Written by Rodger Malcolm Mitchell, www.nofica.com

What is the complex relationship among inflation, deficits, interest rates, oil prices, tax cuts, and GDP?

It takes only two things to keep people in chains: .

The ignorance of the oppressed and the treachery of their leaders.

To answer the title question, we begin with three questions:

  • What is the primary cause of inflation?
  • What is the primary cure for inflation?
  • What do high interest rates do to Gross Domestic Product?
  • If you ask the media, most economists, and the public to answer question #1, you probably will receive an answer something like the following:

    Should we worry about inflation?

    The Week, March 3, 2018

    “Until recently, inflation seemed to be dead or, at least, in a prolonged state of remission,” said Robert Samuelson at The Washington Post.

    Thanks to cautious companies holding down wages and prices in the aftermath of the recession, annual inflation between 2010 and 2015 averaged just 1.5 percent, “often too small to be noticed.”

    Apparently. Mr. Samuelson believes that prior to the “Great Recession,” companies were not cautious, and so were willing to pay employees more. But, having been frightened by the recession, they now refuse to pay employees more – and that has prevented inflation.

    Utter nonsense. Caution has nothing to do with it.

    Employers are buyers of talent. Like all buyers, employers try to pay as little as possible to obtain the employee quality they want. Isn’t that what you do when you buy anything?

    Companies cannot “hold down” wages at will.

    And as for prices, they are a reflection of each company’s market analysis. Companies try to set prices at levels that will provide the highest short- and long-term profits, volume, and share-of-market.

    While Robert Samuelson wrongly seems to believe that business “caution” has prevented inflation, most people wrongly believe that federal deficit spending causes inflation.

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