Posts Tagged ‘NAIRU’

Inflation Now! (IN!)

April 6, 2012

All Too MILD INFLATION HELPS PLUTOCRACY & STAGNATION

Abstract: I have a question for the reality challenged economists who lead the West, in the ever deeper abyss of inequality:

What is best? 2% inflation and 10% unemployment (unemployment, or poor employment, not enough of a living wage)? Or would it be better to have 10% inflation and 2% unemployment?

The well paid dummies with “PhDs” have taken for granted that 10% (or actually 20% or more, see below) unemployment is better (not just in the USA, but also in Europe). Why? Presumably because they are philosophers! After all, PhD means “Philosophiae Doctor”, Doctor of Philosophy. What philosophy? Presumably, because they want to be loved and cuddled by the hyper rich. It’s a very cynical, morally corrupt career choice on their part.

The correct way to manage the economy is to start with the notion that everybody should be employed (decently; not like a slave!) Then a currency should be created. Then the rich. But contemporary economics is made the other way: first please the rich, then accommodate the rest (but without empowering it too much with crucial jobs).

Lack of inflation is deliberate, so is lack of (quality) employment. This is at the core of modern macroeconomics: the theory is actually called NAIRU. Let there be unemployment, so we can have serfs, say the rich, and then they eat caviar.

That mental corruption of macroeconomics had two main sources, one from mainstream American economists and the other in France. In the first case, plutocracy gave those fascist economists the sacred aura of “Nobel”, the inventor of dynamite, and of a famous prize. In the second case, in a phenomenon reminiscent of Obama, the French socialists were desperate to be esteemed by those with money. Both, in turn, contaminated the American and European central banks with an anti-inflation theory that advantaged the hyper rich.

I have dealt with that subject many times in the past, such as in “4% INFLATION BEST“. Adding dimensions to what Paul Krugman says, I sketch why inflation is good. One can summarize that the fight against inflation has been a fight for plutocracy and stagnation, in Europe, or the USA.

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Another good editorial of Paul Krugman on an interesting subject. Inflation. In “Not enough Inflation“. Krugman points out that, by law, the Central bank of the USA, the “Fed”, is supposed to worry as much about inflation as about unemployment.

“At this point, inflation is once again running a bit below the Fed’s self-declared target of 2 percent.

Now, the Fed has, by law, a dual mandate: It’s supposed to be concerned with full employment as well as price stability. And while we more or less have price stability by the Fed’s definition, we’re nowhere near full employment. So this says that the Fed is doing too little, not too much.”

It is actually the ECB, the European Central Bank, that fixed, long ago, the 2% target for inflation. To indicate how silly all these things are, when European wise men, many of them French socialists (caviar prone), set up the European monetary Union, they “forgot” that unemployment was an important notion. So the mandate of the ECB is only to contain inflation. No wonder unemployment is now approaching some astronomical levels in parts of Europe.

Let’s think about this a moment. One has to realize that what is meant by “unemployment” is people who are so actively looking for work, that they enter the government statistics. Those who have given up don’t count. So, for example in the USA, there are at least twice more of the latter than the former. So real unemployment is closer to 20%.

Unemployment rate U2 is a matter of propaganda, short term. The relevant notion is the employment participation rate exhibited here: not so good! Bad from too much austerity in money supply…

Of the working age population, be in the USA or in Europe, barely more than half work. Most famous economists, the Chicago Boys, the Austrian School, are involved in a theory that will someday be viewed as a fig leaf for plutocracy. It relates inflation and unemployment in a… virtuous relationship.

According to this view, promoted by the (fascist Pinochet loving and employed) gnome Nobel Friedman, full employment means the lowest level of unemployment that can be sustained given the structure of the economy. What plutocrats and their lovers mean by sustenance is: they eat caviar, and they send the police to keep you happy with your unemployment.

Using the terminology from Nobel James Tobin (following Nobel Franco Modigliani), full employment is achieved by implementing the Non-Accelerating Inflation Rate of Unemployment (NAIRU).

That’s when the real gross domestic product equals potential output. Supposedly. Whatever. Even Wikipedia adds tersely: “This concept is identical to the “natural” rate but reflects the fact that there is nothing “natural” about an economy.”

Indeed. What’s an ‘economy’? it’s a way to manage (“nomy”) a house (“eco”). I always say this, because that is of the essence. One make the house Pluto’s house, and then one gets a “plutonomy” (the term invented and used by the biggest banks to qualify their vision of the economy).

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INFLATION IS GOOD FOR THE DEMOCRATIC ECONOMY:

Here is Krugman again, rolling two good reasons for inflation: debt reduction and injecting cash, thus activity in the economy: would a rise in inflation to 3 percent or even 4 percent be a terrible thing? On the contrary, it would almost surely help the economy.

How so? For one thing, large parts of the private sector continue to be crippled by the overhang of debt accumulated during the bubble years; this debt burden is arguably the main thing holding private spending back and perpetuating the slump. Modest inflation would, however, reduce that overhang — by eroding the real value of that debt — and help promote the private-sector recovery we need. Meanwhile, other parts of the private sector (like much of corporate America) are sitting on large hoards of cash; the prospect of moderate inflation would make letting the cash just sit there less attractive, acting as a spur to investment — again, helping to promote overall recovery.

In short, far from fearing that more action against unemployment might lead to an uptick in inflation, the Fed should actually welcome that prospect.”

There are deeper reasons for wanting inflation, but those, contrarily to Krugman’s above, are not in economic textbooks. Actually I have not come across them anywhere, but on my sites. Those reasons involve deeper psychology.

The hyper rich, the plutocrats have, since time immemorial, lived of rents. (In the nineteenth century, hyper rich were called “rentiers”, that is, people who perceive rents. The archetype of rents is payments from government bonds. ever since there are government bonds and that goes back centuries (France, Britain, and, earlier, Italian Middle Age republics).

Why so? Because money is power. One of the reasons people want power is that they prefer to enjoy more and do less. A rent, government bond style, is perfect for that. It’s passive income, no risk (or as little risk as possible). Real, active investments in the economy are exhausting: one has to watch over them, manage them, think, work.

This is why the hyper rich have pushed governments, in Europe and the USA, to live off borrowing money from them ever more. The more governments borrow to the hyper rich, the richer, and the more lazy the hyper rich can get.

Another thing the rich detest is to see their capital evaporate. So they detest inflation.

So in 1973, the right-wing government in France passed a law allowing government to borrow from the hyper rich. Hence the obsession with inflation started in Europe. The hyper rich were able to persuade the French socialists that, to be mature, they had to be anti-inflation. (By the way, the fact that, to show that they are mature, left-wing people have to please wealth contaminated Obama, in a similar way: that is why Obama, just like the French socialists in the distant past, implemented mostly policies to please wealth. By opposition, to please dozens of millions of ex-soldiers after world War Two, even the right-wing governments in the USA and Europe conducted very left-wing policies: marginal tax rates under Eisenhower were higher than what the French socialists now propose).

To show the wealthy that they were good citizens, the French socialists  fabricated a monstrous machine, the European Monetary Union (EMU), where the states would be financed, not by themselves, by rising taxes, or by going to their central banks, but by going begging to the hyper rich private individuals and banks.

In other words, plutocracy had captured the minds of the socialists builders of Europe to a point not even seen in the USA. That way, far from being a union of welfare socialist states, the EU turned into a plutocrats’ paradise.

Work resist to inflation, because work is always needed, so work can always ask for enough money to live.

That, of course, before work got farmed out to China. And that gave one more good reason for plutocrats to farm out work to China: it would kill both work and inflation, two enemies with one stone.

New technology also loves inflation, because it forces people to re-examine their old habits, relative to the new temptations.

Why “4% Inflation Is Best” goes over all this in more details.

4% inflation is not really an over-statement, as 2% inflation is way too close to deflation. Some will say: oh, but real inflation is well above 4%. Well, this is a related can of worms. Governments have interest to underestimate inflation, so that they will diminish the payments they have to make to veterans, retirees, the down and outs, etc. So they have invented “hedonistic” adjustments to cheat on inflation where it hurts the most.

Where it hurts the most? Well where it hurts the People the most. If the plutocrats can inflate up their rents, they are all for it. That is why there is so much inflation in school costs, health costs and prison costs. In all cases, one notices the inflating payments go to plutocrats.

Progressives ought to want good inflation: by the People, for the People. They ought not to want hedonistic inflation, by the plutocrats, for the plutocrats.

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Patrice Ayme’