Category Archives: Inflation and deflation

Alan S. Blinder’s Reply to John H. Cochrane

δὶς ἐς τὸν αὐτὸν ποταμὸν οὐκ ἂν ἐμβαίης.” (Heraclitus)

“No man ever steps in the same river twice.”  (translation of Heraclitus)

Each of the 1970’s, 1980s and current 2020s has featured its own unique and nuanced combinations of circulating flows of products and money in phases of normative expansion, divergent boom; and corrective contraction. The flows of these decades are not all identical flows which anyone can simply reference to justify a present shallow opinion.

The Wall Street Journal of Monday, August 7, 2023 included Alan S. Blinder’s reply to John H. Cochrane.  (See the two posts below on this Home Page.) Continue reading

Key Concepts of CWL 15, Section 26: The Cycle of Basic Income

There is sufficient content in this Section 26 to serve as the basis of an impressive graduate thesis featuring explanatory first- and second-order differentiations of interdependent functional activities implicitly defined by their functional relations to one anther.  The set of equations would constitute a significant part of a complete explanatory theory.

  • Part I: Introductory

  • Part II – Divergent Flows of Products and Money; Consequent Inflation or Deflation

    • Case A: The problem of an inadequate rate of saving in a surplus expansion; I”/(I’+I”)

    • A note re stagflation stifling a full surplus expansion

    • Case B: The problem of an excessive rate of saving in a basic expansion

  • Part III – Outline of Traditional Theory’s Lack of Understanding re Artificially Manipulating Interest Rates

  • Part IV – Selected Excerpts and Comments Relevant to CWL 15, Section 26, “The Cycle of Basic Income,”  pages 133-44

Continue reading

Should Anyone Brag About a “Soft Landing?”

First, suppose an initially equilibrated economy.  Then, suppose that a lagging, though severe, inflation is effected by an injection of additional money, which is not correlated with, and is in excess of, the magnitudes and frequencies of the productive requirements of this economy,  If, finally, after the lagging, severely-damaging inflation, there is a  merely-gradual decline of the rate of inflation, do you think that anyone should brag about the achievement of a metaphorical “soft landing?” Continue reading

Pointers Regarding Interest Rates and Inflation; The Delusion in Manipulation of Interest Rates

We encourage the reader to consult the following entries.

The Ineptitudes in Central Bank Operations

John H. Cochrane’s Article in the Wall Street Journal, Thursday 8/25/2022

Facing Facts: The Ideal of Constant Value of the Currency vs. the Fact of Inflation

The Road Up is The Road Down; the Mechanism of rising and Falling Prices

Stagflation Demystified

Paul Romer’s “Endogenous Technological Change” in Bernard Lonergan’s Framework

Here are a few brief selections from the above treatments:

Traditional theory looked to shifting interest rates to provide suitable adjustment.  In the main we shall be concerned with factors that are prior to changing interest rates and more effective. [CWL 15, 133) Continue reading

Elizabeth Warren’s Advice to Jerome Powell; Sentiment Without Intelligence

The Wall Street Journal of 7/25/2022 featured an article by Senator Elizabeth Warren:  “Jerome Powell’s Fed Pursues a Painful and Ineffective Inflation Cure.” Because she lacks an objectivenormative, abstract, explanatory theory and, thus, fails to understand the functional interdependencies constituting the organic economic process, particular arguments in her article are a) sometimes contaminated by psychopolitical wishful opinions, b) often ignorantly one-sided because she is unaware that some policies have double edges, c) sometimes contradictory of her other arguments, and d) in at least one case, supercilious.

E. Warren suffers from the same plight as Thomas Picketty. To satisfy her responsibility to the public, she needs to achieve a scientific understanding of the organic economic process; she needs to get a “grip.”

We are at the heart of Picketty’s plight: he has no clue of the needed grip on the grounds of the inequality in history.  So, what else can he offer but a centralist solution, taxation, to history’s drunken careening. (McShane, Philip, Picketty’s Plight, 53)

In equity (the basic expansion following the surplus expansion) should be directed to raising the standard of living of the whole society.  It does not.  And the reason why it does not is not the reason on which simple-minded moralists insist.  They blame greed.  But the prime cause is ignorance.  The dynamics of surplus and basic expansion, surplus and basic incomes are not understood, not formulated, not taught….. [CWL 15, 82]

(Continue reading)

A Flood of Money into the Operative Circuits plus a Speculative Boom in the Stock and Bond Markets

The flooding of the operative circuits and the Redistributive Function with free money for Demand will, absent basic and surplus expansion of production, cause product prices to rise.  This flooding of the economic process with non-productive money may be accompanied by a speculative boom in the stock market to further swell Demand and make the situation even worse.

It is to be recalled that the account given of the cycle of the basic price-spread ratio supposes (D’ – s’I’) to be zero throughout.  A speculative boom in the stock market which encourages basic spending may be represented by a positive (D’ – s’I’); there is an excess release of money from the Redistributive Function to the basic demand function.  Alternatively, it may be represented by an upward revision of the fractions wi of total current income going to basic demand, while the fact that the surplus final market suffers no contraction then results from the excess of the rate of new fixed investment over the rate of pure surplus income, so that D” is positive.  In either case, a movement of this type with its basis in redistributional optimism will offset any tendency towards a contraction of the price spread and will reinforce any tendency of the price spread to expand.  On the other hand, the subsequent stock market break intensifies the crisis of the circuits, removing the props that had hitherto swollen expansive tendencies, and leaving the system with a greater height from which to fall. (CWL 15 162 )