Day 241: Will Inflation be a Problem with Providing a Living Income Guaranteed?

‘Inflation’ is one of those big posh words that people like to use when they want to show off that they’re “in the know” of economics and money mechanics. You hear it on the news, tv, the internet and when you listen to other people talk about it, it never really becomes clear ‘what it is’ or ‘why it is so important’. But you won’t ask about it because you don’t want to appear like you’re “not in the know”. It’s kind of like the story of The Emperor's New Clothes, where only ‘smart people can see’ the clothes and where everyone pretends that they can see his wonderful clothes while he’s actually walking around in his undies (or naked depending on your source )… It’s just something everyone has agreed upon has ‘great importance’ but no-one really knows the “how’s” and “what’s” and no-one questions it.

So is inflation really this ‘big’ and ‘complicated’ concept that only our economists are in the know about? Not really. I mean, one of the first things you will learn when getting to the topic of inflation is that there is very little known about the exact causes of inflation and how good or bad it is for the economy. Most of the time, the concept will be used to suite the authors ideological standpoint and so you get a lot of conflicting answers to the same question.

So what is inflation? Inflation (because no-one really knows how it works) has been given a very simple and broad definition – so that you can’t really ‘go wrong’ with it:

“Inflation simply refers to the continuous increase of prices in an economy. So - two points are important to note: if prices go up and then remain stable for a while, we don't refer to it as inflation, as inflation only applies to a continuous increase in prices. Secondly - if the price of petrol keeps rising, but all other prices remain somewhat stable, we're also not dealing with inflation, because in the case of inflation all prices keep rising.” 

This is taken from one of our previous blogs we made which was on the topic of Inflation, so if you want to read up about it you can do so here: Day 64: Inflation - Part 1 (also read the comments).

So you see, inflation is nothing scary or complicated, it’s just prices of all things going up and up over time. When the ‘issue’ of inflation is brought up, it’s not so much the rising of the prices that is an issue – but the wages that lag behind. Because what happens is that you used to be able to buy say a thousand breads with your monthly salary, and with the prices going up and your wage remaining the same – you can now suddenly only buy 800 breads. So here, you have a problem because your purchasing power has been diminished. Because obviously so long as you keep the variables on either side of your equation in proportion – you won’t have a problem and you’ll be able to buy just as much. It’s only when one variable goes up and the other one stays the same or lowers – that you get a problem in your proportions. What happens then is that people will start buying a lot and hogging things because they fear the future prices which will be higher, but then within this increase in consumption place the products in ‘higher demand’ and thus up the prices again – so it becomes a self-fulfilling prophecy to the point where you get hyperinflation.

So with putting into place a Living Income Guaranteed to ensure everyone’s Living and placing in a Minimum Wage amounting to double the LIG – yes, your prices will go up and so yes, that could be considered ‘inflation’. But remember that inflation in itself a neutral manifestation – meaning, it just is what it is as pricing going up. It doesn’t mean anything else. It only starts meaning something else when we fail to adjust ourselves where nominal wages remain the same while real wages go down. So yes, there will be inflation but it won’t be a problem from the perspective that your prices are directly linked and interconnected to your wages where at all times your Living is Guaranteed and thus your wages / living income will adjust to the prices to make sure everyone is able to live decently and vice versa where your prices will adjust to ensure that you get a decent wage. Here one must also consider that we will have Bureaus of Standards in place managing Quality Assurance and Control where there will be a move from obsolescence and disposability to quality and durability – which means that you will have to buy less.

So from that perspective – the whole “inflation” horror story will become something of the past as it simply won’t be able to affect anyone to the point where it does damage, as your wages and prices are no longer separate bodies but closely connected and intertwined. You will thus at all times, be protected.

Another point where inflation becomes a problem is when it is linked to a growing money supply without a matching growth in economic activity. So when the government for instance decides to finance its debt simply by printing money – you suddenly have an increase in your money supply which makes money ‘worth less’ (because ‘scarcity’ makes things ‘more valuable’ and so the opposite happens). Because this money came out of nowhere without originating or being connected to any form economic activity of real value such as labor and production – your system / equation gets thrown out of balance and all these money born out of ‘no value’ in turn has the effect devaluing / tainting all other money already present.

This type of situations will not be occurring within a Living Income Guaranteed as proposed by the Equal Life Foundation, as you will be able to discern for yourself from our previous blog on banking: Day 240: A Bank for the People, as banking/financing will always be directly related to actual activity, actual growth and actual value – and will thus not be able to throw the system out of balance.

Also check out Will the Living Income Guaranteed cause Inflation?, to get a new perspective on Inflation and to see and realize how inflation it its traditional use of the word has become a distraction of the actual Inflation taking place in our lives and in the economy – where inflation is an actual problem.

Related articles

• Day 330: Inflated Egos, Deflate Reality.
• Day 252: The Rich Be Cursed, The Rich Be Blessed
• Day 251: Living Income Guaranteed and Market Mechanics
• Day 227: The Myth of Conscious Buying
• Day 226: Living Income Guaranteed will Prevent Destruction of Homes

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Day 239: Sustainable Pricing with Living Income Guaranteed

When we have a look at how prices have been determined throughout history, we can see that that for most throughout time (up to until the last 50-100 years), prices were set in the interest of the owner of the product / service, whereby those who labored on the products were given miniscule wages. Back in the day, we had so many people living in absolute poverty and hardship that any wage – even if it was next to nothing – was ‘good enough’ for them to take the job.

When people would start getting tired of their ridiculous wages and crappy working conditions, the business owners could always just fire them and replace them with people who were worse off and thus wouldn’t ‘complain as much’. With our tendency within society towards division and discrimination, there was always some form of group lower on the ladder, whether they were from a different race, newly emigrated, different gender, lower class,… -- there’s was always some chap in a more horrible condition that would take the job – and so never any real change came about in terms of everyone together standing for a living wage. Much of this same scenario is still taking place in the world – where it is taking place ‘out of sight’ and thus ‘out of mind’. Where slaves and minorities have now been replaced with alienated workforces abroad. As long as it’s ‘not us’ and ‘not in our face’ – we don’t seem to care.

If we have a look at the minimum wage concept, this is a fairly new concept when placing it into context of our entire history. Not so long ago, the idea of a minimum wage was even ruled to have been ‘unconstitutional’ In the United States, because it limits the scope of ‘freedom’ within contracts. So the freedom involving someone entering a contract, was deemed more important than the freedom to one’s Life, to the freedom of earn a living wage whereby you can sustain yourself.

So even though we now have certain protection points in place like the Declaration of Human Rights, and all sorts of Bills that are supposed to safeguard and protect our dignity and well-being – we still seem to shift in our ‘old way’ of doing things, where we care more about the freedom of contract, the freedom of the business environment than we do about the freedom of our own Human Rights. After all these years of so called ‘progression’, we have still failed to see and understand the simplistic connection that exists between prices and wages.

Many of us who do earn some kind of wage, still have to be careful about our spending. Because our wages are not secured, and very likely to be lower than what we’d like – we are picky with our spending and will look for the ‘cheap stuff’. The more cheap stuff we buy, the more stuff we can get for our money. It seems like a rational decision, following that ‘since I have so little money, I better buy things that cost little money, so that I can at least ‘maximize’ my purchases with the little I have’. Because we are purchasing and buying from a starting point of fear, a starting point of lack – we look for what is cheap. Yet, we fail to see that things can only be ‘cheap’, if somewhere down the production line, other things were made ‘cheap’ – which in most cases would be = the wages. So because we have cheap wages we buy cheap stuff and maintain our cheap wages because that is what we are supporting through buying cheap things. It’s a cycle that feeds itself.

When we do our shopping and purchases, we only look at prices in relation to our own pocket. We forget that there is another party involved as those who participated in its creation process, whose wages are to be paid and included within the price of goods and services. We only care about ‘getting the best deal’ where we are happy when we got something very cheap, and then feel cheated if we find out we paid more for something, where we could have paid less. We don’t get that for us to have our happy/winning experience when getting a ‘good deal’, someone else has to be cheated on --- where they are now being paid less than their actual value as a living, breathing, laboring, contributing human being.

In modern society, most of us are both the consumers and the workers. We are the ones feeling like we’re winning when we can buy cheap things and we are the ones feeling like we’re losing / being cheated on when we get our paycheck.

The only way for us to have a healthy relationship towards consumption and our own dignity as a human being as being intricately involved in the creation of products for consumption – is by directly connecting prices to sustainable living wages. Prices should not be set first, where only afterwards we give the ‘leftovers’ and ‘scraps’ to the workforce. Living wages should come first, and not be up for negotiation when setting and calculating prices. It should become downright illegal to price any product or service in a way that diminishes the wage level of an individual to lower than that of a sustainable / minimum living wage – because this would be a direct infringement on someone’s Right to Life.

As part of the implementation of a Living Income Guaranteed, Prices should thus firstly serve to sustain living wages and should only secondarily (if at all) be used towards the purpose of furthering competition in the name of business. If everyone lives on a Living Income or at least a Minimum Wage, everyone can afford this form of sustainable pricing (unlike in the current system, where for many households ‘fair trade’ products simply exceed one’s budget) and we can have system where we support others’ labor as a contribution to society the way we would like to be valued and

Related articles

• Day 252: The Rich Be Cursed, The Rich Be Blessed
• Day 246: Green Economics - the Newest Fad?
• Day 226: Living Income Guaranteed will Prevent Destruction of Homes
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• Day 251: Living Income Guaranteed and Market Mechanics
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Day 188: Simple Solutions in Equal Money Capitalism

This blog post is in relation to a comment placed on one of our previous blog-posts - you can check out the full comment at http://economistjourneytolife.blogspot.com/2013/02/day-186-invisible-hand-is-invisible.html#.URaxbvJBnTo.

"We can’t have equal pay because of the variable levels of experience, skill, and education. People should earn what they deserve, based on their education and skills."

The problem within remunerating individuals based on their level of experience, skill and education is that we're judging certain levels of experience, skill and education as good and others as bad. Herein, take the example of paying a technician more than a doctor - both are equally valuable contributions to society, yet we'll pay the one more because of a higher education level. In creating such divisions, you're giving people incentives in terms of what jobs to do based on money - where people will become lawyers and doctors and engineers because there's money in it - and not necessarily because that's what they would really love to do. And obviously, when you're passionate about your job, you'll push yourself to be great at it - not because of someone else's expectation, but because of one's own self-integrity. And a doctor who actually cares about his patients will be a better doctor than one who did it because he could and it would give him a nice personal life.

Also consider that not everyone has the same capacities. Some are naturally skilled in managerial tasks, others are really good with their hands - but again, both are equally valuable - so we can't remunerate one person more than another based on skill either.

In terms of level of experience - each one requires the time to grow in their profession, but that doesn't mean that we don't require the same amount of financial support in the meantime.

For more perspective on this point - please read one of our previous posts: Day 181: Applied Equality in Equal Money Capitalism

"However, if we reduced the over inflated costs of crappy products, removed the fees for electronic services that don’t need manual labor, and diverted 50% of our national defense budget back into improving our infrastructure and economy. We would see new jobs, more tax income for the cause, and a happier, more productive community and labor force."

What we suggest in terms of pricing is to have prices determined through only considering the people who were involved in the production process. From a previous blog:

"Profit is not to be understood in the same way as it is now. At the moment - profit is what is left after wages have been paid and production costs are covered. Within EMC - there will be no wages - your profit will be your wage.

So - every time a product is scanned when it is bought - the computer sees what percentage of the price is allocated to whom - and immediately the money-allocation happens accordingly. So - there's no need to wait a year to calculate profits - it will be immediate.

So - understand - that within EMC - you only ever pay for added value - added value is the value you add to a resource through labour - that - and then of course your tax. So - you're not paying for your resources. When value is given by a person - the person receives in return through profit. When resources are used by companies - they must give back as much as they can. So if a company uses wood within their production process, there will be a department within the company that plants trees. The same with using water - if clean water is taken - the dirty water after the production process is complete, must be purified and go back to the Earth. So - resources won't be owned - it will be a matter of take what you need and give back as you received."

And:

"It makes no sense to claim that one can 'own' a part of nature or the Earth - as physical resources - outside of oneself. Why? Because the Earth and nature were here long before us and they will remain here after we are gone - so how can we say that any of it is 'ours' - it's not ours."

To pay for resources, would imply giving money to the owner of the resource. But with the Earth being the owner, it makes to sense to give money to the Earth, because it means nothing to the Earth - money is only relevant in a human society. So - rather - we 'pay back' the Earth through supporting it in a physical manner. Each company will have an Environmental Department that is in charge of giving back what was received from the Earth insofar as this is possible.

Prices will thus be determined only considering that with the sales of the product, each one involved in the production process, ends up with an equal wage and this wage must be adequate to be able to live a meaningful life- which is a mathematical equation that can be worked out for each product and for each company. On these prices, taxes will be raised as government will still play a role within providing each one with their basic rights.

One of these basic rights will be employment. As you say - with technology able to replace menial tasks, we'll be able to create jobs where they are necessary - tasks that require to be done but aren't. The environmental departments of companies is one example. When unemployment is seen to arise - government requires to identify where further jobs can be created - or, another option is to reduce working hours or lower the pension age.

And yes - the role and magnitude of the defense forces must be reconsidered. If an EMC were implemented world-wide, they will likely no more exist as most wars are waged over economic reasons. When everyone is equally taken care of - there is no need to traumatize another country with physical violence to get it to comply to one's wishes.

"Unfortunately because people are elected into government based on their popularity. The politicians and powers that be are paid more than the average home, even though they have no special skills or experience. This leads to commerce and community decisions being made based entirely on the personal expectations, desires, and motives of the elected and now privileged group. With hardly any control from the people who elected them. Once they get there, they play a game of give and take with the community so they can keep their positions as long as they can. Serving in congress or the senate should be thought of as a privilege, there pay should be limited to that of an average household, to insure that they remain concerned for the welfare and health of the majority which they are still part of. In humanities quest for material items, fame, and fortune."

Totally agree. For politics, we suggest direct democracy where politicians are in essence merely administrators and not decision-makers and yes, where their wages are equal to those of everyone else. For more info on this, read: www.equalmoney.org/wiki/Politics

"We seem to have forgotten about the value of checks and balances. Anytime a system is out of balance, it is doomed to eventually fall apart and fail. Thus the proper individual course, is always one that leads to beneficial results for the community. Which then logically leads us to the success of our entire society. As it sits now, life is great if your above or near the fulcrum of our economy. But it can be grand or desperate depending on where you are on the arms, and that in itself is a sign of inequality and unbalance."

Yep, totally agree!

Related articles

• Day 163: Equal Money Capitalism - Redefining Profit
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• Day 167: Harmony and Equilibrium within Equal Money Capitalism
• The Future of Integrity with Equal Money Capitalism
• Day 175: The Economic Problem and Equal Money Capitalism
• Day 165: Equal Profit Share and Equal Money Capitalism
• Day 259: Give Happiness, Get Happiness
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Day 61: The Consumer Price Index (CPI)

The consumer price index – or short ‘CPI’, is used to measure changes in the price level of goods and services purchased by households, and is also used to measure inflation.

To measure the CPI, a study is done that investigates what the ‘average’ household (of the particular country for which the CPI is being measured) buys / spends money on in terms of goods and services. We are in essence working with an imaginary shopping basket/cart which has a whole bunch of stuff in it which is supposed to represent what a typical household spends money on.

When constructing the CPI, a few things are taken into consideration:

• Goods and services which should be in the ‘basket’
•  What weight should be assigned to each good/service (to  indicate its relative importance in the basket -- eg. Food over perfume)
• What base year is going to be used
• What formula is going to be used
• Prices have to be collected each month to calculate the value of the CPI for that month (as it gets published monthly)

For the first two points, in-depth surveys are undertaken to determine the relative weights, and the goods and services which should be included. Since this type of research is quite time-consuming, it only gets done every five years or so.

The base year reflects the year within which the initial survey/study was done to establish the CPI, and will be the year to which other CPI’s will be compared to.

Let’s look at a simplified version of the process:

In Country X consumers only purchase water and bread, where the ‘average’ consumer will purchase 10 bottles of water and 5 loaves of bread in a given period of time(“years”). Next we look at the prices for these items within each time period.

Year	Price of water	Price of bread
2005	$1	$3
2006	$2	$4
2007	$3	$5

Now we calculate each basket’s cost per time period:

2005: (10 x $1) + (5 x $3) = $25
2006: (10 x $2) + (5 x $4) = $40
2007: (10 x $3) + (5 x $5) = $55

Next we pick a base year, and calculate the CPI – we’ll use 2005 as our base year.
The CPI for 2005 is ($25/$25) x 100 = 100              (cost now/cost base year) x 100
The CPI for 2006 is ($40/$25) x 100 = 160
The CPI for 2007 is ($55/$25) x 100 = 220

To see how much prices increased from time period to time period – we simply subtract a 100 (= base year index) from the comparison year. So if we are using 2007 as our comparison year, we can conclude that the prices increased 120% from 2005 to 2007.

Different CPI’s will be measured for different expenditure groups such as: pensioners, urban wage earners, different provincial/metropolitan areas etc.

Since food, energy, housing and mortgage rates will usually take up quite a bit of ‘weight’ within the ‘basket’ – changes in the prices concerning these will have the biggest impact on changes in CPI.

The CPI gives a good indication in terms of increasing prices, but you can’t use it to measure the cost of living, since the CPI works with a ‘fixed basket’ – while the cost of living will change as people will substitute items for one another as prices move higher / lower (so for instance, if coffee becomes more expensive and tea cheaper, people will start substituting coffee with tea, and so try and maintain the same expenditure level, rather than just going with a ‘fixed basket’ and being non-responsive to price changes). The CPI also does not take into account the introduction of new items. If for instance internet was just introduced in the year 2006 in Country X, it would not yet be included in the CPI for the next couple of years until a new basket survey is done, and so internet prices would not be accounted for until the new survey is done. Another point which is not covered is that of quality. If bread became more nutritious but cost the same, the cost of living would remain the same while living standards would go up.

There's not much to this point, it's just one of those things we've made up to 'measure' and 'evaluate' our economy' while in no way whatsoever measuring anything real, since our economy is all about infinite growth. 

Since we're living in a world of major inequality, the CPI will also in most cased not really be representative -- as with any 'average', you're just drawing the two polarities together (extremely rich and extremely poor) and so you're not really working with anything which really represents the 'cost of living' within this world, since the majority of people are not living an average life -- but a life of misery. This 'misery' is easy to hide away in averages as the abundance of the rich will quickly "balance" this misery out in numbers. When looking at for instance per capita income, you are also working with averages. So if you have ten people in a group, and 9 out of ten earn $1000 per year and one of the ten makes $100 000 (eg small wealth elite scenario) -- you get a per capita income of $10 900, which is the 'average', but completely not representative. And so with any model in economy where one work with 'averages' you're always working with a misleading picture which will always portray things to be better for the "average person" than what they really are.

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Day 59: How Far can We Stretch our Customers? - Part 2

For context, please read: Day 58: How Far can We Stretch our Customers? - Part 1

I forgive myself for accepting and allowing myself to try to milk my customers as much as I can so that I can earn as much profit as I can - and to be able to do this use the concept of elasticity and if I see that the product I am selling has low price elasticity of demand - I will make the price unnecessarily high, because I know that my customers will pay the higher price anyways.

I forgive myself for accepting and allowing myself to think 'Suckers!!!!!!' as I raise my price in seeing that the product I am providing has a low price elasticity of demand - because I know that I am fucking over my customers but there is nothing they can do about it, because I am simply following the rules of the free market economy - and thus, I know that I am abusing my fellow human, but can get away with it and within that I feel all powerful and smart because I have got the long end of the straw.

I forgive myself for accepting and allowing myself to believe that just because I am operating my business in a legal way, that my behaviour is acceptable - instead of seeing, realising and facing the actuality of my actions for what they are: that I am taking advantage of people and what people need.

I forgive myself for not accepting and allowing myself to realise the disgrace and absurdity of an economic system that allows individuals to literally play with the lives of others by raising prices as long as there is enough people that are willing and able to pay the higher price - without considering that there are simply things that HAVE TO be available to everyone, such as housing, food, clean and drinkable water, electricity, education, etc. - just to be able to survive in this world - and thus any economic system where people are left out is unacceptable and must be stopped.

I forgive myself for not accepting and allowing myself to realise that in teaching students of economics what the concept of elasticity means and implies, we are educating the next generation in how to fuck over our fellow human beings, making sure that our legacy of nastiness and spitefulness continues - where we will fuck someone over and then smile and say "hey, it's just business".

I forgive myself for accepting and allowing myself to abdicate all responsibility for my actions within the economic system to the rules of the game - because: hey, this is how it's done, it's nothing personal, I gotta do what I gotta do - as though the game and its rules can ever exist without its players - not realising that it is the players who play the game that create and sustain the game - and therefore, each and every one is responsible on a personal level for all the atrocities that are accepted and allowed as consequences of playing the game of free trade.

I forgive myself for accepting and allowing myself to believe that my behaviour of nastiness and spitefulness is acceptable in economics, because everyone's nastiness and spitefulness will 'balance each other out' so that, in the end - the consequences of this spitefulness and nastiness remain limited and contained - without realising and seeing the ridiculousness of such a statement and belief.

I forgive myself for not accepting and allowing myself to realise that our economic system is simply showing us how we have limited ourselves into believing that we'll never be anything else than lying and cheating bastards who will smile in each others' face and then stab each other in the back - and as long as we keep training new generations in the way of Nasty Economics, we ensure that this is all humanity will ever be - instead of just stopping the insanity and commit ourselves to stopping any form of abuse, inequality, atrocity, nastiness, spitefulness, backchatting and backstabbing - and create a world that is a home, rather than a minefield.

I forgive myself for not accepting and allowing myself to realise that we've created our world to be one big minefield where we are living in continuous fear of being fucked over by other people, because we know that's what they do - because we know that's what we do - yet on the surface we will be friendly and cheerful and say 'I love you so much' - because admitting to the reality of the situation and actually facing our fears seems like too daunting a task, not realising that what we're currently saying is: 'let me rather just try and avoid the invisible mines and try to not get blown to pieces' - as though that's such an easy task.

I forgive myself for not accepting and allowing myself to realise that because we suppress our fears of each other every moment of the day, doesn't mean that they are not existent within us and that it is not how we truly experience ourselves - but we rather pretend to be and feel different than who we really are by playing a character of joy and peace and love, continuously suppressing the FEAR that lingers within, until one day we get a burn-out and become depressed and we don't understand why - not realising that how you experience yourself in those moments is how you actually always experience and have experienced yourself inside - as a creature that does not feel, nor know, nor understand joy, peace or love.

I forgive myself for not accepting and allowing myself to realise that I have never really seen or experienced myself as everything that I have suppressed within myself, yet keeps lurking in the darkness - but only ever experienced myself as the various characters that I have designed for myself to be able to cope with my environment and my inner reality for those moments where 'dark thoughts and emotions' creep up to the surface - in the same way that I have never really seen or experienced the world we live in as all the pain, agony and atrocities that happen every day - but only focus on those parts of the world that make me feel better about myself and make me feel like I am living a good life, a happy life - blinded by fear of what I have created and continue creating every moment of the day that I ignore who I am.

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