Much of what is in this msg is from Paul Krugman's column, as I   
    interpret it, and an IMF report. However, a fair amount is what   
    I find to be true, and have been saying for years. Little or   
    none is directly quoted from either of the articles.   
      
    Well, another interesting column by Paul Krugman.   
      
    http://tinyurl.com/pqt87aj   
      
    I have often said some inflation is a normal aspect of a healthy   
    economy. One reason for that is, in a healthy economy things   
    change, and some of those things that change make wages for some   
    jobs go higher than other jobs, higher than they were before.   
    Some jobs lose demand.   
      
    Some jobs gain demand, which causes their wages to rise. Some   
    fields gain demand, which requires more resources which bids up   
    those resources.   
      
    However, if wages decline but debts don't the result is people   
    can't pay their debts. This is not good for a healthy economy.   
    Modest inflation serves as an adjustment factor for this,   
    letting wages rise generally, but not in those fields where   
    demand has fallen. Costs of resources can rise in general, or   
    fall when they do, and the end result is the economy balances as   
    the various factors play out their effects.   
      
    If wages decline compared to those that go up, but do not   
    decline in actual dollars, the ability to pay those debts does   
    not decline, and debts get paid, which is good for a healthy   
    economy.   
      
    Since the changes tend to be moderate and long term, the end   
    result tends to be a well run system.   
      
    This effect of non-declining wages is what economist call   
    "sticky" when talking to the general public. It means pretty   
    much the same thing.   
      
    However, when inflation falls to near zero, or even below, there   
    is no moderating factor, and debt repayment becomes   
    questionable. Since inflation tends to only fall to near or   
    below zero in times of economic trouble, that means a lot of   
    people not paying a lot of debt. Hello depression.   
      
    Now, all of this is well known, and discussed freely by   
    economists. What was different in Paul Krugman's recent column   
    is an explanation of how understanding of the low inflation vs   
    deflation loss has become news to the IMF.   
      
    The International Monetary Fund is an international agency whose   
    primary focus is a stable financial system. In the real world a   
    stable system has meant preserving the status quo, where the   
    rich remain rich and the poor remain poor. That's not their   
    objective, but it has been a result.   
      
    However, the IMF has begun to understand that the status quo has   
    not been status quo, but has been shifting to higher income   
    inequality. In studying this they have become informed of the   
    problems because the inequality is becoming exceedingly bad.   
      
    As a life long trouble shooter I long ago learned that, by   
    putting a system at it's extremes you can work to find where the   
    proper settings are to run the system. Since all systems not   
    directly mechanically connected are dynamic to a certain extent,   
    the idea is to find the best practical settings to stay within   
    operational parameters. What the IMF has come to realize is what   
    Henry Ford showed long ago, what has been seen over and over in   
    economics, except by those who don't want to look.   
      
    Income inequality is a drag on the system. While the "status   
    quo" preachers claim the "job creators" need an incentive to   
    creat jobs, they forget, the workers need an incentive to do the   
    work. The self annointed John Galts of the world are not even   
    close to capable of monitoring performance in enough detail to   
    force workers to produce by threats. It works to a limited   
    extent, but it always has holes that lead to reduced efficiency,   
    to reduced profitability.   
      
    The only way to truly develop a "work ethic" is to reward work.   
    No one is going to work hard without a reward. The better and   
    more direct the reward, the better the work ethic. Which is   
    where income inequality serves as an indicator that the reward   
    is not matching the effort. Remove the incentive and you remove   
    the work ethic, you remove the profit.   
      
    The IMF, which for years has been little more than a debt   
    collector for big money, and a pusher for the drug of   
    privatization, has finally come to realize this out of kilter   
    system is failing. That is why the current world wide recession   
    has lasted since 2008, and continues today. The market has dried   
    up do to lack of customers, the workers are trapped in a system   
    where there is nothing they can do to dig their way out.   
      
    In New Tack, I.M.F. Aims at Income Inequality   
    http://tinyurl.com/ob3jbqu   
      
    Their answer is, raise the inflation rate. Currently average   
    inflation is less than 2%. The world's banks and financial   
    ministries and the IMF have made 2% inflation the limit for   
    years. Before that the acceptable limit for the US Federal   
    Reserve was 3%, and I was saying even then you don't toss a   
    wrench into the system to bring it down if is has an excursion   
    just a bit above that. However, that is what the Fed tended to   
    do.   
      
    Another point in Krugman's column is, the IMF report on this   
    shows low inflation actually causes investors to hoard cash,   
    rather than invest.   
      
    Now I have seen, over the years, that the markets are more   
    profitable when inflation is higher, less profitable when   
    inflation is lower. I recognized that this was due to the fact   
    that inflation was a result of a good economy, and that led to   
    profitable markets. What I did not realize is, and Krugman   
    pointed out, is that inflation is not only a result of a good   
    economy, it is a contributing factor in creating one.   
      
    Investor hoarding consists of putting the money into less   
    productive, but safer, investments. When inflation is low that   
    is a nice safe strategy, why risk your money when you have a lot   
    and nothing to lose by sitting on it. However, higher inflation,   
    even 3%, causes the investor's hoard to lose value if it's not   
    working to produce products, and thus profits. So, one big   
    reason investors are sitting on money now is, there is no market   
    to draw them in, and no penalty for sitting it out.   
      
    Of course, as long as investments are safe, and less productive,   
    the markets stay stale as workers have less to spend. A nice   
    closed loop entropy system. Only by putting workers back to   
    work, which means higher wages and growing markets, will the   
    investors gain a profit. With the penalty for not doing it being   
    a loss of value of as much as 3% a year, that's a pretty good   
    driver toward a more vigorous, and less unequal, economy.   
      
      
      
   BOB KLAHN bob.klahn@sev.org   http://home.toltbbs.com/bobklahn   
      
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