For many years, we know the heavy handed interest rate policy of Alan Greenspan. Recession is used to destroy inflation, but it took 5 years to recover, since 2001.
What did the recovery was productivity, which was not technologically possible after 1929 crash. Today, our software improvement on computers of tremendous power and speed, helps in productivity increase.
If my father can increase production by 5% by running automated equipment 5% faster, then he can be more profitable, averaging overhead cost down. He was in textile business(cotton and wool factories)
But overproduction, without a bona fide market demand, creates deflation, which is very obvious in Japan, but not as obvious in the US; because the productivity increase is done in china, our complimentary economy.
Once housing industry and auto industry productivity is studied; then you can see that wealth is built on mass production cost improvements. Productivity is used in the past 16 years to control inflation or rather the promotion of deflation. But Japan never liked deflation, even when only deflation can save their real estate bust(over valuation by excessive wishful inflation). Normal economical growth will need slight inflation; Feds like 1-2%, we like 2-3% in real wages for more economical growth than the Feds like. Japan needs 2-3% wage inflation as their monetary policy? |
