Interesting thoughts, thanks for sharing them. I would add that computers created a lot of white collar jobs that then shrank with globalization, NAFTA, outsourcing and offshoring.

I don’t think the banks are intentionally trying to make things worse. Clinton said he had sex with Monica because he could. I think the bank execs have pocketed the bailout money simply because they can. I really don’t think they put that much thought in to what they’re doing, just enough to justify their actions but then they have to stop thinking about it.

I, like many others, would have preferred that the goverment let the banks take the consequences of their decisions and actions. Its not fair that they get rewarded for their bad behaviors at the expense of everyone else.

THE HIDDEN HAND MOVED ON

And We Didn’t Even Notice.

Tom Dennen

“But the free market is not primarily a device to procure growth. It is a device to secure the most efficient use of resources.” — Henry C. Wallich, a Governor of the Federal Reserve System from 1974 to 1986.

Researching inflation has been an eye-opener because with all this meltdown stuff going on, every even half-baked student of basic systems wants to work out the who, what, where, when, and why of money systems.

I started with the question, “Is there a definition, say of ‘inflation’ given that the basics of supply and demand are common cause?”

Either we’ve lost the plot or there isn’t one, just some platitudes that do not lend themselves to anything but involutions:

Inflation:

“The overall general upward price movement of goods and services in an economy, usually as measured by the Consumer Price Index and the Producer Price Index.”

“A persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money, caused by an increase in available currency and credit beyond the proportion of available goods and services.”

‘A sustained, but sometimes rapid increase in general price levels.”

What causes it? Now, that’s the toughie.

“There is no one single, universally accepted cause of inflation” … So the modern economist gives us three:

1. Cost-push inflation, which is due to wage increases that cause businesses to raise prices to cover higher labor costs, which leads to demands for still higher wages to pay for the increase in prices, called the wage-price spiral. Duh.
2. Demand-pull inflation which results from increasing consumer demand financed by easier availability of credit – a little greed is allowed in here – and,
3. Monetary inflation caused by the expansion in the supply due to printing of more money by a government to cover its deficits.

All of the above are pure hogwash especially the obvious wage-price spiral.

Adding pewter to Roman gold coins (monetary inflation) didn’t fool the merchants then, and economists today generally agree that printing lots of paper money (adding pewter) causes high growth rates (inflation) in the money supply but merchants just charge more for the same goods if there’s more money in the system.

Duh – but why do it?

(Just incidentally, reading through Book 6 of Tacitus’ Annals, does anyone agree that he implied a certain regulatory indifference at that time by the Roman government toward the systems that were collapsing pretty much the same as today’s for similar reasons?)

Because economic reality is so simple when viewed in relation to broader historical events – which it isn’t – it has to be fed to us in ‘economic theories’ that have to sound complicated but look circular in nature (balanced).
But because so far no cause, no cure, I have to either invent or find one for myself and ask for some criticism on it:

THE STORY SO FAR:

Before Zero Population Growth (ZPG), manufacturers had to make more goods every year because there were more people every year.

So from the beginning of the Industrial Revolution every commercial enterprise linked to population growth – the lot – expanded, and ‘growth’ over many years, generations even, was an invisible source of expansion, eventually an integral part of the general western economic paradigm – common cause: you ‘grow’ a business, you don’t just sustain it.

So it wasn’t ‘good business practices’, centralization, decentralization or the creation of profit centers – or thrift or fiscal generosity or Scroogeisms, just more people being born.

Tom Peters said something like this on his 90’s lecture tours: In the sixties and seventies: you couldn’t run a Fortune 500 company into the ground if you tried.

‘Growth’ insidiously assumed itself into all western economies and had become as necessary as air.

But the basic source of growth – population expansion – had dried up without it being noticed – what I think may have been Smith’s ‘Hidden Hand’ having writ, moved on.

And what we lost sight of is the fact that when the population stopped growing at the rapid rate western economies were used to, demand for growth-generated profits didn’t.

Now we had a problem.

We couldn’t grow a business in the traditional way because the population wasn’t cooperating so it very soon became obvious that we were all competing for the same stable, non-growing market and still driven by the ‘necessity’ for increased profits!

Time-And-Motion specialists in full fiscal drag disguised as economists appeared and told us to “Get lean and mean.”

Well, it got more sales … and growth in profit through efficiency but not through more customers because First World populations stayed celibate in economic terms and Zero Population Growth (ZPG) became a buzzword.

We became so lean and mean we could keep up with shareholders’ demands for MORE PROFIT! Even in a stagnant market.

Crunch time: Computers arrived and took over middle management functions – compiling quarterly pie-chart reports worked for a while, but plugging into the factory floor in real time 24/7 was huge.

And saved enough in wages to continue posting annual profit growth over the ten years up to the early nineties during which time populations expanded in microns.

The first world became host to fifteen million ex-middle managers who it would seem, had turned to running small, medium and micro enterprises (SMMEs) which also appear to be a Whole New Set of Resource-based Sustainable Economies on their own!

But still just guys scratching for a mortgage, education for the kids and this outrageous (to management) new-fangled thing called a pension which appeared for the first time about a generation ago and will certainly not survive into this current Boomer generation..

THE ‘HIDDEN HAND’ HAS LEFT THE BUILDING

“Growth’ was generic yet its source ‘invisible’ to industrial revolution- population growth-geared economy.

Today it’s a completely different ball game, of course, except for pork bellies, sorghum, wheat and genetically modified corn.

For more customers = population growth, the First World has turned to the developing, high population growth Third World for the embedded ‘necessity’ for profit growth.

After the computer age put middle management out to work and before Third World intervention the Age of Leveraged Buyouts, Hostile Takeovers and Mergers came upon us as the only way to satisfy the ubiquitous (and now labeled ‘greedy’) shareholders’ demand for annual profit increases.

“Sustainable” is still waiting in the wings with the SMMEs.

Back home in the early ‘30s we saw foreclosures, expensive labor outsourcing, cheap labor brought in and price fixing so bad Woody Guthrie made note of a truly unbelievable economic ‘solution’ to the starvation caused by The Great Depression: destroy food.

“The crops are all in and the peaches are rott’ning,
The oranges piled in their creosote dumps …”

Right now, with my take on short-term economic pocket history in mind, make a note of what the American banks are doing with the ‘bailout’ money given to them by taxpayers to lend back to taxpayers – if they’ll let you see the books.

I say they are creating an even Greater Depression, even deliberately; but then so say all the other new students of economics, all reaching the same conclusion from different routes.