The Oil Drum: Australia/New Zealand | Part 2. The Future in Australia: The Next 13 years.

67 comments on Part 2. The Future in Australia: The Next 13 years.

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Richard on November 6, 2007 - 5:21am

Will,

I know your explanation of inflation, it is the standard econ 101.

Milton Friedman, who won the Nobel price, argued differently:

Total amount of money
----------------------- = Average price
Total amount of goods

So if PO decreases the total amount of goods, that would cause inflation, right?

Well, only if the total amount of money stays the same. To reduce the total amount of money, the FED, ECB, BoJ, PBC, etc can sell state bonds and thus reducing the amount of money (and raising the interest rate in the process)

This is a very potent mechanism. We have been doing this the last 30 years or so and it works remarkably well.

Why should it suddenly not work?

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Will Stewart on November 6, 2007 - 9:55am

While you are free to embrace the economic model of your choice, I don't invariably accept Friedman's explanation.

There are so many factors in play, such as the prime interest rate, liquid cash holding, amount of debt (national and personal), GDP, etc, etc.

Offering state bonds also presumes that they would be sold easily. The money acquired through bonds usually goes into government spending of some sort (roads, buildings, education, etc), which enters right back into the economy.

I must note that I am a staunch admirer of the Dutch low-energy lifestyle, and the large number carfree areas in so many of your cities.

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