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Redistribution

Because that's how its done in the circus...
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Jim has seen some pretty remarkable things on the tight rope and the slack rope for that matter. Just recently a few people managed to traverse a massive ravine --- at the same time on the same 50mm rope in different directions! Jim was impressed by the ability of the tight rope walkers to redistribute their weight using a balance beam.

For any economy the government plays the role of the tight rope walker and the balance beam is the various mechanisms at its disposal. In short government needs to balance the economy ensuring that there is no single part that cannot meets its obligations.

Currently governments face the problem of massive debt --- across all sectors of the economy. This in itself is not a problem if those sectors can meet their obligations. At present they cannot without near zero cost of borrowing, ‘in addition’, to printing money. Governments are currently looking for a better faster way of ensuring that the balance sheet of the banking sector is balanced by the balance sheet of the rest of the economy --- without distortion caused by uncontrolled inflation.

Clearly a redistribution of the economy is required and this redistribution is required to be controlled. It is difficult to see how a free market policy is going to achieve such a distribution of funds. Governments are talking of a ‘helicopter drop’, which is essentially a deposit of funds to individual’s accounts financed by the reserve bank.

This policy is pure monetarist --- and a monetarist government cannot entertain any other type of policy. It appears to Jim that this is like a tight rope walker taking a balance beam with them but refusing to use it. What the governments want/need to achieve is an increase in the ability of the economy to finance debt, that is an increase in income of every sector of the economy while maintaining their relative size, except one of course.

For instance the government can very well double the minimum wage while doubling the price of essential goods and services.

madness, Oct 15 2012

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       Yes, inflation reduces debt, but non-totalitarian governments are limited in the ways they can induce inflation, especially in a slow economy. While increasing the minimum wage is inflationary, it is not sufficient to cause inflation on its own. Nor can government arbitrarily increase the price of goods and services unless it is providing those services, which in the countries in question it typically isn't.   

       Finally, a sudden, significant, jump in inflation would not be a good thing, since it provides no incentive to borrow after the jump. A slow, steady inflation is what's desirable, since the trend allows someone to predict a slow decrease in borrowing costs.
MechE, Oct 16 2012
  

       //A slow, steady inflation is what's desirable, since the trend allows someone to predict a slow decrease in borrowing costs.//   

       I'm wondering if this conventional wisdom is actually correct. Why should we encourage debtors (which inflation encourages) at the expense of savers/lenders (which inflation discourages)?
xaviergisz, Oct 16 2012
  

       This already exists: it's called Marxist Economics. It doesn't work.
Alterother, Oct 16 2012
  

       What [Alterother] said. [marked-for-deletion] (Woo!! Three in a row!)   

       Oh, and Jim gets a fishbone just for talking about himself in other than the first person. When [8th] does it, it's quirky. When Jim does it, it's obnoxious. Sorry. The truth must be spoken.
ytk, Oct 16 2012
  

       [Xavier] As a rule, money flowing is better for the economy than static money. It also encourages investment instead of savings. It may not be ideal from the individual standpoint, but I think it is better over all.
MechE, Oct 16 2012
  

       so your idea is to cause hyperinflation?
Voice, Oct 16 2012
  


 

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