Jim's Blog

People who argue for “stimulus”, or more “stimulus”, often correctly point out that no one doubts that government can increase nominal GDP.   Zimbabwe and Weimar Germany are excellent examples of government rapidly increasing nominal GDP.  The question is, can government spending, particularly government spending on favored individuals and groups cozy with the government, increase useful employment, create real jobs that produce real value, create jobs where people work to produce what other people want and care about?

The cpi supposedly rose 0.4% in august – by about the same amount as employment declined. 0.4% a month, if continued, is 5% a year, and the real inflation is probably considerably higher than that.  Shadow statistics claims that the cpi calculation has undergone greater and greater adjustment since 1990, and if calculated by 1990 methods would now be showing an inflation rate 3.5 percent per year higher – which implies that present inflation, if continued would be over eight percent a year.

Five percent inflation per year is apt to have unpleasant and disturbing side effects.  Ten percent inflation is apt to have serious and gravely damaging effects, and we are heading towards ten percent.  The MSM reported the 0.4 monthly result as

underscoring the Federal Reserve’s view that inflation will be contained.

…

A lack of inflation will probably give Fed policy makers leeway to keep interest rates near zero in the foreseeable future to secure a recovery.

“What we’re seeing is a gradual disinflation that reflects the persistent slack in our economy,”

It is a bizarre thing to say.  If they say that for 0.4% per month, they will probably say the same for 4% per month, 30% per month, 10% per day, 100% per day, 100% per hour – which is pretty much what the German mainstream media was saying during the Weimar hyperinflation – that there was no inflation, that the problem was insufficient money in circulation and the government needed to issue lots more money to stimulate the economy, and that Jews and Anglo Saxons were causing the inflation.

When the inflation rate and the unemployment rate are similar, in that both of them are disturbingly high and rising fast, the government should be looking for solutions to both – in other words, supply side solutions – cutting taxes, spending, and regulation.

If, as seems likely, inflation becomes undeniable, expect the regular announcements that inflation is not a problem to be mixed with regular announcements that “price gougers” are a problem, doubtless due to Bush’s dreadful deregulation.  More regulation, by the wise and good regulators, who are on the side of the consumer, will doubtless be needed.

Brad DeLong, an economist greatly respected by the Cathedral, thinks the government is not blowing enough money.

He presents a graph predicting, plausibly enough, that unemployment is going to stay high for a long time. So, he concludes the benevolent government should put those people to work – without, however, worrying as to what they will be doing, forgetting that people should work to produce the particular goods and services that other people want, or perhaps confidently believing that the wise folk of the government have lots of useful work for idle people to do, forgetting that a large part of the unemployed are unemployed because they were producing things, such as financial services or housing for non asian minorities, that the recipients are demonstrably unwilling to pay for.

His conclusion will doubtless further improve his immense status with the rest of the Cathedral, whereas were he to doubt the capability of fellow Cathedral members to put the lower orders to useful work this would with equal swiftness diminish that status

Over the last hundred years or so, Argentina as swung violently, and with increasing frequency, between policies of on the one hand constitutionalism, rule of law, and the free market, and on the other hand populism, bureaucratic decree, and national socialism.  It has also swung violently between being one of the wealthiest countries in the world, and being a typical third world poverty stricken hellhole.

After the last crisis, it swung violently towards national socialism, populism, and bureaucratic decree – and yet is reportedly experiencing tremendous economic growth, greatly reduced poverty, vastly improved equality, social justice, public health, great medical care, and so on and so forth.  And everyone is reportedly happy and loves the government for its wise, good, and successful policies.

Reported real growth in GDP is 8%pa.  Reported inflation was 3.6%pa. 

Actual inflation was 21.6%pa, which would mean real growth was something like 8%+3.6%-21.6%, which is negative ten percent per annum, a massive economic shrinkage, at which rate they will be back to third word hell hole mighty fast.

Now that we are hearing less of the wonderful health care of Cuba, we will probably be hearing more of the wonderful economic growth of Argentina.