> From: Steve Schear > Sent: Tuesday, 7 October 2003 3:35 AM > Subject: [e-gold-list] Re: When e-gold takes off in a big way [Addressing FileMatrix, he writes:) > Well, as the joke goes... we've already established what you > are, now we're > just haggling over the price. Inflation is theft. What you > seem to be > implying is that its OK to steal a little, everybody does > this. <SNIP>
This reminds me of when Moslems point out that the Islamic restriction of men to no more than four wives was such an improvement in the treatment of women compared to the polytheism (and unrestrained polygamy) that was in Arabia before. But from our (and the first wife's) perspective it is still polygamy. In the same way, when the Reserve Bank of Australia began its inflation-targeting policy, it was such an improvement on the more interventionist (exchange-rate controlling) policy before it, which had resulted in strangling the economy with 18% interest rates and high inflation and high unemployment while trying (in vain) to maintain a stable exchange rate (against US Dollars). The reasoning (for the current policy) was that avoiding high inflation keeps the local economy healthy, which in the long run improves the value of the local currency as measured against the greenback (or at least against the "trade-weighted index" of currencies). This has been quite successful, but the RBA in their 'fight inflation first' (inflation targeting) policy chose to define this as (successfully) endeavouring to keep inflation in the two to three percent range. The logic behind the 2-3 percent desirable inflation range was twofold. 1. When measuring inflation on a 'basket' of goods and services, the price of the particular goods and services may inflate slightly, while competition enables consumers to choose different goods and services that provide better value for money. The resulting changes are only reflected some years later when economists realise that they must choose a different, more representative basket of goods and services. This is why the CPI (consumer price index) is not calculated on a basket including horseshoes, saddles and horse feed like it may have included a hundred years ago. Obviously the basket of goods should include everything sold in the entire economy, and should therefore be continually changing, but this is not practical for making economic measurements! 2. Trying to hold inflation to a hard and exacting target of zero might require 'wild' fluctuations in interest rates, further depressing economic activity in the long run, whereas having a range of movement requiring no adjustment (manipulation) allows for some natural fluctuation, which evens out in the long run. So, compensating for this effect it is supposed that true price stability may be represented by an inflation rate of two or three percent. In this case a policy of targeting zero CPI increases would require Reserve Bank policies to induce real deflation thereby inadvertently restricting real economic growth! Relating this back to the 'four wives is not so much polygamy' comparison, what if at times (due to varying rates of change in the representative basket of goods and services) the correct adjusted CPI inflation target *should* be sometimes less than two percent (or more than three percent)? In years like that the Reserve Bank is then (and bear in mind that they are only using the crude tool of official interest rates to drive inflation), inflating away people's wealth and savings (or in the opposite condition, through real deflation, favouring another group of people to the detriment of others). Naturally we should avoid taking any metaphor too far, so I might note that the comparison does NOT work the other way, to imply that having a little more than one wife would result in true monogamy! :^o Best regards, Ian Green http://iangreen.2cw.org PS: Nothing in the above should be taken to indicate endorsement of government (or quasi-government) manipulation or measurement of the economy. This is the beauty of a free market, *gold* (non-fiat) economy, that the market takes care of these things without economists representing government-like force making official tweaks (to interest rates or money supply) to keep things running smoothly! --- You are currently subscribed to e-gold-list as: [EMAIL PROTECTED] To unsubscribe send a blank email to [EMAIL PROTECTED] Use e-gold's Secure Randomized Keyboard (SRK) when accessing your e-gold account(s) via the web and shopping cart interfaces to help thwart keystroke loggers and common viruses.
