poly: Inflation

From: Damien R. Sullivan <phoenix@ugcs.caltech.edu>
Date: Tue Jun 02 1998 - 15:38:28 PDT

How does the economy growing "too fast" lead to inflation? Is it some
empirical thing, where people think that the economy can't grow any
faster than X, so faster growth must be fueled by inflation? The only
semi-explanation I've seen is "high wages push prices up", but I've been
unable to think or read how this works in a stable market. Hayek said
cost-plus inflation doesn't happen. Inflation would happen if the gov't
was guaranteeing full employment, and inflated to keep up employment at
high wages. But if there just happens to be a high demand for labor,
how does that cause inflation to spiral, as opposed to allowing
employees to capture more of the surplus of production from their

Hayek also noted that a general price increase caused by a jump in the
price of food or oil wasn't really inflation, which makes sense; if
making everything needs oil, and oil is more expensive, then making
anything becomes more expensive.

On the flip side, the 9 May Economist suggested that share prices should be
counted in looking for inflation, and said that their Broad Price Index -- 80%
consumer/producer prices, 15% property, 5% shares -- had a 6% rise in the past
year. And I've heard of a proposed "virtuous circle": higher share prices
mean householders feel wealthier and spend more, or something, which sound
kind of inflationary to me.

-xx- Damien R. Sullivan X-)

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leaving a phosphorescent trail and, at intervals, triumphant
proclamations in schoolboy Kessic that "Edolph the Bat-Wing was here...
and here... and here."
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Received on Tue Jun 2 22:50:55 1998

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