NetNews Usenet Archive 1993 #3/NN_1993_3.iso/spool/sci/econ/9850

Internet Message Format | 1993-01-25 | 2.8 KB

Path: sparky!uunet!gatech!uflorida!jfh
From: [e-mail] (James F. Hranicky)
Newsgroups: sci.econ
Subject: Re: Since no one is defending inflation, (was re: Inflation)
Message-ID: <[e-mail]>
Date: 26 Jan 93 01:27:33 GMT
References: <[e-mail]> <[e-mail]> <[e-mail]>
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Organization: Univ. of Florida CIS Dept.
Lines: 43
Nntp-Posting-Host: beach.cis.ufl.edu

In article <[e-mail]> [e-mail] (David Michael Wright) writes:
>
>In article <[e-mail]> [e-mail] (Charles M Kozierok) writes:
>
>|how is [inflation] good? it is rather simplistic to just look at the increasing
>|price of your house without also considering how the price of everything
>|else is also increasing, and the fact that the bottom tier of house
>|buyers is pushed out of the market.
>
>Unanticipated inflation is, in general, a good thing: if wages are
>sticky it gives you the opportunity to work if the real wage is
>reduced, it makes you economize on money balances so you invest more,
>it reduces debt and thereby makes it easier to invest, it gives a
>signal that the economy is improving (which it may be for the
>reasons above or not) and so boosts consumer confidence. Moderate inflation has
>nearly always been associated with rising output.

The problem with inflation is that is always a short-term boom, but
a long term swindle. The investment that inflation causes is no longer
in accordance with the time-preferences of the consumers, since the
time-preference has been distorted by the inflation itself. Therefore, when
the inflation is done, the mal-investments will tend to lose money,
go out of business, and signal the beginning of the recession which must
follow an increase in the supply of money. The dropping of sticky wages
affects *all* areas of the economy, not just those areas where wages
are too high. The best thing to do in this situation is to allow wages
to fluctuate naturally under a hard currency, affecting only those
industries where wages are too high.

It is important to remember that increasing the supply of money amounts
to nothing more than an attempt to get something for nothing. It
discourages saving, causes mal-investments, and must eventually result
in a recession or hyperinflation.

Inflation gives a signal that the economy is booming only because modern
day economists think that a rise in prices (increasing consumption faster
than production) is "good", and are basically still operating under
Keynesian economics. Production is the true source of wealth, and a gradual
fall in prices is what should be encouraged, as this means there is
more "stuff" than before, raising the standard of living for all.

Jim Hranicky ([e-mail])