• Oligarchs and unemployment.

    From BOB KLAHN@1:123/140 to ALL on Thu Apr 17 02:16:12 2014

    Much of what is in this msg is from Paul Krugman's column, as I
    interpret it, and an IMF report. However, a fair amount is what
    I find to be true, and have been saying for years. Little or
    none is directly quoted from either of the articles.

    Well, another interesting column by Paul Krugman.


    I have often said some inflation is a normal aspect of a healthy
    economy. One reason for that is, in a healthy economy things
    change, and some of those things that change make wages for some
    jobs go higher than other jobs, higher than they were before.
    Some jobs lose demand.

    Some jobs gain demand, which causes their wages to rise. Some
    fields gain demand, which requires more resources which bids up
    those resources.

    However, if wages decline but debts don't the result is people
    can't pay their debts. This is not good for a healthy economy.
    Modest inflation serves as an adjustment factor for this,
    letting wages rise generally, but not in those fields where
    demand has fallen. Costs of resources can rise in general, or
    fall when they do, and the end result is the economy balances as
    the various factors play out their effects.

    If wages decline compared to those that go up, but do not
    decline in actual dollars, the ability to pay those debts does
    not decline, and debts get paid, which is good for a healthy

    Since the changes tend to be moderate and long term, the end
    result tends to be a well run system.

    This effect of non-declining wages is what economist call
    "sticky" when talking to the general public. It means pretty
    much the same thing.

    However, when inflation falls to near zero, or even below, there
    is no moderating factor, and debt repayment becomes
    questionable. Since inflation tends to only fall to near or
    below zero in times of economic trouble, that means a lot of
    people not paying a lot of debt. Hello depression.

    Now, all of this is well known, and discussed freely by
    economists. What was different in Paul Krugman's recent column
    is an explanation of how understanding of the low inflation vs
    deflation loss has become news to the IMF.

    The International Monetary Fund is an international agency whose
    primary focus is a stable financial system. In the real world a
    stable system has meant preserving the status quo, where the
    rich remain rich and the poor remain poor. That's not their
    objective, but it has been a result.

    However, the IMF has begun to understand that the status quo has
    not been status quo, but has been shifting to higher income
    inequality. In studying this they have become informed of the
    problems because the inequality is becoming exceedingly bad.

    As a life long trouble shooter I long ago learned that, by
    putting a system at it's extremes you can work to find where the
    proper settings are to run the system. Since all systems not
    directly mechanically connected are dynamic to a certain extent,
    the idea is to find the best practical settings to stay within
    operational parameters. What the IMF has come to realize is what
    Henry Ford showed long ago, what has been seen over and over in
    economics, except by those who don't want to look.

    Income inequality is a drag on the system. While the "status
    quo" preachers claim the "job creators" need an incentive to
    creat jobs, they forget, the workers need an incentive to do the
    work. The self annointed John Galts of the world are not even
    close to capable of monitoring performance in enough detail to
    force workers to produce by threats. It works to a limited
    extent, but it always has holes that lead to reduced efficiency,
    to reduced profitability.

    The only way to truly develop a "work ethic" is to reward work.
    No one is going to work hard without a reward. The better and
    more direct the reward, the better the work ethic. Which is
    where income inequality serves as an indicator that the reward
    is not matching the effort. Remove the incentive and you remove
    the work ethic, you remove the profit.

    The IMF, which for years has been little more than a debt
    collector for big money, and a pusher for the drug of
    privatization, has finally come to realize this out of kilter
    system is failing. That is why the current world wide recession
    has lasted since 2008, and continues today. The market has dried
    up do to lack of customers, the workers are trapped in a system
    where there is nothing they can do to dig their way out.

    In New Tack, I.M.F. Aims at Income Inequality

    Their answer is, raise the inflation rate. Currently average
    inflation is less than 2%. The world's banks and financial
    ministries and the IMF have made 2% inflation the limit for
    years. Before that the acceptable limit for the US Federal
    Reserve was 3%, and I was saying even then you don't toss a
    wrench into the system to bring it down if is has an excursion
    just a bit above that. However, that is what the Fed tended to

    Another point in Krugman's column is, the IMF report on this
    shows low inflation actually causes investors to hoard cash,
    rather than invest.

    Now I have seen, over the years, that the markets are more
    profitable when inflation is higher, less profitable when
    inflation is lower. I recognized that this was due to the fact
    that inflation was a result of a good economy, and that led to
    profitable markets. What I did not realize is, and Krugman
    pointed out, is that inflation is not only a result of a good
    economy, it is a contributing factor in creating one.

    Investor hoarding consists of putting the money into less
    productive, but safer, investments. When inflation is low that
    is a nice safe strategy, why risk your money when you have a lot
    and nothing to lose by sitting on it. However, higher inflation,
    even 3%, causes the investor's hoard to lose value if it's not
    working to produce products, and thus profits. So, one big
    reason investors are sitting on money now is, there is no market
    to draw them in, and no penalty for sitting it out.

    Of course, as long as investments are safe, and less productive,
    the markets stay stale as workers have less to spend. A nice
    closed loop entropy system. Only by putting workers back to
    work, which means higher wages and growing markets, will the
    investors gain a profit. With the penalty for not doing it being
    a loss of value of as much as 3% a year, that's a pretty good
    driver toward a more vigorous, and less unequal, economy.

    BOB KLAHN bob.klahn@sev.org http://home.toltbbs.com/bobklahn

    ... It's always darkest just before things go totally black.
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