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There Is No Tradeoff Between Inflation And Unemployment

Tyler Durden's picture




 

Submitted by Chris Casey of The Ludwig von Mises Institute,

Anyone reading the regular Federal Open Market Committee press releases can easily envision Chairman Yellen and the Federal Reserve team at the economic controls, carefully adjusting the economy’s price level and employment numbers. The dashboard of macroeconomic data is vigilantly monitored while the monetary switches, accelerators, and other devices are constantly tweaked, all in order to “foster maximum employment and price stability." The Federal Reserve believes increasing the money supply spurs economic growth, and that such growth, if too strong, will in turn cause price inflation. But if the monetary expansion slows, economic growth may stall and unemployment will rise. So the dilemma can only be solved with a constant iterative process: monetary growth is continuously adjusted until a delicate balance exists between price inflation and unemployment. This faulty reasoning finds its empirical justification in the Phillips curve. Like many Keynesian artifacts, its legacy governs policy long after it has been rendered defunct.

In 1958, New Zealand economist William Phillips wrote The Relation between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861-1957. The paper described an apparent inverse relationship between unemployment and increases in wage levels. The thesis was expanded in 1960 by Paul Samuelson in substituting wage levels with price levels. The level of price inflation and unemployment were thereafter linked as opposing forces: increasing one decreases the other, and vice versa. The US data from 1948 through 1960 comparing the year-over-year increases in the average price level with the average annual unemployment rate seemed irrefutable:

 

The first dent in the Phillips curve came from Chicago-School economist Milton Friedman (as well as, independently, Edmund Phelps) who suggested it was more temporary than timeless, more illusion than illustration. Friedman’s “fooling model” posited that price inflation fooled workers into accepting employment at “higher” wage rates despite lower real rates as measured after the impact of price inflation. Once they realized the difference between “real” and “nominal” wages (the fools!), they would demand higher nominal rates as compensation. As inflation rose, unemployment declined, but only temporarily until a new equilibrium was achieved. This simple insight created quite a stir and troubled noted econo-sadist Paul Krugman: “when I was in grad school, I remember lunchtime conversations that went something like this; ‘I just don’t buy the ... stuff — it’s not remotely realistic.’ ‘But these people have been right so far, how can you be sure they aren’t right now?’"

The Friedman criticism was somewhat clever, but unnecessary, minor, and misguided, for cold data was far more damaging than Chicago doctrine. The Phillips curve not only evaporated with the 1970s, but reversed to show a positive correlation between price inflation and unemployment:

In light of this, like many Keynesian concepts, the Phillips curve should have been forever abandoned when the 1970s proved high price inflation and unemployment rates can coexist. But now the Phillips curve is back from the dead. Krugman, writing in 2013, introduced new data demonstrating the Phillips curve’s “resurrection.” According to Krugman: How many economists realize that the data since around 1985 — that is, since the Reagan-Volcker disinflation — actually look a lot like an old-fashioned Phillips curve?

This Krugman comment is correct, US data from 1985 through 2013 again shows an inverse correlation between the year-over-year increases in the average price level with the average annual unemployment rate:

Has the Phillips curve, as Krugman suggests, regained its former acceptance? Since 1985, why has its inverse relationship between price inflation and unemployment reappeared? The question is irrelevant: the fact that it had previously disappeared forever strips the Phillips curve of legitimacy.

Any apparent correlation between two variables may be coincidental and unrelated, directly casual, or linked by a third variable or sets of variables. For price inflation and unemployment, the last explanation is the correct one. Price inflation and unemployment are not opposing forces, but in large part effects deriving from the same causation — the expansion of the money supply.

More money cheapens its value and the price of goods and services accordingly rise in terms of money — hence price inflation. More money lowers interest rates which induce malinvestments (including the hiring of workers) which (who) are eventually liquidated (terminated) in a recession — hence unemployment. While both phenomena largely share a common origin, the timing of their manifestations may be quite different and heavily dependent upon other variables, including fiscal policy.

The death of the Phillips curve will eventually be served not from Chicago School gimmicks, not from the experience of the 1970s, but from greater acceptance of the Austrian School’s explanations of price inflation and business cycles. Unfortunately, in the interim, the monetary policies promoted by the Phillips curve have moved from 1970s lunchtime academic discussion to official government policy. In the hands of the Federal Reserve, the Phillips curve becomes weaponized Keynesianism.

Due to its unjustified acceptance of the Phillips curve and its related misconceptions about price inflation and business cycles, the Federal Reserve will never be able to trade higher price inflation for lower unemployment. Nor can it sacrifice higher unemployment for lower price inflation. But it can, and likely will, generate high levels of both. If the Federal Reserve’s economic controls appear broken, it is because they never really worked in the first place.

 

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Sat, 06/07/2014 - 13:38 | 4832702 inky
inky's picture

Maybe its not always about trying to fix something thats broken.Maybe its about starting over and creating something better.

Sat, 06/07/2014 - 15:24 | 4832910 Boris Alatovkrap
Boris Alatovkrap's picture

Stupid, stupid, stupid Amerikan citizenry! Why are you to thinking Federal Reserve Cabal is even lift small pink finger for you bidding!? Let Boris enumerate truth of Central Bank system:

1. Federal Reserve is not own by government, is not even Federal Express.

2. Federal Reserve is shareholder corporate, Rothschild family is major shareholder.

3. Federal Reserve is hold nothing, not even paper, but is control everything (not just in USSA, but wherever petro dollar is sold).

4. Full employment mandate is ruse.

5. Inflation is not natural of business cycle, is not harm citizenry, but is by-product of wealth skimming system employ by Bankster (Boris is cannot remember ever to hear fellow citizen complain of pay lower price).

6. Federal Reserve is not answer to Congress or POSTUS or SCOTUS, is entity unto self and is use assassin to remove or control elected official.

7. Period of greatest prosperity in America is when there is no Central Banking power and money changer is force to compete with other item of REAL value, like gold and commodity.

Wake up and smell some coffee!

... but what is Boris know!?

Sat, 06/07/2014 - 16:16 | 4833007 TannyDanner
TannyDanner's picture

In US of soviet states of Americas, money spends you!

Sat, 06/07/2014 - 16:51 | 4833081 max2205
max2205's picture

The curve no matter which way it points is meaningless when the x and y axis are made up.

Sat, 06/07/2014 - 22:00 | 4833453 philipat
philipat's picture

1. Why no graph for all points from 1948-2013? Breaking the period up into convenient sub-sets is totally arbitrary?

2. Why not use more accurate data on both axes? Shadowstats data for inflation (Or even money supply or inflation adjusted to include food and energy) and either U6 or percentage not in the workforce for unemployment? In this way the data would be relevant and would be consistent across the whole period. We might then see what the Phillips curve really looks like. My guess is that, unfortunately, it would support the Keynsian view.

Sun, 06/08/2014 - 18:36 | 4835129 BigJim
BigJim's picture

 My guess is that, unfortunately, it would support the Keynsian view.

Shadowstats shows inflation running considerably higher; therefore the data supports Phillips' thesis even LESS.

Sat, 06/07/2014 - 13:43 | 4832717 Ol Man
Ol Man's picture

I was thinking more like the game master's control center in "The Hunger Games"...

... They only want your life...

Sat, 06/07/2014 - 15:22 | 4832916 Boris Alatovkrap
Boris Alatovkrap's picture

All wealth is create by human being. Without human interaction, wealth is just pile of crap sit on ground. To control wealth is to control human citizenry. This is aim of state, aim of corporation, aim of bankster class. Do not fool self that there is option of non-participation. They will hunt you down and retrieve you with manacles because your labor is convert to their wealth and control.

Sorry for messaging of depression statement, Boris is sad today.

Sat, 06/07/2014 - 16:21 | 4833016 Marco
Marco's picture

Labour? This isn't the middle ages after black death any more.

The elite truly only needs a small fraction of the current population to feed their consumption ... the rest of us are just stinking up their place.

Sat, 06/07/2014 - 22:21 | 4833577 dkny
dkny's picture

The notion of the state has taken a perverse meaning for some time now, and the folks at the Mises Institute are as guilty for perpetuating it.

Any one who has read Locke, Blackstone, et al, would know what the term state originally means. Allow me to quote Wilson, quoting Cicero: "Nothing, which is exhibited upon our globe is more acceptable to that divinity which governs the whole universe than those communities and assemblages of men which, lawfully associated, are denominated states." (from Chisholm v. Georgia)

As for corporations, there are nothing more than a fiction of law that enable the benefits of industry to be furthered, as one of the peculiar benefits of it is the perpetual succession, thus removing the complications/uncertainties involved in contracts with a counter-party that is subject to a biological death.

Finally, as the term citizen is nothing more than indication of memberiship in a state, so it is silly to say that the aim of the state is to control human citizenry. Alas, as we know, modern states with representative democracy, and thus the quality of the association is directly proportional to the quality of the people, thus, as James Iredell noted, if they are fools they will have foolish laws, if they are knaves they will have knavish laws.

So, though we speak of states and corporations, it is men who speak and act on their behalf, and if the people are too engrossed with their hashtags and tweets, one should not be surprised to find that certain individuals furthering their own personal well being.

Sat, 06/07/2014 - 13:42 | 4832718 moneybots
moneybots's picture

The problem isn't a lack of inflation, the problem is an extreme excess of debt.  The excess of debt has grown even more since the 2008 recession.  Globally, it has grown 30 trillion dollars, which is making the problem worse.  It is impossible to get out of a hole by digging it deeper.

Sat, 06/07/2014 - 15:27 | 4832929 Boris Alatovkrap
Boris Alatovkrap's picture

You are to use emotionally charge word "debt". What is debt? Real problem is dilution of wealth of citizenry through counterfeit of wealth and dilution. Debt is just method of Bankster class for manipulation of political class, to collude in raping of citizenry. Real problem is sleepy distraction perpetually uncurious population.

Sat, 06/07/2014 - 13:45 | 4832725 Walt D.
Walt D.'s picture

Note that the Phillips curve does not use the true definition of inflation (related to an increase in the money supply). It uses price inflation, which is a derivative effect. in essence, a decrease in unemployment, in an expanding economy that is producing more jobs, will create a shortage of available labor. Nothing more than increasing demand and decreasing supply producing a price increase. 

Sat, 06/07/2014 - 13:49 | 4832735 kchrisc
kchrisc's picture

"Trade-off"?!

Just another word for theft": Our policy is to steal so that the effects manifest themselves as unemployment or price-inflation depending on what we think the sheeple will tolerate this time around."

 

"I didn't steal your car, I freed up a space in your garage."

Sat, 06/07/2014 - 13:50 | 4832740 Chuck Knoblauch
Chuck Knoblauch's picture

There is no such thing as magic, only deception.

Sat, 06/07/2014 - 13:50 | 4832741 moneybots
moneybots's picture

"If the Federal Reserve’s economic controls appear broken, it is because they never really worked in the first place."

 

That would be correct.  A stopped clock appears to be correct, twice a day, yet it is not working in the first place.

The FED takes credit when things appear to work, but takes no blame when their policy inevitably fails.  Greenspan blamed the fall of the Berlin Wall and globalism for the housing bubble, yet he praised bankers for getting people into homes they otherwise could not afford, before the bubble burst.

Sat, 06/07/2014 - 13:51 | 4832743 Colonel Klink
Colonel Klink's picture

All I can envision if the Fed carefully adjusting their lies and deceit while robbing us blind and enriching their membership.

Sat, 06/07/2014 - 14:00 | 4832760 bugs_
bugs_'s picture

its great to be able to celebrate the death of the phillips curve (again)

Sat, 06/07/2014 - 14:06 | 4832770 bruinfan
bruinfan's picture

All the plots looks like random scatter plots.  How do you get a straight line with a big downward slope from that mess?

Sat, 06/07/2014 - 23:27 | 4833668 NickVegas
NickVegas's picture

Regression line, but yeah, you are right, it does look like a random scatter plot. I don't know if you are ready for higher education at this point, they would not like it if you call them on their bullshit.

 

Sat, 06/07/2014 - 14:06 | 4832771 BlissPoint
BlissPoint's picture

Why didn't the author show a plot from 1948 to 2013? Picking arbitrary time ranges - whose regression lines seem contradictory to each other - doesn't necessarily disprove the overall claim. On net, the argument could still hold true.

Sat, 06/07/2014 - 14:07 | 4832773 Colonel Walter ...
Sat, 06/07/2014 - 14:25 | 4832790 Marco
Marco's picture

The Fed prints so the US government can run it's deficit and the financials don't have their derivatives blow up.

Sat, 06/07/2014 - 14:34 | 4832814 I Write Code
I Write Code's picture

A marginal ten cents an hour is swamped by a trillion dollars in printing.

These scatter plots would embarrass a behavorial psychologist infamous for making hay from 0.3 correlation coefficients.

My sandwich and iced tea lunch plus tip is now $20 at any sitdown place in town, up at least 10% over the last two years.  Only a few places still rocking 2009 depression specials beat the average, and they're creeping up too.  Yet the job market is spiking upwards, right?  Gimme another $7 beer.

Sat, 06/07/2014 - 15:00 | 4832878 Atomizer
Atomizer's picture

Our Federal Reserve chrome dome will stomp out this problem.

/sarc

Sat, 06/07/2014 - 15:29 | 4832937 Sudden Debt
Sudden Debt's picture

Full employment creates inflation because of a shortage in the workforce and demand creates higher wages.

And unemployment creates deflation in the same way.

But now the FED is printing and does create inflation on basics as is normal but also the current unemployment rates create deflation is products and wages.
For now, those 2, inflation and inflation seem to work in pair and take care that inflation doesn't hyperinflate even if they print shitloads.

BUT!!!

The true horro of inflation would actually happen when unemployment would be fixed and the economy would recover. Than we'd have double or tripple the inflation rates we had in the good years which would destroy the economy yet again.
Inflation also works as a brake on the system making sure not everybody get's to rich, all chiefs and no indians so to say.
And to the contrary where everybody would love a system like that, it wouldn't work.

So the FED has a problem. And the problem is that it just can't allow unemployment to go down. It has to remain high.

And why do we do have inflation?
Simple, they want this to last for a decade or so like it's now to slowly solve a eventual hyperinflation chock.the boiling frog theory.

So in a way, the FED sure does know what it's doing and it's all part of the plan.
And there's NO sign they're losing grip or the plan is failing.

People just want to believe that the plan is to make everybody rich or that the plan is to help the people.
That's plain dumbass people who expect that.
The plan has only one rule: make sure the nation survives.
All the rest... sacrifices.

People can like it or not. But it's reality.

Sat, 06/07/2014 - 15:42 | 4832952 Spungo
Spungo's picture

"All the plots looks like random scatter plots.  How do you get a straight line with a big downward slope from that mess?"

Now you know why they didn't say what the R^2 was. 

Sat, 06/07/2014 - 16:06 | 4832993 MedicalQuack
MedicalQuack's picture

Here's another side, the United Healthcare Medicare Advantage Killer Algorithm attack on seniors continues...moving into two more states, MA and TN...we have too big to jail or fail, your choice insurance companies formig or already at that point. 

Do look at health insurers as a whole and not just the insurance side all the money manipulating and actions take place with subsidiaries...I keep telling people this as 1/3 of Untied revenue is not insurance related..comes from selling cheap Chinese hearing aids, running a hospice service for profit, low income housing investments, and they own a bank too, which most are not aware of...they sell medical records software, sell medical records analytics too from Mayo..etc.

http://ducknetweb.blogspot.com/2014/06/united-healthcare-round-two-with-...

Apple just came out with their HeatlhKit, so if you like privacy be aware of the Mayo app as they collect data, give it to Optum labs to analyze and charge companies like Boston Scientific who just joined to mine and find data relative to their medical devices as recorded in medical records.

http://ducknetweb.blogspot.com/2014/05/boston-scientific-joins-optum-uni...

Consumers were a little disappointed with Mayo Apple app as they can't get their data out to own but can view it and add information that goes to Mayo thus stuffing more information in their chart.  Mayo let's anyone use their app even if you are not a Mayo patient by the way.  Anyway with this one way patient adds information set up, it's like the old roach motel, where data checks in but it can't check out. 

Sat, 06/07/2014 - 17:04 | 4833108 TeethVillage88s
TeethVillage88s's picture

Start with Definitions:

The Fed, Treasury, TBTF control the discussion and use statistics that have already been "Fixed". It is BS to comment here in ZH without going back and establishing definitions to the terms we use. We are just Pawns otherwise.

1) Inflation officially is narrowed down to a basket of goods that some fictitious house hold buys. Households know eduction, drugs, healthcare, gasoline, beef, chicken, processed food has inflated. Businesses know that trucking and air shipping has inflated. We know federal government budgets push demand up for all kinds of services, creating new expensive executives compensation and bigger contracts.

2) Deflation is when you borders are open to millions of workers, and when you can off shore production, free trade, and when corporate tax revenue stays off shore (tax base deflation).

3) Free Trade can't be proven with audits of labor practices. We have labor rights and others don't. Consumers seem to enjoy lower cost products with some additional risks to health. Businesses no longer have to participate in employment of US Workers. This is more like creating huge borderless countries with no tariffs, no labor rules, no patriotism, no regulations, and shipping capital, technology, and access to US markets overseas. Capital controls is not a new idea it is just refused by neoliberal ideals.

4) What Economic School is our federal contractor the Federal Reserve following. If it is neoliberal anything goes including dirty wars, lies that get us into wars, lies that ignore where the money goes, what happens to capital, if good capital formation & expansion disappeared 17 years ago, if we have an economic free for all, if we can no longer see any economic fraud as a risk, if accounting rules no longer matter, if our free markets are fixed, and if anyone with wealth can change the tax laws so they don't have to pay taxes... well then neoliberal Fed is a "Ruthless SOB" that was created for a "Tyrant".

Hate to compare Dirty Wars in South America with US Dirty Wars in the Middle East, but the University of Chicago seems to be a Link even if Milton Friedman is turning over in his grave seeing what the Fed & Congress are doing.

Sat, 06/07/2014 - 18:43 | 4833249 BrosephStiglitz
BrosephStiglitz's picture

Got to say, I like Milton Friedman.  He is one of the few intelligent economists who could read between the lines and make a mind up for themselves.  Samuelson was also smart in his own way and was a workhorse, if a little misguided.  But Hayek is my favorite economist by far.  Unfortunately I am in a Keynesian school so.. Von Mises, Rothbard et al. have to wait until my make-believe studies are over.

I was running a Phillips Curve analysis for Canada this morning.  Reverse relationship present (shocker).  As Friedman said, any Phillips Curve relationship is likely to be transitory at best.  Krugman is a fucking idiot, or a con-artist.

Sat, 06/07/2014 - 19:30 | 4833322 TeethVillage88s
TeethVillage88s's picture

I'm holding out judgement on Friedman. I read some inflamatory stuff about the Ford Foundation's involvement with training Economists in South America through the University of Chicago. But then I read something about Milton Friedman had limits to liberalism. Ronald Reagan seems misunderstood and possibly used these days by neoliberals. Debt in the USA seems to have taken off in Reagan's Presidency. Reagan's famous deficit spending, and record-breaking budgets, seem to have prepared and tested new policies. But the 1970s was a mess. new things had to be tried in addressing inflation, jobs, gasoline prices, fiscal policy, and how to fund the DOD. Maybe the currency problems of the 1970s were over by the time Reagan came in (not sure).

Did we have the Petrol Dollar by 1980(just barley) and wonder if Friedman was a big part of that international effort. IMF, WB, WTO, BIS, back in the 1970s. I think it was Keynes that saved the BIS in 1944-45 when we wanted to stop the Nazi deals in Switzerland. What? modern Banking or European Peace couldn't live without BIS??

Sat, 06/07/2014 - 19:57 | 4833366 BrosephStiglitz
BrosephStiglitz's picture

Friedman was something of a realist.  He basically stated quite openly that governments can and will trash everything they lay their hands on.  Even if they believe they have learned lessons from their mistakes they will eventually cause new mistakes.  As such he was a huge proponent (at least publicly) for a free-market system.  Having said that he also appears to have believed that you have to work with what you have in the present day. 

So if his general public ideology was honest (a big assumption in the field of economics) a free-market system was preferable, but unrealistic given the governmental framework.  As such there were limits to his liberalism in the sense that he believed he had to operate within the socio-political framework of his day.  Given full autonomy over the economy and its political agents he would have shrunk government down a lot.

Friedman was certainly one of the most intelligent economists of the modern era.  He studied mathematics and economics in university.  A theme that seems to be present in most high-level (nobel prize winning) economists of that era.  Nowadays the nobel prize in Economics goes to whatever jackass is a good salesman for the political agenda of the day.

Sat, 06/07/2014 - 20:55 | 4833446 Frilton Miedman
Frilton Miedman's picture

 

 

Agree.

 

Friedman also believed in the role of Government in regulating a fair & free market. (not controlling, or spending, just mediating according to rule of law)

He also frowned on monopoly, private or government, I don't think he'd be too pleased with the new "money is free speech" effect on free markets right now.

little known - he supported a Negative Income Tax in place of government social programs to make spending more direct and efficient, where the money went straight to recipients instead of creating intermediary government jobs, but also to stabilize consumption with a guaranteed low end income.

By default he acknowldged the effects of disparity in a free market.

He prefered Fed policy over Keynesian spending, had some heated debates with Hayek on the Fed.

Friedman opposed a gold standard, after researching 100 years of economic data, he concluded monetary expansion would have averted most of the human suffering of those events. - Hayek obviously disagreed.

I get chills listening to Von Mises and other Classic Liberal sources (or Austrians) refer to Monetary policy as "Keynesian", these guys are supposed know the difference.

 

 

Sat, 06/07/2014 - 22:02 | 4833558 TeethVillage88s
TeethVillage88s's picture

Interesting string here.

I'm guessing that Friedman would say bull shit to ZIRP as it is all manipulation after say 12 months. In the thought of free markets... you can't manipulate LIBOR, Gold Futures, Silver Futures, ISBfix, or the US Stock Markets (Milton Friedman). I can't even quickly mention all the price fixing in the USA.

Milton as a Keynesian is very provocative. We would need a link on that one.

Mises claiming Monetary Policy is Keynesian sounds questionable. I believe they could say it, but must validate. But also, yes, how could monetary policy qualify as keynesian? I have to dig into to this. And it is an important point as Wealthy Fed "dudes" provide money to bank dealers and no one else. Fed seems to suck. But you hit on the very point we need to clarify here.

Anyone? Is fed pumping really keynesian??

Sat, 06/07/2014 - 23:31 | 4833640 Frilton Miedman
Frilton Miedman's picture

 

 

Actually, according to Friedman's suggested Nominal Income Target in place of U/E as a guide, we might not be tapering, believe it or not.

As per your request -

"Milton as a Keynesian is very provocative. We would need a link on that one."

In his own words.

https://www.youtube.com/watch?v=xtpgkX588nM

His N.I.T. proposal, although technically "Keynesian" would also indicate how absolutist-revisionary certain circles have become to paint their own version of history in recent years.

 

 

 

Sun, 06/08/2014 - 21:42 | 4835590 TeethVillage88s
TeethVillage88s's picture

Frilton; We do now have a Federal negative Income Tax for Individuals. It is starting to sound like corporations have gotten into the act about the same time though through Tax Credits. I have no idea if Tax Credits become yearly payouts in cash to corporations. We know some corporations don't owe any tax these days. And we know there were wealthy people all the way back to the 1960s who didn't owe or pay any tax.

I did remember that the University of Chicago started out as Keynesian and may still consider itself as Keynesian. It appears we have to carefully separate the Neocons & Neoliberals from the Chicago School of Economics.

I'm playing the video now, but here is the growth in negative income taxes to individuals as I see it:

IRS, Payment where earned income credit exceeds liability for tax Outlays
2013 = $57.5 Billion
2000 = $26 Billion
1998 = $23.2 Billion
--------------------------------------------------
IRS, Payment Where Child Tax Credit Exceeds Liability for Tax Outlays
2013 = $21.6 Billion
2000 = $806 Million (Million)
1998 = Zero

Finished the Video. Agree that government employees add waste to the process of helping poor people on welfare. Interesting point that welfare workers become policemen and spies in their profession and that is distasteful to the people that chose to work in welfare.

Clearly the Negative Income tax works out differently than SNAP, WIC, Child Tax Credit, and credit for head of household. Sounds like you have to work to get Negative Income Tax.

Sat, 06/07/2014 - 21:33 | 4833376 Frilton Miedman
Frilton Miedman's picture

 

 

 

For once, I'll agree with Von Mises, but not for their reasons.

The philips curve, as with economic theory in all three major economic schools, is far too crude, simplistic.

Inflation has two causes, tight supply, or strong demand.

If you fail to observe these conditions as a regulator, you're a fool....remember Nixon?

Nixon displayed this erroneous crudeness in the 70's when he tried imposing price controls in a supply crisis, making matters much worse.

In a supply crisis, inflation will increase regardless of U/E or wages. (again, Nixon)

In a demand crisis, deflation will occur if it's a result of higher U/E, lower wages or tight credit as long as supply is stable. (sound familiar?)

Correlation isn't causation U/E doesn't have to be a factor for inflation if, say, wages are flat, I agree with the topical premise there.

If you're too wrapped up in trying to impress your Ivy League peers, using MATLAB to calculate complex theories you learned @ Harvard, to notice the conditions of both demand and supply - you're a moron.

Just ask Reinhart - Rogoff how well that worked (yeah, I know, it was a typo, but still - oversimplisitc in it's need to imply a single debt ratio figure was the cure-all)

We're now observing the complete inverse to Nixons mistake, as we helplessly watch the failed results of attempting to impose supply-side solutions, or induce credit to a slow wage driven demand crisis.

That's two of the three economic schools in the dog house right now...Krugman's laughing because it was just handed to him, gift wrapped, while the public increasingly discusses the obvious wage/wealth disparity.

It's ok, He'd be the moron if this were the 70's, alas, this isn't the 70's.

Last, as for Von Mises' conclusions, all roads lead to lower taxes and less regulation for corporations and the wealthy. - See? so simple!

For this reason, I request that Von Mises please stop being so narrative, just cut to the chase & "educate" us that anything that might incorporate the need for tax, fiscal, regulatory or monetary balance is outright socialism....a recipe for the end of days, complete economic collapse, gold is going to $10K...etc...etc...yadda, yadda, yadda.

Or, at the very least, please, learn the difference between Monetarist and Keynes. - Libertarian and Classic Liberal.

 

Sat, 06/07/2014 - 23:36 | 4833675 NickVegas
NickVegas's picture

Are you an idiot? I can sense you have a lot of expensive education, and you still believe what you were told to believe. What about the fucking pink elephant stomping on your neck since fucking 1913, the Federal Reserve money creation out of nothing machine.

Sat, 06/07/2014 - 23:50 | 4833687 Frilton Miedman
Frilton Miedman's picture

 

 

Knucklehead, read what I typed, then respond....you're agreeing with my point, but calling me "idiot".

My entire premise is what you just said regarding Ivy League "geniuses" out to impress their peers, how formal economics is often oxymoronic, the three major schools refuse to let go of fixed thinking, instead of observing the obvious data of supply/demand, they create there own convoluted methods to suit their school of economics rather than reality.

The "Ivy league wiz using MATLAB to impress his peers" reference...like I said, read it.

As a good faith gesture ..if any of the bigger words confuse you, feel free to ask.

I'm here for you.

 

Sun, 06/08/2014 - 13:38 | 4834472 TeethVillage88s
TeethVillage88s's picture

Frilton;

I'd like to redefine:

Demand Crisis w decapitalization (little), capital flight (little), technology shift to Asia (little), & new entrance of Labor to US Markets without barriers while no substitute demand for US Labor Occurs.

Isn't demand crisis for US Goods & US Services & US Labor a little too simple?

- Haven't we had Displaced Industries
- Massive Centralized Federal Economy
- Increase in Reliance on other large sectors of the economy like Oil & Mining, Trade, Transportation & Utilities, Management & Other Professional Services including Finance, Agriculture, Retail & Hospitality/Hosting
- Engineering & Architecture plus Software Engineering are doing okay
- We Rely on Private Banking, Banking Oligopolies for New Investment, but they really are not Venture Capitalist, they are only Opportunistic in co-opting Industries or new products,
- Private Banks can not Lead the Economy, but seem to have much control over the economy when we are in a recession or a depression, Private Banks may be come averse to Investments of many kinds, risk averse, risk aversion

Sun, 06/08/2014 - 15:28 | 4834698 Frilton Miedman
Frilton Miedman's picture

 

 

Agree on all but the centralized Fed economy.

While the Fed may, or may not, be part of the long term problem, they're the only reason depleted consumers have money because of decreased costs of debt service.

From there, I'm more inclined to look at Congress, whom controls the Fed, Congress in turn is controlled by the corporate beneficieries of global trade & tax policy the Fed is now countering.

Central planning wouldn't be such a boogeyman if it were being done in the interest of the people, rather than the interests of the bribers.

 

 

 

Sun, 06/08/2014 - 22:00 | 4835507 TeethVillage88s
TeethVillage88s's picture

Yes, I'm with you. I actually meant $3.5 Trillion Federal budget as a huge centralized economy. I'd have to think if I understand the federal reserve as an economy, mechanism yes, bank yes, source of capital and bonds yes.

1. Congress controlling the Federal Reserve is a question. Everyone loves bankers & keeps good relationships with bankers. But seems to look like kowtowing to me. Congress no longer knows how to build a consensus on a decision or issue so don't see how they can influence the fed.

2. Fed countering global trade & tax policy is a question. Bears thinking about. Interesting perspective.

Late Add:

3. Global Trade has such an influence on Jobs, Wages, Benefits... just in itself, I would guess that anything the Federal Reserve can do will not help households with Good Jobs OR an Alternative to a Good Paying Job. Impossible. But that is not to say that perhaps households won't find a solution like having 2-3 jobs, using ACA for health benefits, starting more businesses like Pubs, Bars, Mail Order, or processing legal papers or health care records for cash at home.

Sat, 06/07/2014 - 22:54 | 4833622 TeethVillage88s
TeethVillage88s's picture

The Fonz understands & uses these principals: I send the young ones home, and weed out most of the other ones!

"...Inflation has two causes, tight supply, or strong demand..."

Let's make sure all members of the Fed, all Presidents, and all congressmen understand this!!!

Problem:

-Health Care can be "Rationed"
-Gold Can be Rationed
-Silver
-Mortgages
-Student Loans
-Food Stamps by JP Morgan
-Credit for those who's income is less than $60K
-Radiation Drugs or Supplements
-Organic Vitamins
-Fresh Fish w/o Radiation
-Water
-Energy
-Gasoline or Diesel

Sat, 06/07/2014 - 23:55 | 4833680 Frilton Miedman
Frilton Miedman's picture

 

 

The Fonz jumped the shark. (I remember the episode)

Median wages @ the same level as 1988, trust me, this is a demand problem....I'll give you the healthcare item though.

As for Gold and Silver, my God, say it ain't so...my family would be in ruins if we ran out of our lifesaving supply of PM's.

 

Sun, 06/08/2014 - 00:11 | 4833718 lasvegaspersona
lasvegaspersona's picture

Conflicting mandates allow an organization to do ANYTHING!!

Sun, 06/08/2014 - 13:05 | 4834389 TeethVillage88s
TeethVillage88s's picture

Frilton; Thanks. I reread your post and am getting more out of it.

I agree that wages have been flat possibly to 1980 or 1978.

A Centralized Economy being necessary to a communist country, we hold that centralized control is often only good for the Oligarchy. Rationing is wrong unless we are at war like WWII, but I have crazy ideas about taking certain commodities off the futures market.

I also have a crazy idea that we all need access to credit and money seems like a utility.

But I will stick to supply and demand for a while.

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