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Post by Vene on Feb 26, 2010 18:46:38 GMT -5
There's probably a pill for that.
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Post by Neutral Guy on Feb 26, 2010 19:22:56 GMT -5
Inflation by itself is not as meaningful of a number as inflation compared to the change in the average wage. Unfortunately, I don't have those statistics. If wages are increasing at a rate higher than inflation, meh. Also, to be completely fair, average household wage, that way we're not just looking at those who have gainful employment, but those who are underemployed and unemployed. To address your concern, neither the average wage nor the minimum wage has kept up with the rate of inflation. The wages have also not kept up with the general cost of living. Electronics, computers, new technology and sometimes automobiles have decreased in cost in every possible way, even just looking at their comparative sticker prices.
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Post by dantesvirgil on Feb 27, 2010 14:08:11 GMT -5
I think wage rates have been relatively stagnant since the 70s. The Bureau of Labor always keeps really concise data depending on what you want to look for. You have to wade around a bit, but it's worth it. Wiki has a good summary on inflation and how it's calculated, etc. It's not necessarily true, though, that you can't just look at inflation by itself without also looking at wages (or some other contextual factor). There are plenty of scenarios that could affect inflation that have little to do with wages but still make inflation a meaningful number in isolation to other factors; for example Zimbabwe just ran off sheets of money like it was copies for a classroom; you can still discuss that inflation without having to examine it in relation to current wages, in part of course because it's such an extreme example. For a less extreme example, you could certainly still go back to the late 70s. The Consumer Price Index, which is very important to determining inflation, is made up of bundles of average consumer goods; these bundles fluctuate when the BLS calculates them depending on season, what's in demand, etc. Part of what gets calculated in the CPI (and therefore inflation) is energy cost. One of the reasons inflation was so out of control in the 70s was because of the oil issue, which was actually a series of crises where prices spiked so high that it ate into business productivity and personal consumption -- as in, it gets much harder to do anything that requires oil, from manufacturing to sitting in line for gas rations for your personal car. Wages really didn't have much to do with inflation at that point. An external event dramatically increased inflation. I'm certainly not saying that's all there was to it. But it had a *lot* to do with it.
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Post by Neutral Guy on Feb 28, 2010 19:20:17 GMT -5
No, the increase or decrease of the supply of oil is simply classic supply and demand rather than inflation. Inflation refers to one specific thing. That is the increase of the money supply. Because the United States has one institution that is legally allowed to create money all inflation problems can therefore be blamed on it. Which is the Federal Reserve.
The price of oil may affect nearly everything, but that does not make it inflation.
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Post by dantesvirgil on Mar 1, 2010 14:40:14 GMT -5
No, you're talking about the source of hyperinflation. Inflation has to do with the cost of a basket of goods. It is a measure of how much things cost over time, how much your money buys you relative to a point in time. When oil became scarce because of politics, prices for oil shot up; this made everything more expensive, if only because of the cost to transport it to the market. So, milk got more expensive, gas for your car got more expensive, and anything that used oil in the manufacturing of the product got more expensive. A dollar bought less gas than it did before the oil crisis. That is inflation. Printing more money results in a specific kind of inflation -- but inflation doesn't have to have anything to do with the supply of actually dollar bills in the economy.
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Post by RavynousHunter on Mar 1, 2010 18:22:11 GMT -5
There's probably a pill for that. If there's not a pill, chances are there's a cream or some other sort of salve.
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Post by Undecided on Mar 2, 2010 3:13:44 GMT -5
The extent of the stagflation of the '70s is attributable to a variety of causes, starting with the Vietnam War and domestic spending of the '60s, which put inflationary pressure on the U.S. dollar. To compensate, in 1971 the Federal Reserve increased circulation by 10%. However, under the Bretton Woods system, in which foreign currencies were pegged to the dollar, this amounted to an effective devaluation of other currencies against the dollar and so spurred foreign nations to demand exchange of their dollar reserves for gold. This, in turn, put an even greater financial burden on the United States, and so Nixon decided to unilaterally cancel interchangeability with the gold standard under the Bretton Woods system. This led to the so-called "Nixon Shock" in the global financial system, which, apart from effecting in most nations a switch from fixed to floating currency (and hence the collapse of the Bretton Woods system), caused an inordinate amount of price increases in commodities. In addition, as part of the switch, many nations (including the U.S.) increased the reserves of their domestic currency, causing depreciation of the currencies.
The collapse of the Bretton Woods system affected OPEC economies heavily. Since oil was priced in U.S. dollars, the devaluation of the dollar meant that oil producers would be paid less in real income, as their own financial systems were slow to adjust. As a result, OPEC members decided to price oil against gold, even as the U.S. was making the opposite move with its currency. The net result was the "Oil Shock": as a result of the switch, crude oil became a highly volatile commodity globally.
In addition, the Nixon administration (among others) put in place several wage and price controls in his attempt to combat inflation in 1971. The crux of directives was in those regarding the price of oil. With a dual purpose in energy security policy, the price of crude oil was controlled so as to favour "new oil", that is, oil from newly found sources, so as to promote oil exploration. However, it did so by allowing the oil companies to sell this new oil at a higher price than old oil. In doing so, it made crude oil an artificially scarce resource. As such, rationing of petroleum at stations in the United States occurred as early as the middle of 1972. Similar regulations and situations existed in many European countries.
The 'dumping' of all this volatility onto international markets was masked by the fact that 1972 was considered to be a good year: the GDP had a real annual growth of 7.2%, the Dow Jones Industrial Average 15%. Thus, the stock market crash which began on January 1973 was unexpected. Due to the considerations above (the artificial scarcity of oil, the excessive growth of money supply, and the crash due to increased volatility), growth at the beginning of 1973 was sluggish. However, the depreciation of international currencies was still in effect, and so one had inflation as well as economic stagnation during this period, i.e., stagflation.
In the meantime, there was growing discontent with the Western order in OPEC, especially OAPEC, in no small part due to the effects of the collapse of the Bretton Woods system, as well as the Arab-Israeli conflict. Tensions regarding the latter came to a breaking point with the beginning of the Yom Kippur War in October 1973, when Nixon interceded to deliver supplies. As a result, OPEC raised the price of oil by 70% and OAPEC agreed to an embargo. This price shock deepened the existing recession and elevated inflation through 1974 for most Western countries, and was exacerbated by excessive central bank monetary policies which attempted to stimulate growth but elevated inflation further.
So really, the stagflation of the 1970s had complex origins.
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