Thursday, May 14, 2009

Sign of the Times, from The Times

Hot off the presses, here's the headline, and subscript, from today's NY Times:
Jump in Food Costs Drives Up Prices -- "Wholesale prices rose slightly in the U.S. in April, the government reported, blunting fears of deflation."
Wholesale prices in the United States rose slightly in April, the government reported on Thursday, as falling oil and gasoline prices leveled off and food prices rose the most in a year. The Labor Department reported that prices received by producers of finished goods rose 0.3 percent last month, further discounting the prospect that the economy was veering into a vicious cycle of lower prices and lower wages known as deflation.
So rising food prices, at a time of high unemployment and low wages, is good news. Well Halleluyah! That should make you feel a whole lot better as you decide what you can afford to feed your kids tonight. In the interests of journalistic balance, the Times does present another viewpoint, though it seems a bit half-hearted:
But for some economists, the prospect of rising energy and food prices at a time of deep unemployment and shrinking wages raised concerns that strapped consumers could see their cost of living rise even as the job market continued to get worse. . . “There’s this squeeze going on,” John E. Silvia, chief economist at Wachovia Corporation, said. “We still have job losses. We still have a lot of pressure. And now you’re going to tell me that a lot of these basic commodities are rising? People’s real income is going to get squeezed.”
Exactly! The "squeeze" referred to is part and parcel of the more fundamental aporia I've alluded to in some earlier posts. At every level of the economy we literally do not know which way to go. Do we allow the banks to fail, which could destroy the world economy, or do we prop them up with trillions in bailouts, which could destroy the world monetary system? Do we nationalize the banks, which could lead to socialism, or do we try to restore the status quo, which could re-inflate the old bubble, leading to an even greater disaster? Do we encourage prices to rise, which would lead to serious hardship, not to mention the very real possibility of runaway inflation, or do we allow them to fall, which could lead to that dreaded "deflationary spiral" so many economists are now so worried about.

I looks very much as there is no way out, one way or another we are going down the tubes. There is another alternative, however, a very logical and sensible alternative, which I've been writing about here, a fresh approach to the economy that could certainly work. But it would require a major paradigm shift that few in this country are in a position to accept. Until we do, be prepared for a continual roil of the economy, as it lurches from one extreme to the other, from recapitalization to nationalization, from endless bank failures to endless bailouts, from price increases to price decreases, from runaway deflation to runaway inflation and back. If you really like roller coasters you might enjoy the future, but be careful, because too much of this sort of thing could make you very, very sick.

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