Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
Newberry wrote something about meso-inflation a few months ago which I did not understand at all. Maybe I will go back and try to find it. But what struck me when I read his comment a few days ago is that it applies to the imbalance of incentives in favor of speculation and arbitrage, and against real investment.

Also, in the U.S., the tax system is imbalanced against wages and earnings, in favor of unearned income, such as capital gains. Newberrry wrote in the comment that meso-inflation can be used to hold down inflation, and I think this U.S. tax imbalance is an example - it holds down the wage side of classic cost-push inflation.

What also struck me is that Newberry wrote:

The root of meso-inflation is an imbalance of incentives. At a certain point this imbalance becomes so pervasive that it makes monetary policy useless.

Now read what Barry Ritholtz's Why the Fed Is Compelled to Lie to Congress.
Here's what Bernanke would have to tell Congress if he were completely honest:
What is particularly worrisome to me is that as we have slashed interest rates 225 basis points, consumer loans -- mortgages and revolving credit -- have actually moved higher.
by NBBooks on Mon Mar 3rd, 2008 at 10:25:49 AM EST
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... and away from profits does not directly undercut cost-push inflation ... indeed, to the contrary, any reduction in real wages leads to more impetus to push for recouping the loss in higher nominal wages, and that tax shift is a reduction in real wage.

Its the maintenance of slack labor markets that is the key to suppressing nominal wage increases ... no matter what the impetus to push for recouping lost wages, in the context of the extraordinarily slack labor markets that the US has been experiencing ... U6 unemployment above 8% at what was supposed to be the "peak" of the business cycle! ... there's little for workers as a group to do but to take it on the chin.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Mar 5th, 2008 at 03:16:49 PM EST
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