Tag: Deflation

As with many problems we face today, this is a solved problem.

About half of the New Deal can be summed up as “wage and price supports.” The post-war economic paradigm in the West was also about making sure prices and wages rose.

Avoiding deflation, by the way, is mostly about ordinary people’s income. If you don’t want deflation, make sure ordinary people are getting more money, faster than inflation and that they’re spending it.

Oh, there’s a bunch of other stuff, most of which comes down to: “Don’t let any oligopolies or monopolies form without subjecting their prices to close control.” That means both “not too high” and “not too low.” Think classic regulated utilities.

“You will charge enough to pay your employees well, keep the infrastructure in good shape, and make five percent a year. No more, no less.”

(Five percent is an example, other (lowish) numbers can be used.)

We have, or are flirting with, deflation right now because we refuse to give ordinary people money in a way which makes them think they can afford to spend it.

We allow inflation in the worst possible areas, like housing and rental prices in cities with jobs, and luxury goods, but that’s pretty much it.

If you let fixed costs have inflation above income increases, then everything else is going to have to suffer deflation, because it is discretionary. Gotta eat and have a warm place to sleep, first.

If a government wanted to end inflation, it could be done easily enough.

First, you go back to progressive taxation on corporations and rich people, without loopholes, based on, “If you earn the money in our country you pay tax on it here.” Yes, there will be attempts at dodging (especially by multinationals); yes, there are ways to deal with them.

Then you spend the money in a way that produces local jobs and creates a tight market.

Here’s your dead simple idea: Every building in your country must be at least energy neutral, and all the energy infrastructure must be made “smart” so this can be done properly.

Financially, your central bank says, “We will accept “energy savings bonds at 98 percent,” thus creating a market for it.  Your government offers the loans. Your mortgage guarantee authority says, “We won’t guarantee any mortgage for a building which is not, at least, energy neutral.”

If you can grow some big ones, larger industrial countries must even slap a tariff on things like solar panels, so the manufacturing is done at home. The actual refitting of buildings, of course, can’t be offshored.

Lots and lots of jobs. A tight market. Raises for people in the building trades. A boom.

There are plenty of other ideas like this, because there are plenty of other things that need to be done.

The direction must be long term. It would take a long time to refit all of America’s building stock. Companies can invest in that, because they know it will still be going on in ten years. Likely longer.

Now, for this stuff to work, you must understand that high, progressive taxation is necessary. All that money will end up in a corporation or rich person’s pocket eventually. The government then takes it back and recirculates it. (Yes, MMT people, we could just print the money and forget the wealth effect, but that’s a terrible idea because oligarchies are terrible societies in which to lie.)

You should also go hard on monopolies and oligopolies (start with the app stores, which charge 30 percent–but that’s another article).

The point is simple enough: there’s a lot of stuff we should be doing, and doing that stuff would end deflation if we were serious about it. It would also make the economy a lot better for ordinary people.

This has been another episode of “how to do policy.” I remind readers that good policy is easy, and that I don’t write about it often because the problem is not good policy ideas, or how to fix our problems (we know how to fix most of them), but that our current political-economic organization does not want to implement policy that helps the majority of people if doing so will upset current concentrations of money and power.

Some sectors can die, yes (coal now, oil in the next 15 years), but the structure cannot change.

So, if you’re British, figure out how to get Corbyn elected in the face of the endless propaganda against him. If you’re in the US, Bernie is your (current) best bet. In general, figure out how to overthrow your current systems, which includes the people running them, and how to do it in such a way that there isn’t a counter coup. (This is a larger question than just electing a leader, as the UK’s Labor Party and media are currently at pains to teach Britons.)

We’ve blown the incremental change chance. Revolution will now be necessary. In some countries, it will be largely peaceful. In others, it will be stopped and stagnation will continue until destruction.

And in still others, it will be the guillotine.

Those who make peaceful rev…well, you know the rest.