economist http://www.wisebread.com/taxonomy/term/213/all en-US Can a Little Inflation Be Good? http://www.wisebread.com/can-a-little-inflation-be-good <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/can-a-little-inflation-be-good" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/baloon-inflation-3_0.jpg" alt="Balloon Inflation" title="Balloon Inflation" class="imagecache imagecache-250w" width="250" height="277" /></a> </div> </div> </div> <p>Let me jump to the end and say right at the start that I don't think so. However, there's a serious argument being made right now among economists and economic policy makers that higher inflation would be good. There's enough of them in the pro-inflation camp that it's worth taking a look at what they're saying.</p> <p>The Economist has a good article summarizing the current economic thinking that <a href="http://www.economist.com/blogs/freeexchange/2010/02/monetary_policy_1">very low inflation can lead to trouble</a>.</p> <p>The basic case of the pro-inflation camp is that certain kinds of economic adjustments are very hard to make under a condition of stable prices. The classic example is wages, which are (in the term economists use) &quot;sticky on the downside.&quot; That is to say that workers will resist wage cuts very strongly &mdash; strongly enough that employers find it easier to cut jobs than to cut wages.</p> <p>When an economic downturn hits during a period of very low inflation, it's hard to adjust. Output goes down, jobs are lost, businesses go bust, asset prices fall, etc. (In other words, exactly what we're seeing right now.)</p> <p>When there's a little inflation, it's possible to make much the same adjustments with less loss in output. Instead of trying to cut wages, employers can achieve the same result simply by giving raises lower than inflation. That means that fewer jobs are lost, fewer businesses go broke, asset prices don't have to fall as far, and so on. Economists like to speak of a little inflation as a &quot;lubricant&quot; in the adjustment process.</p> <p>In addition to making the adjustment smoother (all wages and prices go up, but some go up slower than inflation, which amounts to a cut), a little inflation can stimulate the economy, by prompting people to buy now before prices go up (i.e. before the value of their money falls even further).</p> <p>I've talked before about the <a href="http://www.wisebread.com/inflation-is-worse-than-you-think ">downsides of inflation</a>. When prices are stable over the long term, people can focus more of their attention on productive activities and less on <a href="http://www.wisebread.com/debasing-not-just-the-currency">keeping track of price changes</a>.</p> <p>Worse, though, I think higher inflation rates are inherently unstable. An inflation rate under 2% is low enough that inflation can just about be ignored, and a consensus can develop that it's okay. A higher inflation rate, though, becomes noticeable &mdash; and there will be pressure to change the inflation rate. Whether the pressure to raise the inflation rate will win over the pressure to lower the inflation rate can't be known, so everyone has to keep their plans flexible so that they can adjust to either possibility. That makes it much tougher to make long term plans &mdash; and that, I think, costs our economy quite a bit.</p> <p>Maybe my thinking is overly influenced by my own experience &mdash; I was setting up my first household in 1980-1981, right at the peak of the 1970s inflation. But I don't think inflation is ever a better answer than stable prices.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/can-a-little-inflation-be-good">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/more-than-just-inflation">More than just inflation</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/could-trump-bring-higher-interest-rates-and-inflation-consider-these-money-moves">Could Trump Bring Higher Interest Rates and Inflation? Consider These Money Moves</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/watch-out-for-surge-in-cpi">Watch Out for Surge in CPI</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-live-with-inflation">How to live with inflation</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-ive-been-trying-to-say">What I&#039;ve been trying to say</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance Financial News economics economist inflation prices rising prices Wed, 17 Feb 2010 14:00:05 +0000 Philip Brewer 5307 at http://www.wisebread.com Recession Journal VI: It's OVER!!!!!!!!!!!! Any Questions? http://www.wisebread.com/recession-journal-vi-its-over-any-questions <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/recession-journal-vi-its-over-any-questions" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/celebration-balloons.jpg" alt="" title="" class="imagecache imagecache-250w" width="250" height="188" /></a> </div> </div> </div> <p>Are people grabbing strangers in the street and kissing them yet?</p> <p>Do you see the quivering, multi-colored ticker tape floating in the wind? How about the pitter-pat of feet toward the mall?</p> <p>Are the talking heads flailing their arms with tales of you winning and the terrorists losing with your purchase of a new smart phone or a plasma television?</p> <p>Are you happy now?</p> <p>I ask these things because it&rsquo;s finally over, technically, officially &mdash; the recession is over.</p> <p>The latest U.S. Commerce Department figures reveal that America's economy grew at a 3.5% pace in the third quarter, beating economist expectations and turning in the best growth numbers in two years.</p> <p>For any of those still feeling the personal blues and responding to this jargon with a resounding &lsquo;whaaaaa,&rsquo; any positive gross domestic product growth after consecutive quarters of contraction or negative GDP, signals a technical, if not literal, end to the recession.</p> <p>In this case, the latest GDP figures ended four straight quarters of negative GDP growth.</p> <p>Indeed a relatively bullish equity market &mdash; with duller horns than recent years but still bullish &mdash; and respectably performing bond market, along with government stimuli and small surges in consumer cars and home purchases, is responsible for the growth.</p> <p>So I&rsquo;m checking in with you, how do you feel? Feel good? Okay, you sitting down?</p> <p>Good.</p> <p>Well here&rsquo;s what our &quot;post-recession&quot; looks like right now.</p> <p>In the same week that good GDP data pulled the United States out of a recession, there's also mixed to bad news where other economic indicators are concerned.</p> <p>For one, consumer confidence is down.</p> <p>I asked you how you were feeling, how come you didn&rsquo;t tell me?</p> <p>The so called &quot;current conditions&quot; indicator from the Conference Board, which was also recently released, fell to 20.7, and is near its lowest level in 26 years.</p> <p>This is due to the continually lackluster labor market, where the current jobless rate of just under 10% &mdash; 9.8% to be exact &mdash; is the highest since 1983.</p> <p>Okay I know that sucks, but are you comfortable?</p> <p>Apropos, the ABC Consumer Comfort Index, also recently dropped on investors like it&rsquo;s hot, indicates that consumers are as uncomfortable about current conditions and about spending as they were during peak levels in discomfort this summer.</p> <p>And of course, we found out, in that same fateful week that consumer spending had nosedived in September by the largest amount in nine months. And incomes, to say nothing of disposable incomes, were flat across the board.</p> <p>Still happy?</p> <p>No, no, sit down, this&rsquo;ll only take a bit longer. Cop a squat.</p> <p>Further &mdash; yes this came out the same exact week too &mdash; while the S&amp;P/Case-Shiller home-price index climbed 1% from the prior month, seasonally adjusted, after a 1.2% increase in July, sales of new U.S. homes unexpectedly fell in September.</p> <p>The fall of home sales points to fear about lingering foreclosures and the end of tax credits for home buyers that could hamper a housing industry recovery.</p> <p>Speaking of foreclosures, the U.S. Census Bureau &mdash; yes recently they said this &mdash; the number of vacant properties, including foreclosures, residences for sale and vacation homes, rose from 18.4 million a year earlier.</p> <p>Meanwhile durable goods orders are up, but continued high unemployment looms in the shadows, as does the potential for a wild correction in commercial real estate.</p> <p>Additionally, buried in the basement of the Commerce Department's glowing is data that reveals the inflation-adjusted disposable personal income of consumers falling fell 3.4%, almost the same percentage of positive GDP growth.</p> <p>Don&rsquo;t get mad at me, I&rsquo;m just being real.</p> <p>Okay, put the torches and pitchforks down. I repeat, we <i>are</i> officially out of a recession folks.</p> <p>But the long-term effects of new or amended spending habits, our country&rsquo;s personal and government debt and how we respond now that we&rsquo;re out, will determine our personal and collective future.</p> <p>Do you plan to get out there and make something happen? Do you plan to wait until the coast is clear? How has your philosophy changed, if at all?</p> <p>I know, I know, more questions but as Ken Mayland, president of ClearView Economics pointed out to me in a, to belabor the point, &ldquo;recent&rdquo; conversation, &ldquo;questions are all we have in the present.&rdquo;</p> <p>And the more we ask of our government and ourselves where fiscal and personal decisions are concerned, the more answers we have.</p> <p><em>This post was included in the <a href="http://www.thefinancialblogger.com/carnival-of-money-hackers-%E2%80%93-my-favourite-coffee-edition/">Carnival of Money Hackers</a>.</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/jabulani-leffall">Jabulani Leffall</a> of <a href="http://www.wisebread.com/recession-journal-vi-its-over-any-questions">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-11"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/peak-debt">Peak Debt</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/recession-depression">Recession Depression</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/recession-journal-v-mind-the-gap">Recession Journal V: Mind, The GAP</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/beware-of-the-phrase-we-can-cut-your-debt-in-half">Beware of the Phrase &quot;We Can Cut Your Debt In Half!&quot;</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/epipens-and-other-ways-companies-have-profited-from-your-pain">EpiPens and Other Ways Companies Have Profited From Your Pain</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Consumer Affairs Financial News economist recession US economy Sat, 31 Oct 2009 16:00:04 +0000 Jabulani Leffall 3778 at http://www.wisebread.com Deadweight loss of Christmas: Economist explains why gifts are inefficient http://www.wisebread.com/deadweight-loss-of-christmas-economist-explains-why-gifts-are-inefficient <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/deadweight-loss-of-christmas-economist-explains-why-gifts-are-inefficient" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock_000052201960_Large.jpg" alt="christmas gift" title="christmas gift" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Did you unwrap any crappy presents this morning? Are you thinking that all the shopping and running around was a big waste of time?</p> <p>You might be right, says economist Joel Waldfogel.</p> <p>Waldfogel estimates that people generally spend 16% more on presents than they&rsquo;re worth to those who receive them. He calls this phenomenon &ldquo;The deadweight loss of Christmas.&rdquo;</p> <p>For example, a deadweight loss is created when you spend $20 to give me a DVD that I would spend only $15 to buy for myself. Economist Tim Harford explains:</p> <blockquote><p>Christmas presents are wasteful, and we even know how wasteful: 16%. This figure comes from surveys by economist Joel Waldfogel, who asked how much cash his respondents would have been willing to pay to buy their Christmas presents. The answer is, sadly, 16% less than what they cost.</p> <p>The most inappropriate gifts, costing 50% more than their value to the recipients, come from elderly relatives.</p> <p>Sensibly, many elect to give cash instead. Unsurprisingly, friends and partners give less wasteful gifts.</p> <p>It's interesting to note that the most wasteful presents are those that cost roughly between 25 and 50 pounds &mdash; expensive enough to assuage the guilt of a hurried choice, but cheap enough not to require double-checking with those close to the recipient.</p> </blockquote> <p>If gifts are 16% less valuable to the gift receivers, there's no reason to give expensive gifts. In fact, the more expensive the gift is, the more money you're wasting!</p> <p>These deadweight inefficiencies add up. The Economist estimates that while Americans &quot;<a href="http://www.economist.com/finance/displayStory.cfm?Story_ID=885748">spend $40 billion</a> on Christmas gifts, $4 billion is being lost annually in the process of gift-giving.&quot;</p> <h2>My Personal Deadweight Loss Calculation</h2> <p>Bummed about not getting that Kevin Federline CD? Perhaps I can soothe your pain by sharing my own personal 2006 Christmas gift disappointments:</p> <table border="1" cellspacing="2" cellpadding="2" width="400" style="height: 193px"> <tbody> <tr> <td><strong>Gifts Received </strong></td> <td><strong> Cost to Purchaser<br /> </strong></td> <td><strong>Value to Me <br /> </strong></td> </tr> <tr> <td style="background-color: #ffff99">Schure E4C Headpohnes</td> <td style="background-color: #ffff99">$167.99</td> <td style="background-color: #ffff99">$125</td> </tr> <tr> <td>xkcd t-shirt</td> <td>$14.99</td> <td> <p>$14.99</p> <p>I love this gift!</p> </td> </tr> <tr> <td style="background-color: #ffff99"><a href="http://www.amazon.com/gp/product/B002PXVYPU/ref=as_li_tl?ie=UTF8&amp;camp=1789&amp;creative=390957&amp;creativeASIN=B002PXVYPU&amp;linkCode=as2&amp;tag=wisbre03-20&amp;linkId=FWLCHGDJUNCXXCCQ">Scientific American Subscription</a></td> <td style="background-color: #ffff99">$24.97</td> <td style="background-color: #ffff99"> <p>$2</p> <p>Come on, that's what my dentist is for.</p> </td> </tr> <tr> <td><a href="http://www.amazon.com/gp/product/B004SAYO46/ref=as_li_tl?ie=UTF8&amp;camp=1789&amp;creative=390957&amp;creativeASIN=B004SAYO46&amp;linkCode=as2&amp;tag=wisbre03-20&amp;linkId=SX42ZBA7CCXJZXIG" title="USB Rocket Launcer">USB Rocket Launcher</a></td> <td>$39.99</td> <td> <p>$39.99</p> <p>Subtract cost of taking someone's eye out = -$300,000</p> </td> </tr> <tr> <td valign="top" style="background-color: #ffff99"><a href="http://www.amazon.com/gp/product/6305078564/ref=as_li_tl?ie=UTF8&amp;camp=1789&amp;creative=390957&amp;creativeASIN=6305078564&amp;linkCode=as2&amp;tag=wisbre03-20&amp;linkId=7YSU3MPW6XSGQITL" title="Pride and Prejudice BBC Edition">Pride and Prejudice BBC Edition</a></td> <td valign="top" style="background-color: #ffff99">$185.90</td> <td valign="top" style="background-color: #ffff99">Finding out the girl I like thinks I'm gay? Priceless.</td> </tr> </tbody> </table> <p> I can't say for sure this is how Waldfogel tabulated his statistics, but I'm sure it is probably the same.</p> <p>Does all this inefficiency and disappointment mean Waldfogel is right and that we should give up on Christmas gift giving as one big waste of time?</p> <p>Probably not, considering there are other economic studies that point out the exact opposite: i.e. some people value the gifts they receive higher than the actual retail price.</p> <p>The lesson here is to not to be resentful of how wasteful Christmas is, but rather to be mindful that expensive gifts are not as valuable as thoughtful ones.</p> <p>P.S. Anyone want to buy a <em>Pride and Prejudice</em> DVD box set for cheap?</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/will-chen">Will Chen</a> of <a href="http://www.wisebread.com/deadweight-loss-of-christmas-economist-explains-why-gifts-are-inefficient">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/save-on-christmas-shopping-with-this-clever-gift-card-strategy">Save on Christmas Shopping With This Clever Gift Card Strategy</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-simple-holiday-budget-anyone-can-follow">The Simple Holiday Budget Anyone Can Follow</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/heres-how-to-monetize-your-unwanted-gifts">How to Get Rid of Your Unwanted Gifts and Make Money Too</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/are-you-dreaming-of-a-frugal-christmas-6-things-you-can-make-that-people-on-your-list-will-use-and-w">Dreaming of a Frugal Christmas: 6 Things You Can Make That People on Your List Will Use and Want</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/9-smart-reasons-to-last-minute-holiday-shop">9 Smart Reasons to Last-Minute Holiday Shop</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Financial News Shopping Christmas deadweight loss economist gifts inefficient Mon, 25 Dec 2006 11:12:07 +0000 Will Chen 107 at http://www.wisebread.com