Re: Does Debt Matter

["John B. O'Donnell" <jackodonnell@xxxxxxxx>]

William F. Hummel wrote:

<<SNIP>>

> I think it is generally recognized that deflation is a serious
> problem, and perhaps more to be feared than inflation.  One of
> the longest periods of steady growth in the U.S. economy has been
> during the last few years of mild inflation, averaging around
> 2.7% on the CPI.   Another extended period of steady growth was
> 1955 through 1966.  The average annual inflation rate then was
> 1.75%.  The standard deviation was 0.88%.   Based on this
> evidence, it is my conviction that the economy does best under
> the condition of a low positive inflation rate with little
> volatility.  I think it is up to those who propose moderately
> high inflation rates to demonstrate that both reasonable
> stability in the rate and satisfactory economic results are
> possible under those conditions.

I concur with William's conclusion on maintaining low inflation
except that I would prefer to see a target of zero because it
would allow any term up to and including perpetual financing
without concern for an inflation premium. Second best would be
low inflation but with a very low variance.

Deflation, if not in actuality, is at least hindered by the
emotional attachment with depression of economic activity. [There
may even be valid arguments justifying an avoidance of extended
periods of deflation.] It is the foolishness of the belief that
inflationary monetary policy is a prerequisite for economic /
employment growth that interferes with any search for a more
rational explanation of the effective variable to optimize
growth.

Use of the mix of fixed vs. variable costs of production gets my
vote for the significant variable. [The method is to adopt macro
economic policies that cause what are now effectively variable
costs of production to become fixed costs without increasing the
total costs.] That is the function that my Widgets in S-Basic
model is designed to demonstrate. [The model is available in the
appendix to my Three Steps, etc. on my web page.] I will gladly
assist anyone interested in translating the model to a more
common language.

			-- jbod
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