Talk:Cost push inflation
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Monetarist economists, 2nd paragraph -
From the article, "increases in the cost of a good or service will decrease the money available for other goods and services, and therefore the price of some those goods will fall and offset the rise in price of those goods whose prices have increased."
This is industry sector against sector competition imposed by another industry sector and is generally done through market power. Phrased as it is, it implies an 'unnecessary' industry sector. Oil is an energy supply required by most industrial sectors for transportation if nothing else.
The ability of essential sectors to provide transportation for necessities are impeded by driving up costs, sapping of marginal profits. Taken to the extreme, this statement says that all man's essentials are provided by food, shelter and clothing. Societal structures are long in building and short in tearing down. Unintended consequences arise through quick reach to cliches from unexamined and unproven monetary theory. Not the ideal espoused by our democratic Republican form of government. The oil industry had oil production available but had shut in producing wells due to the Emergency Petroleum Allocation Act - 1973 to 1981 which allowed only a capped profit on wells drilled prior to the oil embargo. The Windfall Profits Tax of 1980 and the repeal of the Emergency Petroleum Allocation Act reduced incentives of the oil industry to act non-competitively. By 1983, oil prices were down to $28 per barrel and getting softer. [1]
From the article, "They argue that although the price of oil went back down in the 1980s, there was no corresponding deflation."
Oil prices, being one of the primary causes at that time of inflation, having gone back down, resulted only in a return to normal demand-pull inflation, which was low due to the high prices soaking up capital, with demand for borrowing low, due to bankruptcy. It would have been better to have higher progressive taxes to repay government debt, thereby reducing competition for capital.
One of the causes for the 1970's price spiral was heavy government borrowing required to finance WWII (competition low/repressed public demand), Korean War, Vietnam War and government entitlements with an accomodating Federal Reserve. These costs are generally believed to be inflexible. This put the government in competition for capital, driving up the costs of borrowing and also driving competition for commodities. This is happening again today because government, politically, is uncomfortable in raising taxes to pay for massive spending programs, resulting in the 'hidden' tax of inflation. Higher taxes on those benefitting from the US war-footing should have no problem paying higher taxes resulting from their "rent-seeking". If they do, it would be a disincentive for them to promote unpopular causes. See Secrets of the Temple by William Greider.
209.214.106.46 02:21, 25 October 2005 (UTC)
