Saturday, February 18, 2012

The good news is that inflation is up; that's also the bad news

From an economic point of view we have good news, (especially if you regulate the economy with monetary policy like the Fed) because we are experiencing about 3% inflation. This is coming mostly from the price of gasoline, and from food, both of these are only going up because of speculation on the commodity markets by Wall Street banks. This sort of speculation used to be something that would send you to Federal prison, but a succession of Administrations have decriminalized it, but especially Newt  and Clinton (Bill as a result of intimidation and/or bribery) who threw the door wide open.

The new Dodd - Frank Act made this illegal again, but Republicans have since loaded it up with so many loopholes as to make it largely irrelevant. Cynical liberals might have a case to make that Obama could have done something about it, but I'm not so sure he has that much power.

Okay, back to why this is "good news"; in theory, maintaining a modest rate of inflation forces the big players who are hoarding trillions in cash to get back in the game. If you can't make money by waiting for asset prices to drop, and then buying up "real" things for pennies on the dollar, you need to go back to trying to make money by actually doing business. You know like hiring people to make and sell stuff.

Why this is also the bad news: real wages are falling because of high unemployment. Corporations continue to layoff workers and replace them with lower pay people. There are few labor strikes (that might increase wages), but instead we have many lock outs that result in massive cuts to pay and benefits. Management is able to do this only because 20% of the workforce doesn't have a real job, if any at all. Half of those who do work are really the "working poor" and can't fight back at all.

Inflation is hard on people who are stuck with a fixed income or falling wages. The only way things could be worse is if we had a national "right to work" law. The Republicans can't wait to impose that on the states. (screw that states' rights position when ever it suits them)

You'll just have to take the current inflation rate as a glass half full situation. The alternative is much worse. We are gaining jobs, and that is what matters at the moment. Anybody that says we need austerity and lower wages is at best ignorant of how an economy works. Really, any bright fifth grader should be able to do the math. Take money out of the economy and it shrinks resulting in even fewer jobs, more shrinkage, and repeat... a death spiral as it were.

More jobs and high prices lessens the impact of existing debt. This puts more money into circulation and grows the economy, and repeat... a growth spiral. If we can keep Republicans from killing it.