Stock forum discussion continues as community writers weigh in.
Editor’s note: The following article by LeGagneur first appeared as a series of comments to the article Inflation and money supply part I: Treasuries crowd bonds, published today on Stockhouse. Comments have been edited for punctuation, spelling and grammar. To see comments and responses in their original form, click here.
What is inflation? Well why not ask why prices for basically everything have gone up in the last decades, say from 1950 until now? In the last 60 years we have seen an incredible increase in technology advances and productivity improvements in all aspects of the economy. Despite this, prices increase – why? Shouldn’t improved productivity mean that we get more for less money? And shouldn’t more efficiency in our industry, transports, etc. mean that our money and savings increase in value instead? How come it’s the other way around?
Compare the cost of one liter of milk in 1950 to what it costs today and it’s evident we have to pay more money in nominal terms to buy the same amount of milk. If you then deduct inflation from both the price of the milk as well as wages in 1950 vs. today, then I would assume you pay more or less the same; that is, the same ratio of your total disposable income is used to buy that liter of milk on average for most people. If that is the case then we have in fact become poorer since 1950 as we then have to work harder and more efficiently in order to keep up. All productivity gains and all technology advances over the years have resulted in us just getting the same as before.
However, had not all these productivity gains and technological advances been done during these 60 years, we actually would have made a loss, as in actual terms we would have to pay more for the same amount of milk in 2008 vs. 1950.
Bottom line – why isn’t money level constant over time and thus all productivity gains in the economy displayed as increased value of money? If that was the case we really could see the benefits of us working harder, as our savings and wages would increase in value over time instead of the other way around as it is today, where in fact we have to work harder (most families today have double incomes vs. 1950 when a family could manage on only one income), and where pensions over time incur losses in value.
Seems to me we’re caught in a rat race and my question then if it’s so – who are the real winners in this race? Certainly not people who depend on a pay check every month.
