Inflation Subverts Sticky Prices

The Planet Money podcast recommended everything written by Tim Harford, and I love Planet Money, so I went to the library and took out The Undercover Economist Strikes Back: How to Run-- or Ruin-- an Economy and the guys at Planet Money were right; this is a highly entertaining look at macroeconomics and some of the problems and solutions to keeping an economy chugging along . . . most of ideas are a bit counterintuitive . . . the best time to trim spending, pay off debt and deregulate is during a boom-- and while most countries do these things during a recession, the best thing to do during a recession is dust off huge government projects and allow the government to employ lots of people and create value and worth . . . but again, these are the things that usually happen during a booming economy; I also learned that inflation is the only way to defeat sticky prices and sticky wages-- it's really hard to cut people's pay and to mark down the value of goods and services once a  fair price is established, but if you have a bit of inflation every year, then you can still give people raises, they are just less than the rate of inflation, so-- in effect-- they are taking a pay cut, and this works the same way with devaluing a house or something that is difficult to part with for less money than you paid for it (even if it's truly worth less money-- countries with higher home ownership also have higher unemployment, because it's harder to move where the jobs are because housing markets are slow and sticky and efficient); Harford ends the book addressing inequality of income and what that really means around the world, within countries and between them, and he believes the course of action to understanding large-scale economics is that the models need to incorporate more on human behavior, because we don't behave like perfectly rational future prediction machines, we are at the whims of our "animal spirits" and when these exacerbate an economy on a large scale, it's extremely hard to predict what is going to happen.

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