Comments on: Obama’s Secret Plan: Inflation?

By: tom p

tom p — Fri, 20 Feb 2009 23:17:33 +0000

If health care is going up faster than say the inflation rate you'd see most pay increases occurring in health care benefits and slower growth in average wages.

Not sure how much this adds to the discussion, but that is exactly what happened on our last 2 contracts (union carpenter). The union negotiates with the contractors on a total compenstion package (a set amount). The union is responsible for our health insurance, pension and vacation pay, and decides how the money gets divvied up. Over the life of our last 3 yr contract we got a total of 75 cents (from app $30.50/hr to 31.25)the rest went into health care (our pension is supposedly still strong) Last year, we got another 27 cents, but I don't expect anything this year (healthcare up, work down). And by the way, if I don't get back to work soon, I will lose my health care in August. For what ever it is worth...

By: Bandit

Bandit — Fri, 20 Feb 2009 22:47:45 +0000

This guy is under some delusion that Obama has any coherent plan.

By: legion

legion — Fri, 20 Feb 2009 22:24:17 +0000

Steve, Try reading the whole comment some time. I'm well aware that deflation can lead to a death spiral - that's why I specifically pointed out that it would only be of benefit to anyone if it started out from basic materials, reducing the costs of overall production, and eventually lowering end cost to consumers. Also, how many companies have been cutting compensation (especially, but not limited to, health care), while not providing a raise in wages? How does that not count as a reduction in pay - and therefore ability to consume? Finally, if you'll look up and read the very beginning of my second paragraph, you'll see that I _don't_ consider this a "winning plan". I posit that it may be the only way for a great swath of the American middle class to literally survive the next few years; that we may have to choose between our corporate economy and our actual citizens' state of existence. How about addressing that possibility, rather than flinging around half-assed insults?

By: Steve Verdon

Steve Verdon — Fri, 20 Feb 2009 21:19:31 +0000

Shorter legion,

Blah, blah, blah.

Try looking at total compensation vs. average wages. If health care is going up faster than say the inflation rate you'd see most pay increases occurring in health care benefits and slower growth in average wages.

Deflation discourages production. Here is how it works,

1. Buy the inputs.
2. Build the product.
3. Sell at a price that in real terms is lower than what you paid for the inputs and labor.
4. Shut down.

Not a winning plan legion.

By: legion

legion — Fri, 20 Feb 2009 19:51:26 +0000

Well, lets take a small step back from the issue for a second and look at the larger picture. It's great if we can save some US businesses and (presumably) a bunch of US jobs, but who exactly is going to purchase the things those companies make? Average workers' wages have been crap for years now - a lot of people have been using cheap credit to live beyond their means (or even engage in basic survival) for a long time now - and the chickens are coming home to roost. This is no longer just a US problem, it's global - both the credit and the chickens. Does anyone really see average wages going _up_ any time soon? I sure don't. So who's going to buy this stuff? In a year, maybe two, all the companies that are currently getting bailed out are going to bankrupt _again_. Mark my words. I think the only thing that may save a lot of people's economic lives - as opposed to saving the economy, which is a separate creature - _is_ deflation. Prices on things need to come down a _lot_. On _everything_. And that needs to start with raw materials. And _that_ will take years to phase in before price drops at the consumer front are seen. But frankly, corporations have proven that they can survive a lot longer without paying their bills than individual families can.

By: Drew

Drew — Fri, 20 Feb 2009 19:40:07 +0000

"I'd also note that this is just another way at a macroeconomic level to redistribute wealth, albeit with a heavy transaction cost. Anyone think that might also be part of the master plan?"

Some would call you a cynic, Charles. I would call you insightful.

By: Steve Verdon

Steve Verdon — Fri, 20 Feb 2009 17:29:33 +0000

Also, given the 0.8% increase in the CPI and a 0.8% increase in the PPI for January such fears are probably exaggerated and if care is not taken we could end up with stagflation. High unemployment, low output, and high inflation.

It would be a torpedo in the good ship Krazy Krugman though.

By: Steve Verdon

Steve Verdon — Fri, 20 Feb 2009 17:27:28 +0000

If there are legitimate fears of deflation then inflationary policies are the right course. However, if those fears of deflation are unfounded you'd end up with really high inflation.

By: Joe

Joe — Fri, 20 Feb 2009 17:17:56 +0000

I realize that politicians believe that they need to stimulate the economy any way they can right now. But shouldn't we, as a nation, learn our lesson from this financial mess? I think suffering the consequences of our poor money habits and letting the recession/depression run its course is the safest way to handle this, if not the most popular.

By: charles austin

charles austin — Fri, 20 Feb 2009 17:06:49 +0000

Several weeks ago here I asked whether those in power planned to ultimately repudiate the debt or devalue the currency, as those are the only two options that are effectively available to deal with the incredible levels of debt being accumulated. I guess we have an answer. I'd also note that this is just another way at a macroeconomic level to redistribute wealth, albeit with a heavy transaction cost. Anyone think that might also be part of the master plan?

By: Steve Plunk

Steve Plunk — Fri, 20 Feb 2009 16:46:47 +0000

This has been often mentioned as a plan to reduce national debt. The big losers will be those who have saved all their lives. Another betrayal by the political class.