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well, GDP used to be dominated by the production of goods, where increased raw materials costs make a major impact and are generally passed on in increased price of the output. A GDP dominated by services would surely show a much diluted inflationary effect from raw materials.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Tue Jul 31st, 2012 at 07:20:48 AM EST
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Why? What use is a massage when you need food transportation and clothes? And whoever provides services also needs all those things. Unless you can convincingly argue that resources have become less vital to our well being I don't see how the composition of GDP matters here.
by generic on Tue Jul 31st, 2012 at 08:23:36 AM EST
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It's easier to shaft service providers out of wages to pay for those things than it is to shaft manufacturers out of goods to use in manufacture.

So raw materials shortages don't show up as much in the consumer price index, because service workers make do with less stuff.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Jul 31st, 2012 at 08:43:01 AM EST
[ Parent ]
Yes, the impact being worked through is a drop in real incomes. To the extent that wages and the labor markets are not sufficiently "flexible" to pass that drop in real income as a drop in nominal incomes, then it must work out as a pulse of high inflation.

Obviously holders of wealth in financial assets prefer the former, which concentrates the loss real income on wage earners, to the latter, which spreads the loss in real income into some of the high income households.

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 Thu Aug 2nd, 2012 at 11:41:46 AM EST
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and meanwhile, resource-driven inflation keeps headline inflation positive during wage deflation. Which lets central bankers get away with the outrageous lie : "we are delivering price stability".

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Thu Aug 2nd, 2012 at 11:57:53 AM EST
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The unstated "... and income instability" need not be noticed if its not the incomes of the PTB that are unstable. If, indeed, they are either steady or rising, from windfall gains on resource ownership that tends to be concentrated at the top end of the income ladder, that would be good income instability, so long as the hoi polloi don't start a civil war or some such inconvenience.

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 Thu Aug 2nd, 2012 at 12:05:00 PM EST
[ Parent ]

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