Much of what is in this msg is from Paul Krugman's column, as I
 interpret it, and an IMF report. However, a fair amount is what
 I find to be true, and have been saying for years. Little or
 none is directly quoted from either of the articles.

 Well, another interesting column by Paul Krugman.

 http://tinyurl.com/pqt87aj

 I have often said some inflation is a normal aspect of a healthy
 economy. One reason for that is, in a healthy economy things
 change, and some of those things that change make wages for some
 jobs go higher than other jobs, higher than they were before.
 Some jobs lose demand.

 Some jobs gain demand, which causes their wages to rise. Some
 fields gain demand, which requires more resources which bids up
 those resources.

 However, if wages decline but debts don't the result is people
 can't pay their debts. This is not good for a healthy economy.
 Modest inflation serves as an adjustment factor for this,
 letting wages rise generally, but not in those fields where
 demand has fallen. Costs of resources can rise in general, or
 fall when they do, and the end result is the economy balances as
 the various factors play out their effects.

 If wages decline compared to those that go up, but do not
 decline in actual dollars, the ability to pay those debts does
 not decline, and debts get paid, which is good for a healthy
 economy.

 Since the changes tend to be moderate and long term, the end
 result tends to be a well run system.

 This effect of non-declining wages is what economist call
 "sticky" when talking to the general public. It means pretty
 much the same thing.

 However, when inflation falls to near zero, or even below, there
 is no moderating factor, and debt repayment becomes
 questionable. Since inflation tends to only fall to near or
 below zero in times of economic trouble, that means a lot of
 people not paying a lot of debt. Hello depression.

 Now, all of this is well known, and discussed freely by
 economists. What was different in Paul Krugman's recent column
 is an explanation of how understanding of the low inflation vs
 deflation loss has become news to the IMF.

 The International Monetary Fund is an international agency whose
 primary focus is a stable financial system. In the real world a
 stable system has meant preserving the status quo, where the
 rich remain rich and the poor remain poor. That's not their
 objective, but it has been a result.

 However, the IMF has begun to understand that the status quo has
 not been status quo, but has been shifting to higher income
 inequality. In studying this they have become informed of the
 problems because the inequality is becoming exceedingly bad.

 As a life long trouble shooter I long ago learned that, by
 putting a system at it's extremes you can work to find where the
 proper settings are to run the system. Since all systems not
 directly mechanically connected are dynamic to a certain extent,
 the idea is to find the best practical settings to stay within
 operational parameters. What the IMF has come to realize is what
 Henry Ford showed long ago, what has been seen over and over in
 economics, except by those who don't want to look.

 Income inequality is a drag on the system. While the "status
 quo" preachers claim the "job creators" need an incentive to
 creat jobs, they forget, the workers need an incentive to do the
 work. The self annointed John Galts of the world are not even
 close to capable of monitoring performance in enough detail to
 force workers to produce by threats. It works to a limited
 extent, but it always has holes that lead to reduced efficiency,
 to reduced profitability.

 The only way to truly develop a "work ethic" is to reward work.
 No one is going to work hard without a reward. The better and
 more direct the reward, the better the work ethic. Which is
 where income inequality serves as an indicator that the reward
 is not matching the effort. Remove the incentive and you remove
 the work ethic, you remove the profit.

 The IMF, which for years has been little more than a debt
 collector for big money, and a pusher for the drug of
 privatization, has finally come to realize this out of kilter
 system is failing. That is why the current world wide recession
 has lasted since 2008, and continues today. The market has dried
 up do to lack of customers, the workers are trapped in a system
 where there is nothing they can do to dig their way out.

 In New Tack, I.M.F. Aims at Income Inequality
 http://tinyurl.com/ob3jbqu

 Their answer is, raise the inflation rate. Currently average
 inflation is less than 2%. The world's banks and financial
 ministries and the IMF have made 2% inflation the limit for
 years. Before that the acceptable limit for the US Federal
 Reserve was 3%, and I was saying even then you don't toss a
 wrench into the system to bring it down if is has an excursion
 just a bit above that. However, that is what the Fed tended to
 do.

 Another point in Krugman's column is, the IMF report on this
 shows low inflation actually causes investors to hoard cash,
 rather than invest.

 Now I have seen, over the years, that the markets are more
 profitable when inflation is higher, less profitable when
 inflation is lower. I recognized that this was due to the fact
 that inflation was a result of a good economy, and that led to
 profitable markets. What I did not realize is, and Krugman
 pointed out, is that inflation is not only a result of a good
 economy, it is a contributing factor in creating one.

 Investor hoarding consists of putting the money into less
 productive, but safer, investments. When inflation is low that
 is a nice safe strategy, why risk your money when you have a lot
 and nothing to lose by sitting on it. However, higher inflation,
 even 3%, causes the investor's hoard to lose value if it's not
 working to produce products, and thus profits. So, one big
 reason investors are sitting on money now is, there is no market
 to draw them in, and no penalty for sitting it out.

 Of course, as long as investments are safe, and less productive,
 the markets stay stale as workers have less to spend. A nice
 closed loop entropy system. Only by putting workers back to
 work, which means higher wages and growing markets, will the
 investors gain a profit. With the penalty for not doing it being
 a loss of value of as much as 3% a year, that's a pretty good
 driver toward a more vigorous, and less unequal, economy.



BOB KLAHN bob.klahn@sev.org   http://home.toltbbs.com/bobklahn

... It's always darkest just before things go totally black.
--- Via Silver Xpress V4.5/P [Reg]
 * Origin: Fidonet Since 1991 Join Us: www.DocsPlace.org (1:123/140)