17 August 2012

Day 70: Feedback on Inflation and Purpose of This Blog

Below is a cool discussion that took place in the comments section of the blogs:

Day 64: Inflation - Part 1
Day 65: Inflation - Part 2
Day 66: Inflation - Part 3

Nina said...
1. Moderate inflation does not necessarily cause loss of competitiveness in international markets. Usually inflation occurs when there is an increase in money supply. Exchange rates adjust to changes in money supply faster then prices do. Prices are relatively sticky.

2. Higher demand does not always come inflation. In fact, the level of demand which is significantly below production capacity pushes
costs up, because it makes per unit fixed production costs and marketing costs to increase. Therefore a very low demand is just as likely to cause increase in prices as very high demand.

3. Demand depends on the population structure. Young population demands a lot of goods and services. Older population is conservative with spending and has high propensity to save.

4. Although it is true that hyprinflation is destabilizing for the economy, a moderate inflation is believed to help job creation and promote economic growth.

Maite Zamora Moreno said...
Hi Nina,

Cool that you're following this blog and adding your input. Though your statements are accurate (and btw don't contradict anything that was written), they are irrelevant to the purpose of this blog - which is to give readers a basic understanding of economic concepts so that they may gain insight into economics and how economics affects their lives. We're working here with simplified models so that the essence of the information can be grasped. The reality of economics is never this clear-cut and in practice contains many shades of grey - but the essence of the concepts remains and the understanding of them is really all that's necessary to gain a clearer understanding of what makes this world go 'round.

Now, Nina - I challenge you to look further than your schooling and merely entertain yourself with the extent of your knowledge - but to really question the implications of this economic system. Instead of regurgitating the general opinions and beliefs about it as how you've been presented with them in your education, investigate it for yourself in common sense. Our economic system has become far more than some 'fascinating object of study' - it is the one thing that controls people's lives. So - wake up and smell the coffee. Time to take responsibility within the knowledge that you have.


Nina said...
Ah, sure, I already woke up a few years ago, in 2007, to be precise, when I wrote a letter to CFA institute, saying that with economic theory such as we have and teach we are headed streight towards the next Great Depression. I have explained back then why. I did not get a reply from them. I am not sure if you are interested either. The truth is, our economuc theory IS a mess. The reality is, we need this screwed up system to manage the screwed up people we have. If all people were 100% mature, 100% conscientious, 100% hard working and 100% willing to share we could have a much better system. But people are the way they are. Most of them lazy, irresponsible and greedy. This is why despite all the theoretical considerations the current fkd up system is the only one that works despite all odds with a little help from the governments, religious, charitable and various regulatory organizations. Ah, yes, andone more problem. We have 9 billion people on Earth and counting. Some believe it is too much. So we need a system that can help us reduce the numbers, no matter how faulty it may seem.

Not sure how this article is helping readers to understand the flaws of the current system. What I see is the concept tgat inflation is way too dangerous. And since it is sooo frkng dangerous let us make sure most people do not get access to money, because once theyget money they aregoing to demand goods and services, which will drive prices up. There are a couple of problems with this vision of inflation, which I have mentioned in my previous comment.
Maite Zamora Moreno said...
Hi Nina,

There is a different way, I suggest investigating www.equalmoney.org.

In terms of the purpose of the blog - it's not to look at this one blog-post in isolation. In this post we're merely explaining the concept of inflation so that people may develop their vocabulary and more easily engage in/understand economic discussions and call out the bullshit.
Nina said...
I think I finally get the point. In a market economy the problem ofscarcity is resolved through a price increase. Suchway of a probkem resolution is in favor of the rich (who can still afford it at higher prices) and against the poor (who can not). Definitely this is unfair and causes numerous economic problems. I believe the 2008 crisis was to a large extend caused by that principle. First, the housing becomes sarce. Then we deal with the problem mainly by charging higher prices for real estate property. However, higher prices do not make scarcity disappear. They just make it less painful for people with sufficient money to pay themselves out of it.

This certainly goes against the rest of the people, who do not have enough financial resources to deal with scarcity by simply paying more then others do. One way they try to deal with it though is by borrowing more then normal, and for peope already struggling financially such borrowed money is almost impossible to repay, which leads to the credit crisis.

Becides, since scarcity can lead to higher prices and more profits it makes a lot of sense for some business groups to create it artificially! One fatal example of it I see when senior employees are purposefully sabotaging training and developement of junior employees withing the corporations. With more and better trained junior employees corporaions could produce more goods and services, which would be for everyones good. However out of fear of competition, or being replaced, or lising one's job, or having to accept pay cuts senior employees do their best to get rid of the juniors. That makes them more scarce and more valuable to their prospective employers! So juniors are punished into years of fruitless university studies and tens of thousands dollars of student loans that they can never repay, because they can not get jobs and acquire real skills necessary to do them. This way we have a waisted youth and a waisted economic system, capable of producing almost nothing at a reasonable cost. A better approach todealing with scarcity is certainly
needed and was previously concidered through planned economies. The concept was good. However implementation was tricky, especially with the leaders, who are not 100% trustworthy."
Maite Zamora Moreno said...
Cool Nina - you should consider starting a blog of your own ;)

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