Here is another Questioning if the old economic models apply. Alan Kirman focuses on the real prospect that economic theory about Rationality and Equilibrium cannot truly meet the real expectations considering such things as ‘herd behavior’ and aggregate canceling out process. I approach the problem by saying that Economies alter with Size, bringing vastly different reactions than earlier economies. Take the question of Stimulus. Massive size makes common distribution impossible, with Special Interests’ capture of the process; One has to ask if the Fed is not Too Small to Succeed and/or is the Treasury Too Broke to Survive. Regulation, not just of the Stimulus package but all Government, cannot develop sufficient supervisory personnel to identify any violation, let alone to assign any punishment for such violation. One knowledgeable Source, not cited for his own protection, stated that a full Audit for one year’s operation of the Economy would take 11 years. Which of you budding economists can tell me Why capture of Stimulus stops the process of Stimulus? Hint: Captured Stimulus simply funds previous Production Costs extremes under capture conditions.
Here is a very confused Individual, and I empathize with him. He wonders at the dynamic inconsistency of Fed policy, while I understand that it is the poor economic modeling on Inflation which is at fault. Goods with a lifespan of longer than three years should never play a part in any Inflation index. The best index would be One which models Products which will be consumed within one year. High and Low Movers should not be excluded from such models, but Intermediate and Long-Term Products will always follow any sustained Inflationary trend within 18 months. Understand that 70% of usual Consumption Income has been spent before a Household reaches these long life Goods. Getting a clear presentation of what Inflation exists comes only with the frequency of purchase, and We need to know the Prices of what consumes over 50% of disposable Household Income.
This article fits in nicely with both paragraphs above. The Consumer Price Index is down 1.3%, all basically because of the downturn in Car purchases and Big-Ticket items. The Drug industry, though, uses the Cover of this dropping CPI to hide its acceleration of Drug prices; here preemptive capture of Stimulus from promised Health care provision. Drug companies will get away with this capture, unless Government conducts suppressive negotiations for Drug supplies; a Condition no one expects out of a Congress heavily-subsidized by political contributions from the health sector. The Drug companies expect 30 million more Customers, but expect they can raise their Prices another 15%, while their Production Costs will likely reduce by about 30%. The trouble seems to be that they will get away with it. lgl