I'll admit it, I'm not an economist. I do understand economics like I understand how to walk, sit and speak. If you live it, you understand it, unless you aren't paying attention.
I have 4 major disagreements with current economic forecasting theory in the mainstream media and politicians.
MY THESIS:
Inflation isn't caused by high prices. High prices aren't even a harbinger or indicator of inflation. In fact high prices often can be a deflationary influence. Yet, every time I hear a report about oil prices, diesel prices, gas prices, home heating prices and steel prices it's always followed by the statement that this could lead to higher inflation. Then worse, politicians push on Greenspan and the Fed to do something about inflation (by raising interest rates).
MY FRUSTRATION:
How dumb can you get and still breathe? Sorry to be so blunt but I wish one cogent person on the planet would help me understand where this grand delusion comes from. Don't they teach economics in high school anymore?
MY ARGUMENTS:
1. High prices for inelastic demand goods (Gasoline, diesel, home heating in some part steel) act as a TAX on the economy. (the word taxing has nothing to do with IRS and everything to do with negative stress). If I have to pay more for things I MUST buy I will have less money to buy things I would LIKE to buy (discretionary income). I an expert on having too little discretionary income.
2. Inflation comes from shortages. Shortages? Oil, nope. Gasoline, Temporary. Diesel ditto. Steel. All of the above has to do with interruptions in logistics, not from core scarceness. We have little genuine scarceness. Oh, those prices will be higher for a while, but they aren't inflationary. Not inflationary because there far too much capacity for everything else. Name me ONE item that is short (for real). Milk, bread, rental property, automobiles, clothing, food in general, tires, name ONE. Every item in our economy is in abundance or surplus. I thought about this long and hard. I can't come up with one thing you can't buy all of that you want at whatever price you are willing to pay. That's a harbinger of deflation not inflation. Too many goods chasing scarce dollars. That brings me to #3.
3. Real inflation comes from too much money chasing too few goods. Look in your heart of hearts. Even among wealthy friends. Does anyone have so much money they are chasing too few goods? Do you? The big problem we have in our economy is liquidity. People have too little money. Real incomes in America on average adjusted to 1970's dollars basis is DOWN, a great deal. I (and you) are making less money than you did then in real dollars. In 1972 I knew many people who were making $50,000 per year and it wasn't considered big money. The shop workers we had then in our factory during that time were making $15 per hour and they tried to organize for more money. UPS workers in 1985 used to start at $18 per hour to load trucks, today it is HALF of that! Too much money. Not on your life.
4. High priced inputs only impacts profit not selling price. This is the issue I have the biggest argument with the MSM on. If it costs me more to produce a widget because of fuel prices I can NOT automatically pass on that higher cost to the consumer. I can try. But, the buyer who looks at my goods, prices them and makes a decision based on reduced discretionary income to buy or not at a higher price decides if I will be allowed by the market to sell at a higher price. The real price anyone can get is what I am willing to sell it for paired with what you are willing to buy it for. If we agree to that transaction that's the price. Not what I asked and not what you thought you were willing to pay. The actual price is after the transaction has taken place. So, for inflation to begin means lots of people willingly pay higher prices for discretionary goods. I don't see that happening any time soon. Discretionary goods are the only source of inflation, inelastic demand items higher priced are a drag on inflation pressures.
MY CHALLENGE:
I would hear anyone out who thinks I'm all wet. Your experiences might trump my theories. I need you to do more than tell about old aunt Helen, what happened to her, poor soul. Give me sound economic rationale that supports your argument. I, like many of you, lived thru and learned well from a rampant inflationary cycle that ended up with interest rates of 20% as normative. I see NOTHING like this in our economy at all today. AND?
MY CONCLUSION:
The biggest concern I have is an Illiquidity in the money supply as happened after 9-11 that causes a near miss with deflation and potential depression. We are tottering on that today.
THERE IS NO INFLATION!
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