Inflation Rate Related Quotes

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The history of black workers in the United States illustrates the point. As already noted, from the late nineteenth-century on through the middle of the twentieth century, the labor force participation rate of American blacks was slightly higher than that of American whites. In other words, blacks were just as employable at the wages they received as whites were at their very different wages. The minimum wage law changed that. Before federal minimum wage laws were instituted in the 1930s, the black unemployment rate was slightly lower than the white unemployment rate in 1930. But then followed the Davis-Bacon Act of 1931, the National Industrial Recovery Act of 1933 and the Fair Labor Standards Act of 1938—all of which imposed government-mandated minimum wages, either on a particular sector or more broadly. The National Labor Relations Act of 1935, which promoted unionization, also tended to price black workers out of jobs, in addition to union rules that kept blacks from jobs by barring them from union membership. The National Industrial Recovery Act raised wage rates in the Southern textile industry by 70 percent in just five months and its impact nationwide was estimated to have cost blacks half a million jobs. While this Act was later declared unconstitutional by the Supreme Court, the Fair Labor Standards Act of 1938 was upheld by the High Court and became the major force establishing a national minimum wage. As already noted, the inflation of the 1940s largely nullified the effect of the Fair Labor Standards Act, until it was amended in 1950 to raise minimum wages to a level that would have some actual effect on current wages. By 1954, black unemployment rates were double those of whites and have continued to be at that level or higher. Those particularly hard hit by the resulting unemployment have been black teenage males. Even though 1949—the year before a series of minimum wage escalations began—was a recession year, black teenage male unemployment that year was lower than it was to be at any time during the later boom years of the 1960s. The wide gap between the unemployment rates of black and white teenagers dates from the escalation of the minimum wage and the spread of its coverage in the 1950s. The usual explanations of high unemployment among black teenagers—inexperience, less education, lack of skills, racism—cannot explain their rising unemployment, since all these things were worse during the earlier period when black teenage unemployment was much lower. Taking the more normal year of 1948 as a basis for comparison, black male teenage unemployment then was less than half of what it would be at any time during the decade of the 1960s and less than one-third of what it would be in the 1970s. Unemployment among 16 and 17-year-old black males was no higher than among white males of the same age in 1948. It was only after a series of minimum wage escalations began that black male teenage unemployment not only skyrocketed but became more than double the unemployment rates among white male teenagers. In the early twenty-first century, the unemployment rate for black teenagers exceeded 30 percent. After the American economy turned down in the wake of the housing and financial crises, unemployment among black teenagers reached 40 percent.
Thomas Sowell (Basic Economics: A Common Sense Guide to the Economy)
The answer, in short, is that the expectation that work will always be fulfilling can lead to suffering. Studies show that an “obsessive passion” for work leads to higher rates of burnout and work-related stress. Researchers have also found that lifestyles that revolve around work in countries like Japan are a key contributor to record-low fertility rates. And for young people in the United States, inflated expectations of professional success help explain record-high rates of depression and anxiety. Globally, more people die each year from symptoms related to overwork than from malaria.
Simone Stolzoff (The Good Enough Job: Reclaiming Life from Work)
One can even imagine that inflation tends to improve the relative position of the wealthiest individuals compared to the least wealthy, in that it enhances the importance of financial managers and intermediaries. A person with 10 or 50 million euros cannot afford the money managers that Harvard has but can nevertheless pay financial advisors and stockbrokers to mitigate the effects of inflation. By contrast, a person with only 10 or 50 thousand euros to invest will not be offered the same choices by her broker (if she has one): contacts with financial advisors are briefer, and many people in this category keep most of their savings in checking accounts that pay little or nothing and/or savings accounts that pay little more than the rate of inflation.
Thomas Piketty (Capital in the Twenty-First Century)
Stage 2: People and Their Countries Are Rich but Still Think of Themselves as Poor. Because people who grew up with financial insecurity typically don’t lose their financial cautiousness, people in this stage still work hard, sell a lot to foreigners, have pegged exchange rates, save a lot, and invest efficiently in real assets like real estate, gold, and local bank deposits, and in bonds of the reserve currency countries. Because they have a lot more money, they can and do invest in the things that make them more productive—e.g., human capital development, infrastructure, research and development, etc. This generation of parents wants to educate their children well and get them to work hard to be successful. They also improve their resource-allocation systems, including their capital markets and their legal systems. This is the most productive phase of the cycle. Countries in this stage experience rapidly rising income growth and rapidly rising productivity growth at the same time. The productivity growth means two things: 1) inflation is not a problem and 2) the country can become more competitive. During this stage, debts typically do not rise significantly relative to incomes and sometimes they decline. This is a very healthy period and a terrific time to invest in a country if it has adequate property rights protections. You can tell countries in this stage from those in the first stage because they have gleaming new cities next to old ones, high savings rates, rapidly rising incomes, and, typically, rising foreign exchange reserves. I call countries in this stage “late-stage emerging countries.” While countries of all sizes can go through this stage, when big countries go through it, they are typically emerging into great world powers.
Ray Dalio (Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail)
In the 1860s, during its civil war, the US suspended gold convertibility and printed paper money (known as “greenbacks”) to help monetize war debts. Around the time the US returned to its gold peg in the mid-1870s, a number of other countries joined the gold standard; most currencies remained fixed against it until World War I. Major exceptions were Japan (which was on a silver-linked standard until the 1890s, which led its exchange rate to devalue against gold as silver prices fell during this period) and Spain, which frequently suspended convertibility to support large fiscal deficits. During World War I, warring countries ran enormous deficits that were funded by central banks’ printing and lending of money. Gold served as money in foreign transactions, as international trust (and hence credit) was lacking. When the war ended, a new monetary order was created with gold and the winning countries’ currencies, which were tied to gold. Still, between 1919 and 1922 several European countries, especially those that lost the war, were forced to print and devalue their currencies. The German mark and German mark debt sank between 1920 and 1923. Some of the winners of the war also had debts that had to be devalued to create a new start. With debt, domestic political, and international geopolitical restructurings done, the 1920s boomed, particularly in the US, inflating a debt bubble. The debt bubble burst in 1929, requiring central banks to print money and devalue it throughout the 1930s. More money printing and more money devaluations were required during World War II to fund military spending. In 1944–45, as the war ended, a new monetary system that linked the dollar to gold and other currencies to the dollar was created. The currencies and debts of Germany, Japan, and Italy, as well as those of China and a number of other countries, were quickly and totally destroyed, while those of most winners of the war were slowly but still substantially depreciated. This monetary system stayed in place until the late 1960s. In 1968–73 (most importantly in 1971), excessive spending and debt creation (especially by the US) required breaking the dollar’s link to gold because the claims on gold that were being turned in were far greater than the amount of gold available to redeem them. That led to a dollar-based fiat monetary system, which allowed the big increase in dollar-denominated money and credit that fueled the inflation of the 1970s and led to the debt crisis of the 1980s. Since 2000, the value of money has fallen in relation to the value of gold due to money and credit creation and because interest rates have been low in relation to inflation rates. Because the monetary system has been free-floating, it hasn’t experienced the abrupt breaks it did in the past; the devaluation has been more gradual and continuous. Low, and in some cases negative, interest rates have not provided compensation for the increasing amount of money and credit and the resulting (albeit low) inflation.
Ray Dalio (Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail)
Why should bricks and mortar, wood and paint, increase in price even faster than inflation? It is because not only is the currency diminishing in its worth relative to fixed objects, but belief in the currency is diminishing even faster, at a geometric rate. Thus the conventional wisdom, that what goes up must come down, may be false physics
Anonymous
the consequences of this state of affairs have been drawn by the Hungarian-born American financier George Soros who, in an essay published in September 2012 (Soros 2012), argued that in order to avoid a definitive split of the euro zone into creditor and debtor countries, and thus a likely collapse of the EU itself, Germany must resolve a basic dilemma: either assume the role of the ‘benevolent hegemon’ or else leave the euro zone. If Germany were to give up the euro, leaving the euro zone in the hands of the debtor countries, all problems that now appear to be insoluble, could be resolved through currency depreciation, improved competitiveness, and a new status of the ECB as lender of last resort. The common market would survive, but the relative position of Germany and of other creditor countries that might wish to leave the euro zone would change from the winning to the losing side. Both groups of countries could avoid such problems if only Germany was willing to assume the role of a benevolent hegemon. However, this would require the more or less equal treatment of debtor and creditor countries, and a much higher rate of growth, with consequent inflation. These may well be unacceptable conditions for the German leaders, for the Bundesbank and, especially, for the German voters.
Giandomenico Majone (Rethinking the Union of Europe Post-Crisis: Has Integration Gone Too Far?)
The analysis of the /General Theory /shows that inflation is a real, not a monetary, phenomenon. It operates in two stages (once more giving a crudely simple account of an intricate process). An increase in effective demand meeting an inelastic supply of goods raises prices. When food is supplied by a peasant agriculture a rise of the prices of foodstuffs is a direct increase of money income to the sellers and increases their expenditure. The higher cost of living sets up a pressure to raise wage rates. So money incomes rise all round, prices are bid up all the higher and a vicious spiral sets in. The first stage — a rise of effective demand — can very easily be prevented by not having any development. But if there is to be development there must be a stage when investment increases relatively to consumption. There must be an increase in effective demand and a tendency towards inflation. The problem is how to keep it within bounds. Some schemes of investment that seem to be clearly indispensable to improvements in the long run, such as electrical installations, take a long time to yield any fruit and meanwhile the workers engaged on these have to be supplied. The secret of non-inflationary development is to allocate the right amount of quick-yielding, capital-saving investment to the consumption-good sector (especially agriculture) to generate a sufficient surplus to support the necessary large schemes. It is in this kind of analysis, rather than in the mystifications of “deficit finance,” that the clue to inflation is to be found. [pp. 110-11]
Joan Robinson (Economic Philosophy)
To fit into the Golden Straitjacket a country must either adopt, or be seen as moving toward, the following golden rules: making the private sector the primary engine of its economic growth, maintaining a low rate of inflation and price stability, shrinking the size of its state bureaucracy, maintaining as close to a balanced budget as possible, if not a surplus, eliminating and lowering tariffs on imported goods, removing restrictions on foreign investment, getting rid of quotas and domestic monopolies, increasing exports, privatizing state-owned industries and utilities, deregulating capital markets, making its currency convertible, opening its industries, stock and bond markets to direct foreign ownership and investment, deregulating its economy to promote as much domestic competition as possible, eliminating government corruption, subsidies and kickbacks as much as possible, opening its banking and telecommunications systems to private ownership and competition and allowing its citizens to choose from an array of competing pension options and foreign-run pension and mutual funds. When you stitch all of these pieces together you have the Golden Straitjacket. . . . As your country puts on the Golden Straitjacket, two things tend to happen: your economy grows and your politics shrinks. That is, on the economic front the Golden Straitjacket usually fosters more growth and higher average incomes—through more trade, foreign investment, privatization and more efficient use of resources under the pressure of global competition. But on the political front, the Golden Straitjacket narrows the political and economic policy choices of those in power to relatively tight parameters. . . . Governments—be they led by Democrats or Republicans, Conservatives or Labourites, Gaullists or Socialists, Christian Democrats or Social Democrats—that deviate too far from the core rules will see their investors stampede away, interest rates rise and stock market valuations fall.36
Moisés Naím (The End of Power: From Boardrooms to Battlefields and Churches to States, Why Being In Charge Isn't What It Used to Be)
At 50, people are still looking for a stockbroker to work a miracle for them, but at 60 they start looking for an advisor to help them negotiate a truce with reality. Regardless of when people are actually planning to retire, 60 is psychologically the beginning of the end of the accumulation period in their lives, and the beginning of the beginning of the distribution phase.... Variable annuitization offers genuine hope to people who (a) need to live on more than six percent of their capital, (b) need their income to grow in some relation to equity returns, which have historically been more than three times the inflation rate, and (c) at the very, very least, need to be assured that some income will continue for their entire lives. Variable annuitization is the only chance these people have. ...If Americans understood how the capital markets actually work, most folks would choose variable universal life insurance over variable life and whole life as the cheapest form of permanent insurance they could buy for the long run. That's simply because the insurance cost of an insurance policy is a pure function of how much of its own money the insurance company has exposed. Since the policyholder's own cash value builds up most significantly over time - and therefore the insurance company's exposure falls further, faster - in variable universal policies than in other debt-based (or general account-based) contracts, the net premium dollars allocated to the purchase of the death benefit must be lower, at the end of the day. And the policyholder's equity must be commensurately greater.
Nick Murray (The Value Added Wholesaler in the Twenty-First Century)
The next chart shows the real returns from holding gold between 1850 and the present. From 1850 to 1971, gold returned (through its appreciation) an amount that roughly equaled the amount of money lost to inflation on average, though there were big variations around that average both across countries (e.g., Germany seeing large gold outperformance, while countries with only limited devaluations, like the US, saw gold prices not keep up with inflation) and across time (e.g., the 1930s currency devaluations and the World War II-era devaluations of money that were part of the formation of the Bretton Woods monetary system in 1944). After the war, gold stayed steady in price across most countries, while money and credit expanded until 1971. Then, in 1971, there was a shift from a Type 2 monetary system (notes backed by gold) to a Type 3 fiat monetary system. That delinking of currencies from gold gave central banks the unconstrained ability to create money and credit. That led to high inflation and low real interest rates, which led to the big appreciation in the real gold price until 1980–81, when interest rates were raised significantly above the inflation rate, leading currencies to strengthen and gold to fall until 2000. That is when central banks pushed interest rates down relative to inflation rates and, when they couldn’t push rates any lower by normal means, printed money and bought financial assets, which supported gold prices.
Ray Dalio (Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail)
Since 2000, the value of money has fallen in relation to the value of gold due to money and credit creation and because interest rates have been low in relation to inflation rates. Because the monetary system has been free-floating, it hasn’t experienced the abrupt breaks it did in the past; the devaluation has been more gradual and continuous. Low, and in some cases negative, interest rates have not provided compensation for the increasing amount of money and credit and the resulting (albeit low) inflation.
Ray Dalio (Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail)
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Why have prices skyrocketed only in the last century, after several centuries of relative stability? The answer lies in a pivotal event that occurred in 1913: the passage of the Federal Reserve Act by Congress, and the establishment of a privately-owned central bank, granting the Federal Reserve the exclusive power to issue money. Each quarter the Federal Reserve Board meets and decides whether to raise or lower the rate at which it lends money to other banks. Its stated objective is to achieve 2 percent inflation in consumer prices every year. When inflation falls below 2 percent, the Fed drops interest rates, encouraging more borrowing and spending.
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There may be few instances in which the superstition that only measurable magnitudes can be important has done positive harm in the economic field: but the present inflation and employment problems are a very serious one. Its effect has been that what is probably the true cause of extensive unemployment has been disregarded by the scientistically minded majority of economists, because its operation could not be confirmed by directly observable relations between measurable magnitudes, and that an almost exclusive concentration on quantitatively measurable surface phenomena has produced a policy which has made matters worse. It has, of course, to be readily admitted that the kind of theory which I regard as the true explanation of unemployment is a theory of somewhat limited content because it allows us to make only very general predictions of the kind of events which we must expect in a given situation. But the effects on policy of the more ambitious constructions have not been very fortunate and I confess that I prefer true but imperfect knowledge, even if it leaves much indetermined and unpredictable, to a pretense of exact knowledge that is likely to be false. The credit which the apparent conformity with recognized scientific standards can gain for seemingly simple but false theories may, as the present instance shows, have grave consequences. In fact, in the case discussed, the very measures which the dominant “macro-economic” theory has recommended as a remedy for unemployment, namely the increase of aggregate demand, have become a cause of a very extensive misallocation of resources which is likely to make later large-scale unemployment inevitable. The continuous injection of additional amounts of money at points of the economic system where it creates a temporary demand which must cease when the increase of the quantity of money stops or slows down, together with the expectation of a continuing rise of prices, draws labor and other resources into employments which can last only so long as the increase of the quantity of money continues at the same rate—or perhaps even only so long as it continues to accelerate at a given rate. What this policy has produced is not so much a level of employment that could not have been brought about in other ways, as a distribution of employment which cannot be indefinitely maintained and which after some time can be maintained only by a rate of inflation which would rapidly lead to a disorganization of all economic activity. The fact is that by a mistaken theoretical view we have been led into a precarious position in which we cannot prevent substantial unemployment from re-appearing; not because, as this view is sometimes misrepresented, this unemployment is deliberately brought about as a means to combat inflation, but because it is now bound to occur as a deeply regrettable but inescapable consequence of the mistaken policies of the past as soon as inflation ceases to accelerate.
Friedrich Hayek (Hayek for the 21st Century: Essays in Political Economy)
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