Sunday, 13 July 2008
The Existential Inflation issue
Thinking about yesterday's post and the reaction, it strikes me that there is a fault line in economics thought at the moment. Monetarist declare inflation is all money supply, Keynsian's and others that it is pure supply and demand.
Yet today we face global inflation for oil, food and commodities and a contraction in money supply; it is a complete contradiction for policy makers to deal with. Let alone politicians, none of whom I have heard even mention this issue at any length.
I have come down on the side of the monetarists, over supply of money was one of the main causes and under-supply of money is going to cause the recession; but this still does not deal with the issues of commodities and oil, both of which have true demand changes in their profiles.
It would be good to hear some real thought about what is the answer to the problem we face. The Bank of England is clearly stuck for ideas - it chooses the middle ground and leaves interest rates unchanged ( not the middle ground in some ways, as rates are far too high).
Posted by CityUnslicker