Can We Please Stop Asserting The Monetarist Inflationary Doomsday Nonsense?

[Prof. Oblivion]

In the past on this board and elsewhere I have heard plenty of self-proclaimed leftists argue about the problems caused by the budget deficit and scaremongering about inflation/hyperinflation that "could" result.

In fact, a week or two ago somebody posted in the learning forum a link to a right-wing libertarian-type documentary about the economic crisis claiming that Greenspan and the government caused the crisis and that hyperinflation will be a problem and so on.

Can we all please stop arguing this nonsense? None of it is true. If anyone as any questions about this I'd be glad to answer them but I'm just annoyed with leftists going around and basically spouting Ron Paul, Friedmanesque arguments. It's very disconcerting.

[Lynx]

More myths (http://neweconomicperspectives.org/2012/12/deprogramming-progressives-indoctrinated-into-supporting-austerity.html).

[cynicles]

I think the last time I saw a post about that one these boards was several monthes ago in OI, so I have now idea what you're talking about.

[Vladimir Innit Lenin]

I'm not sure if anybody really does scaremonger about the deficit or inflation.

What I will say is that, whilst in terms of economic policy inflation is an 'false' concern, it does - if it is higher than the interest rate or rises in wages - impact severely on the living standards of the working class, and we should keep that in mind.

[hetz]

Inflation is a real thing though, a it's becoming a real worry for millions even in the West and periphery, as prices skyrocket and wages stagnate or go down.

[TheRedAnarchist23]

Didn't there occur a severe hyperinflation problem in Germany in the 1930s?

[Vladimir Innit Lenin]

Inflation is a real thing though, a it's becoming a real worry for millions even in the West and periphery, as prices skyrocket and wages stagnate or go down.

The problem is that anti-inflation policies tend not to work in reality, as the post-war Keynesianism has showed. Even the mainstream economists with all their maths and theory, they still don't have a very good theory of inflation.

Hate to say it but Friedman probably has it best, not in terms of his scare-mongering on inflation but his theory - that future inflation is predicated not just on output, but on output AND future expected inflation (from wage bargaining and so on). Though whether rthis has so much relevance these days with the loss of trade union membership and power i'm not sure.

[cyu]

From http://cjyu.wordpress.com/article/capital-flight-gcybcajus7dp-5/

When farmers produce a bushel of grain, let them issue a paper note representing that bushel of grain. Since that paper note can be redeemed for precisely that amount of grain, there is no inflation between the notes and the grain. These paper notes can be collected by larger farmer organizations that then reissue new notes based on a diversified index of what they produce. While the value of money issued in this way may fluctuate with respect to goods not on the index, it will not change with respect to the goods that back these paper notes. This is the first step to currency stability.

However, be warned that these notes are still only as good as the institutions that issue them. Either you trust that they can always be redeemed, or you redeem them as soon as it is convenient. This is especially true of money you receive from other nations that is supposedly backed in the same way. Distance makes people bolder and less hesitant to break promises. you should make sure there are alternatives should you decide to change your mind.

People can probably be trusted when times are easy and when prosperity reigns, but when times are tough, promises are much easier to break than the laws of survival. This is what makes self-reliance of an economy important. This is why local industry and agriculture should be protected. Productively ability is the real source of wealth of the nation.

However, natural disasters also occur. While the world as a whole may be fairly stable, the area around you is much more prone to random fluctuations of climate and geology. Thus self-reliance is not the entirety of a secure economy. The secondary source of security is prosperity in other geographical locations. The more prosperous others are, the more likely they will come to your aid in times of trouble. The more they have to thank you for their prosperity, the more likely they will come to your aid. Again, merely being creditors to their debt is not enough. Nations are sovereign, whether anarchist or authoritarian. They can break their promises – they can ignore any legalistic claims to debt. It is the general goodwill that can be fostered between two nations or people that will be your salvation in case your own self-reliance fails.

[thethinveil]

The problem is that anti-inflation policies tend not to work in reality, as the post-war Keynesianism has showed. Even the mainstream economists with all their maths and theory, they still don't have a very good theory of inflation.

I agree. Inflation is really only a problem for people who have wealth and lots of it in money markets. Or Hyper-inflation which can be crippling to an economy. But, in fact, during our best periods of expansion, inflation can go as high as 8-10% and still remain a healthy economy (source HaJoon Chang, a Cambridge globalization economist.) In fact this inflation rate leads to a lower unemployment rate.

As for today, inflation is not a problem. People around the world are buying our bonds right now and investing in america as a safe place when Europe has undergone Austerity. And yeah, sounds like Tea Party talking points, if they think inflation is at all a problem in a deflationary economy.

[Vladimir Innit Lenin]

Inflation only becomes a problem when it leads to the powers that be instituting deflationary policies which DO hurt ordinary people by leading to higher unemployment.

[cyu]

As Bill Gates says, “There is more money put into baldness drugs than into malaria. Now, baldness is a terrible thing and rich men are afflicted. That is why that priority has been set.”

Inflation is similar to the crisis of baldness in that people who are already wealthy care more about staying wealthy than they do about, say, malaria.

Inflation eats away at existing wealth. The last thing they want is to see their pile of money worth less and less. So they devote resources to avoiding inflation in the same way they may try to avoid baldness. Whether it's trying to impose their own fiscal and monetary policy, transferring their investments to "safe havens", or whatever other schemes they (or their paid "treasurers") can think of.

Of course, the capitalist conception of wealth is different from the non-capitalist conception of wealth. To those who work for a living, wealth is the goods and services they use and the means to produce them. As long as they continue to have the means to produce goods and services, working people remain "wealthy" - they can just produce some wealth for themselves at any time.

For the capitalist, this does not apply - it is not ideologically safe for them to admit that real wealth is in the ability of the working class to make stuff. So they have to devise various schemes to trick the working class into giving them goods and services in exchange for paper and shiny rocks.

[Luís Henrique]

Didn't there occur a severe hyperinflation problem in Germany in the 1930s?

There were several hyperinflations in history. Germany isn't but one example. Greece, Poland, Hungary, Brazil, Argentina, are other notorious cases. Wikipedia lists 40 cases of hyperinflation, and while I haven't checked each of them, and Wikipedia is, well, Wikipedia, it certainly isn't an outlandish phenomenon.

I have lived through Brazilian hyperinflations of 1989-90 and 1994 (or, in broader terms, during the whole hyperinflationary period of 1980-1994). At its worst point, prices were doubling like every five weeks. It was not an experience I would want to repeat. Or, in more direct words, it was kind of economic hell. And yes, it hits ordinary people - indeed more than wealthy people, who seem to always know how to protect their assets from inflation. You can imagine having your salary halved each month?

The US are printing dollars in a quite irresponsible way; they can do that because the dollar being the international currency, the inflation is immediately exported to other countries, and hits worse weaker economies (and yes, this is partly responsible for the dangerous situation in European periphery). This way the US expect to regain markets abroad (and are actually doing so), as well as deflate its international debts. But of course it is a limited and dangerous policy, as the weakening of other economies weakens the global system, and, ultima ratio, the US themselves; at some point the inflation has necessarily to hit the US back.

The fact that conservatives, libertarians, and assorted crackpots are saying things similar to those doesn't make them false.

Luís Henrique

[ckaihatsu]

But, in fact, during our best periods of expansion, inflation can go as high as 8-10% and still remain a healthy economy (source HaJoon Chang, a Cambridge globalization economist.) In fact this inflation rate leads to a lower unemployment rate.


This is the true 'A rising tide lifts all boats.'





[F]uture inflation is predicated not just on output, but on output AND future expected inflation (from wage bargaining and so on). Though whether rthis has so much relevance these days with the loss of trade union membership and power i'm not sure.


This is the kind of inflation that hits capitalists more than workers, since the cost of labor increases when the working class wins their labor struggles and lays claim to a larger overall proportion of the economy as a whole.

Therefore this is the kind of inflation that conservatives moan and whine about the most, as though everyone else would automatically sympathize with their hurdles of capital ownership.





Inflation only becomes a problem when it leads to the powers that be instituting deflationary policies which DO hurt ordinary people by leading to higher unemployment.


'Real economy inflation' is what regular people experience as diminished purchasing power resulting from rising prices for necessary goods and services.

We would be remiss if we didn't point out that many or most of these price increases in everyday necessities -- like food or gasoline, for example -- result from *speculative* value bubbles in the markets, especially over the raw-material 'commodities' markets, since those become the go-to baseline common-denominator for economic activity in lieu of healthy overall economic growth (GDP).

[Vladimir Innit Lenin]

This is the true 'A rising tide lifts all boats.'





This is the kind of inflation that hits capitalists more than workers, since the cost of labor increases when the working class wins their labor struggles and lays claim to a larger overall proportion of the economy as a whole.

Therefore this is the kind of inflation that conservatives moan and whine about the most, as though everyone else would automatically sympathize with their hurdles of capital ownership.





'Real economy inflation' is what regular people experience as diminished purchasing power resulting from rising prices for necessary goods and services.

We would be remiss if we didn't point out that many or most of these price increases in everyday necessities -- like food or gasoline, for example -- result from *speculative* value bubbles in the markets, especially over the raw-material 'commodities' markets, since those become the go-to baseline common-denominator for economic activity in lieu of healthy overall economic growth (GDP).

I'm not sure that it is the inflation that has a causative effect on working people losing out. I think you're confusing causation for correlation. The only way that working people lose out is if inflation outstrips wages. Logically, the only way that it can do that is if bargaining power is lower, the main way of this being if unemployment is higher.

If unemployment is low, then increases in basic necessities will just result in increases in the wage demanded by workers/bargaining on behalf of workers.

[Luís Henrique]

I'm not sure that it is the inflation that has a causative effect on working people losing out. I think you're confusing causation for correlation. The only way that working people lose out is if inflation outstrips wages. Logically, the only way that it can do that is if bargaining power is lower, the main way of this being if unemployment is higher.

With an inflation rate of 80% per month, your wages dwindle necessarily. Even if it is a reasonable wage when you are paid, a week later it is already deteriorated. Which make people try to expend it immediately, which causes, besides the queues and even violence between competing consumers, inflation to rise even more. And then any non-planned but urgent expense (a toothache, a pierced tyre, a lost coat) becomes a nightmare.

Hyperinflation is hell, and it does hit poor people much more violently than it hits the rich.


If unemployment is low, then increases in basic necessities will just result in increases in the wage demanded by workers/bargaining on behalf of workers.

At the cost of difficult and stressful strikes, yes - usually only partially. And even then the unemployment rate is uneven among the working class. The most vulnerable sectors of the class get more strongly hit.

Luís Henrique

[Vladimir Innit Lenin]

With an inflation rate of 80% per month, your wages dwindle necessarily. Even if it is a reasonable wage when you are paid, a week later it is already deteriorated. Which make people try to expend it immediately, which causes, besides the queues and even violence between competing consumers, inflation to rise even more. And then any non-planned but urgent expense (a toothache, a pierced tyre, a lost coat) becomes a nightmare.

Hyperinflation is hell, and it does hit poor people much more violently than it hits the rich.

Hyperinflation is qualitatively a different situation to 'normal' increases in inflation, as it of course is a signal of the economy in crisis, and thus leads to political intervention. Normal inflation can be explained within the confines of economic theory, though, which is more what I was talking about.

[ckaihatsu]

I'm not sure that it is the inflation that has a causative effect on working people losing out.




I think you're confusing causation for correlation.




The only way that working people lose out is if inflation outstrips wages.


You're first saying that you're not sure if inflation is the cause (of loss of purchasing power for workers), then you assert that it *is* the cause, but only when inflation outstrips wages.

Just clarifying.





The only way that working people lose out is if inflation outstrips wages.


True.





Logically, the only way that it can do that is if bargaining power is lower, the main way of this being if unemployment is higher.


Yes, and other factors are involved, such as overall class militancy.





If unemployment is low, then increases in basic necessities will just result in increases in the wage demanded by workers/bargaining on behalf of workers.


Yes.

[Vladimir Innit Lenin]

That is what i'm saying. Inflation isn't normally as harmful to ordinary workers as deflation is (because of real wage increases), or as inflation is to financial capital.

[cyu]

General discussions of inflation usually assume that the working class can only use the medium of exchange that is undergoing inflation.

Inflation is basically a transfer of economic power. At some point in the past, group A might have 80% of the money, while group B might have 20% of the money. At some point in the future, whether due to printing money, lots of loans going out, or whatever, group A might be left with only 70% of the money, while group B might have 30% (assuming it's group B printing money and not group A). Some transfer of power has occurred.

Hyperinflation may indeed hurt everyone - since it's basically just a nuisance to have everyone recalculate everything on an hourly basis. Still, depending on where the money goes, there may still be a transfer of power, even if it does create a nuisance for everyone (whether a small annoyance or a hair-pulling disaster).

For people who owe money, whether it's your mortgage, or even a "poor" capitalist who took out operating loans, inflation means it's now easier for them to pay back the loan, since the number value of the loan is now worth less in real goods than it used to.

In any case, in most cases, the working class does keep their "wealth" in the form of the existing medium of exchange, so any inflation would also cut into their savings - however little they may happen to have.

But what if the working class didn't keep their wealth in the existing medium of exchange? What if they were in the middle of a transition to their own medium of exchange, under the control of the working class themselves? In this case, the fall in value of the old medium of exchange is no longer a threat. In fact, it would be a boon, since it would diminish the buying power of the class that poses the greatest threat to them.