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- Xref: sparky sci.econ:9435 talk.politics.misc:64554 misc.misc:4077
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- Path: sparky!uunet!zaphod.mps.ohio-state.edu!usc!sdd.hp.com!apollo.hp.com!netnews
- From: nelson_p@apollo.hp.com (Peter Nelson)
- Subject: Re: Inflation (Was: Re: GM Plant Closures...)
- Sender: usenet@apollo.hp.com (Usenet News)
- Message-ID: <BzDKp1.8Fs@apollo.hp.com>
- Date: Wed, 16 Dec 1992 23:17:24 GMT
- References: <BzBpB7.6x7@usenet.ucs.indiana.edu> <BzCx38.pr@apollo.hp.com> <BzD7q5.HCy@usenet.ucs.indiana.edu>
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- In article <BzD7q5.HCy@usenet.ucs.indiana.edu> mkohlhaa@silver.ucs.indiana.edu (mike) writes:
-
- >> I don't know why it would lead to "run away" inflation.
- >> Inflation is an increase in the money supply above and beyond
- >> the increase in productivity, i.e., "too much money chasing
- >> after too few goods and services".
- >
- >"too much money chasing too few goods and services". Exactly my point. This
- >is what would be happening if, as you said in your original argument,
- >workers are always in high demand.
-
- Only if their productivity did not increase. In reality the
- productivity of US workers has increased very dramatically
- in the last few decades.
-
-
- >> The simple, empirical refutation to your argument is even
- >> easier: In the computer industry there hasn't been inflation,
- >> there's been DISinflation: the prices for computer products
- >> have been *plummetting* for decades!
- >
- >You talk about the tight link between *printing money* and inflation.
-
- I do? Where? You perhaps have me confused with another poster.
-
- It's true that in a simplistic, ivory-tower model "printing money"
- cause inflation, but in reality the *failure* to print money causes
- DISinflation if the output of goods and services continues to rise.
-
- The money supply has to keep pace with the rest of the economy or
- you end up with strangled capital markets, and ultimately a strangled
- economy. There is an optimum rate of growth (or contraction) of
- the money supply. (or maybe multiple optima depending on your goals).
-
-
- >You further state that if no more money were printed, there would be no more
- >inflation.
-
- This is trivially true only if output or supply of goods and services
- doesn't decline, but again *I* didn't make that claim.
-
-
- >Using this logic, how has there been DISinflation in the computer industry
- >without having a *shrinking* money supply?
-
- Simple: Vastly higher productivity! When you can take, say, a
- graphics subsystem that used to fit on 3 circuit boards a couple
- of decades ago, and put it on one board, and then on a smaller
- board, and then a daughter board, and then a chip -- you greatly
- reduce the labor, parts and materials, storage space, paperwork,
- energy, etc, etc, required to provide that. This allows you to
- sell the same functionality for a lot less.
-
-
- >to work (becuase they're 0% unemployment, remember). We would continue to
- >bid up wages until we reached an equilibrium, which could not likely occur
- >until unemploy existed.
-
- And that's exactly what would happen . . .
-
- >I would like to reiterate that inflation occured without any increase in the
- >supply of money.
-
- . . . your product becomes more expensive so you sell fewer of them
- and have to lay off people. Now you've got some workers making
- $6.00 an hour and some workers not making anything. So average
- wages haven't necessarily increased. Also demand is not inelastic --
- just because the boss has agreed to increase everyone's pay by $1
- an hour doesn't mean he can HONOR that agreement. The feistiest
- union in the world can't change the laws of arithmetic -- if there's
- only so much money in the economy they can't get more of it just by
- demanding it.
-
- I can give you an easier model to have inflation without a change
- in the money supply: Reduce output. Now you have the same amount
- of money chasing after fewer widgets. This will increase the price
- of the widgets. But just as in your example, it's not stable:
- some competitor will sell cheaper widgets.
-
- None of this is relevant to my original claim: happy, contented
- workers in high demand are not necessarily inflationary -- as long
- as their wages don't increase faster than their productivity.
-
-
- ---peter
-
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