Re:Machines Already Took Our Jobs
by imtringued on Saturday February 20, 2021 @08:59AM
(#26204109)
>Human wants and needs are unlimited.
Before someone gets the funny idea that they aren't. It's literally government policy to hit at least 2% CPI inflation. CPI inflation measures the ratio between demand of consumer goods and services versus its supply. 2% inflation means there a tiny bit more demand for economic activity than can actually be supported by the economy.
This means there is an incentive for companies to grow and try to max out the production capacity of the entire country. This is especially important since production capacity cannot be saved in the literal sense. Money is just a piece of paper that says someone owes you a certain share of their production capacity. If you don't make sure the production capacity exists by the time you retire your money is worthless, which is why deflation is generally considered a death sentence for economies. Low demand causes companies to reduce their production capacity, which reduces employment and lowers demand in a vicious circle.
Demand side inflation through government stimulus can be effective way of accelerating the recovery of an economy with high underemployment. By doing pointless busy work like investing into better internet, upgrading the electric grid, building out renewables or even building public housing you can make sure that there is a baseline of employment. Since this work is funded through government debt it is increasing the supply of money. As I already have said. Inflation is what happens when you exceed the production capacity of your nation it tends to accelerate during full employment. Once there is enough work for everyone people get to choose their employers and they obviously pick the highest paying ones. Governments raise interest rates to make sure that only the most productive companies get funding. Inflation goes down and hits the 2% target again.
The big question is why does the central bank engage in ineffective policy? Why would it keep dropping interest rates when most corporations are already well funded and their biggest problem is that there isn't enough demand for their products? You need to give money to people but if they aren't credit worthy how isn't this just a central bank driven pump and dump since you're only giving money to those who don't need it?
Before someone gets the funny idea that they aren't. It's literally government policy to hit at least 2% CPI inflation. CPI inflation measures the ratio between demand of consumer goods and services versus its supply. 2% inflation means there a tiny bit more demand for economic activity than can actually be supported by the economy.
This means there is an incentive for companies to grow and try to max out the production capacity of the entire country. This is especially important since production capacity cannot be saved in the literal sense. Money is just a piece of paper that says someone owes you a certain share of their production capacity. If you don't make sure the production capacity exists by the time you retire your money is worthless, which is why deflation is generally considered a death sentence for economies. Low demand causes companies to reduce their production capacity, which reduces employment and lowers demand in a vicious circle.
Demand side inflation through government stimulus can be effective way of accelerating the recovery of an economy with high underemployment. By doing pointless busy work like investing into better internet, upgrading the electric grid, building out renewables or even building public housing you can make sure that there is a baseline of employment. Since this work is funded through government debt it is increasing the supply of money. As I already have said. Inflation is what happens when you exceed the production capacity of your nation it tends to accelerate during full employment. Once there is enough work for everyone people get to choose their employers and they obviously pick the highest paying ones. Governments raise interest rates to make sure that only the most productive companies get funding. Inflation goes down and hits the 2% target again.
The big question is why does the central bank engage in ineffective policy? Why would it keep dropping interest rates when most corporations are already well funded and their biggest problem is that there isn't enough demand for their products? You need to give money to people but if they aren't credit worthy how isn't this just a central bank driven pump and dump since you're only giving money to those who don't need it?