I am not an economist and I am not writing for publication, so what follows is not as carefully expressed as comments on the subject should be.
Less buying by those forced to accept less money for their products, not less buying by those who have lots of paper money that continues to be accepted, is what I was talking about. But even then, there is a limit. How many computers do you really want in your house? I almost need an extra closet just to store our vacuum cleaners. And I do not have room for one more Made in China shirt, no matter how cheap or attractive.
" It is a prosperity leveraged by low commodity prices and rising supply of cheap labor."
Yes, that's true of what we are enjoying in the United States. I just say that I don't think it can last. At some point it will become apparent that the United States has nothing to offer in exchange for all these cheap commodities and goods except paper money. Now perhaps it is a very valuable service to the world to be the chief peace-keeper and to provide a medium of exchange. If the Euro works out, though, there could be a dramatic drop in the dollar's value, which would translate to higher prices for Americans.
Meantime, the decline in the price of oil means that oil-exporting nations have less money to spend, lessening the demand for the goods and services that they had been purchasing.
The decline in prices paid for imported goods means that China, Malaysia, Taiwan, India, Korea, etc., have less money to spend on things they need and want, lessening demand further.
The decline in agricultural prices means that U. S. farmers have less to spend, lowering the income of Deere. As I said, that has already happened. And farmers were the main segment of the U.S. population to benefit from large exports.
I am not sure that it is a good idea to buy more food when food prices decline, although one can take advantage of the hog cycle to put a hundred dollars or so worth of pork in a freezer. I guess I am unlike you in that I buy food for eating rather than as a financial speculation.
The pattern of depressed prices in commodities and falling farm income is, as I have said, somewhat comparable to the United States in 1927 or 1928 and preceded the crash and the contraction in indutrial output. When the purchasing power of large segments of the population decreases, they buy less. The cycle tends to feed on itself, especially as people become more cautious.
Now the Fed knows this, and it is possible that actions by the Fed to keep money and credit freely available will lead to serious inflation 2-4 years from now and a serious decline in the value of the dollar. But it is now believed that proper management of a paper money supply can contain inflation. Ten years ago I had no confidence at all that the Fed would be able to slow inflation down. And if the dollar declines, the monetary creation over all these years might cumulate in a rapid loss of value of the dollar.
I was--and still am to some extent--a convinced Friedman-type monetarist and my politico-economi views have been affected by Hayek. But I think Friedman seriously underestimated the capacity of economies around the world to accelerate production beyond money supply growth. According to Friedman and Schwartz's "Monetary History of the United States," there should have been more inflation in the early 1990s than there was.
If there were going to be world-wide unionization, one would expect there to be some signs of it already.
Are you serious about that? This is the first time I have ever heard of a threat of world-wide unionization. The labor unions in the United States are not very strong now; they aren't causing nearly the amount of trouble as in the 1950s, when it seemed there was another coal strike or automobile workers' strike every month. About 1960 it did seem that unions were getting too much power, but by the end of the decade huge numbers of automobile workers had lost their jobs.
The Soviet Union was one huge union operation and stands there as a horrible example of what over-organization can do.
Of course, you are correct that if somewhow the whole world got unionized, there could be extraordinary pressures for wage increases beyond productivity. But it looks to me as if competition between national economies will prevent this for a long time. Workers in Italy have very little in common with those in China. Governments of the oil-producing countries can't even cooperate on exploiting a natural monopoly on a universally-demanded product, and it's hard to see how a polyglot confederation of workers could organize into an effective power block.
When I look at what I am invested in, what I am expecting is a stock market crash followed by a decline of value of the dollar, which would automatically mean inflation for the United States because we are living on cheap imports. If the Fed reponds to the rise in the CPI by raising interest rates, stocks will tank further.
But the loss in purchasing power by farmers and other producers of commodities that preceded the 1929 crash was somewhat similar to what we have now on a global scale; not much more than a 5% reduction in money committed to the equity markets worldwide would be enough to start a large contraction there. |
