Category Archives: Inflation and deflation

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]

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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 )