uninflationary employment-generating growth

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I'm a student working on a paper right now and it would help a lot if you could answer this question for me.

Is it possible to have uninflationary employment-generating growth? and if ever, is it a sustainable condition?

Thank you

-- Rhea Amakusa (seiyo@hotmail.com), January 01, 2002


we can have by changing the system of gdp

-- hossein sed (Hossein3333@yahoo.com), October 21, 2003.

It is obviously too late to help with your paper but maybe I can help the next person with a similar question.

The way your question is worded “Is it possible to have uninflationary employment-generating growth? and if ever, is it a sustainable condition?” makes me suspect you've gbeen taught "growth causes inflation." That is abolsutely not true.

The short answer: yes it is possible and it happens all the time. Growth does not cause inflation. Inflation causes inflationary growth. Increased productivity causes real growth. But since both forms of growth occur simutaneously and are measured as increased demand and higher prices it is difficult for the FED (or anyone else) to distinguish between the two as they happen and sometimes for years to come.

*************** Growth does not cause inflation (in fact growth tends to cure inflation but the wording and mechanism are tricky).

Prices increase for many reasons but not all price increases are inflation. By definition price increases caused by an “excess” money supply are inflationary price increases, or as Milton Friedman once put it “all inflation is monetary all the time and everywhere,” (that’s an approximate quote).

Inflationary growth: Economists measure the economy as the GDP and the GDP is spending. Imagine that you are an engineer and out of every paycheck you put $200 into a money market account (which is where much of the money in checking accounts winds up). Now imagine that an “excess” in money market account balances across America causes your bank to lower the interest rate you’re getting. Remember this is a temporary excess and not one that “should” have happened. Upset at the lower interest rate you withdraw most of your account and spend the money on a new computer. That increase in demand for computers is repeated all across America driving up the number of computers sold, the number of people working in the computer sales industry and the price of computers. BTW prices are also increasing across a whole spectrum of goods and services in the same fashion and your REAL take-home pay becomes lower as a result. VIOLA “excess” money supply caused growth and commensurate price increases: inflation.

But since so many people withdrew money from their checking accounts the money supply returned to normal, interest rates are raised again. You regret buying the computer, you certainly don’t buy another one next month, prices drop and unemployment follows. VIOLA: a monetary (inflationary) trade cycle. Boom to bust.

Real (non-inflationary) Growth: Now imagine that instead, you become a better engineer, or perhaps your company becomes a better company, or taxes are lowered, or perhaps technology improves. Whatever the cause, it is a REAL improvement in your productivity and you get a pay increase. Similar improvements, slowly over time happen throughout the economy. You use your pay increase to buy a computer and so do thousands like you. Now there is new demand for computers, higher prices for computers and more employment in the computer sales industry but this time it is REAL and (although there will be statistical peaks and dips) will be long-lasting.

-- bob hyneman (big fan of JB Say) (bobhyenman@bigfoot.com), October 22, 2003.

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