Both Democrats and Republicans embrace Keynesian economics. They differ on where to direct government spending (guns or butter), but generally accept that deficit financing works the same way. The defense industry is sustained by government spending. Inflation and debt are of secondary importance to jobs and defense.
These different interpretations of how the economy functions are the constant fodder of political discussions. The goal is the same: peace and prosperity. Because they see the problem differently, they see the solution differently. The opposing strategies are constantly promoted and condemned.
Progressives, and those farther to the left, see economic problems rooted primarily in political privilege. They are outside of the free-market supply and demand belief system, and see trade more as a forced condition of survival. Given the history of monarchy, colonialism, slavery and despotism, there is some truth to their claims. Slaves would be fed just enough to be able to keep working. Power corrupts, and that corruption gets expressed in an economic manner. The laws favor corporate charters and their managers, rather than workers, even in a democracy.
Progressives are divided between two views. One is class struggle (the rich against the poor). The other is the living against an invented construct. Monarchy was an invented construct, supported by a claim of Divine Law. Corporate charters act the same way. Progressives embrace the idealistic freedom that all men were created equal, but believe the economy is rigged in favor of the Sellers. Free-market capitalists want more freedom to compete, progressives believe that they already have too much power, and competition generates waste, not efficiencies. Corporations were granted charters as a means to serve the people, but instead people are expected to serve the corporations.
Corporations, like governments, are driven by a budget mentality. Even when profitable, and holding large hoards of wealth, the mantra is always more. Their gain must come at the expense of someone else: customers, vendors, employees or the environment. Corporations, like monarchy, have an unfair advantage of age and size. In the progressive view, in a battle of survival of the fittest, the people must lose and corporations must win. They see the economy is a inflation/deflation buyers-versus-sellers, winners-versus-loses conflict, but without the supply and demand explanation. It is the laws that give an unfair advantage. Their view is similar to the supply-siders, but without a trust of free-markets.
All schools of economic thought are trying to make sense of the nonsensical. Everybody recognizes similar problems. They attempt to use political power to apply their economic strategy.
Under the umbrella of Supply and Demand theory, the different factions agree on many points. Competition is regarded as good, and monopolies are bad. The Deficit is bad, but can be increased for a dire need of either guns or butter. The push and pull is whether there needs to be more buyers or more sellers, more money or less money. These competing explanations are more similar than different, and share a common weakness: the lack of a mathematical model to explain how inflation or deflation results. The assumptions are not properly tested.
Fluctuations in production and consumption are a part of the natural lifecycle of the planet. The marketplace is a reflection of this underlying condition. Man's habits are built around Earth's orbit of the Sun. Holiday calendars, the school year, harvests and season shifts impact the timing and volume of what gets consumed. Pricing, in contrast, is exclusively a man-made event. Whether prices are set higher or lower than previously, they have to be set by someone. Prices are a conscious choice.
The Supply and Demand theories attempt to establish a connection between the volume of BSPD with pricing. It is tenuous. The cause and effect sequence is coincidental and anecdotal, not direct. Price changes are more frequent and volatile than the changes in the volume of buyers, sellers, products or dollars. Nature is slow, steady and predictable, prices are not. Prices can be moving in opposite directions between competitors, even though they are both operating in the same environment. All these theories are based on using selective facts, not all of them.
To explain inflation and deflation, we should look at common behaviors of the participants, rather than at secondary conditions like the BSPD volume. A more accurate theory would accommodate any fluctuations in the four elements. Everyone is trying to buy-low and sell-high. We should study this common behavior more deeply to understand the mathematical results.
What is inflation?
The act of "buy-low sell-high' is the applying of a variable percentages to a price. This is what causes the price of goods to perpetually rise. The more people that touch the good, each adding their own small amount of profit, the more the good will eventually cost. The final consumer pays the profit for everyone who touched the good previously.
Deflation is only a change in what has become commonly accepted as the selling price. Deflation can be the result of sellers using a smaller percentage, or of buyers finding a more direct path to the good, thereby circumventing one or more middle-men's mark-up.
Inflation has NOTHING to do with supply or demand. Inflation is the mathematical consequence of percentages being applied on the path to being consumed. The problem is much more simple than what is often claimed. Our troubles have nothing to do with political privilege, although they can acerbate them. Everyone creates inflation. We are both the victim and the crime.
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