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Journal squiggleslash's Journal: Another thing on economics 8

I posted a long-ass comment about why the Fed uses "Core Inflation" rather than "Headline Inflation" in my live journal, before coming here and finding stuff that's even worse.

So, a comment, based upon reading a subthread by one of my "friends", and also comments that get posted to the same blogs I was complaining about in the above article:

You can't get out of a depression by having "deflation": you see, that's what a depression pretty much is.

This discussion was created by squiggleslash (241428) for no Foes, but now has been archived. No new comments can be posted.

Another thing on economics

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  • Not "playing with interest rates", not "market manipulation", not "trading bits of paper", but actual production of goods and services that people consume.

    Classically, the thinking was for the government to step in when production lagged, to spend money to "buy things" to prop up the economy - investments in roads and rail, flood control, etc. The idea was that these investments would not only stimulate the economy, but provide a sound infrastructure for it.

    Now? Instead of spending on infrastructure,

    • Since the demand for basics (food, etc) is inflexible, it increases in price while the non-essentials deflate, as people cut back. This is the real reason they don't want to include the essentials - it would show inflation at 10% per year, easily.

      I agreed with most of what you wrote but not the above. The demand for food and energy is, indeed, included in the published "headline" inflation figure. However, as I posted in the JE linked to above, the headline figure is useless in terms of the Fed making dec

      • Let's see.

        They say there is no core inflation. Energy and food are left out because of their volatility. So, putting a lot of money into the system (QE, QE2, etc), isn't going to be inflationary.

        However, since consumers don't get the money, they can't spend it and stimulate the economy. It becomes a "pushing on a string" exercise.

        The money instead goes into non-productive activity (such things as stock trades - trading an existing stock doesn't give the issuing company a single penny to invest in

        • However, since consumers don't get the money, they can't spend it and stimulate the economy. It becomes a "pushing on a string" exercise.

          Of course, and nobody denies that. In fact, the fact is that sustained high energy prices and high food prices make their way into the Core Inflation eventually, by affecting the prices of the commodities that go directly into the figure. This is a feature, not a bug. It means CI is a decent metric - if somehow high energy or food prices never affected CI, it wouldn't be

          • I'm reminded of a story I read set just after WW2. A family was arguing about the huge debt the government was going into, to get the economy rolling again, and how it would take a generation to pay it down. It only took 7 years to get from the war-time levels of 120% of GDP down to the pre-war level of 40%

            Debt, if spent on the right things can and will pull the economy along. Part of the problem is we have an inversion of costs. A few decades ago, basics were cheap, luxuries were expensive. 40 year

  • Inflation in a shitty economy is a different kind - stagflation. The basic cost of production is going up because of energy prices, as well as the burden of our fucked up medical care system.

    The solution is to create more money through deficit spending. We needn't worry about the other kind of inflation because of the slack capacity in the economy.

    • But... but... but the deficit is the most important thing in the world! The most important I tell you! It's far more important that we destroy our economy so that we can never pay it off, than to rebuild our economy so that it doesn't fucking matter that we have a deficit any more!

      We don't really have inflation right now (let alone stagflation) except in that food and energy is going up - for reasons entirely unrelated to the economy (namely bad weather and unrest in the middle east) - I know a lot of pe

      • deficit spending, QE, and lowering interest rates will not bring down the prices of either.

        I meant doing the opposite, duh, it's too early in the morning...

I use technology in order to hate it more properly. -- Nam June Paik