Inflation phobia: Is the cure worse than the disease?

 

Aversion to inflation has been the salient feature of economic thinking of our times. Keynes aside, the traumas of hyperinflation in interwar Germany and the Great Depression of 1929 have left scars deep enough to shape economists and policy-makers’ tenets for almost a century. The Economist reports that officials at the Federal Reserve, “a few of them anyway,” seem to be rethinking their views “in some dramatic ways.” Yet former Fed chairman Ben S. Bernanke has suggested in a blog post that they should curb their enthusiasm. Should they?  As The Economist’s blog suggests, reality has challenged a long held principle: the equilibrium point between unemployment and inflation. Basically, the Fed believed that the optimal unemployment rate hovered around 5 percent without the economy dangerously overheating. A rate much closer to full employment would lead to unbearable inflation, it was feared. Recent employment figures, however, have shown this concern to be unfounded. The U.S. economy has withstood low unemployment (matched with low productivity) without significant inflationary pressures building up. That this has been good is debatable, as one of its outcomes has been a sustained period of low growth. A U.S. economy at walking speed is as bad for the country and the world as, say, runaway inflation. The suggestion is, therefore, that there is a strong case to be made for higher wages. More disposable income drives up demand. Herein may lie a key for reactivating growth in the U.S. and the world. Like stagnant waters, a lethargic economy breeds diseases.

Perhaps Uber is not that revolutionary, after all

 

Uber has certainly disrupted the taxi industry. The question is for how long, wonders Bloomberg News columnist Megan McArdle. For one thing, its drivers are putting on longer hours to make ends meet. And unlike their professional peers, the cab drivers, only now they are factoring in the wear and tear of their cars. There are probably lots of hidden costs built into the service. In addition to it, Uber has been pushing for a bigger fare and reimbursement cuts, as it tries to break even. This, McArdle argues, is far from spelling the death for Uber. What was revolutionary about it was the opening it found for a new market. It built a niche into a business—the yellow taxis—protected by regulation, and that thrived on a virtual monopoly. In other words, it had unrivalled grip on the transfer of wealth from customers and drivers. Yet it’s not about numbers alone. The sharing economy is still in its infancy. There is much to be learned. And one thing is the realization that regulation exists for a reason. While the statistical importance is arguable, there have been a number of incidents tied to Uber. In the end, you are hopping into a car driven by a stranger. Much the same can be said about the taxi drivers, except that they pass tests administered by public agencies and meet certain criteria to ply the streets. The riders receive a number of protections. That’s probably worth the extra money to be paid. Most of the time, there is nothing wrong with getting a short ride with a stranger. What would become of hitchhiking, otherwise? And in underserved cities, like Moscow and other cities of the former Soviet Union used to be, it was a local custom to hail any car in the street and pay a reasonable fare to the kind driver that had got out of his way to serve you. This writer has often relied on these unknowing precursors of Uber in the Russian capital; Alma Ata; Yerevan; and Tbilisi. But also in China: in Beijing, Xian, and Urumchi; and in Turkey, from Artvin to Mush; and most recently, in Sebastopol, in the Crimea. So, it is not that revolutionary after all. A combination of business acumen and the resources offered by smartphones and apps have made Uber possible. That’s really all.

Why poverty is so expensive and why we don’t see it

“Poverty” is one of those words we would rather not use. It makes us uncomfortable to call any person, group or neighborhood “poor.” Yet as we refrain from using it—out of pangs of conscience, guilt, or respect—we may fail to see it around us. To invert the saying, “out of mind, out of sight.” If the concept dies, so does our ability to think of it. But most people in the world do not live very far from pockets of poverty. In some countries, there are little islands of prosperity amid an ocean of deprivation. Much can be discussed about the roots of poverty. Still, we can identify a few reasons why being poor is so expensive, and why it becomes a trap from which it is hard to escape: a very large proportion of money for low-income households goes to rent. By one account, a tenant at a mobile home park in the U.S. with so many code violations that it had been called an “environmental biohazard,” after rent and utilities were paid, was only left with $5.00 a day. With that kind of money you can hardly benefit from bulk purchases or offers made by large supermarket chains. You will have to pay for single items because that’s all you can afford. And as it’s likely you will not have a car, those megastores in the suburbs will be out of reach. Or you may not have the space to store the non-perishable items. And as a community has attempted, trying to push the poor out of sight will not make poverty go away.