Great Blog Post: Inflation and the Ron Paul People

I’ve never understood what the Ron Paul/Austrians/Goldbugs were talking bout. Maybe because I really didn’t dig that deep, but Noah Smith has come across them and is actually looking at their arguments. That’s good cause he’s smart and does his homework.

Here’s his first take on them from the view of inflation:

http://noahpinionblog.blogspot.com/2012/07/inflation-for-people.html

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3 responses to “Great Blog Post: Inflation and the Ron Paul People

  1. The one point he is missing when it comes to inflation, is the time factor. He says inflation doubles our salaries when it doubles the price of goods, but the cost of goods will go up way before our salaries do, thus hurting the average joe. The only people that benefit from inflation are the banks, the government, and government contractors who get the newly minted money before the prices have a chance to go up.

    • gaussianthoughts

      Thanks for your comment

      You state, “the cost of goods will go up way before our salaries do, thus hurting the average joe.”

      Could you give me a detailed explanation of goods inflation prior to wage inflation? I think this would give me great insight into your point of view.

      • You have to consider where inflation comes from, and the process map of where it goes…

        it happens when more money is printed (or created electronically) from the federal reserve or government. so they are the ones first spending it. and then there is kind of a trickle down effect from there.

        That money doesn’t get go to everyone at the same time, it get’s held until used which then get’s held until used by the next recipient of the cash. it could take a while before it gets in the hands of the business or institution paying wages (and still more time before that institution uses it to prop up wages).

        back to what inflation is and where it comes from – more money in the market. since there is more money available to bid on goods, the people supplying those goods will up the price knowing the money is there for his goods. since his price goes up, the cost of everyone doing business with his goods goes up. and then then the cost of everyone doing business with that business goes up…

        businesses have different types of costs, some which is from goods, others from the cost of employees. a business will always be trying to keep the cost of doing business as low as possible. to remain profitable. they can’t control the costs of it’s goods too much, so they have to pay that. they can’t control what they are paying their employees – to a certain extent (employees will eventually leave).

        So the cost of goods will go up, and to counter that, the price of their goods will go up to continue earning a profit (without the wages they are paying). with this effect being trickled down down continuously, goods go up, but not wages.

        wages will eventually rise – but it is not in conjunction with the cost of goods. it comes later as they start demanding a higher wage to keep up with their cost of living (which is often 2-3 percent) where the cost of goods is often going up 7-10% depending on the industry. so inflation makes things more expensive, without that being transferred to the average joe with a job until much later (after which time there is still more inflation which he has not yet benefited from)

        sorry if this went much further than your question 🙂

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