…

    https://patriceayme.wordpress.com/2013/12/05/inflation-good-stagnation-bad/
    https://patriceayme.wordpress.com/2012/04/06/inflation-now-in/

    4% inflation best:
    https://patriceayme.wordpress.com/2010/05/20/2416/

    https://patriceayme.wordpress.com/2014/01/05/inflation-from-deflation-rome-now/

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