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RE: The real cause of Inflation and its Effects

in #economy • 6 years ago

Inflation is a very important tool for the economy. For example, in times of decreasing general price levels, most of the manufacturers don't want to risk in producing their products even though the raw materials prices are lower. They won't be able to sell at a decent amount of profit. Thus, it is a good way for the government to stimulate again the market and have more businessmen/women and investors invest their resources in the market for economic growth.

We can have more discussion by responding to this comment my friend.

6 years ago in #economy by
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     6 years ago 

    Hi @johncrisologo !

    You make a valid argument, the political class has options to intervene in the market that might have positive short term effects, like in your example.
    The problem i see with it are these;

    1. It's taxpayers money that is used to protect business. Usually only the "too big to fail" businesses recieve this aid.
    2. It can not save an unprofitable business to maintain/regain profitability, only marketforces can.
    3. Nothing really changes but changing the numbers you reward labor with. A laborer now earns $20 instead of $10, but a loaf of bread now costs $2 instead of $1 because of imposed inlfation. The real losers are the people a) not running the business b) not working for the business.
    4. Rampant inflation leads to malinvestments on a much bigger scale. Businesses have a much harder time measuring market sentiment, when inflation is a variable.

    The problem at it's core is that you can not just change one parameter and expect the rest to not change too. It might solve an issue in the here and now, but usually attracts a rat tail that needs a lot of economic foresight to quantify.

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     6 years ago 

    Yes, most of the government's reason is just to stimulate the market for recovery. But it can also prevent further worse market conditions like depression as a result of extended inflation.

    I also agree with your four points above, I only hope that our governments will take more attention to SMEs since they provide at least 80% of the jobs around the world to help them and the employees flourish.