Czar

Inflation, Not Deflation, Is Our Ultimate Problem

Perhaps Mr. Greenspans mental picture of inflation maintainance during his tenure was really a misunderstood effect of productivity growth which is not properly understood by economists in general.

Japans level of process automation was the cause for it's deflation. In response to the lower price pressures more automation was built to maintain corporate profits which in turn led to higher levels of unemployment. The common thread is that Japan's economy was the first truly moden economy to substantially produce more than it could consume.

A more accurate understanding can be achieved through a look at the percentage of Americans and to a greater extent the level of factory automation has reduced the value added sector of the economy to 10% of the population. There is a popular misconception that the Chinese economy is dependant on large numbers of unskilled workers. Although this is an accurate picture of China 15 years ago they have made relentless advanced cap-x investments that have made them largely as efficient as us in many manufacturing areas and more efficient in some.

In short, we produce more than we need as a global society and don't have enough people involved in those processes. You can only have so many individuals involved in service and government before the value added chain gets disturbed and deflationary pressures overwhelm inflationary ones regardless of the amount of fiat currency printed.

I point to the deflation in the cost/performance ratios of virtually any technology which in iteslf is a deflationary influence as it is a powerful first order feedback amplification loop. I point to the ratio of discretionary vs. non-discretionary spending which has exploded (excluding housing)that is not only an American past-time but has become a global one. Perhaps Greenspan saw this macroeconomic effect and never understood the causal relationships with efficiencies as they include service sector effects that dissapear with discretionary purchasing power.

Expansion of the money supplies was the only thing keeping it afloat, and yes it caused an inflationary bubble in commodities and real estate as these areas were not demand driven or manifested short term volitility which people couls clearly see until recently, but real estate kept a lot of people off the street as it is difficult to automate the fabrication of stick built houses.

People always forget that wealth is not created by any other mechanism that production. Do not confuse transferrance or currency exchange for wealth in a macroeconomic system sense.

I wish everyone good luck. I am going to toiling over developing my next industrial automation project.