Why Most Voters Accept Inflation

For various reasons, if it weren't for inflation, our economy would tank.

So, whether you think the reasons are good or bad, without inflation, we would be in trouble.

 

Without the erosion of our wealth the economy would tank?

 

Pretty much.

It's an interesting situation. We can't go back without destroying our economy. If our economy is destroyed, we will go back. (And, returning to the gold standard is certainly no guarantee that we won't have recession or depression, as history has shown.)

Inflation is not erosion of our wealth necessarily. In fact, with no inflation, or even deflation, we have serious economic problems. And, for the record, living without personal debt is not a bad thing; in fact, it's a good thing. But, just as with the death penalty, individuals don't have the right of exacting it, but governments do.

You have to do something with your money for it to increase in value, just as in the parables that Jesus gives. If you simply save it, you have gained nothing, and in fact, you lose.

Here's a good article that talks about the federal defecit: From Investors Business Daily

 

Fiat currencies have a very bad habit of running their course and finally collapsing. The same thing may happen to these United States if we don't get our fiscal house in order before the baby boomers start retiring in large numbers and start drawing Social Security and using Medicare.

 

^Hogwash.

What the President and Congress need to do is make substantial cuts in federal spending.

That is the most important thing they can do to begin improving the health of our economy.

 

I don't think this is mutually exclusive from what Hope of Glory said, nor what Ken said, either.

The very first thing we need to do in this country is force our government to adopt the very accounting principles it holds private industry accountable for, yet refuses to do itself. For that reason, there is substantial disagreement as to the nature of our national debt. Heck, the government can't even decide if it uses the cash or accrual method. (Sorry, the link is outdated to the USA Today article that speaks of this).

 

The FIRST thing we need to do is force the President and Congress to make substantial cuts in federal spending. If a pressure cooker is about to blow, the only logical choice is to reduce the pressure.

In my previous post, I was clearly taking exception to the other poster's assertion that inflation is "good" and somehow "necessary".

Unchecked inflation leads to hyper-inflation, which causes the economy to blow up like a balloon. Ask the German's of the 1930's about the "goodness" and "necessity" of inflation, when their money became virtually worthless and an odd little man with a mustache stepped in to say that he would "save" them.

 

I agree with you 100%, but it has very little, if anything, to do with inflation, which is the discussion at hand.

One of many steps. They also need to cut taxes back to a legal level.

When they cut spending, they need to cut welfare, etc.

They need to limit themselves to legal spending, such as military, highways, etc.

Ironically, much pork spending technically has a legitimate outcome, although I doubt the legitimacy of the intent of much of it.

 

Here, you've done what many people do when arguing politics and the Bible, and used to non-synonymous words synonymously.

For some unexplained reason, you equate "inflation" with "hyper-inflation", which is fallacious to the utmost. Inflation is necessary for a healthy economy that uses paper money, while hyperinflation is always destructive.

Depending upon several factors, which don't need exploring at this juncture, a low annual inflation rate is zero inflation, economically. (As a rule of thumb, 3% is zero inflation economically. The factors don't need exploring because it was several weeks of economics classes that covered the entire thing, and I don't have time.) Hyperinflation is generally considered to be 20%-30% (or more) per month.

FWIW, the hyperinflation in Germany in WWI, which was at least seen as being caused by bankers and investors, was a leading factor in Germany's treatment of Jews, since a great many of thost bankers and investors were Jewish.

 

"I agree with you 100%, but it has very little, if anything, to do with inflation, which is the discussion at hand."

>>You're dead wrong. Inflation is the gradual reduction of the purchasing power of the dollar, related directly to increases in the money supply by the federal government. To cover their massive deficit spending, the fed prints billions of paper dollars to help pay its bills. This reduces the purchasing power of the dollar.

Inflation is NOT good, and hyper-inflation is merely an extremely high level of inflation. There is no substantive difference between the two, except in degree.

"One of many steps. They also need to cut taxes back to a legal level."

>>I clearly stated that reducing federal spending is the FIRST THING we need to do, not the ONLY thing.

"When they cut spending, they need to cut welfare, etc."

>>Gee, ya reckon!

"They need to limit themselves to legal spending, such as military, highways, etc."

>>You're preaching to the choir.

"Ironically, much pork spending technically has a legitimate outcome, although I doubt the legitimacy of the intent of much of it."

No, most pork spending is wasteful, that's precisely why it's referred to as pork.

 

Your first statement is incorrect, and is typical of those who haven't studied economic theory, but go on "feelings". Inflation is not the gradual reduction of purchasing power of the dollar, related directly to increases in money supply by the federal government.

Inflation is a rise in prices measured against a standard level of purchasing power.

The term used to refer to an expansionary monetary policy (monetary inflation, which you're talking about), which is an increase in the money supply. (This policy often leads to hyper-inflation, BTW.)

The way inflation is measured is by taking two sets of goods and comparing them at two points in time. You then compute the increase in cost (that is not reflected by an increase in quality).

There are many different measures of inflation depending on the circumstances. The CPI is the most well known. It measures consumer prices. The GDP deflator measures inflation in the goods produced.

But, inflation is caused by the interaction of the supply of money with output, and interest rates. (Also, higher taxes are damaging, as is evidenced by the great revenue increase with the latest tax rate reduction. People are more willing to invest in the economy when they are not punished for doing so, so revenue streams increase when the rates are cut. However, this is not popular with class warfare that is played by many politicians today. We need to "soak" the rich, then blame them when the ecnomy takes a downturn due to the increased taxes.)

Hyper-inflation, OTOH, is an out-of-control inflationary spiral.

A healthy economy generally has about a 3% annual inflation rate. (But, "healthy" can range upward to about 7% in certain circumstances.) Hyper-inflation generally has 20-30% per month. Major difference.

Now, if there is not economic growth to go along with inflation, there's the problem of stagflation. But, right now, our economic growth is outpacing inflation, although we narrowly avoided a recession in early 2001.

Moderate inflation is not only good, it is necessary to a healthy economy in which paper money is used.

And, to claim that there is no difference between 3% annual inflation that remains behind economic growth and hyper-inflation of 30% per month is absurd.

I can only partially agree with this statement. That is why it is called pork.

But, it's not always wasteful.

[An aside: This is almost enough to make me become a conspiracy theory nut. Most pork spending has a useful side effect, although that is never the reason for the spending. The reason is always to bring more money home to the district, no matter the reason. Makes me wonder just who is behind these wise decisions for wrong reasons. I'll list a couple of examples below.]

One example is paying farmers to not grow crops. Well, if those crops were grown, there would be a glut in a particular market, which would be economically damaging to varying degrees. However, we need the infrastructure in place to grow those crops, should the need (such as war or disaster in another area) arise. So, this farmer is prepared to grow corn, but is paid not to, so the economy is not damaged.

Another one (a bit more close to home for me) is the "bridge to nowhere" in Ketchikan. The reason that this hit me as being needed and not simply wasteful because that all our airports up here are built big enough to handle the biggest jetliners. Even many remote villages with 500 villagers. Why? Because the military needs the ability to stage and transport supplies. (Also, this is a common path for trans-Pacific flights, and we occasionally get major airlines that have to land there. Sometimes it takes them months to get a repair crew out there to fix the plane. One village used it as their theater for a while. Also, an unruly passenger was put off after an emergency landing way out in the middle of nowhere. I bet the FBI was happy to have to go pick up that guy!)

Well, down in Ketchikan, the airport is on an island, with the only connection to the mainland being a ferry. What would happen if the military needed to use it?
Now, I don't think for a minute that this military use was the reason for getting the project. I think the politician was simply buying votes. But, it is a valid expenditure.

 

Hope of Glory is the pot calling the kettle black! YOUR above statements are typical of those who haven't studied economic theory, and go on "feelings".

Your last sentence above is merely a SYMPTOM of the disease, rather than the CAUSE of the disease. Your statement is a common misconception put forth by people with no understanding of inflation.

"When we think of inflation - when we define inflation - we think of rising prices instead of the actual causes of inflation. This is reasonable, since the ultimate outcome of inflation is always a general and sustained increase in price levels. It is thus easy to define inflation in terms of its ultimate results - the price increases that it causes - and ignore the underlying causes of inflation - the underlying forces that caused those results.... Many people have vested interests in the simplistic and invalid concepts that define inflation in terms of the price increases that it causes. This fallacy is widely accepted without critical analysis."

http://www.futurecasts.com/Understanding Inflation.html

 

Somehow, I thought you would say something similar to what you've said here. I was waiting for it.

Better get your economics textbook back out and read it. I gave what is almost a verbatim textbook definition.

Not simply what I "feel".

Now, do you know why a small bit of inflation is good? Because it has a positive effect on the economy. Part of this reason is that it is almost impossible to renegotiate things such as wages any way but up. How often do businesses say, "You're going to have to take a pay cut"? (It does happen, but not often, and it's generally a problem, especially when it comes to firing a workforce and hiring a new one at a lower wage.)

So, it's easier for the economy to adjust to increasing prices, while it's difficult to adjust to decreasing prices. Some prices simply tend to creep upward, and efforts to achieve a true zero inflation rate (which is a constant price level completely, and not the moderate rate of inflation that is considered zero for economic purposes), punish other sectors with falling prices, plummeting profits, and increased unemployment.

Efforts to achieve a complete and total price stability also leads to deflation, which is disastrous because everything has to adjust downwards, including wages, and therefore productivity also decreases, which greatly damages the national economy. (Remember, deflation was the biggest problem with the economy in the 1930s.)

It's easy to see, when you look at the reality of the situation why a small amount of inflation is absolutely vital to the national economy.

I highly recommend that you break out your textbooks, and don't listen to the knee-jerk reactionary types who see rising prices, but fail to see rising wages.

Look at the CPI, COLIs, PPIs, WPIs, Commodity Price Indices, the DGP deflator, etc., and not simply at the rising prices. Look at it in terms of "real dollars". If your wages have doubled, and prices have doubled, you're not any worse off. But, the ecnomy is much healthier.

Why do you think our economy has been booming for most of the last 25 years or so? Especially here lately, in spite of the gloom-and-doomers. My retirement account has really exploded!

BTW, I'm waiting for you to suggest a return to the gold standard to fix all our problems. (If not that, I can't wait to see your suggestions for fixing a non-existent problem.)