Jul

31

It occurred to me lately that a key to reviving a depressed economy, contrary to many theories, is actually to raise prices of most essential goods. This could be done by fixing the prices through an authoritative government or monopolizing institutions, or by raising taxes on these goods. This way, the amount of such goods sold will no doubt be lower (but not too much as these are mostly essential goods), but sales numbers will go up, and moreover, profits/taxes will go substantially up. Then re-distribute the profits/taxes to the most associated parties, who then will make large spending, thus giving boosts to the economy. Clearly, inflation will go up, but this will stimulate members of the society to work much harder, in order to survive as a first motive obviously. Then as the economy wakes up, ensure always to keep prices of many things high, so continued stimulation continues.

So the secret here is to jack up prices! Lowering prices won't work because it's more like welfare, which contributes little back to the economy, as the receivers only consume it.

Obviously, in order for this to work, a pre-condition is that the country stays fairly closed up from the rest of the world.

So haven't we seen proof of this through the past 40 years?

So the question is when and how this will all end? Any comments?


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3 Comments so far

  1. nobody on August 1, 2018 7:40 am

    this happens when your population is in good health, it is not precarious, it has a financial soundness produced by years of hard work and savings that support consumption …
    But when you have marred your population, you have relocated industry to Asia (renouncing the economic health of your population) making them precarious and unemployed, you have impoverished them to the point that they live in rent and are no longer masters of anything, young people return to live with parents … at that point, you can also increase credit, push them to get into debt … but it’s not economic health …
    ‘You can lead a horse to water, but you can’t make it drink’

    Now it’s all just economy doped … you keep kicking the can and using new magic formulas to avoid exploding bubbles.

    there is a lot of difference between the news and the economic numbers and the real quality of life.
    When there is really economic health, do not worry about manipulating the markets or manipulating data or imposing duties and taxes … it is when you are fruit that you have to implement these policies.
    otherwise we can not explain the last years passed with the zero rates to resurrect the zombies

  2. Gregory Rehmke on August 5, 2018 1:30 pm

    Okay, I’ll comment… Prices provide information to buyers and sellers. Any interference with prices blocks or distorts information flows disrupting coordination across the economy. To revive the economy in early Great Depression, Hoover administration did just as proposed, calling corporate executives to Washington DC to convince them to keep prices up and wages up so companies and farmers could make profits and workers income to buy things would be sustained. And of course Smoot Hawley tariff was passed to raise prices of imported goods. All of this was deeply disrupting, prolonging the depression, as markets couldn’t clear. Millions willing to work could not be hired at lower wages. Farm goods were destroyed because they weren’t purchased at artificially higher prices. Tariffs by U.S. and other countries disrupted trade. Taxes were raised a number of time to redistribute profits. Anyway, all this is well known so maybe that was real point of post, to encourage readers to look deeper into proposals. Fee.org has many posts and book reviews on these issues.

  3. Anonymous on August 10, 2018 4:56 am

    Sounds like price-pull inflation which didn’t really work for us in the 1970s or now. Maybe it helped in the early 1980s after a double recession had knocked prices down so much but prices rising then was also demand driven. Low inflation due to Asia’s problems allowed us to slowly grow in the early 1990s when everyone else was struggling. Maybe the reason economists and central banks have such a hard time forecasting and dealing with inflation is that international pressures affect it more than they realize.

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