Isn’t it fun being econerds learning and analyzing economic theory and trying to digest Professor…
Jay Parker (I)
112

Isn’t it fun being econerds learning and analyzing economic theory and trying to digest Professor Evans’ postulates?

If you knew me you would understand that this statement has even more humor than you intended. I’ve found that there is very little that hinders intellect more than does education. To become educated in a field means learning from someone who’s knowledge is, at least, a decade behind the present curve and absorbing all of his/her misconceptions mixed liberally in with factual information. My father once told me that if someone knew which way to turn a screw to achieve a desired outcome and that things generally will move downhill without impediment that about half of life’s dilemmas can be avoided.

I built a fairly decent reputation as a consultant by making it a point not to learn too much detail about the businesses I contracted with. Most managers trip over absurd inefficiencies daily without even seeing them and only a fresh vision that doesn’t assume those to be inherent in the processes can even see them, much less provide solutions to them. Educators have the same blinders built in, but without the benefit of real world experience to show them their errors.

I thought there might be a correlation between inflation and money velocity but there isn’t.

There is, but it’s not the inflation one conventionally assumes. Capitalism will direct resources to available currency. The current conditions of the economy with money turning in tight circles in the financial sector has greatly inflated the price of luxury cars and yachts. A more wide spread example is mortgage financing and home construction. As the lower end of income distribution became more risky loan candidates due to stagnant earning potential the entire housing industry shifted toward McMansions whose likely buyers would offer better risk/reward. This has filtered down to rents and is one of the biggest factors in cost of living increases, made even more costly by the mortgage bubble that gave us the great recession.

Also. Labor costs are under control. No wage push inflation like in the ‘70’s.

The inflation of the ’70s was “cost push”, but not caused by wages. The cost of everything was dramatically increased when OPEC cut output and rapidly increased pricing that impacted everything produced in the world. The Fed had little choice but to increase the money supply to allow people to purchase the higher priced goods. Labor, especially that represented by unions, forced wages to follow the trendline so it didn’t get screwed by business taking undue advantage to create more profit from the generalized pain the country experienced.

Little actual gain in real earnings adjusted for inflation was realized, but that didn’t stop Ronnie RayGun and the supply side shills from placing blame on labor and unions. It needs to be noted that flattening wage increases didn’t fix the problem and a deep recession had to be artificially induced to keep the currency from becoming worthless. It is known, even among conservative economists, as the Volcker recession.

Had MMT economics been recognized and congress had taken aggressive fiscal policy positioning along with the tightened credit of Volcker’s monetary policy much of the pain and lost productivity could have been avoided. However, just as it is today, the accepted economics of the gold standard prevailed. Government spending was tightened in reaction to automatic stabilizers kicking in, (welfare queen) and the resulting misery elected Clinton/Gore just in time to let them take credit for the dotcom bubble.

Clinton’s economics actually took Reaganomics to new levels under the cover of the bubble, but eased monetary policy to enable the expansion of tech related business with free flowing credit. With little need for fiscal policy job creation no one noticed that he capitulated to conservatives in every safety net demolition they requested. The results from tight fiscal policy and relaxed monetary policy drove people to leverage their private debt to maintain when the tech bubble popped and reality settled in again as the jobs that drove the bubble headed overseas in droves.

Bush did expand fiscal spending in targeted sectors, but mostly took advantage of the willingness of people to finance their own wages by leveraging their homes, and the wild west environment put in motion in banking by Clinton’s repeal of Glass-Steagall was capitalized on to carry the economy, until it didn’t. Many have made this same connection of events since the late 70’s and how the proper management of the fiat currency could have avoided the conditions that gave us the crash in ‘07-’08 that was only prevented from being a depression by massive injection of liquidity and expansion of the debt.

Each of the 7 times we have come within shouting distance of a balanced budget, even with a gold standard and much smaller trade deficits, has given us a depression or deep recession. With the gold standard we had few choices that didn’t inflate the currency badly, but we no longer have that hobble unless Congress imposes it artificially. We have already invested 80% of the potential of a generation in the current ideologically driven austerity fetish. I think that’s enough to officially label it a failed experiment and begin letting some adults run things.

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