Re:
by barry-cotter on Saturday October 29, 2022 @02:55AM
(#33381680)
> it becomes a self-reinforcing perpetual motion machine.
Only until expectations catch up with the reality of the money supply. If there isn’t enough money in the business’s account to pay that 13% raise people get fired or the contract gets renegotiated, or the business goes under.
once inflation is embedded in the economy the velocity of money matters more than the supply, because the sticky price effect causes a spiral.
there will be enough money in that business's account because they will do the obvious thing and increase prices by 13% - after all, their costs are up and their customers are making more money so they can easily absorb the increase.
here is a simplified illustration of the phenomenon https://archive.nytimes.com/krugman.blogs.nytimes.com/2008/0...
e.g. imagine you negotiate a 13% raise because inflation was 13% last year (btw so did everyone else). congrats - everyone just guaranteed that they will have enough money to create 13% inflation next year, when the cycle will repeat
unemployment solves this because it's a "-100% raise" and takes spending power out of the economy
and inflation is generally considered bad because among other things it distorts markets for savings and loans