November 2011


flippe-floppe-flye finally posts something that is heading towards correct.

But of course we must “take the hits now” because, after all, we’re capitalist and that’s what capitalism is all about, no? Has it ever dawned on you that none of this horseshit was capitalism in the first place? So now you want to cure a socialism problem by capitalistic means? Good fucking luck with that.

Of course the problems have been created by Socialism. Which means that Socialism cannot solve them. Capitalism can, but not without the pain. Liquidation is necessary. It cannot be avoided. The longer it is put off, the worse it will be.

Where does all this stuff that you’ve heard about on this blog – the victim, feminism, the gay rights movement, the invented statistics, the rewritten history, the lies, the demands, corruption, discrimination and all the rest of it – where does it come from? For the first time in our history, Americans have to be fearful of what they say, of what they write, and of what they think. They have to be afraid of using the wrong word, a word denounced as offensive or insensitive, or racist, sexist, or homophobic and it still gets worse.

Clearly it originates with the ‘State’ or the coercive power. However let’s not forget that historically, after the fall of Rome and the onset of the ‘Dark Ages’ it was the Church that emerged as the ‘State’. Tribal chiefs, who grew into minor Kings, and even later, still bent their knee to the Church. It was only much later that Kings threw off the constraints of the Church, in no small part due to Martin Luther and Henry VIII of England.

As we are sure you are aware there is a real concerted effort going on lately of worldwide attacks on Christian icons. Congress and the Administration must take more steps to protect religious freedom around the world, said a member of the U.S. bishops’ Committee on International Justice and Peace. This notion is well-received by our staff but the rules apply here as they do anywhere and they are simply this –

Why? Religion has always sown the seeds of war. Intolerance, ignorance, all over a subject that is metaphysical. However private property should be protected by ‘law’. In countries that have no private property rights, there will always be problems, and not just for religions. The problem raised however is when under our current sovereign governments model, private property violations take place in different areas of monopoly control.

That matters that come under siege within the confines of the United States are always treated first and foremost. And our research has indicated that there is plenty of seizing going on right here in our own country, and whilst the government is part and party to some of it, we nonetheless feel the need to make all of us aware.

“Religious freedom is not solely freedom from coercion in matters of personal faith; it is also freedom to practice the faith individually and communally, in private and public,” said Bishop Ramirez. “Freedom of religion extends beyond freedom of worship. It includes the freedom of the Church and religious organizations to provide education, health and other social services, as well as to allow religiously-motivated individuals and communities to participate in public policy debates and thus contribute to the common good.”

Again, private property rights should be respected and protected by recourse to the law. Religious groups are no more, or no less special than any other individual. It is the failure of government to protect private property through law that is at the root of the problem. Government itself partakes in violating property rights constantly, but claims exemption, that governments violations are legal. This hypocrisy will of course rot from the inside out.

Unfortunately, recent events tragically show that religious freedom is under attack in many countries around the world. A Pew study showed that Christians, more than any other religious group, face some form of either governmental or societal harassment in 133 countries.

Tolerance of anti-Christian attitudes in the United States is escalating. Recently, a woman in Houston, Texas was ordered by local police to stop handing out gospel tracts to children who knocked on her door during Halloween. Officers informed her that such activity is illegal (not true), and that she would be arrested if she continued.

In Madison, Wisconsin, the Freedom from Religion Foundation distributes anti-Christian pamphlets to public school children entitled, “We Can Be Good without God.”

Its not simply religious freedom…it is ‘freedom’ in its entirety. All freedoms that fall under property rights are under constant attack from government.

The entertainment industry and syndicated media increasingly vilify Christians as sewer rats, vultures, and simple-minded social ingrates. The FBI and the Obama White House brand fundamentalist Christian groups as hate mongers and potential terrorists.

Even a casual observance of the facts reveals growing isolation of Christians as a people group, especially school age believers. Faculty and peer efforts to convince public school children that America was not founded on Christian ideals, and that our forefathers actually wanted a secular society, permeates public school interaction. History revisionists labor to eliminate any and all contradictory historical evidence from public school curriculum, and mockingly stereotype Christians as unenlightened fringe.

Entertainment industry, educational industry, take your pick, every industry which is subject to government regulations will find that areas, and possibly in the case of education, which is wholly controlled and regulated by government, will be subjected to the dumbing down process.

Is the Fabian process of gradualism taking modern America down a similar path? Perhaps. For the past five decades Americans have allowed the liberal Left to defend the use of public funds for pornography, explicit sex education, and anti-Christian curricula. The Hollywood elite have denigrated Christian values and mocked the virtues of purity. The highest courts in the land have ruled with contemptuous decree against God, against prayer, and against the free expression of religion. Is it any wonder we have become the most profane and violent society in the industrialized world?

Left, Right, it makes no difference. Government is predicated upon Socialism. Socialism is the control of the many by the few. The few do not want the many to actually have or possess the cognitive abilities to think and reason, to be exposed to any ideas that might stimulate them to actually question the status quo. Thus the grinding suppression of ideas.

Taxes that are set to expire: from the Wall St. Journal.

The WSJ takes a look at a variety of taxes that are about to expire year end, the expiring tax cuts of 2012, and what new taxes go into effect or expire in 2013:

Expiring in 2011
• 2% Social Security payroll-tax cut for employees
• Alternative minimum tax patch
• IRA charitable contribution for people older than 70½.

Expiring in 2012
• Bush tax cuts of 2001 and 2003.
• top tax rate on wages reset to 39.6% from 35%
• top rate on long-term capital gains to 20% from 15%
• Special 15% rate on dividends
• estate-tax provisions.
• 10 million lower-income families and individuals restored to the tax rolls

When you increase taxes, government raises the time preference of all those whom it taxes. This reduces production, in that the longer, more roundabout production methods must be abandoned, with shorter, less productive methods employed. Not only is production lowered, but also the employment that results from the longer processes.

Thereby government, through it’s gross mismanagement of its own spending, viz. running current account deficits, exceeding the borrowing ceiling, prosecuting wars that it cannot afford, requires increased taxation, in part simply to service the interest payments on already incurred debt, so that it forces the higher time preference onto individuals and the general economy.

Clueless.

FIRST Greece; then Ireland and Portugal; then Italy and Spain. Month by month, the crisis in the euro area has crept from the vulnerable periphery of the currency zone towards its core, helped by denial, misdiagnosis and procrastination by the euro-zone’s policymakers. Recently Belgian and French government bonds have been in the financial markets’ bad books. Investors are even sniffy about German bonds: an auction of ten-year Bunds on November 23rd shifted only €3.6 billion-worth ($4.8 billion) of the €6 billion-worth on offer.

The panic engulfing Europe’s banks is no less alarming. Their access to wholesale funding markets has dried up, and the interbank market is increasingly stressed, as banks refuse to lend to each other. Firms are pulling deposits from peripheral countries’ banks. This backdoor run is forcing banks to sell assets and squeeze lending; the credit crunch could be deeper than the one Europe suffered after Lehman Brothers collapsed.

Consider the three ingredients for recession: a credit crunch, tighter fiscal policy and a dearth of confidence. In aggregate, European banks’ loans exceed their deposits, so they rely on wholesale funds—short-term bills, longer-term bonds or loans from other banks—to bridge the gap. But investors are becoming warier of lending to banks that have euro-zone bonds on their books and that can no longer rely on the backing of governments with borrowing troubles of their own. Long-term bond issues have become scarce and American money-market funds, hitherto buyers of short-term bank bills, are running scared.

September’s sharp decline in industrial orders is an early sign that companies are cutting back. Andreas Willi, head of capital-goods research at JPMorgan, notes that SKF, a Swedish firm that is the world’s largest maker of ball bearings and a bellwether of industrial demand, gave analysts a cautious assessment of its future revenues in mid-October. That guidance suggests a further softening of investment demand. Consumers are also likely to defer big purchases as long as the crisis is unresolved and credit is scarce.

A drop in demand for capital equipment, durable consumer goods and cars will strike at the euro zone’s industrial heartland, including Germany. Ms Boone reckons GDP will fall by around 0.5% in Germany next year and by the same amount in the whole zone. In September the IMF forecast that the zone’s GDP would grow by 1.1% in 2012 but estimated that if European banks were deleveraging quickly (as they are now), the economy could shrink by around 2%.

During the credit boom, cheap capital flowed into Greece, Ireland, Portugal and Spain to finance trade deficits and housing booms. As a result, the net foreign liabilities—what businesses, householders and government owe to foreigners, less the foreign assets they own—of all four are close to 100% of GDP. (By comparison, America’s net foreign liabilities are 17% of GDP.) Much of their debt is being financed by local bank borrowing or bonds sold to investors in creditor countries, such as Germany. Ireland is unusual in that a large chunk of what it owes is in the form of equity (all those American-owned factories and offices) and so does not need to be refinanced.

With a few exceptions, the benchmark cost of credit in each euro-zone country is related to the balance of its international debts. Germany, which is owed more than it owes, still has low bond yields; Greece, which is heavily in debt to foreigners, has a high cost of borrowing (see chart 2). Portugal, Greece and (to a lesser extent) Spain still have big current-account deficits, and so are still adding to their already high foreign liabilities. Refinancing these is becoming harder and putting strain on local banks and credit availability.

The higher the cost of funding becomes, the more money flows out to foreigners to service these debts. This is why the issue of national solvency goes beyond what governments owe. The euro zone is showing the symptoms of an internal balance-of-payments crisis, with self-fulfilling runs on countries, because at bottom that is the nature of its troubles. And such crises put extraordinary pressure on exchange-rate pegs, no matter how permanent policymakers claim them to be.

The prospect that one country might break its ties to the euro, voluntarily or not, would cause widespread bank runs in other weak economies. Depositors would rush to get their savings out of the country to pre-empt a forced conversion to a new, weaker currency. Governments would have to impose limits on bank withdrawals or close banks temporarily. Capital controls and even travel restrictions would be needed to stanch the bleeding of money from the economy. Such restrictions would slow the circulation of money around the economy, deepening the recession.

External sources of credit would dry up because foreign investors, banks and companies would fear that their money would be trapped. A government cut off from capital-market funding would need to find other ways of bridging the gap between tax receipts and public spending. It might meet part of its obligations, including public-sector wages, by issuing small-denomination IOUs that could in turn be used to buy goods and pay bills.

Starting to do the research on my next employment case under NZ ‘Employment Relations Act 2000’.

Discrimination

*

(1) For the purposes of section 103(1)(c), an employee is discriminated against in that employee’s employment if the employee’s employer or a representative of that employer, by reason directly or indirectly of any of the prohibited grounds of discrimination specified in section 105, or by reason directly or indirectly of that employee’s refusal to do work under section 28A of the Health and Safety in Employment Act 1992, or involvement in the activities of a union in terms of section 107,—
o

(a) refuses or omits to offer or afford to that employee the same terms of employment, conditions of work, fringe benefits, or opportunities for training, promotion, and transfer as are made available for other employees of the same or substantially similar qualifications, experience, or skills employed in the same or substantially similar circumstances; or
o

(b) dismisses that employee or subjects that employee to any detriment, in circumstances in which other employees employed by that employer on work of that description are not or would not be dismissed or subjected to such detriment; or
o

(c) retires that employee, or requires or causes that employee to retire or resign.

(2) For the purposes of this section, detriment includes anything that has a detrimental effect on the employee’s employment, job performance, or job satisfaction.

In this case the ‘detriment’ is the paying of a significantly lower wage, where the ‘experience, qualifications, performance of duties is equal to, or greater than, his colleagues.

The ‘Company’ response, which was not unexpected, essentially alleged that…

The Company reserves the right to determine wage rates for individual employees, where these rates can vary depending on relevant experience, NZQA qualifications, performance, and market conditions. The Company disagrees that these are ‘illegitimate’ reasons for individual wage rates.

The reasons were labeled ‘illegitimate’ as the conditions cited above, are more than fulfilled by my chappie, further, the condition of ‘market conditions’ is simply an ignorance of economics.

The company essentially believe that ‘market conditions’ equals ‘bargaining’ to establish the ‘wage rate’. This is, as I stated, illegitimate. The ‘price’ of any economic factor, in this case ‘labour’ whose ‘price’ are called ‘wages’ are established on the free market, not through bargaining, but through the ‘marginal value product’ that is then ‘discounted’. The correct discount rate is ‘the natural rate of interest’, which is usually taken as the ‘market rate of interest’. Immediately we can see a potential problem, that is, the market rate of interest is heavily manipulated, thus lowering it…the effect is to raise the wage rate. However, I digress slightly.

The Company is the holder of the ‘contract’ for the provision of services to a third party. My chappie is a sub-contractor, employed full-time, as are his 11 colleagues, by the Company. Nine of his colleagues are on $18/hour, the other three are on $13.50/hour. The immediate reaction being, if the contract pays the company enough to pay nine @ $18/hour, surely it pays enough that the three remaining wages can earn the same rate.

The answer is not so clear cut. The marginal value product = marginal physical product * marginal revenue. Thus, potentially, should the 10’th, 11’th and 12’th man produce less revenue, then economically, the company is ‘justified’ in paying a lower rate.

This however is not the case. The ‘contractor’ pays a fixed revenue stream, based on a total number of hours of service. Thus the 12 man crew is the minimum number of employees that can cover the full 168 hours service provision, allowing for time off, rest, etc. Thus employee #12 provides exactly the same marginal value product, thus the same wage should pertain.

We’ll be progressing this to the next stage.

From this chappie,

I hate to be the turkey of the day/month/year, but we are in a bear market. The only question is how low will this turkey go?

I am a chartist. I deal in chart patterns. I deal in possibilities, not probabilities and certainly not in certainties. I can only state what a chart is telling me by its geometric construction — and geometric patterns, even when clearly identified, are subject to failure.

The founders of classical charting (Schabacker, Edwards, Magee) identified something called a 3-fan principle. The 3-fan principle specifies that a corrective rally may be defined by trendlines with decreasing angles of attack. The concept also specifies that the violation of the third fan line establishes the top of the corrective rally — and that the subsequent decline will retrace the entire distance of the corrective rally.

Next, let’s move from a 30,000-foot view to a perspective from the space station. Should the implications of the 3-fan principle be realized, something very, very, very (do I need to repeat the word “very” again?) significant would become apparent to a chartist.

A move back to the 2009 low on the quarterly semi-log chart sets up the possibility (not probability, not certainty) of a 13-year H&S top whereby the entire advance from the March 2009 low is nothing more than the right shoulder of this massive configuration.

Now while 2009 isn’t far enough away in historical terms, the reason that this ‘chart’ based analysis is invalid is for the following reason:

n 1939, International Business Machines Corp. was removed from the average and replaced by AT&T. That was a fateful move. Over the next 40 years, before IBM was restored to the Dow in 1979, AT&T, largely a regulated utility, saw its share price increase about threefold. IBM, on the other hand, greatly expanded during the war and then moved into the soaring computer industry. Its stock increased about 22,000 percent between 1939 and 1979, one of the great investment success stories in Wall Street history.

Had Dow Jones just left well enough alone and stuck with IBM, the whole history of the average — and thus the perceived history of Wall Street in the postwar years — would have been different. The Dow would have recovered to its 1929 peak years sooner than it did, and marked many other milestones, such as reaching 1,000 points, earlier as well.

It’s a beautiful example of how statistical tools, valuable as they are, can both determine and distort our view of history.

The ‘Turkey Gods’ have been missing-in-action this week. However do not lose all hope. The index is in the churn area of the last consolidation, and no new lows have been made. Markets do not recognise technical points consistently, 50ma etc. False breakdowns/breakouts are common.

I have no idea who this chap is, nor any insight into his qualifications and credentials: he is however linked to by a pretty major aggregator, so I’m guessing that he has some influence. So let’s see what he has.

The inflation fallacy

Sometimes I despair. Sometimes I wonder if the inflation fallacy is at the root of all the US and Eurozone troubles. It’s so easy to get popular support for the idea that printing money will cause inflation, and inflation means a fall in our real income. So it’s much better to have high unemployment, low employment, low real output, and errrr, low real income, than to risk having low real income.

There are a lot of ideas here. The idea that ‘printing money’ causes inflation, then we have further ideas with regard to employment, output [productivity] and real incomes. There does not seem to be any argument linking these ideas together, although, ‘inflation’ seems to be the idea that the author wants to explore, so let’s move on.

The inflation fallacy is an invalid argument about why inflation is bad. Now, an invalid argument can sometimes have a true conclusion. Maybe inflation is bad. Maybe inflation does reduce our real incomes. But it’s still an invalid argument. It doesn’t give any good reason for thinking that inflation is bad, or reduces our real incomes.

Of course without actually stating what he believes the ‘inflation argument’ to actually be, we cannot evaluate whether or not his arguments actually refute the ‘inflation argument’.

A lot of non-economists believe the inflation fallacy. I’m an expert on what non-economists think about economics. That’s because I have spent the last 30 years trying to teach non-economists how to think about economics.

The author is now setting up a logical fallacy of his own. The appeal to authority, or the ‘White Coat Syndrome’. I am the expert, therefore what I say must be accepted as fact. The rather weak subject in this case is what ‘non-economists think about economics’. That the author has spent 30yrs teaching, quite frankly says nothing at all. Irrelevant.

Sometime in February, I will ask my ECON1000 students: “So, why is inflation a bad thing?”

I can anticipate the look on their faces. Some will give me that look of sympathy, normally reserved for those who aren’t too bright. Others will look like they know this must be a trick question, since I wouldn’t ask anything that were really quite so obvious. Finally one will answer.

“Because if all prices rise 10% we will only be able to afford to buy 10% less stuff. Duh!” Except the “Duh!” is silent.

That’s the inflation fallacy.

This is his ‘inflation argument’? Seriously? If this is his contention, all he has actually done is create a ‘Straw Man argument’ of truly epic dimension.

You could try to counter the inflation fallacy by talking about the neutrality of money. But that’s the wrong approach. Sure, if money is neutral, and so has no effect on real variables like real income, then the conclusion of the inflation fallacy would be false. But that misses the point.

Here the author introduces another concept, the ‘neutrality of money’: unfortunately for the author, his premise, viz. that money is neutral, is incorrect and illegitimate. The ‘neutrality of money’ was extrapolated incorrectly from the ‘neutrality’ of direct exchange. When you substitute ‘money’ or indirect exchange for the system of direct exchange, you lose the ‘neutrality’ of direct exchange. Indirect exchange is not ‘neutral’. There are two major errors that illustrate the ‘neutrality of money’ assertion: [i] the conflict between the ‘natural rate of interest’ and the market rate of interest, and [ii] that goods exchanged are of equal ‘value’. An investigation into both these concepts, shatters the ‘neutrality of money’ assertion of the author.

The inflation fallacy is an invalid argument. It is logically, conceptually, confused. Even if the conclusion were true, it would still be an invalid argument. Even if inflation did cause falling real incomes, the inflation fallacy would not be a good argument for believing that inflation would cause falling real incomes.

Again, where is the argument…and where is the refutation?

Why is the inflation fallacy a fallacy?

We are now going to read an argument.

Apples bought must equal apples sold.

Immediately we encounter the ‘value’ question. Specifically that the ‘value’ of the exchange is ‘equal’. This premise is false. The exchange in money terms is made precisely because the exchanging parties both value what they gain more highly than that which they exchange for and receive. If they did not, they would not exchange.

What is an expenditure to the buyer of apples is a source of income to the seller of apples.

Irrelevant.

Every $1 rise in the price of an apple means the buyer is $1 poorer and the seller is $1 richer.

And here is where the ‘value’ trap destroys the argument. Value is not constant. It varies from time-to-time, place-to-place as conditions change. The three variables that can change are [i] the supply/demand of apples [ii] the supply/demand of money [iii] valuations of individuals under time preference.

So while in purely nominal terms a rise in price of $1 changes the exchange nominally in terms of apples and dollars, and is essentially irrelevant as it is a tautology, the real exchange ratios are potentially entirely different.

That’s true whether we buy and sell one apple or buy and sell one billion apples. It’s true whether or not we add in bananas, carrots, dates, and eggs.

Another error is added to the mix. The error assumes that ‘price changes’ are consistent across different goods. That price changes are uniform. So if I am a seller of medical services, that proportionally, the prices that I can exchange for my services change, or rise, proportionally to the changes in exchange values for apples or legal services etc.

If however they do not, then we have a problem. The problem is that apple growers who gain a 20% increase in money terms in the ability to exchange their apples, will gain 20% in their ‘money holdings’ prior to any allocation of their cash holdings. They, and many others, at this time may have no requirement for medical services: I as a medical provider, who demands apples, find that I have to exchange an increased nominal dollar for apples, without a commensurate increase in nominal dollar ‘income’. Thus in real terms, viz. the non-neutrality of money, I am ‘worse-off’.

It’s true whether all prices go up by the same amount, or percentage, or if they all go up by different amounts. It’s true whether we measure prices in money, in gold, or in venus dust.

Clearly, this statement is false. It can only be true if ‘all prices rise proportionally’ but then the entire premise of increasing the money supply is nonsense, as there is no change at all, viz. money is neutral, whatever is utilised as money is irrelevant.

It makes exactly as much sense to argue that a 10% rise in prices is a good thing because it means we earn 10% more income from selling things and so can afford to buy 10% more stuff. Let’s call that the inflation fallacy mark 2. It’s the exact opposite of the original inflation fallacy mark 1.

As already illustrated, this requires that money is neutral. As money is not, the argument is illegitimate.

Why is the inflation fallacy mark 1 so common, but the inflation fallacy mark 2 so rarely heard? I don’t know, but I’m going to make a couple of guesses.

A couple of ‘guesses’? Hardly the stuff of which logically consistent argument is composed.

1. We live in an economy with specialisation and the division of labour. We sell one good, and buy hundreds of goods.

True.

Naturally, we are much more knowledgeable about the one good we sell than about the hundreds of goods we buy.

Really? This is a pretty big assumption. For the moment, I will accept this argument. How do we gain this knowledge? It has to be through economic calculation. I am willing to bet that the ‘average’ wage earner hasn’t the vaguest idea. No matter.

We understand the forces that proximately determine the price of the one good we sell. We don’t understand the forces that determine the prices of the hundreds of goods we buy.

In the abstract we do. Economic calculation. In the specific, no, I do not know the input variables and their ‘costs’ required to grow apples or manufacture an iPhone, but I do understand the economic calculation undertaken and required.

So we put a name to our ignorance, and call it “inflation”.

Surely you jest. The argument is structured as a syllogism:
If ‘A’ > ‘B’
> ‘A’
Therefore ‘B’

Try plugging the authors three statements into the format, and this is what you end up with:

we are much more knowledgeable about the one good we sell than about the hundreds of goods we buy We understand the forces that proximately determine the price of the one good we sell.

We don’t understand the forces that determine the prices of the hundreds of goods we buy.

So we put a name to our ignorance, and call it “inflation”

Bloody nonsense, and that’s even allowing for the assumption that ‘B’ is correct, which I have just disputed. This is a classic example of the fallacy of ‘the undistributed middle term’.

“Inflation” means an increase in the price of the goods we buy. The price of the good we sell is determined in a quite different way. So, if we think like that, we will think of inflation as making us worse off.

Incorrect. Inflation is an increase in the supply of money and credit. The consequences of which are a change in the ‘value of money’ due to changes in the supply/demand of money viz. non-neutrality of money.

Inflation is when other people increase their prices, not when I increase my price.

Nonsense. Price changes are outcomes, they are not causative.

2. Most of us earn our income from selling our labour.

True.

And we think that other people are like us. When we think of the representative person, we think of ourselves.

In abstract terms true, the methodology of introspection relies upon this. In terms of specifics, there will always be individual differences.

We have a special name for the price of labour. We don’t call it a “price”; we call it a “wage”.

True.

And we think of inflation as price inflation, not wage inflation.

Depends I suppose on who exactly you are talking to. Being overly general at some point can create problems in your argument. This is starting to approach that point.

Since there’s no obvious one-to-one link between price inflation and wage inflation,

It’s not that there is no obvious link: it’s that there is no link at all. Inflation is caused by the expansion of money and credit. That increase leads to the non-neutrality of money, creating indiscriminate ‘price changes’ through the price system.

and we know that sometimes wages rise faster and sometimes slower than prices,

Essentially then you know nothing. It might be this, it might be that.

we think that inflation reduces real wages, and makes people worse off.

There is no ‘think’ about it. A priori money theory categorically states that it is so.

Even if it did, we forget that capitalists are people too. They are “the other”.

So what? This sentence seems tacked on for absolutely no purpose.

If we excluded apples from the CPI, and gave the price of apples a special name, then “inflation” would mean a rise in the price of bananas, carrots, and dates. So of course inflation makes us apple sellers worse off.

Empirical observations are illegitimate with regard to the social science economics. The scientific method, viz. empiricism requires constants: there are no constants in social data, thus empirical, statistical observations are illegitimate.

The inflation fallacy is a conceptual fallacy. It’s a fallacy of composition.

Which is where one infers that something is true of the whole from the fact that it is true of some part of the whole. So has this happened?

It fails to recognise that “inflation is someone else’s price increase, not mine” doesn’t work at the macro level, when we add up all the buyers and sellers. It’s a fallacy of someone who hasn’t come across the “income = expenditure” accounting identity. It’s a fallacy of someone who doesn’t recognise that production is the ultimate source of our aggregate income and expenditure, not how much we pay each other.

It is a failure of an individual working from an incorrect definition and illegitimate theory.

It’s a fallacy I think we will never eradicate. “Ours the task eternal”, once again.

It would seem so.

I have sympathy with some Austrians, who define “inflation” as an increasing money supply, not rising prices. But it doesn’t really work, because both the demand and supply of money can change.

Which is fully accounted for. Demonstrate how this change in demand with regard to a change in supply invalidates the theory. That you so quickly skip over this rather infers that you in point of fact have no clue.

And people will still find another way to talk about rising prices, even if you forbid them to use the word “inflation”. And I have sympathy with Scott Sumner’s approach too, in trying to ban the use of the “i-word”, and talk about NGDP instead.

Nominal GDP? And…?

Because the question “is inflation a good or bad thing?” is a really stupid question.

Really? As you simply do not actually understand how it is defined and therefore what it actually is, this seems a bit of a stretch.

It doesn’t have an answer.

Of course it does.

Inflation is an endogenous variable. It depends what caused it.

So your previous remarks…nonsense?

If inflation is caused by a harvest failure, then it will make us worse off. But it’s not the inflation that makes us worse off, it’s the harvest failure.

Going in circles. Which is often the case when someone doesn’t actually understand the subject that they are discussing.

With lower output of goods, our real income is lower too.

True.

Inflation is only a symptom. It’s the way a bad harvest will manifest itself to us, if we weren’t directly involved in the harvest itself.

Incorrect. Inflation is causative of lower productivity. Inflation alters through misdirection, individuals time preferences, leading to a lowering of time preferences, when no such conditions exist. This inappropriate reaction leads directly to malinvestments of capital, that cannot be sustained unless the inflationary process is continued, until a point where the malinvestments create their own collapse.

The right way to ask the question is to talk about monetary policy. If the Bank of Canada had a 0% inflation target, or a 4% inflation target, would either of those make us better or worse off than the current 2% inflation target?

If inflation is good, which is the thrust of the argument, then why not 100% 1000% inflation? If more ‘money’ is good and is greater income or wealth, then why not 10,000% inflation? By reductio absurdum can you illustrate the fallacy of the argument.

That’s when we can move beyond accounting identities, and start to argue about the neutrality or non-neutrality of money (strictly, super-neutrality of money).

Already refuted.

And if we could talk about the effects of a falling value of money, rather than a rising price of goods, that would help clear people’s minds too. Speaking about a falling value of money suggests both that we will get more money from the goods we sell, and give up more money from the goods we buy. It leads us to think about both versions of the inflation fallacy at the same time — mark 1 and mark 2 — and to see that they offset each other. Then, and only then, can we start to think about the real question.

Doesn’t add anything new to the discussion at all.

Paradoxically, one of the strongest valid arguments against targeting too high an inflation rate may be the very existence of the inflation fallacy itself as a sociological phenomenon. The fact that many ordinary people are so confused about inflation does suggest that inflation may be a bad thing.

What a load of twaddle. This drivel is supposed to constitute an informed and logical argument?

The market is falling. Genius observation. However I hold quite a number of micro-caps. They for the most part are not. A few have actually risen. The larger mid-caps are all falling with and in excess of the market. Quite why this is the case [micro-caps], I’m not really sure. To date, as the market was rallying, they again didn’t really participate either. On value metrics, they are cheap. Assuming survival, cheap valuations at some point provide returns.

Just having my first coffee of the morning and catching up on developments. Looks ugly.

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