tag:blogger.com,1999:blog-2098432983500045934.post7641035751633329443..comments2024-03-12T22:19:32.339-04:00Comments on The New Arthurian Economics: Don't we want to think about that?The Arthurianhttp://www.blogger.com/profile/16501331051089400601noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-2098432983500045934.post-114251079337739632012-05-28T10:22:20.388-04:002012-05-28T10:22:20.388-04:00"So I think you are saying demand-pull can be..."So I think you are saying demand-pull can become irrelevant as an explanation of inflation, in an economy where there is excessive reliance on credit."<br /><br /><br />Bingo! The cost of credit is the largest non labor cost for some of these businesses Ill betGreghttps://www.blogger.com/profile/03139782404004492965noreply@blogger.comtag:blogger.com,1999:blog-2098432983500045934.post-66428877106860182612012-05-28T10:20:14.650-04:002012-05-28T10:20:14.650-04:00Jim
I do think your example is true in an environ...Jim<br /><br />I do think your example is true in an environment where there are the same number of potential customers but preferences may have changed. Im referring to an environment where all potential customers have dropped because of an economy wide fall in disposable income. In scenario two, classic econ theory would say that prices will drop but Im trying to show how that condition might not hold at least for a while. As Arts more recent post talks about costs to business drive their pricing decisions. The only cost that our neoliberal masters want to focus on is labor costs, thats why the rush to fire all public employees and push for an abolishment of min wage laws. Im saying its the cost of credit that is their biggest cost and it is very sticky. When you have to make a mortgage payment (or the businesses equivalent of mortgage) you can only drop your prices so low........ and you MAY have to raise prices in the face of falling demand so that your income stays the same, in order to pay the bank.<br /><br />If I recall correctly, many businesses were punished by VCs and corporate raiders the last few decades because they had cash. Businesses were encouraged to lever up their credit and not be in cash much. When they are all near the redline of the company equivalent of mortgage/income ratio it doesnt take much of a downturn to put lots of them out of business. But before they go out of business many will raise prices some to keep their falling sales volumes from busting them seems to me.Greghttps://www.blogger.com/profile/03139782404004492965noreply@blogger.comtag:blogger.com,1999:blog-2098432983500045934.post-5969688646055560432012-05-28T09:56:03.723-04:002012-05-28T09:56:03.723-04:00To Greg,
Sorry, but your analysis just doesn'...To Greg,<br /><br />Sorry, but your analysis just doesn't hold up. At least not for long.<br /><br />If sales drop off 50% (your example) The successful business will be the one that lowers its price and captures <br />more of the market. Ultimately somebody has to go out of business (or sell something else). <br /><br />That assumes customers are responding to price. Obviously, your analysis works well if customers are going to buy some fixed amount regardless of price.jimnoreply@blogger.comtag:blogger.com,1999:blog-2098432983500045934.post-10181065134223744672012-05-28T06:00:27.081-04:002012-05-28T06:00:27.081-04:00Art,
I was thinking along the lines of the late Bi...Art,<br />I was thinking along the lines of the late Bill Vickery's "5 F's". From #4:....The main difficulty with inflation, indeed, is not with the effects of inflation itself, but the unemployment produced by inappropriate attempts to control the inflation. Actually, unanticipated acceleration of inflation can reduce the real deficit relative to the nominal deficit by reducing the real value of the outstanding long-term debt. If a policy of limiting the nominal budget deficit is persisted in, this is likely to result in continued excessive unemployment due to reduction in effective demand. The answer is not to decrease the nominal deficit to check inflation by increased unemployment, but rather to increase the nominal deficit to maintain the real deficit, controlling inflation, if necessary, by direct means that do not involve increased unemployment. See #'s 5,&6 for more on this. As you say, policy considerations matter.nanutenoreply@blogger.comtag:blogger.com,1999:blog-2098432983500045934.post-5825278299893152032012-05-28T05:23:49.325-04:002012-05-28T05:23:49.325-04:00Greg: "In a world where bank credit is how ev...Greg: "In a world where bank credit is how everyone gets their financing the relationship between demand for the good and price of the good CAN be broken."<br /><br />So I think you are saying demand-pull can become irrelevant as an explanation of inflation, in an economy where there is excessive reliance on credit.<br /><br />I can buy that. Good observation, too: "As long as every business is in the same boat (most are) I wont be uncompetitive."<br /><br /><br />Nanute, my point is that we cannot solve cost-push problems with demand-pull policies. But given a "good" economy and a "not good" economy, I suppose the "good" one is more sustainable. (This assumes that the "good" doesn't go bad during the sustainment period.)<br /><br />So, demand-pull I would say is more sustainable than cost-push. The latter is a downward spiral.<br /><br />But I have to add: I do not think of inflation as something to be sustained. What do you have in mind?The Arthurianhttps://www.blogger.com/profile/16501331051089400601noreply@blogger.comtag:blogger.com,1999:blog-2098432983500045934.post-45469435752026630362012-05-27T15:43:21.280-04:002012-05-27T15:43:21.280-04:00Arthur,
. Under demand-pull, incomes are plump and...Arthur,<br />. Under demand-pull, incomes are plump and the economy is good. Under cost-push, incomes are lean and the economy is not good. Don't we want to think about that?<br />I think this raises another, perhaps more important, question: Under which condition is it more likely that raising prices is sustainable?nanutenoreply@blogger.comtag:blogger.com,1999:blog-2098432983500045934.post-28092333084489955992012-05-27T12:42:20.340-04:002012-05-27T12:42:20.340-04:00In a world where bank credit is how everyone gets ...In a world where bank credit is how everyone gets their financing the relationship between demand for the good and price of the good CAN be broken.<br /><br />Think of it this way;<br /><br />I own a business and I have a payment to the bank each month of 10,000$. I currently sell 2000 of x for 10$. When I only sell 1000 of x for a few months I cant lower the price or I dont make my payment to the bank. I must raise the price to keep my nominal income the same. The cost of bank financing wont change as quickly as I can change the price. As long as every business is in the same boat (most are) I wont be uncompetitive.Greghttps://www.blogger.com/profile/03139782404004492965noreply@blogger.com