Sunday, February 17, 2013

Three Examples (Or Is It One) Of How To Have A Lower Standard Of Living

Published in The Tennessean, Sunday, February 17, 2013 and at
FORBES with archives.

Richard J. Grant

We see three different countries with three apparently different problems. But their problems have the same root.

The Argentine government has announced a two-month price freeze on supermarket products and is reportedly trying to limit union wage increases to no more than 20 percent. Given forecasters’ predictions that Argentine price inflation will approach 30 percent this year, one wonders how politicians can expect to hold wages and other prices down without causing shortages and an expansion of the underground economy.

This is what happens when policymakers treat symptoms rather than causes, but Argentina is way ahead of Japan in this regard. Japan is still trying to push up its inflation rate.

Japanese Prime Minister Shinzo Abe became famous for the lengths to which he was willing to go to weaken his national currency, the yen. So far, the Bank of Japan has pumped up the base money supply (along with expectations) and the yen has fallen 20 percent relative to the dollar since September.

Japanese policymakers blame their economy’s underperformance on a lack of demand, particularly demand for their exports. They see the problem manifesting as price deflation, even though, over most of the past 10 years, the yen has fallen in value compared to gold.

Now Prime Minister Abe has resorted to “moral suasion” to persuade private employers to raise the wages of their employees. He apparently believes this would promote optimism and consumer demand. In any event, he wants wages to keep up with the 2-percent rate of price inflation that is his goal.

In the United States, the president announced ...


Richard J. Grant is a Professor of Finance and Economics at Lipscomb University and a Senior Fellow at the Beacon Center of Tennessee. His column appears fortnightly on Sundays. E-mail messages received at: rjg@richardjgrant.com

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