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... is that the world where this exists:
The first kind of inflation is macro-inflation. Macro-inflation is caused by an increase in currency base over supply of denominatable goods and services....

... and the world where this kind of things seems reasonable:

Meso-inflation is when incentives become out of alignment between productive and unproductive labor in Smith, but more generally when incentives no longer send the correct signals to allocation of activity in an economy.

... do not seem to necessarily be the same worlds.

Of course, there is no such inflation as the first kind ... its in that alternate universe where the government decides on the size of the money supply and response of the financial sector determines the interest rate.

So, use the term macro-inflation if we wish, but it refers to a process of dollar value GDP growth leading commercial banks to create money faster than new goods and services are produced ... if in flex-price markets, as price increases are required to bring more product into the market, and if in fix-price markets because they are reaching capacity constraints.

The second type of Newberry's inflation trio, micro-inflation, based on an increase in product market power, can stand as is. A structural increase in product market power means that a given cost structure is translated into a higher price structure, as those with product market power extract rents. If that increase in product market power is an ongoing process, those price increases should be ongoing as well.

The third type of Newberry's inflation, is in a world where the only kind of economic power is product market power, so that when there is a shift in income shares, its because "incentives" are out of whack. The inflationary wage price spiral is at its heart a tug of war between wage shares and profit shares, with a tug in the direction of wage shares being an increase in money wages, and an increase in the direction of profit shares being an increase in money prices. In increase in the intensity of that tug of war can be a source of inflation in the real world that corresponds most closely to Newberry's meso-inflation.


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 Mon Mar 3rd, 2008 at 06:40:47 AM EST

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