Is This the Economic Plan for Now and for the Future?

Economic Reality?
What it amounts to

Wonderful Economic News- For a Few! For You?

Yesterday a measure of inflation went up and pretty much confirmed what everyone in the world except Wall street knows(or rather doesn’t want to know): that prices are rising, and have been rising steeply for a very long time.

But when measuring inflation, you need to measure what is really in demand. If you measure what is not in demand you will get a wrong reading. For the past fifteen years the Federal Bank has chosen to measure the demand Gadgets as the primary measure of inflation, and so it has been lower than in reality.

Of course, prices rise when there is a strong demand for goods, or a short supply of goods.  Food is a non-negotiable commodity, we all must eat, and so there is a rather poignant need for it, and this gives it a high demand curve generally speaking.  People have to eat-it is not optional. Now computer-telephones on the other hand, and computer-desktops, pads, and tops, and electronic gadgets in general,  are in reality a luxury. Yes, I said it- a “luxury”.  Yes, and though it is hard to believe that I said such a thing, and I do feel some shame for having said it, but sad, and troubling  as it may be, harsh, and cruel and unusual a punishment as  it is to declare our vast array of computer gadgetry as “luxury” items it is true, they are just luxuries for most people . Because  computer gadgets are not absolutely necessary to our existence in most cases, we will buy those products only when we can afford them. If push comes to shove and we actually feel hungry and need food, or cold and need shelter we will buy food and not gadgets. So the price for gadgets will only go up so much in a difficult environment. So this is probably why you don’t see high inflation when it comes to computer gadgets. People will buy that stuff only when they can afford it. But food, energy, and rent are something else.

Food and Energy are Must Haves

Energy use is not optional , and it has gone up in price, and painfully so and broadly so. And energy and food affect everything else they touch. It costs money to deliver products. The higher the price for gas, the more it costs to deliver products to your store.  The more your truck driver has to spend on food, the more he’s going to want to get paid to drive the truck that gets your gadgets delivered to you. So food and energy prices affect the price for everything else. It’s just unavoidable.  So having the price for food, which we must eat to stay alive, go up in price, is going to force the price of everything else up as well sooner or later. The same with rising energy prices. The higher they go, the more everything costs to make, to distribute, and to use. So the rise in energy prices is a good reason for your phone company to  raise your monthly charges for using their phone, which you only borrow from them by the way, until after your contract expires, in which case it becomes yours. Of course by that time you will want a new telephone, and so you go out and borrow another one from them as you sign another two year contract in most cases.

Rents have also gone up, but because of a huge oversupply of housing due to the housing boom of a few years ago(from which we never recovered our sanity) housing prices are still kept in check due to the oversupply, and this keeps rents down to a negotiable level. Of course many are the people living in groups of five and ten per apartment where the rents are far too expensive for one person to afford, like in the big cities where most of the jobs are,  but once again this is not headline material and you aren’t likely going to hear about it anywhere else,  so make believe we did not mention this.   But yes, everything of real value, that has real demand behind it,  is going up in price. Elective products which you might not need, like electronic gadgets, are not going up in price so much. But this is what the federal government measures the rate of inflation by, gadgets and other things you might not really need, while leaving the core prices for food and energy on the bottom of the shelf so that it does not disturb you, the consumer who has to buy it and use it whether you like it or not. And so for years we have been told “inflation is in check, no need to worry” but of course they were measuring the inflation tied to your desire for gadgets, and not for food, or energy, or rent, or the relative relation between how much you make and how much you have to spend. In those categories, inflation soared over the past fifteen years. But there was no need to upset you, and so mostly you didn’t hear about that.

Newcomers Add To Demand

This effect of rising prices for core commodities is also being amplified by the steady stream of newcomers that  we see entering our nation. These newcomers add a demand that otherwise would not be there, and this  forces prices for goods upwards, while keeping labor prices lower and this of course is what the owners of real estate and the owners of big businesses need to make their day a little brighter and better-for themselves of course.  And since these owners are the big advertisers on major media networks, we tend to see a great deal of favorable media for their cause. After all, making your advertizing client look bad is not going to result in anything good for your bottom line if you happen to be a major media corporation trying to sell advertizing time slots on your programming , so there is little chance in seeing stories condemning  the present economic game plan which favors big business interests. So we are left with this: Low wages, high prices= a great formula for Big  Business.

Individual Consumers Not Doing As Well

Problem is this formula really doesn’t work for anyone else. If an ordinary person wakes up one day, and realizes that his/her salary is being depressed, while realizing that everything he or she buys is now half the size it was five years ago, often costing twice as much as it did even five years ago, realizations will become hard and grumpy. Soon people begin to realize that their standard of living is not as exciting as it once was expected to be. Rather, a very serious downward draft has hit their personal economic wings, and  in many cases people are struggling to make ends meet in a not too happy go lucky environment of harsh economic realities.

The economic prospects for the future, to be Frank, are not all that great either   No, The reality for most of us is that we are dependent on monetary stimulus for whatever sunlight we expect to reach the dark abode of our in most personal economic existence. Monetary stimulus-for those who still don’t know- is simply the art of creating more money out of thin air by pressing a button  or commanding a computer program to deposit it in some bank somewhere, without creating a corresponding  efficient economic production. So we have more dollar bills floating around for credit, but not much real economic activity with those bills,  creating a higher price for existing products, but less real demand for those products since they become more expensive and fewer people can really afford them;  and this is the sort of stimulus we can expect to see over the next few years. This is what we have seen in fact for the past ten to fifteen years.

One way to put it succinctly is this: imagine you make watches and last year you sold only two watches for one dollar each for a total of  two dollars but paid one dollar in total costs to make those two watches you sold. After selling the two watches it  left you with one dollar of profit(2-1). Well now someone got the bright idea that all you have to do is make one watch this year, charge two dollars for it, and it will cost you less than fifty cents to make. Thus you just made a dollar fifty for having made half the effort. This is our general economic “Strategy” as of now.

The net effect of this form of economic stimulation-the print and borrow kind of stimulus- is to create an artificial demand  much like the kind created by having so many new visitors come stay with us permanently each year, which results in inflated demand but does little to actually increase economic efficiency down the road. This artificial demand created by pressing a button and making more dollar bills available for borrowing  takes the form of higher prices for every existing product. So even if there is not an increase of real demand for products, there is an increase in price. This is good, even great for those who are selling their products, like for food and energy corporations for example, but,  of course this is not so good for the average person who has to pay more for products while making less at work. It’s also not so hot for most small businesses either whose customers don’t really have money to spend on anything  but food and energy… those are the breaks. Good day for a few, bad day for most. So, whether you like it or not,  this is the economic game plan online for the next few years.  Higher prices, increasing artificial demand, lower wages, imported labor, exported labor is all  a great formula for some, but probably not for you, or me.

There are not many changes that we can see on the horizon, at least not policy wise concerning the economy. For as long as the government and federal bank are not willing to let the economy resume its natural course(allow it to claim the bad investments that are being supported by loose credit policies)and as long as the Federal Government does not want to pay its debts(or else declare that it cannot pay its debts)  there is simply no other expectation possible as far as we can see. Rather, things are going to continue along this  shiny -for-a-few, dark-for-most path, until such time as prices become so great that demand falls off no matter what the government might do.

Under those circumstances we will all experience a sudden and unmistakable  correction to our economic ontology-a lofty term for state-of-existence,  which is likely to hurt a hell of a  lot. Perhaps then our leaders might decide to listen to the piper as he pipes his dolorous song, unfortunately it will probably be too late to do anything about it by then, and much suffering will prevail in the land as the children are led away to the river where they will drown in a terrible national debt tsunami.  It’s possible that even our politicians will feel the effects of their bad choices and associations  all these years as reality finally tags their careers with great losses and dark realizations.

P.S. Yesterday the Nightly News With Brian Williams acknowledged that prices for food are skyrocketing. However it was attributed to the weather changes out west mostly. But the truth is that prices have been going higher for over a decade and the reasons given above are the major reasons but are now being amplified by various specific factors making a very bad situation possibly critical.

Economic Principles