Saturday, September 19, 2009

Sticky Prices

This Post by Nick Rowe led to this Post by Paul Krugman. My Travels with Charley brought me to this Post by Mark Thoma. This is all information which the ageing Student should know, even if there be no way that he can use it. It all seems that Samuelson and Thoma are raging Centerists, and a Flight to Safety would demand a lot of Cash; a substance which must actually be printed, even if only on Computer. I will tell my Readers that I give no credence to Right, Left, or dead Center. I will try to present a more rational, off-the-scope evaluation, but where can one start?

Economists love to talk about Money flows and Sticky Prices. The later is more a question of human behavior than it is a vast hidden schematic. No one likes to lessen their Income, because this always lead to a sharp revision of Budget schedules. This is true for Labor, Employer, Investor, Banker, Corporation, or Union. Increases in Income are easy to endure, but decreases cause duress even when they are mild. No one wants to go there! It is the reason Why all economic models utilize some form which allows for advancing Income, not declining Income. The trouble with almost all economic models, therefore, is that they don’t account a very real Scenario of declining Income for all Participants. All Recessions will entail some decline in previous Highs of Income for all Participants, and economic models attempt to sidestep such injury. This element produces economic model failure in the face of the reality of declining Income which Recessions make reality.

Everyone wants a better World, one where economic models will work perfectly–it will not happen. No matter how complicated or beautiful any economic model is designed, it will fall short of desires. This is because any replacement of Income designed will fail to reach some Participants in the economy–even if it is only the Poor. This lack of universal provision of greater Income will eventually defeat all economic incentives to restore the economy, generating only Inflation and skewed Price schedules inhibiting Sales. The proper Recession correction may be consistent universal Tax schedules of continuous application (no Tax breaks), and continual operation of minimal Income schedules from Welfare measures. Of course, I could be as far off as Everyone else. lgl

No comments: