NationStates Jolt Archive

I am very angry to see that prices in my country (of food and petrol but not only them) rise every DAY. But then I think. Have they EVER fall ?

Why can no one battle inflation? My teacher said that in the past economists said that any inflation is bad. Than they said that 2 % is okay. And now 1-10% is characterised like acceptable. What happened ? Have we too few resources ?
Are merchants greedy ? It sucks to have prices like in Austria but only 20 % of their salaries.

I am very angry to see that prices in my country (of food and petrol but not only them) rise every DAY. But then I think. Have they EVER fall ?

Why can no one battle inflation? My teacher said that in the past economists said that any inflation is bad. Than they said that 2 % is okay. And now 1-10% is characterised like acceptable. What happened ? Have we too few resources ?
Are merchants greedy ? It sucks to have prices like in Austria but only 20 % of their salaries.

No. There are trade-offs to everything (and I do mean everything), and the trade-off for inflation, as it happens, is unemployment.

In layman's terms: you either have to pay higher for your goods or services, or you have more people out of work. (Most people tend to prefer the higher-costing goods.)

What country is this? I'd assume it's not Austria...

In most developed countries the central banks seek to balance inflation and economic growth by adjusting interest rates. High interest rates lead to low inflation but low economic growth which leads to lower job creation and sometimes rising unemployment, as has already been mentioned. Low interest rates lead to high economic growth but high inflation. So most banks seek to balance the two.

Inflation across the world is running high right now because of the high price of oil (which affects the price of pretty much everything) and the high price of food (which is one of the main things people spend their money on, especially in poorer countries so any price jump can have a heavy impact). Prices have been going up because supply is down or at risk - Middle East instability and numerous wheat failures last year - and demand for oil and food in developing countries like China is extremely high. Supply might pick up to ease inflation but demand isnt likely to drop.

So, in free market economy I HAVE TO choose high inflation or high unemployment ?

Just be thankful you don't live in Zimbabwe. Inflation there hit 100000% today, and they have 80% unemployment. Primrily down to gross economic mismanagement, or a conspiracy against him by the West if you believe Robert Mugabe (President of Zimbabwe in case you hadn't heard of him)

Inflation across the world is running high right now because of the high price of oil (which affects the price of pretty much everything) and the high price of food (which is one of the main things people spend their money on, especially in poorer countries so any price jump can have a heavy impact). Prices have been going up because supply is down or at risk - Middle East instability and numerous wheat failures last year - and demand for oil and food in developing countries like China is extremely high. Supply might pick up to ease inflation but demand isnt likely to drop.

I thought that food supply of Earth can supply entire human race :confused:
I thought that main spenders of oil were USA and Western Europe :confused:

So, in free market economy I HAVE TO choose high inflation or high unemployment ?

No, though it'd be likely to have higher umemploment and less real economic growth for zero inflation. What country do you live in? It would help with our opinion of how your nation's policies should change.

I am very angry to see that prices in my country (of food and petrol but not only them) rise every DAY. But then I think. Have they EVER fall ?

Why can no one battle inflation? My teacher said that in the past economists said that any inflation is bad. Than they said that 2 % is okay. And now 1-10% is characterised like acceptable. What happened ? Have we too few resources ?
Are merchants greedy ? It sucks to have prices like in Austria but only 20 % of their salaries.

Let us see: Beans are "in the teens" (dollar-wise) for the first time in history. And here (http://charts.barchart.com/chart.asp?sym=ZWH8&data=A&date=022108&den=HIGH&divd=n&evnt=ADV&grid=Y&jav=ADV&size=D&sky=N&sly=N&vol=Y&late=Y&ch1=013&arga=&argb=&argc=&ov1=&argd=&arge=&argf=&ch2=&argg=&argh=&argi=&ov2=&argj=&argk=&argl=&code=BSTKIC&org=stk) is the chart for March wheat.

My advice? Go long on a few commodities, then you will be happy about inflation.

As long as you print more money, inflation will happen. Ergo, if you're population increases, you circulate more money, inflation increases. Money is worth less, because there is more of it. You can control (read: slow) inflation, but inflation (I believe) is largely a natural occurrence.

Just be thankful you don't live in Zimbabwe. Inflation there hit 100000% today, and they have 80% unemployment. Primrily down to gross economic mismanagement, or a conspiracy against him by the West if you believe Robert Mugabe (President of Zimbabwe in case you hadn't heard of him)

Wow. Really? I heard it had reached the 26000% mark...but 100 000 is unreal.

Just be thankful you don't live in Zimbabwe. Inflation there hit 100000% today, and they have 80% unemployment. Primrily down to gross economic mismanagement, or a conspiracy against him by the West if you believe Robert Mugabe (President of Zimbabwe in case you hadn't heard of him)

Because I live in Eastern Europian state than politics and economists babble during their every visit that we are new miracle and idol for others I am dismayed by actual state of economy (like the second highest unemployment rate in EU (2006)).

If I could, I would like to help poor people in Africa, but I do not know how.
They are not Iraq to forgive their loan like we did on "suggestion" of USA.

Think of it this way: inflation is a form of taxation. As the government prints more money, the value of each individual bill is decreased. It is a taxation on holding money for long periods of time (and is countered by investing or spending)

Deflation is actually more dangerous to an economy than inflation...prices fall, lowering profits, meaning that businesses cannot pay their workers (remember, both inflation and deflation are a delayed process)

around 1-5% annual inflation is more than okay.

So, in 50 years I would have to pay for loaf of bread like 500 SKK (now around 30 SKK) and Central Bank decided to devalve and after another 50 years again and again ?

Is there no better economical system ? It seeems pointless to see that money have still less and less value.

Here is the problem with Inflation = more jobs!

One of the tenants of economics is that money, in the long run, is neutral. 'Real' output is not affected AT ALL over "the long run" by changes in the money supply. Inflation provides a very short term jump in GDP, both real and (imaginary?) nominal, but that is blanaced out by a recession once inflation's effects are felt. In the long run, regardless of the money supply, real output will grow at its own rate. I have yet to hear a convincing argument against 0% inflation or slight deflation; simply because money has no effect on real output.

Yes, I am also aware that in the long run, we are all dead.

I am very angry to see that prices in my country (of food and petrol but not only them) rise every DAY. But then I think. Have they EVER fall ?

Why can no one battle inflation? My teacher said that in the past economists said that any inflation is bad. Than they said that 2 % is okay. And now 1-10% is characterised like acceptable. What happened ? Have we too few resources ?
Are merchants greedy ? It sucks to have prices like in Austria but only 20 % of their salaries.

It's to pay for all those fancy nuclear weapons technologies governments like to pour funding into, they need some income.
Good old nuclear weaponry, a good deterrant against enemies.(sarcasm throughout)

So, in 50 years I would have to pay for loaf of bread like 500 SKK (now around 30 SKK) and Central Bank decided to devalve and after another 50 years again and again ?

Is there no better economical system ? It seeems pointless to see that money have still less and less value.

possibly, but you have to remember that income rises too...while a gallon of gas at one time was 30 cents, people made significantly less.

Actually, "too few resources" isn't too far off the mark. Higher inflation is being driven primarily by commodity prices, whose increases have outstripped rises in productivity; this, when combined with a tight labor market pushing up the cost of hiring and retaining workers, has resulted in higher inflation pressures that go above the range most of us associate with normal inflation.

Given that the majority of posters on this forum, and young people in general (myself included, of course), grew up during the 1980's and 1990's, which were a period of comparatively depressed commodity prices and low inflation, a return to the more volatile commodity markets and higher inflation of the 1970's, and to a lesser extent 1960's, is something of a shock. We're simply not accustomed to a more elevated level of inflation because it hasn't been a major issue in the economy for two decades.

I am very angry to see that prices in my country (of food and petrol but not only them) rise every DAY. But then I think. Have they EVER fall ?

Why can no one battle inflation? My teacher said that in the past economists said that any inflation is bad. Than they said that 2 % is okay. And now 1-10% is characterised like acceptable. What happened ? Have we too few resources ?
Are merchants greedy ? It sucks to have prices like in Austria but only 20 % of their salaries.

My previous comment aside, inflation is often caused by weak currency. The dollar is particularly weak due to so much debt from these naughty boys: http://tbn0.google.com/images?q=tbn:AH9_hlsR_c_YJM:http://www.science.co.il/People/Ronald-Reagan/images/Ronald-Reagan-1981.jpghttp://tbn0.google.com/images?q=tbn:VkvPRj8VnJs7gM:http://upload.wikimedia.org/wikipedia/commons/thumb/d/d4/George-W-Bush.jpeg/453px-George-W-Bush.jpeg
Fixing the deficit should allay inflation tremendously.

Of course, none of the above is applicable unless you live inside the United States.

The dollar is particularly weak due to so much debt from these naughty boys...
To be fair:
http://www.europe2020.org/IMG/jpg/debt-total-component-trend.jpg

My previous comment aside, inflation is often caused by weak currency. The dollar is particularly weak due to so much debt from these naughty boys: http://tbn0.google.com/images?q=tbn:AH9_hlsR_c_YJM:http://www.science.co.il/People/Ronald-Reagan/images/Ronald-Reagan-1981.jpghttp://tbn0.google.com/images?q=tbn:VkvPRj8VnJs7gM:http://upload.wikimedia.org/wikipedia/commons/thumb/d/d4/George-W-Bush.jpeg/453px-George-W-Bush.jpeg
The dollar is weak because the US government has been actively devaluing it for about 7 years. By simply producing more money (they've pumped about an extra trillion US dollars into the market above what would have been done at the previous rates), they've devalued their currency.

To be fair:
http://www.europe2020.org/IMG/jpg/debt-total-component-trend.jpg

Most interesting; I should not use Doonesbury comics as a source in the future....

The dollar is weak because the US government has been actively devaluing it for about 7 years. By simply producing more money (they've pumped about an extra trillion US dollars into the market above what would have been done at the previous rates), they've devalued their currency.

Just so. After-all, we are spending more and taxing less. The Government has to acquire funds somehow.

Given that the majority of posters on this forum, and young people in general (myself included, of course), grew up during the 1980's and 1990's, which were a period of comparatively depressed commodity prices and low inflation, a return to the more volatile commodity markets and higher inflation of the 1970's, and to a lesser extent 1960's, is something of a shock. We're simply not accustomed to a more elevated level of inflation because it hasn't been a major issue in the economy for two decades.

As one of the posters that remembers the 70's very well this is going to be one hell of a shock to you younger folks. All I can say is curtail your spending on non-essentials and try and save your money. The fasten seat belt sign is on and we appear to be heading for turbulence.

The dollar is weak because the US government has been actively devaluing it for about 7 years. By simply producing more money (they've pumped about an extra trillion US dollars into the market above what would have been done at the previous rates), they've devalued their currency.


I am surprised that the backers of the Euro have not taken the opportunity to print more of the Euro. If all currencies did this in the same scale as the US government the regular masses wouldn't even notice.

I am surprised that the backers of the Euro have not taken the opportunity to print more of the Euro. If all currencies did this in the same scale as the US government the regular masses wouldn't even notice.
Sure they would - you'd just see inflation go up everywhere.

Just so. After-all, we are spending more and taxing less. The Government has to acquire funds somehow.
Or, they could spend less.

Sure they would - you'd just see inflation go up everywhere.

True however people are use to inflation. However it is more stark in the US when we can see the value of the USD vs other world currencies.

try and save your money
That is the worst thing to do when the money is losing its value daily.

That is the worst thing to do when the money is losing its value daily.

Really? So saving money is bad instead of spending it on going out to eat or a vacation trip that really you can't afford?

Also with today's access to global markets one can open a savings account and investment accounts in other currencies.

Or, they could spend less.

Politicians spending less..... ? LOL

Really? So saving money is bad instead of spending it on going out to eat or a vacation trip that really you can't afford?
If instead of spending it on a trip to the Caribbean, you hold onto it until it will only buy a loaf of bread, then you have deprived yourself of a trip, and still have basically nothing.

Also with today's access to global markets one can open a savings account and investment accounts in other currencies.
INVESTING into something that will hold its value is what you need to do, yes.
Investing overseas is a worthwhile option to look into (I am fortunate that in Michigan, I can just go across the bridge; I always keep at least half my savings in Canada as a hedge against a sudden slide in the US currency; of course the Canadian dollar could have hiccups too, but doesn't make me as nervous), but investing in anything always gets riskier when you don't know very much.

If instead of spending it on a trip to the Caribbean, you hold onto it until it will only buy a loaf of bread, then you have deprived yourself of a trip, and still have basically nothing.
.

Surely if you did not put your savings to work for you. If left in a bank somewhere then I agree with you. I probably should have expanded on my original comment to include this.



INVESTING into something that will hold its value is what you need to do, yes.
Investing overseas is a worthwhile option to look into (I am fortunate that in Michigan, I can just go across the bridge; I always keep at least half my savings in Canada as a hedge against a sudden slide in the US currency; of course the Canadian dollar could have hiccups too, but doesn't make me as nervous), but investing in anything always gets riskier when you don't know very much.

You can use the net to open accounts in almost any currency. To bad all the paper money today is fiat money and not tied to a gold standard. One could also move their savings into gold.

So, in free market economy I HAVE TO choose high inflation or high unemployment ?

Well, according the classical ("neoliberal") economical theory yes. If unemployment goes below a certain level, called NAIRU (Non-Accelerating Inflation Rate of Unemployment), then you have inflation.

In addition, many policies that fight inflation slow down the economy (higher interest rates, strong currency policy), and many policies to fight unemployment increase inflation (lower interest rates, printing money).

They only way to have controlled inflation of fundemantal goods and low unemployment at the same time is to have some price control from the state - like the price of bread used to be controlled by the state in France from 1793 to the 1970s (and unlike the claims of (neo)liberal economists, it didn't lead to any black market of bread, nor of any lack of bread - in fact it leaded France to be famous for its bread, and to be one of the country with the highest number of bakeries/inhabitant).

Here is the problem with Inflation = more jobs!

One of the tenants of economics is that money, in the long run, is neutral. 'Real' output is not affected AT ALL over "the long run" by changes in the money supply. Inflation provides a very short term jump in GDP, both real and (imaginary?) nominal, but that is blanaced out by a recession once inflation's effects are felt. In the long run, regardless of the money supply, real output will grow at its own rate. I have yet to hear a convincing argument against 0% inflation or slight deflation; simply because money has no effect on real output.

Yes, I am also aware that in the long run, we are all dead.

Probably the only argument against 0% inflation or a slight deflation has to be Japan. For some reason, they have had slight deflation for a decade now and their economy has suffered from an inability to recover from the recession of the early 1990s.

In saying that, I do agree with the point. The prices of 1815 were essentially the same in 1939; this, at the same time as the world boomed economically. I do agree you had the Long Depression and the Great Depression in this period, however, overall, mankind was better off.

In one way, I do hope that economists figure out a way of reversing the madhouse inflation from the 1960s to today. It would be nice to go back to an age when your small change could be actual silver, and items cost only a few cents.

inflation is built in to capitolism, into the way it works. live with it or get over fanatically demonizing everything that refuses to kiss the ass of little green pieces of paper.

=^^=
.../\...

I do not pretend to understand what causes inflation. I am not sure that too much employment necessarily means that there will be a problem with inflation. I hate inflation when it comes to everything except long term debts that I owe. Unfortunately, I am the kind of guy that likes to pay off debt early so I do not even get that much benefit from inflation of long term debts.

They only way to have controlled inflation of fundemantal goods and low unemployment at the same time is to have some price control from the state - like the price of bread used to be controlled by the state in France from 1793 to the 1970s (and unlike the claims of (neo)liberal economists, it didn't lead to any black market of bread, nor of any lack of bread - in fact it leaded France to be famous for its bread, and to be one of the country with the highest number of bakeries/inhabitant).
Actually, whether or not you get shortages and so on depends on where the price is set compared to where it should be. Right after the price controls were instituted, there certainly were all sorts of troubles:
http://www.cato.org/pub_display.php?pub_id=4266
Early twentieth century economist Henry Bourne documented the effects of price controls on France in the years following the French Revolution, when city residents found it difficult to purchase grain. The grain shortages were not due to any agricultural problems; Bourne noted that 1793 France was a prosperous agricultural nation capable of feeding itself. Instead, the threat of famine was due to internal procurement and distribution problems created by the government. For example, agents for the city of Paris, the military, and the government competed with each other in trying to purchase grain. This created local shortages where none had existed before, and led to social unrest.

The city of Paris, in an effort to appease the public, decided to subsidize flour. This prompted bakers from neighboring towns to travel to Paris to purchase flour, creating even more shortages in the city.

The French Convention, which governed the nation at that time, tried to address the problem by establishing maximum prices for grain and instructing farmers to supply it to local markets. As one might expect, farmers did not cooperate with the new law. Markets were empty of grain; further shortages developed; official tallies of grain supplies failed to find and keep track of stocks; urban riots continued.

The Convention passed another law later in 1793 extending maximum prices to other essential supplies. Those price controls, in combination with government requisitioning and corruption, created chaos in the French economy. Merchants responded by reducing the quality of their goods and the black market blossomed, Bourne noted. “It was the honest merchant who became the victim of the law. His less scrupulous compeer refused to succumb. The butcher in weighing meats added more scraps than before…other shopkeepers sold second-rate goods at the maximum [price].... The common people complained that they were buying pear juice for wine, the oil of poppies for olive oil, ashes for pepper, and starch for sugar.”
However, if perhaps later in the piece the price controls were treated as a subsidy to help farmers and bakers, or to preserve some sort of piece of French culture, then making bread would actually be more attractive than it would be in a free market, which might lead to things like having the most bakeries per inhabitant in the world. In that case it's not the suppliers paying the price for the consumers' extra surplus as it is with price controls that are too low, but the other way around.

I do not pretend to understand what causes inflation.
Well, there are demand causes for it and supply causes. Supply causes are things like the oil price. Because oil is used in so many different goods, if it gets more expensive sooner or later all those goods will have to get more expensive too. Another supply cause (though not necessarily one caused externally) is if a country imports a lot and its exchange rate falls (perhaps as a result of big current account deficits and foreign debt). Because then the currency (let's call it the US Dollar ;)) buys less of whatever foreign things they import than before, in domestic prices imported goods become more expensive and this again feeds through the economy. If a certain Fed chairman starts cutting interest rates whenever Wall Street tells him to, that might just add to the fire.

That being said, globalisation has generally been a force against inflation because moving manufacturing where its cheaper cuts the prices you find when you go to the shops. There has been research that says the NAIRU has been falling over the last two decades or so, which is good news. However, the debate on whether the extra world demand as poor countries get rich could outweigh this is ongoing. As is the debate whether this is caused by globalisation or by central banks doing a better job at managing expectations.

I am not sure that too much employment necessarily means that there will be a problem with inflation.
That's the demand side of it. The biggest cause of demand-fuelled inflation is wage increases that aren't due to people actually being more productive. For example if unemployment is really low, labour is in short supply and employers will start bidding up the price. People get more wages, but not because they work better or more, but simply because there are few people who could do the job instead of them. Unions can have the same effect, if they're being unreasonable, by asking for wage increases that are bigger than productivity gains.

So when this happens, consumers have more money, but there isn't more stuff being produced. So people bid of the price of things, and as a result uncertainty in the future state of the economy grows (making people hesitant to invest in expanding future productive capacity), people's savings get destroyed, the exchange rate will start to fall and if things get really out of hand you get hyperinflation.

But hyperinflation is usually due to another demand-side cause, namely the government printing money. In countries where hyperinflation happened, the central bank generally isn't independent of the government of the day, and when the government needed to finance something (in Weimar Germany it was reparations and a fiscal stimulus package to deal with the Great Depression, in some Latin American countries it was social programs or wars, in Zimbabwe...who the hell knows) it just got the central bank to print more money. Again, nothing extra is being produced, but everyone now has more cash, which just increases prices - but when governments do it, it's usually on a much bigger scale.

But perhaps the biggest and least mentioned factor in all this is expectations. It's the expectation that inflation will be high in the future that prompts you and your union to ask for wage increases above your productivity increase. That's why the Reserve Bank of Australia and many others do "inflation targeting" where they give a band of acceptable inflation and will raise or cut interest rates to keep it within that band. That establishes trust that inflation won't get out of hand and people have some certainty about what will happen in the future. In the US and many other countries meanwhile the central bank tries to manage expectations by other means, perhaps by appointing fairly strict and conservative chairmen or by bringing out regular statements about the state of the economy (which frantic traders then try to decipher to figure out what the bank will do in the future).

No. There are trade-offs to everything (and I do mean everything), and the trade-off for inflation, as it happens, is unemployment.

In layman's terms: you either have to pay higher for your goods or services, or you have more people out of work. (Most people tend to prefer the higher-costing goods.)

With most things in economics, it's not a matter of whether something is good or bad, but good or bad for whom.

If you have a lot of debt, inflation is good, because it's easier for you to pay it off. The money in which your debt is measured is easier to get. This was the broadly recognized theme of the Wizard of Oz, as well as the plot device by which the TV show Northern Exposure forestalled jumping the shark.

If you have savings, or earn your living by the leveraging of liquid assets, then inflation is bad. Your assets are worth less, and don't earn you the same standard of living as they once did.

Basically, things are all right as long as money doesn't become more or less valuable quickly enough that people who don't count carefully won't notice.

I am very angry to see that prices in my country (of food and petrol but not only them) rise every DAY. But then I think. Have they EVER fall ?

I'm assuming you mean America. Yes. There was a brief deflationary period around 2001 and it nearly caused what could have been the nastiest recession in thirty years, as high-tech businesses were selling their goods at below profit levels. Actually, it might not matter whether you meant America or not, because if I'm not mistaken that recession was a global phenomenon.

Why can no one battle inflation? My teacher said that in the past economists said that any inflation is bad. Than they said that 2 % is okay. And now 1-10% is characterised like acceptable. What happened ? Have we too few resources ? Are merchants greedy ? It sucks to have prices like in Austria but only 20 % of their salaries.

The downside of raising wages/benefits is higher costing goods. It's quite simple: If more people can buy, and it's harder to produce at any level or expand any level of production (ie wage levels went up), companies will start selling their goods at higher prices, and unless competition intervenes to stop them, they will keep upping the price, and a newly enrichened populace will buy them.

Of course, this is something of a precarious position for companies to be in, as any kind of competition arises and suddenly, with their high cost reputation, their customer base is toast. But when salaries have gone up and productivity has not gone up with them, it's usually a fairly safe bet that this isn't going to happen.

That's not to say inflation cannot get out of control - it has happened before. But I don't think we're there yet. I think it's more a long the lines of we didn't have any inflation to speak of (outside of the housing sector) for 7 years (people were complaining about this, by the way - it's called 'stagnant wages') and now you're seeing a minor correction.

Oh, and as for the "good and bad for whom" point, there is actually such a thing as a national economic interest, and while all economic phenomenon will benefit somebody, occasionally more people will be hurt then helped. Further, large mobs of people getting the short end of the stick is not, contrary to popular myth, a sustainable situation, as when you hurt the workers you also hurt your customer and labor base, or your beneficiaries, or the people who take money out of your bank account to invest and return interest, so it may be less of a question of, helpful for whom but, how long?