Thursday, March 31, 2011

Boilerplate Economics

As William F Hummel puts it in Money and Inflation:

When the economy is operating well below capacity, cheaper credit will usually increase output without a significant increase in prices up to the point of nearly full employment. Thereafter the effects of cheap credit will generally lead to higher prices.

We are barely out of recession that was so bad it was almost a depression. We are now a few months into a listless, "jobless" recovery. And already, prices are going up. Some people admit prices are going up but say it isn't inflation, whatever that means.

We are barely into a jobless recovery -- our economy is operating well below capacity, certainly -- and already we have inflation.

Obviously, the boilerplate is wrong.

Actually, that is the point Mr. Hummel is making: "There are numerous forces that apply upward pressure to prices which are not driven by money supply growth."


1 comment:

Greg said...

If you have been operating on a pretty thin margin and you have been borrowing regularly to keep your business growing, what are you gonna do when 10% less customers are coming through your door but you still need the same income to service debt, meet salaries etc etc? Your gonna raise prices some.

I dont think this can be called inflation though. Inflation is not just a rise in prices. I would call this increased cost of living.

A good,secure life is getting more expensive now. We probably had been getting it on the cheap for far too long here.