Re: Indexing and Inflation as Policy Tools

[myturn@xxxxxxxx (John Gelles)]

	Much thanks to William Hummel for bringing into
	focus policy issues that vitally concern us.

	I join in his belief  "that inflation is not a control
	variable, it is dependent on may factors that are
	only partially understood. History tells us that both
	inflation and deflation can spiral out of control."

	I have consistently argued this view for the three
	years I have been writing here (and the decade
	before that, when I started a crusade for the
	Constitutional right to work at a union wage.)

	(In my reaction to the contest on reforming the Fed,
	I allowed that low interest advocates, in their quest
	for Fed reform, had a case. Their case is, I believe,
	subject to the concerns William so nicely states.)

	My view has been that we ought NOT burden central
	banking and monetary priorities with the basic right
	to earn a living.
	
	Rather, I have said we must start with NO dole and NO
	welfare, but with a genuine grubstake loan law that kept all
	losers in the game as matter of right and common sense:
	If we are not given credit to continue working we can
	only resort to crime or suicide, -- both against the law.

	Having established a right to credit, government would
	be obliged to sponsor overproduction as a matter of
	fiscal policy, not monetary policy:  Low or no taxes,
	subsidized automation,. Loans and subsidies for producers
	during deflation when unpredictable success gets ahead of
	needed demand.

	Naturally such an assault on deflation and unemployment
	can bring on inflation.  Hence, my emphasis on forced
	saving as a fiscal tool to protect such a mixed economy
	program.

	The total program was to finance full military preparedness,
	full environmental protection, full infrastructure renewal,
	and full employment through grubstake loans. The program,
	as presented, always put government spending for priority
	needs first -- with a cure for unemployment as a final step to
	be taken if there were people still out of work.

	The central bank, that tries to manage price stability,
	banking soundness, and money, would, of course, be
	a partner in the process as it was in WW II.   But it
	would be the money manager not the Peace Production
	Board.

	Milton Friedman, to his credit, proposed a negative
	income tax that had some of the logic of government
	as sustainer of life of last resort.  But his school of
	thought will not accept a mixed economy.  He sees a
	Congress and a Peace Production Board as an invitation
	to fraud, waste and abuse in high and low places.

	(Interestingly enough, tonight's PBS TV story of  Truman
	pointed to the fraud, waste and abuse that the Truman
	Committee had to curtail as best it could during W.W.II.)

	My programs always emphasized audit, inspection and
	general systems theories, to minimize the corruption that
	is inevitable in all human affairs.

	Again let me thank William Hummel for focusing on
	policy issues:  Regarding reform of the Fed, it would
	do no harm, in my opinion, if they lowered interest and
	targeted high real growth and high single digit nominal
	inflation.  If, hyper-inflation looked like a threat, they
	could impose high nominal interest. But, on the fiscal
	side, forced saving would be a better tool.

	(Reform of the Fed was never a part of my agenda.
	The contest, however, brings such reform front and
	center -- and so reform must be looked at without
	flinching.)

	Lynn Turgeon and many others in the profession are
	taking a good look at deflation as a more immediate
	worry.   Again, if they are right, certainly the use of
	fiscal loans and subsidies (and of low interest on the
	monetary side) can stop deflation.  But that is not
	enough.  If we want full military preparedness, full
	environmental protection, full infrastructure renewal,
	full employment, and a high minimum standard of
	living, then, as with pure food and drugs in the
	market, only a mixed economy concept will work.

	Those who claim government cannot do anything right
	are the same economic powers 	who spend billions to
	buy government favors and actually prove their case --
	government does their bidding -- and what they bid it
	to do is not right.
	
	We must change all that -- bid government do the
	right thing and spell out 	what it is.

	Curb buying government favors with effective audit
	and inspection and with government financing of all
	election campaigns -- else government will always be
	sold to the highest bidder.

	We and our government cannot leave to a free display
	of individual "utility maximizing" impulses and desires,
	the fate of  human society.



               John Gelles    http://www.myturn.org
                 mirrored at  http://www.rain.org/~jjgelles/
                 Economic Rights financed by Credit protected from
                    inflation by Automation and compulsory Saving.

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From: William F. Hummel <wfhummel@xxxxxxxxxxxxxx>
Subject: Indexing and Inflation as Policy Tools
Date: Sunday, October 05, 1997 9:45 PM

John Gelles has eloquently presented his vision of the future and
the policies, economic and political, required to arrive there.
Through exponential growth, aided by automation and robotics, he
sees a time when real wealth is many times greater than it is
today and universally enjoyed.  The ultimate payoff is an
equitable social system that would insure a peaceful and stable
world.

To help achieve this, he advocates among other things the use of
inflation and indexing as policy tools.  If I understand his
views, increased inflation is to be used as required to minimize
unemployment.  Indexing is to be used to protect certain classes
from loss of purchasing power.  Together they will work to
improve the economic well-being of everyone, and particularly
those in today's lower income group, a goal all fair-minded and
compassionate people would endorse.

There is no doubt that decreasing unemployment would increase the
total output of the economy, all else equal.  There is also
general  agreement, I believe, that increasing the purchasing
power at the lower income levels will stimulate aggregate demand
and encourage productive growth.

The question then is how realistic is this scenario?  Or would
events proceed along a path quite different than that envisioned?
I have argued that inflation is not a control variable, it is
dependent on may factors that are only partially understood.
History tells us that both inflation and deflation can spiral out
of control.