ECONOMIC VIEWPOINTS

capitalism

2011-08-23T09:09:00.000-07:00

Capitalism is a
social system
based on the
principle of
individual rights.
The term
capitalism is used
here in the broader philosophical
political sense, and
not in the
narrower economic
sense, i.e. a free-
market.

2. What is a
capitalist?
An advocate of
laissez-faire is
known as a
capitalist, i.e.,
novelist Ayn Rand
is a capitalist; i.e.,
though
economically
Engels came from
a wealthy
background,
politically he is
recognized as a
socialist/
communist
because of his
ideas.

DEFLATION

2011-08-14T23:31:00.001-07:00

This week's cover
story in The
Economist makes
it more or less
official. Deflation,
not inflation, is
now the greatest
concern for the
world economy.
Over the past
year, producer
prices have fallen
throughout the
advanced world;
consumer prices
have been falling
for the last 6
months in France
and Germany; in
Japan wages have
actually fallen 4
percent over the
past year. Until
the recent crisis
prices were falling
in Brazil; they
continue to fall in
China and Hong
Kong; they will
probably soon be
falling in a number
of other
developing
countries.
So far, none of
these price
declines looks
anything like the
massive deflation
that accompanied
the Great
Depression. But
the appearance of
deflation as a
widespread
problem is
disturbing, not
only because of its
immediate
economic
implications, but
because until
recently most
economists -
myself included -
regarded
sustained
deflation as a
fundamentally
implausible
prospect,
something that
should not be a
concern.
The point is that
deflation should -
or so we thought -
be easy to
prevent: just print
more money. And
printing money is
normally a
pleasant
experience for
governments. In
fact, the idea that
governments have
a hard time
keeping their
hands off the
printing press has
long been a staple
of political
economy; dozens
of theoretical
papers have
argued that the
temptation to
engage in
excessive money
creation causes an
inherent
inflationary bias in
fiat-money
economies. It is
largely to combat
that presumed
bias that most of
the world has
accepted the
notion that
monetary policy
should be
conducted by an
independent
central bank,
insulated from
political influence -
and has written
into the charters
of those central
banks that they
should seek price
stability as their
main, often only,
goal.
Yet here we are,
with deflation
turning out to be a
serious problem
after all - and with
policymakers
finding that it is
not as easy either
to prevent or to
reverse as we all
thought.

WHAT IS INFLATION

2011-08-14T23:24:00.000-07:00

The overall
general upward
price movement of
goods and
services in an
economy (often
caused by a
increase in the
supply of money),
usually as
measured by the
Consumer Price
Index
and the Producer
Price Index
. Over time, as the
cost of goods and
services increase,
the value of a
dollar is going to
fall because a
person won't be
able to purchase
as much with that
dollar as he/she
previously could.
While the annual
rate of inflation
has fluctuated
greatly over the
last half century,
ranging from
nearly zero
inflation to 23%
inflation, the Fed
actively tries to
maintain a specific
rate of inflation,
which is usually
2-3% but can vary
depending on
circumstances.
opposite of
deflation.