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this post was submitted on 26 Feb 2024
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You can see the massive deflation happening in China right now as youth unemployment hits 25%.
No thanks. We don't want that over here. Inflation is (and always will be) better than mass unemployment. If you want lower prices, open up our trade with others (IE: Import China's goods since they're suffering from deflation: we can benefit from those lower prices).
What are the root causes of that deflation though? I would posit the over extension of the Chinese economy in an effort to mimic "Number go up" results without the required fundamentals (see evergrande).
I see "inflation is good" parroted a lot, without much analysis as to why. I understand how continual inflation is a major driver of modern western economies, and those steering those economies require it to support current polocies and the general status quo. However, that being said, I fail to see how that makes it required for things to be "OK".
The price of a raspberry "inflates" in the winter, and "deflates" when in season. The price of commodity consumer electronics is in a continual state of deflation, as new teohnology emerges. At the microcosm prices move in both directions frequently, and are just deemed adjustments. Why then, at the macro scale is a continual increase in pricing considered a sign of economic health?
You're getting supply and demand confused with inflation.
Inflation is a rise in the general price of goods. One item changing price (like a Taylor swift concert ticket) isn't inflation, especially peak pricing.
Explaining it is much more than a commet length, but ill try before my phone dies.
As gdp increase (better efficiency, more good sold, new markets, value add services) more people are employed to do this work. Unemployment falls when this exceeds the growth of a population from either new people entering the workforce or immigration and against retirement and death. Okuns law.
As Unemployment falls, inflation increases. Less people employers are fighting over means perks and wages increase, driving inflation and costs of production. Phillips curve relationship.
Effectively, economic growth results in inflation.
If I had more time, changing the OCR affects components of GDP, changing inflation through these methods. But there is alot that goes into the logic.
“Inflation is good” from the perspective of Government fiscal policy.
Paying out interest on a AAA-rated loan (e.g. US bonds) is quite cheap, often below the national inflation rate. It allows (in theory) Governments to make large investments - like infrastructure - that work to increase their national GDP, which in turn can lead to increases in their tax-base, making it easier/cheaper to service their loans in the future.
So if the US issues a $1b bond, payable at 10yrs - with inflation at ~3%, the “value” (purchasing power) of that money would have decreased by over 25%.
No thank you, we do not need China dumping their goods in our markets. Just look at the EV dumping going on in the EU.
Decoupling is why you see massive deflation and unemployment in China and part of the reason why you don’t see it in the USA. Opening our markets to them would doom many of our industries and drive up unemployment for our youth.
Agreed.
But China will try anyway. Some geopolitical moved are obvious.
TEMU is a symptom of this obvious policy for example
I thought the US loved free trade? Oh, only when it benefits the corporate masters, I see.
No, the US does not love free trade. The current global economic environment where anyone can trade anywhere was established during the twilight of WW2 during a meeting at Bretton Woods.
Historically Imperial powers would occupy the vanquished, dismantle their adversaries economic systems and make them vassal states. They would then close their systems to outside trade and reap the rewards.
There were two problems with that for the US, first it would take a large military to do this (and we did not want to field those armies long term), second it meant we would probably have to fight the Russians directly as they would want to become an imperial occupying force (which they did) and would probably try to compete with us (which they did).
Instead we decided to bribe the Europeans into fighting the Russians for us. Hence the current global order where anyone, can trade anywhere for anything. We backstopped freedom of the seas with our fleet. Opened our markets to trade and provide financial assistance to help rebuild Europe. In exchange the European powers subjected their foreign policy to us and agreed to fight the Russians.
Europe, Japan and the rest of the Western world embraced this new economic system and it became foundational to their economies. To the US this was just a security deal, yeah we opened our economy but we never fully invested our economy in it. Which is why you don’t see many regional free trade deals passed beyond NAFTA after the end of the Cold War. We prefer to negotiate bilaterally with individual nations. We rarely ever open our markets without major concessions from the other side. We are also becoming more and more insular and are slowly pulling away from the global order we created because for us it was always just a security pact and we really don’t need it in a post Russian/USSR world. There is no popular support for NATO or any of the other institutions we created. Trump is a brainless Russian meat puppet but he knows how to read a room and the US electorate aren’t enthusiastic about staying connected to the rest of the world and subsidizing the costs maintained the current order.
Yeah, I was being facetious and poking fun at the claim that the US is all about free trade. It's the claimed reason any time the US makes an agreement to screw over local labor which they label as "not competitive" i.e. corporations don't want to pay American wages but want to sell to the American market.