Posted on 05/16/2011 10:23:53 AM PDT by Graneros
The reason we have indexes are because they aggregate or attempt to aggregate millions of individual inflation rates.
Personally my cost of living dropped drastically when I no longer had tuitions to pay. My food bill is next to nothing and I don’t use the car more than about 6,000 miles a year which is about 250 gallons or less than a thousand bucks for the last year.
And I almost always buy sales. I consider being called niggardly a compliment.
As an indication of just how much the real estate market has collapsed my taxes on my Chicago home dropped about a grand last year. And these bills are a year late.
“Definitions of ‘inflation’ can vary in depth and complexity but what cannot be gotten around is that the MEASURE of ‘inflation’ is % increase in prices.”
Ever wonder why such a measure is so popular? It gives us solid ground for argument, yes. Just like the commonly used and totally fictitious unemployment figures, for that matter. Mostly, it’s because such numbers are convenient to politicians and the economists who enable them. If we never talk about the unseen, we never have to measure the numbers against them.
That way, we can inflate so long as prices go down, even though we’re setting prices higher than they otherwise would be. Likewise, so long as the rate of growth in unemployment goes grows slower, we can do whatever we want to raise employment, even though we have no idea where unemployment would optimally be in a relatively free market. “Price inflation” and “the rate of unemployment” are figures politicians hide behind like, say Phil Jackson might hide behind his career winning percentage. Let’s say he doesn’t retire and the Lakers go on a historic skid. You’d have him say, “Look, I’m still head and shoulders above the average coach in NBA history.” Would that in any way excuse the Lakers’ losing streak? No.
I guess what I’m saying is that inflation is inflation, and unemployment is unemployment. We can call whatever we want, and whatever’s convenient for us, “inflation” or “unemployment.” But everybody knows, on some level, that our numbers are BS.
“The drop in the value of the dollar has much to do with the over speculation in the commodities market”
Oh, okay, Mr. Hoover. Let’s stop “speculation.”
Oops, we’re all dead.
Keynes opinions at the Peace Conference had little or no impact on the Peace Treaty it created. What “public opinion” did it warp? It certainly did not warp the conference away from a treaty containing the seeds of future conflict.
Germany tried to handle the debts throughout the twenties and inflating its way out of them ruined its currency and caused enormous hardships. This problem was repeatedly address through international conferences and American loan programs.
Keynes was 100% correct in declaring these debts were impossible for Germany to pay. But they provided the extremists a convenient target for the cause of Germany misery. And they precluded your solution of growing the economy to handle reasonable debt. It would have been similar to the the Soviets looting the East Germans preventing the economy there from growing much.
Peace came before a complete collapse so the situation was on the surface not the same as 1945 when the country was reduced to heaps of ruins occupied by conquering armies. Now it appears to me that a collapse would have occurred within a matter of weeks but it was not apparent from the military standpoint. The “Stab in the Back” was a plausible reason to the soldiers in the trenches many of whom later made up the followers of Hitler.
“drop in the dollar is a direct consequence of the U.S. federal deficit through excessive spending”
Yes, absolutely. Ever wonder why we have a national currency, aside from Too Big To Fail? Precisely so you have no choice but to accept the money the government counterfeits for itself.
“There is little that can be said about inflation/deflation without speaking of prices.”
There’s actually a lot you can say, see everything ever written on monetary policy.
“The reason we have indexes are because they aggregate or attempt to aggregate millions of individual inflation rates.”
And so people like Keynes can pretend there is such a thing as “macroecomics.” and that all their blah, blah, blahing is not just fairy dust in our faces. Funny enough, then, they always use these indexes to justify Big Government, including the Chicago school, at least in the realm of monetary policy. Huh, go figure.
Prices provide information to the economic system and about it. Economists have long tried to come up with a means of aggregating them into indexes. Politicians have nothing to do with this barely understanding what they are and being utterly ignorant of how they are created.
Their accuracy and comprehensiveness has been disputed for decades but I think it is hard to argument that they don’t at least measure direction of change. We can argue that the 9% unemployment rate should be 15.6% but we cannot argue that having it go from 9 to 10% is not good. Or that the 3% rate of inflation should be 10% but again it going from 3 to 5% is not good.
No one cares if the money supply increases from 10 trillion to 100 trillion but everyone cares if prices increase from 3% to 10%. This is why price increases are inflation and money supply increases are only money supply increases. You cannot “inflate as prices go down” you only increase the money supply.
Friedman frequently discussed the concept of a “Natural Rate of Unemployment” and “natural rate of interest” so it has been a subject of some interest in the field of economics.
Economics is primary a study of what is or has been rather than what Could be or could have been although there maybe some who have looked into the issue of the measuring of potential or the unseen to which you reference. “Shadow” prices maybe one of those subjects and have received some attention. I am not up on this branch of economic literature.
I don’t think Keynes can be saddled with the division of economics into macroeconomics and microeconomics. Those are just convenient groupings of things to study.
Macro considered aggregates such as National Income, interest rates, unemployment rates, profits, investment, consumption. I don’t quite see how concern with such things either should not be studied or are part of some sort of rope trick to ensnare the gullible.
Chicago School does not favor Big Government. Its belief from what I know is close to having the Fed set a monetary growth rate and leaving it alone. No one has criticized the Fed actions as stringently as Milton Friedman whom many consider the best representative of the Chicago School. He has also examined other governmental economic and financial misadventures. I doubt think anyone could make a case that Milton Friedman was a fan of Big Government.
“Keynes NEVER advocated continual deficits run by governments”
He did advocate them to counteract recession, yes? Funny thing happens, then, when your policies result in continual recessions. The deficits become continual all on their own.
“Keynes attempted to explain why the traditional methods of the Neo-Classical school of Economics (Marshall for example) did not seem to be working to revive the Western democracies’ economies from the Great Depression.”
In doing so he rejected not just noeclassicism but also the classical classicism of Say, Smith, and Ricardo, bringing us all the way back to the good old days of mercantilism.
The principle point of monetary policy is on prices. Prices are the carrots which keep the economic horse moving forward. They inform all actors in the economy and allow choices to be made among the things available to buy.
It all boils down to prices. They clear the markets and the belief is that there is a Price which will produce the maximum benefits. Early in the game Catholic theologians called this a Just Price. Now it might be called the Natural Price.
One of the constitutional requirements was to create a national money. It is hard to argue that the situation in 1787 where there was no national money was preferable to that Hamilton and Washington put in place after ratification.
Yes, he proposed that the government could balance off recessions with spending but periods of expansion that was to be reduced and surpluses run. Most of our governmental debt came from the costs of War though the War on Poverty added another component and Urkel has increased that massively. Keynes was certainly naive to expect politicians would be responsible.
I don’t think it is fair to claim he rejected traditional economics (any more than each generation of economists reject its progenitors) rather he added some tools to the toolbox with which to examine economic affairs. His success is measured by the continued discussion of his ideas and the search for explanations of why he was wrong or right.
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