Re: how does economics explain stagflation?


"jai hanuman" <me@xxxxxxxxxxx> wrote in message
news:4d2dnWDYZr9wqPHfRVn-qw@xxxxxxxxxxxxxxxxx
>
> "Tahir" <highflite1977@xxxxxxxxx> wrote in message
> news:cf312d2b.0504211006.496be1f8@xxxxxxxxxxxxxxxxxxxxx
>> Rising prices and falling demand can occur as they did in the 70s due
>> to trade unions raising the real wage while at the same time demand is
>> falling due to many different factors such as firms not investing
>> (thus not creating value and stimulating demand to buy their products)
>> or a collapse of an export market.

What is the problem in rising wages and falling demand? I totally reject
your assertion that falling demand was caused by lack of investment.
(where did the wages go? Did they burn the money in a furnace?)
We had a lot of troops entering the real economy returning from
Viet Nam. We had the lingering effects of the gold standard change
and oil embargos and all sorts of other crap going on. The 70's were
a time of lots of confusion and uncertainty. To harp on supply side
horse*** as a _cause_ is about as neocon Republican as it gets.
If wages are rising and demand falling then the middle class is advancing
on the rich folks. Rich people are not the only people that "invest".
Republicans want you all to think that, but it is very, very far from the
truth. But what is happening in this case is that the wage earners are
becoming asset owners. Admittedly this was based too much in
real estate (a little bit of a concession here to your "investment"
claim).

>> I would disagree that land
>> inflation and also house prices and other assets cause stagflation.

Increasing land prices are linked with stagnation (as opposed to
but not exclusive of stagflation). When land returns better gains
than anything else then land speculation uses a lot of the available
credit.

>> Japan has felt many years of sluggish growth due to a collapse of
>> asset markets and indeed it is a collapse of asset prices that can
>> severely dent demand thus causing stagflation (assuming unions are in
>> the meantime demanding higher wages).

Japan's economy is in a lot better shape than ours, thank you.

> are there any links on the interrelation of asset markets and the economy?
>
> from a layman's view, if asset markets go ballistic, there are two ways
> out - either everything else becomes expensive to catch up, or the asset
> markets decline to bring them back to mean. in relative terms the prices are
> coming back into balance. the only difference in the two is whether the
> money beceomes worth more or less.

Why do you think there will be a return to lower asset prices and
better wages?

> the particular path taken seems to depend on the culture, government
> honesty, past experiences with hyperinflation etc.

Honesty???? From the current government?

> but in the current fiat money system where interest rates are set
> politically, the overvaluation and speculation of land, and eventual
> problems caused by excessive debt (with the land as collateral) seem
> unavoidable.

The Republicans do not want to avoid these problems. They will
own the land and the rest of us will pick cotton. And they will
tell us all that it is because God has chosen them.

> what is worse is that mortgage loans are assigned half the risk as other
> loans. this means the economy will be saturated with real estate debt, which
> has happened.

Yep.


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