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Inflation question - Input Junkie
September 20th, 2009
08:12 pm

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Inflation question

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From:ndrosen
Date:September 21st, 2009 02:46 am (UTC)
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Actually, I would say it was a pretty typical boom and bust. Prosperity led to rising land rents, which led to land prices rising even faster, to reflect expected future rents. Land prices couldn't keep rising by double digits forever, so they finally stopped, and when they stopped rising, they fell, since they were inflated, based on expectations of future increases, rather than value for current use. This has happened many times before.

Increasing the money supply (inflation in the original sense) is likely to give us higher prices (the usual current meaning of inflation), not prosperity. We can have stagflation, contrary to Keynesian orthodoxy. Exactly what the results will be, when, is not something I can predict.
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From:madfilkentist
Date:September 21st, 2009 09:55 am (UTC)
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Prosperity by itself doesn't lead to a positive feedback loop in prices. Several aspects of government policy, including the tax shelter of home mortgages and the constant encouragement of marginal loans, promoted the increase.
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From:ndrosen
Date:September 22nd, 2009 02:09 am (UTC)
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Prosperity by itself doesn't lead to a positive feedback loop in all prices, but it does lead to a positive feedback loop in land prices, given that land is privately owned and not very heavily taxed. The particulars of government policy you mention contributed, as did NIMBY zoning laws in some places that helped send real estate prices sky-high, but they aren't the basic cause.

This isn't standard economic theory, but it explains -- and predicts -- events better than standard economic theory. It was developed in the 19th century by a politicla economist named Henry George, and has been further developed by modern Georgists, notably Professor Mason Gaffney. Try Googling, and you can learn about this stuff.
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