Daily Archives: June 12, 2021

Standard Inflation Theory Leaves Out Social Conflict and Costs

The Institute for New Economic Thinking as an article Standard Inflation Theory Leaves Out Social Conflict and Costs.

Pontification about inflation of prices of goods and services is on a rampage. Almost all the noise is based on inadequate inflation theory.

Politically it is unlikely, but labor’s share of GDP could grow with changes of tax laws, changes in regulation, and enforcement of anti-monopoly laws. “free” trade that concentrated on trade, labor, and environment instead of intellectual property protection could also be significant. Decreases in conventional war and economic war could also be important. This article is way too narrowly focused. Also economics is a balance of forces. Some forces are so small they have little impact compared to the bigger forces, but what is a big force and what is a small force change with times. Models that simplify by ignoring small forces at the time the model is formulated become obsolete models when the assumed balance of forces change.

Also economic activity depends not only on how much money the government pumps into the private sector, it also depends on who in the private sector gets that money. As more of that money gets distributed to the people who buy consumer goods, we can see higher consumer price inflation compared to stock and asset price inflation. Changes from a home ownership model to a home rental model can have a profound impact on wealth distribution and other economic behavior. Student debt has already had a profound affect on the economy.

Considering the number of people who do not want to go to work under current conditions, many of their number may be among the 600,000 people who died from Covid-19. Those people cannot come back to work no matter what wage is offered.