To: Oblomov who wrote (31479 ) 10/26/2000 11:05:46 AM From: Don Lloyd Respond to Oblomov -...It seem that the economy has been precariously balanced between inflation and deflation over the past three years. The trend, IMO, has been toward deflation, but due to years of loose credit policy as an attempt to fight it, we have seen inflation crop up in commodities. Only Austrian economic theory purports to explain why this has occurred: The loose credit policy has resulted in investment in lower stages of production (consumer goods), without the correct corresponding investment in higher stages of production (capital goods, such as drilling equipment, tankers, etc.). So we have inflationary and deflationary forces tugging at our economy at the same time. The problem is that these forces don't merely cancel each other out. They each do damage to our economy in its own way.... unit productivity drives down prices. This would not be any kind of problem absent the extreme levels of government intervention in the labor markets. Between minimum wage laws and the use of government force and the selective non-enforcement of laws to benefit unions in exchange for political support, the flexibility of the labor markets is severely damaged and they cannot easily adapt to changing conditions. This means that instead of moderate short term wage reductions, severe unemployment results as the labor market moves from a market price regime to a price controlled regime.
