"Embedded vs. Non-Embedded Inflation"

Paul Krugman explains why the Fed focuses on core rather than headline inflation. I've made this argument a different way, but it's basically the same argument. Boiled down, the argument is that the problem prices are the sticky prices, not the prices like those on food and energy that are flexible, and you want an index (core inflation) that best highlights the problem, i.e. that includes only the problem prices and throws out the ones that can be left to adjust on their own  (I prefer measures that trim out the most volatile prices or use other mechanisms to extract the slowly adjusting prices rather than simply tossing out food and energy, but that's a technical point).

Here's how Krugman explains the intuition (the exact story is model dependent, but the intuition almost always comes down to indexing the problem prices so that they stand out, and leaving the other prices to take care of themselves, and expectations of inflation are a key part of the story). But more important than the explanation for why the Fed focuses on core inflation is the conclusion Krugman comes to, that the Fed shouldn't let worries about inflation interfere with stabilization of the financial sector and the broader economy:

Embedded vs. non-embedded inflation, by Paul Krugman: The big economic debate of the moment is whether the Fed and its peers have made a terrible mistake by focusing on staving off financial crisis while more or less ignoring the rise of inflation. “Inflation is rising and it seems the world’s central banks have critically misjudged the situation,” says Wolfgang Munchau in the FT. I’ve heard even more apocalyptic views from some serious people in the last couple of weeks. As it happens, I don’t agree. And I thought it’s worth spelling out why — especially because many if not most of the participants in this debate don’t explain their premises very clearly. So: when is it appropriate to get very concerned about inflation, and when is it OK to assume that a rise in prices is a temporary shock that will pass? The answer is that inflation becomes a big problem if it becomes “embedded” in the economy, which makes it hard to restore more or less stable prices. But how does inflation get embedded? [Here's how...]

So now you've read Krugman and you are confused. I've talked about core measures of price inflation, yet Krugman is worried about wages adjusting sluggishly. How can the two views be reconciled? There is a larger theory that says to include any price that adjusts slowly, whether it's an input price or an output price, in Fed's monetary policy rule. Here's Michael Woodford:

The theory also provides important insights into the question of which price index or indexes it is more important to stabilize. Again, the answer depends on the nature of the nominal rigidities. If prices are adjusted more frequently in some sectors of the economy than in others, then the welfare-theoretic loss function puts more weight on variations in prices in the sectors where prices are stickier... This provides a theoretical basis for seeking to stabilize an appropriately defined measure of "core" inflation rather than an equally weighted price index. .... Similarly, if wages are sticky as are goods prices, as implied by many empirical ... models, then instability in the rate of growth of a broad index of nominal wages results in distortions similar to those created by variations in goods price inflation. If [adjustments in] wages are staggered ..., then the welfare-theoretic loss function includes a term proportional to the squared rate of goods price inflation and another term proportional to the squared rate of wage inflation each period. In this case, optimal policy involves a tradeoff between inflation stabilization, nominal wage growth stabilization, and output-gap stabilization...

I should also add that, under some theoretical formulations, asset prices should also be part of the Fed's monetary policy decision rule. However, for the most part, asset prices exhibit a high degree of flexibility so little is lost from leaving those prices out. However, as I've argued before, an exception is housing prices - they can exhibit downward rigidity - and this is a reason to consider including housing prices in decisions about the direction of monetary policy, something that would cause the Fed to lean against housing price bubbles as they are inflating.

One final note. Some people will disagree that the Fed should worry about wage inflation, i.e. they will say that the Fed moves to suppress wages whenever workers begin to realize gains and hence works against their interests. But I think that wage inflation that exceeds productivity growth hurts workers in the long-run. Thus, it's something to avoided.

Comments

[Bupa]

tale of two continents. Europe and the ECB are all aflutter because headline inflation hit 3.6 percent. In Europe unions are more powerful and so wages are a more important part of the story. Headline inflation is key because that is what drives wages.

In the US this is workers are relatively powerless in the face of rising inflation expectations.

So Krugman is right in the American setting but wrong in the European setting.

[anne]

[Remember Harry and Louise?]

http://krugman.blogs.nytimes.com/2008/05/31/embedded-vs-non-embedded-inflation/

Imagine that there are two entrepreneurs, Harry and Louise, both of whom change prices only at fairly long intervals — say, once a year. Other things equal, Harry want his average price over the next year to be about the same as Louise's; Louise wants her average price to be about the same as Harry's. But their price setting takes place on different dates. (This is a metaphor for the real economy, in which people setting prices have to think about the prices of many competitors and suppliers that will prevail until they revise the price again.)

In this situation, inflation can feed on itself: Harry raises his price above Louise's, because he expects her to raise her price in the future, and she does the same thing when it's her turn. It looks like this, with Harry in red and Louise in blue:

Leapfrogging inflation [Chart]

Once expectations of inflation get embedded like this, it's hard to get price stability back. In practice, what happens is that central banks deliberately cause a recession. This makes Harry shave his price increases a bit, and then Louise does the same, and over time both start to notice that the other's price increase keeps falling short of expectations, and eventually inflationary momentum gets wrung out of the system — but at a high cost. In the 1980s, it took double-digit unemployment to get rid of the embedded inflation from the 1970s....

[cm]

Well, are not the prices for the most discretionary items (consumer electronics and many marginal "convenience" household gadgets) those which are most "flexible" and as well those out of which we get the largest hedonic "improvements"?

Why don't we throw them out of the calculation?

[RW]

Sticky prices are the problem WRT 'embedded' inflation? Well, okay, what happens when food and energy prices become sticky? Is there anyone who seriously thinks that can't happen? More to the point is there anyone who thinks that should not be counted among the possibilities now?

[2slugbaits]

And now we get to try and reconcile all this with Mark's posting the other day on menu costs and sticky prices. My head hurts.

[Jim]

The recent energy price step will soon appear as an upward slope in the 'sticky' prices of core inflation elements. Bernanke's challenge will be to make it clear that this filtered response will itself subside, and is not an indicator of continued inflation.

[paine]

"In practice, what happens is that central banks deliberately cause a recession"

the failure of the system laid barest

wage increase trends are sticky trends
they keep going
potentially faster and faster
till they hit a recession

job markets
not house lot markets
are the seriously controled markets

the fed in alarms
goes out and commits
intentional pre meditated
massive jobicide

why is this reality never hammered home ???

economic rent controls ????

wind fall profit controls ????

never !!!!!

wind fall wage controls ???

24 /7 /365

[Bruce Wilder]

I used to just accept the rationale for using "core" inflation as a benchmark; the rationale seemed perfectly sensible to me.

Today, I'm not at all sure that what I'm hearing from Krugman makes much sense.

If I were responsible for policy, I'd be worried about the deflationary impact of declining bank capital and reduced circulation of interest-bearing securities derived from mortgages.

The steady march of writedowns continues quarter after quarter, commercial loan losses are mounting. Even if the tax rebates give aggregate demand a boost, and we get a bit of relief on oil and grain price hysteria, small banks will start dropping like flies.

And, I'd be worried about energy and food prices feeding into inflationary expectations. Admittedly, I wouldn't be looking at the spot price of oil, but I would be looking at the prices being locked into long-term contracts -- like the $80+/bbl implied by Southwest Airlines recent contracts.

Traditional "core" inflation indexes don't help to measure either issue.

By the time, elevated energy prices are unambiguously driving "core" inflation, inflation expectations will have been set, at much elevated levels. And, the leveraged end of the circulating capital spectrum will have been severely depleted.

A depleted supply of financial assets and high expectations for inflation -- that sounds vaguely like a formula for stagflation to me.

I have no idea whether there really is any practical policy for avoiding either, but all the talk seems to be aimed, not at a sensible policy, but at obfuscating what's happening and why. Already the legitimacy of current policy seems questionable to me, personally, because I cannot reconcile even the straight-up CPI with my personal experience. Rightly or wrongly, I have sensed for months, a determination in certain circles to deny the full implications of the banking/mortgage meltdown: ("Are we in a recession? It's hard to tell, it is so minimal.")

[Blunt Tool]

Wage inflation becomes embedded, requiring increased interest rates to combat the resultant stagflation. Better for workers to systematically lose some of the productivity gains so that borrowers don't have to pay back all that they borrowed (negative interest rates). Otherwise, borrowers might not buy so much during downturns, and workers might get laid off once in awhile (short run Phillips curve).

If this is the policy, stop complaining that wages have been stagnant since the policy was adopted in the wake of the high inflation wage/price spiral period. Some productivity increase necessarily must go to borrowers in the form of lower interest rates for the policy to work (borrowers consume the extra goods produced). Monetary expansion is far too blunt a tool to target extraction of resources just from foreign savers.

That's the trade off. The extra goods borrowers consume must come from somewhere. Borrowers consume some extra goods all the time in order to maintain the inflation "cushion" (stagnant wages). Borrowers consume much of the productivity increase. During downturns borrowers consume even more, which requires active workers to consume less per hour worked (falling real wages).

Active workers have it easy from this policy. Retired workers actually lose purchasing power, rather than just a portion of productivity gains.

[paine]

bupa

you are reading
the class advantage meter upside down

the EURO BANK is a wage squeezer
commodity and product inflation
are not the enemy of the job class
the macro methods used to kill inflation are

secondary effect of policy induced recession:

(ie besides the chastened job force
that emerges at wage time
if rampant corporate job slaughter rages outside )

to wit ..
oligop sectors with serious visible corporate pricing power
need the external discipline of a general recession
to gain the "no opportunity cost moment "
to stare down their job force
and curb their now non validated pricing pass thrus

any wage increases above productivity gains
are fought like the very devil himself

[paine]

"Better for workers to systematically lose some of the productivity gains so that borrowers don't have to pay back all that they borrowed"

yumpin' yimminy

blunt tool
i fear
your implement
operates not only with bluntness
but
with chaotic cross purposed spasms

what a hopeless thicket of confusion
and briary self contradiction

its like a bunch of econ con jargon
got fed thru a randomizer

[Bupa]

"you are reading
the class advantage meter upside down"

I often grab the wrong end of the stick.

Help me understand the evils of inflation expectations.

If workers expect higher inflation they demand higher wages.

But in non-unionized America, espicially in a recession, how will workers get those higher wages? My guess is they won't. They will take a real pay cut (except the richest 1 percent, of course-- they have the clout).

In Europe workers strike and consessions are made, wages go up. Then all that wage price spiral story takes root.

My guess is that the ECB is too tight and will remain too tight as the European economy heads down the tubes.

But, I've been wrong more often than right, so I should probably just shut up.

[paine]

"that sounds vaguely like a formula for stagflation to me"

the fed wants to put the job stag back together
with both
flation twins

kot prices must come down
service prices flat line and
domestic industrial product prices oughta rise

how all at once ???

bingo
the seemingly conflicting remedy

weaker dollar tighter credit

[Morphing]

"I cannot reconcile even the straight-up CPI with my personal experience."

The CPI was originally designed to maintain the purchasing power of wages during WWI. A basket of items the median person needed to live on was tracked.

Now it has morphed into a highly technical metric to help centrally plan a hedonic adj, ever changing basket of sticky prices so that they constantly rise in price. The CPI should no longer be used to figure out what it costs a person to live the medial life style, as this is no longer its purpose.

[paine]

bupa
you got the bankers double deal right

stagnation both here and over there

the problem from the board room point of view
is
wage driven prices

not commodity wind fall driven prices

answer

real wage decline

or higher unemployment

take your [ick

[International]

World wages matter more now with our interconnected economy. Wage inflation in developing nations is becoming embedded, which drives world wage/price spirals.

[Increasing GDP]

Under the old system, workers were paid most of their produce. Workers saved some (consumed less-loaned the produce to others) with the expectation of being paid back in time of need. Under the new system, workers are encouraged to consume everything they are paid.

This leaves no domestic savings for borrowers, so money is created out of thin air to loan to them. Borrowers still consume part of workers' produce under this system, but the worker never gets paid back. If enough newly created money is loaned to borrowers to make workers feel deprived, workers are forced to work overtime to replace the goods consumed by borrowers, increasing GDP.

Of course, the few workers who do save have their savings slowly confiscated under this system. Worker pensions are similarly confiscated. Foreign savers loan some of their produce to domestic borrowers also (trade imbalance), but this imbalance is necessarily limited to a few decades.

[Mikko]

Mark,

Have you considered the possibility that wages might be sticky, not only moving downwards, but also moving upwards. (IIRC you have referred to some articles that described empoyment as close to a monopsony, which would imply so). If this holds true, then high CPI combined with low core inflation would transfer to a transfer of wealth from workers and pensioners to the financing system.

This "tax" on the income earners with sticky income may even contribute to the malais of the bottom half of americans not getting better off during the past 30 years.

If wages are sticky upwards, how should core inflation measure take that into account? Does it?

[Jonathan Lundell]

But I think that wage inflation that exceeds productivity growth hurts workers in the long-run. Thus, it's something to avoided.

And how much would wages have to rise to catch up with recent productivity gains? Or should that be avoided as well?

[Michael McKinlay]

Big If ... Oil coming down ...

Try reading the Oil Drum, Krugman has mentioned it.

We are at least in a period of inadequate oil supply if not Peak Oil. Energy will be heading up for years.

Then there is the $800 Billion Trade Deficit, the balooning Federal Budget, the Iraq War Funding ( not included in the budget), a sputtering economy while no one believes the government inflation figures anymore. How will the dollar not devalue much further?

The inflation expectation table has been set ... core price delusion or not.

[Blissex]

«Sticky prices are the problem WRT 'embedded' inflation? Well, okay, what happens when food and energy prices become sticky?»

Ah but there is a little technical trick here: that "inflation" is being defined in two very different ways.

As well known, Economics (which means of of course the Chicago school and the Arrow-Debreu-Lucas model) has proven mathematically that the distribution of income depends solely on productivity, and all prices are set optimally and inflation cannot happen, unless of course the labour market is distorted by lack of competition.

Therefore if the prices of things change that is *not* technically inflation: it is just a healthy adjustment in relative prices. So if at some point the number of people who can afford to eat meat or buy gasoline in China grows and this drives up the price of meat and oil in the USA and the profits of meat or gasoline producers in both countries, that is *not* inflation, it is just a market driven adjustement in prices.

Inflation in the technical sense used by central banks, Markiw, Thoma, Krugman, etc. is not a general rise in prices or a decrease in the real standard of living, as most people seem to understand the term; it is instead a rise in prices caused by a rise in unit labor costs, that is by a shift in the distribution of income that damages the interests of capital and entrepreneurs and favours exploitative, parasitical wage earners.

As "Blunt tool" and "increasing GDP" explained pretty clearly targeting core CPI is just a euphemism to make sure that unit labor costs are always going down, or equivalently that the distribution of income is always skewed against wage earners and in favour of asset owners (because keeping borrowing costs low means higher asset prices and higher profits).

The overall argument is that no such thing as a wage productivity increase as wages are a dead weight cost, a necessary inconvenience. Nobody thinks that any increased milk production by cows means that the cows have become more productive and their wages should increase; only the rancher deserves the fruits of that increased productivity.

In the same way any increase in the real or even nominal wages of the bottomost 80% of the population is pure and simple inflation. All productivity increases come from improved organizational skills of entrepreneurs and the increasing productive capital of asset owners, therefore they are entitled to collect all productivity increases.

Therefore it is the goal of central banks to raise interest rates only if nominal wages rise, as inflation is not any rise in prices, but only a rise in the share of income that goes to the parasitical wage earners, and a rise in interest rates causes a drop in investment, thus employment, and thus moderates nominal wages.

That's why there is a very different attitude to increases in the price of capital (asset bubbles) and in the price of labor: central banks must assume that asset price bubbles are caused by market price adjustements and are not inflation, while they are also compelled to think that any labor price bubble is not justified; the only adjustement in wages that is justified by the market is their going down towards subsistence level and below, as that is what the market price for labor should be.

Reminder for those who don't understand the latter point: as long as there is a single unemployed parasitical exploiter wages are too high, and eventually as Marx argued, the price of labor should be the lowest that maintains worker population constant and fully employed, in the same way that the price of cows should be that produces enough milk to clear demand for milk. A rancher should not spend a penny more on cow welfare than that needed to reproduce that number of cows generation after generation.

[Blissex]

«But I think that wage inflation that exceeds productivity growth hurts workers in the long-run.»

Even without believing in the neoclassical rubbish that workers only deserve subsistence wages (or below subsistence as long as there are unemployed workers), that argument has merit, even if in a different formulation.

Entrepreneurs and capitalists are indeed the leaven of production, which is a critical role, and they must be given enough rewards that they perform their function or organizing and funding production. At some point if the distribution of income favours labor too much, the rate of profit becomes too low to motivate entrepreneurs and capitalists.

This is not a theoretical concern -- entire countries in the past have become poorer because entrepreneurs and capitalists have found the rewards too low or the risks too high, and essentially retired to enjoy the rents on their already accumulated wealth.

So in the long term yes ever increasing unit labor costs are bad because they discourage enterprise and investment, but that's because they result in too low rewards for those.

As Landes wrote well of this in his splendid book "The wealth and poverty of nations":

«That Dutch towns did not shrink more was because rents and food prices fell and some poor relief was available; this was a matter of public order if not of charity. Besides, Dutch wages still topped those in surrounding lands, in large part owing to the resistance of craft guilds, and this gap drew cheap labor from abroad to compete with the newly unemployed. Increasing hostility and conflict found an outlet in strikes, until nothing was left to strike about.
Some of this may remind readers of the conditions in the United States in the last quarter of the twentieth century. As branches of manufacturing have shrunk before foreign competition, enterprises have discharged redundant labor or moved to lower-wage areas. New workers cost less than old, as the airlines know only too well. Poor immigrants have kept coming. Unions have struck, sometimes only hastening plant closings or transfer of orders to cheaper suppliers. (Mutatis mutandis, one finds similar developments today in western Europe.)
So on Holland two centuries ago. The United Provinces pared and trimmed to meet the competition, but the best they could do was run in place. Many businessmen gave up the fight and retired to the country and to a life of passive investment. Incomes polarized between the rich few and the poor many, with a diminishing middle between them. Tax
returns show that by the late 1700s, most wealthy Dutch were big landowners, high state officials, or rentiers. Gone were the prosperous enterprises of the "golden age": employers were not confined to the middle and lower ranks.»

«The annals of competition show entire national branches dragging and withering -- not this and that enterprise, but the whole industry. Sometimes, having learned their lesson, the last members of the branch move away, generally to cheaper labor; that is smart, but also easy, and evidence more of rationality than enterprise. An sometimes, as in Britain and Holland earlier, enterpreneurs retire to a life of interest, dividends, rents, and ease.»

Naturally keeping entrepreneurs and capitalists interested in leaving production does not mean that *all* the rewards should go to them; the position that workers are like cattle and only deserve a subsistence level wage because they contribute nothing to productivity is more of a "moral" position than an economic one.

[paine]

bliss- ex
nice comment
much to chew

full of good stuff
and bad ....

good:

weagery be cows to capital

indeed they are milked
for the profit of others
of course the wagery are not property
of any one milker like cows
they're wild free range sacred cows

the milker buys and sells only their product
not they themselves
and
if the cows don't like their feed alottment
they can seek more by offering their utters output
to other milkers
who might up their feeding .....

but this is maybe bad :

"At some point if the distribution of income favours labor too much, the rate of profit becomes too low to motivate entrepreneurs and capitalists."

dangerous mass "thinking guy " delusion
from which hangs many a sour tale
of capitulation to such monstrous frauds as
the natural rate of exploitation

the functionally irreplaceable
socially " progressive "
act of private accumulation

we are not for all time
socially dependent
on private capital formations
for our innovation or progress

the incentive to produce new more and better products
need only be a reward adequate
to evince that activity and a structure open to
such activity

economic rents and such
are at least in principle
an un necessary if often unavoidable
component of a rising social destiny

to make the capitalists and their system of exploitation
sacred and glorious
and pretend
their rewards are 100 % causal
when they are often merely coincidental
and never a necessary means to any end ...

yes smith showed us
(as had others)
the social worth of acts by private profiteers
---like harris showed the social worth of scared cows ---

the bastards in a spontaneously forming open system
of wage based production
ie modern free industrial enterprise
--bda "the anarchy of production"---
thru their acts of greed and guile
perform independently of these selfish ends
indeed despite their intended ends
many ends of unintended social goodness
mostly arising from -- and surely always requiring--
their unfettered savaging of each others profit projects
on the wide open market place

in simple terms

comrade
there are more direct ways to accomplish these ends
ways that minimize "the producers surplus "
or at least that part
that don't go to the producers themselves
but to those who hire the producers exploit the producers
gyp the producers defraud the producers ....

producers surplus that instead of becoming consumers surplus thru lower prices
is converted into the profane milk and honey
of private wind fall profit
(aka economic rents )

[RW]

You're firing on all 12 cylinders today Blissex: A lucid explanation of economic theoretical bias and the French Revolution at one fell swoop.

[anne]

Listening to physical scientists I get the spooky sense that they take commodity price increases very much for real, though physicists and biologists are not necessarily economic analysts. So, I lean to Paul Krugman in not finding a financial or artificial occurrence in commodity price increases. Where physical scientists are seemingly always optimistic about technology they are talking more about technology difficulties presently, regarding fuel and food, than I find comforting. Lastly, I wish there were a way of understanding the extent to which conflice is driving commodity prices.

[anne]

http://www.earthpolicy.org/Updates/2008/Update72.htm

April 16, 2008

World Facing Huge New Challenge on Food Front: Business-as-Usual Not a Viable Option
By Lester R. Brown

On the demand side, the trends include the continuing addition of 70 million people per year to the earth's population, the desire of some 4 billion people to move up the food chain and consume more grain-intensive livestock products, and the recent sharp acceleration in the U.S. use of grain to produce ethanol for cars. Since 2005, this last source of demand has raised the annual growth in world grain consumption from roughly 20 million tons to 50 million tons.

Meanwhile, on the supply side, there is little new land to be brought under the plow unless it comes from clearing tropical rainforests in the Amazon and Congo basins and in Indonesia, or from clearing land in the Brazilian cerrado, a savannah-like region south of the Amazon rainforest....

New sources of irrigation water are even more scarce than new land to plow. During the last half of the twentieth century, world irrigated area nearly tripled, expanding from 94 million hectares in 1950 to 276 million hectares in 2000. In the years since then there has been little, if any, growth. As a result, irrigated area per person is shrinking by 1 percent a year.

Meanwhile, the backlog of agricultural technology that can be used to raise cropland productivity is dwindling. Between 1950 and 1990 the world's farmers raised grainland productivity by 2.1 percent a year, but from 1990 until 2007 this growth rate slowed to 1.2 percent a year. And the rising price of oil is boosting the costs of both food production and transport while at the same time making it more profitable to convert grain into fuel for cars.

Beyond this, climate change presents new risks....

During seven of the last eight years, grain consumption exceeded production....

[paine]

anne

you give the specs and oil tycoons a pass
well...
regardless of the cause
deamnd pull
or markey manipulation

the industry needs
to get slapped
with a huge wind fall profit tax

[baileyman]

Mark says:

"But I think that wage inflation that exceeds productivity growth hurts workers in the long-run."

Ok, but let's give it a try first.

[anne]

Paine:

the industry needs
to get slapped
with a huge wind fall profit tax

[What the terrible horrible Hillary Clinton * wishes? OMG!]

[anne]

Hillary Clinton. *

* Mrs. Clinton, so that we know; the terrible horrible Mrs. Clinton.

http://www.earthpolicy.org/Updates/2008/Update72.htm

"Between 1950 and 1990 the world's farmers raised grainland productivity by 2.1 percent a year, but from 1990 until 2007 this growth rate slowed to 1.2 percent a year."

Why?

[anne]

http://www.earthpolicy.org/Updates/2008/Update69.htm

January 24, 2008

Why Ethanol Production Will Drive World Food Prices Even Higher in 2008
By Lester R. Brown

Historically the food and energy economies have been largely separate, but now with the construction of so many fuel ethanol distilleries, they are merging. If the food value of grain is less than its fuel value, the market will move the grain into the energy economy. Thus as the price of oil rises, the price of grain follows it upward.

A University of Illinois economics team calculates that with oil at $50 a barrel, it is profitable—with the ethanol subsidy of 51¢ a gallon (equal to $1.43 per bushel of corn)—to convert corn into ethanol as long as the price is below $4 a bushel. But with oil at $100 a barrel, distillers can pay more than $7 a bushel for corn and still break even. If oil climbs to $140, distillers can pay $10 a bushel for corn—double the early 2008 price of $5 per bushel.

The World Bank reports that for each 1 percent rise in food prices, caloric intake among the poor drops 0.5 percent....

[anne]

http://www.earthpolicy.org/Updates/2008/Update69.htm

From 1990 to 2005, world grain consumption, driven largely by population growth and rising consumption of grain-based animal products, climbed by an average of 21 million tons per year. Then came the explosion in demand for grain used in U.S. ethanol distilleries, which jumped from 54 million tons in 2006 to 81 million tons in 2007. This 27 million ton jump more than doubled the annual growth in world demand for grain. If 80 percent of the 62 distilleries now under construction are completed by late 2008, grain used to produce fuel for cars will climb to 114 million tons, or 28 percent of the projected 2008 U.S. grain harvest....

[anne]

http://www.earthpolicy.org/Updates/2008/Update72_data.htm#table13

World Grain Yield Annual Increase by Decade, 1950-2007

1950-1960 2.0%
1960-1970 2.5
1970-1980 1.9
1980-1990 2.1
1990-2000 1.2
2000-2007* 1.2

* Annual increase over eight years.

Note: Grain yields for 1960, 1970, 1980, 1990 and 2000 calculated using 3 year averages.

Source: Compiled by Earth Policy Institute with 1950-1959 from Worldwatch Institute, Signposts 2001, CD-Rom (Washington, DC: 2001); 1960-2007 from U.S. Department of Agriculture, Production, Supply and Distribution, electronic database at www.fas.usda.gov/psdonline, updated 9 April 2008.

[anne]

http://www.earthpolicy.org/Updates/2008/Update72_data.htm#table14

U.S. Fuel Ethanol Use, Grain Production

19995-2007 (Million Tons)

1995 10 or 275
1999 14 of 332

2000 16 of 340
2001 18 of 321
2002 25 of 294
2003 30 of 345
2004 34 of 386

2005 41 of 363
2006 54 of 336
2007 81 of 414

2008 114 of 400 Projection

[anne]

Correcting:

http://www.earthpolicy.org/Updates/2008/Update72_data.htm#table14

U.S. Fuel Ethanol Use, Grain Production

1995-2007 (Million Tons)

1995 10 of 275

2000 16 of 340

2005 41 of 363
2007 81 of 414

2008 114 of 400 Projection

[anne]

Paine:

the industry needs
to get slapped
with a huge wind fall profit tax

[Hillary Clinton was sneered at for the mere suggestion.]

[Bupa]

Hillary Obliterate Iran Clinton

Hillary Protector of Cluster Bombs Clinton

Hillary Voted for Iraq War Clinton

Hillary I deserve to be president because uneducated white folks in West Virginia prefer me over that black man Clinton

sneer

[anne]

Vile lying sexist monster.

[anne]

"Hillary I deserve to be president because uneducated white folks in West Virginia prefer me over that black man Clinton."

Vile lying monster.

[Bupa]

Hillary Obliterate Iran Clinton

Hillary Protector of Cluster Bombs Clinton

Hillary Voted for Iraq War Clinton

Hillary I deserve to be president because uneducated white folks in West Virginia prefer me over that black man Clinton

Hillary I am so well contected in the Democratic Party Machinary that Super Delegates have to vote for me Clinton

Hillary I have to win or I will bring down the Democratic Party Clinton

Hillary Deployer of pit-bull anne Who will Overload leading Progressive blogs with long excerpts from Shakespeare and Sweepingly Accuse all Critics of Misogyny Clinton

[ddt]

paine, I'm wondering what you think of stagflation? Seems like your arguments are based on an idea that inflation is always wage based.. which I thought had been sort of disproved by stagflation.

Seems to me that inflation is not really in the jobblers interest unless they are getting raises, and by and large they are not these days.

[ddt]

wow guys

relax... this post isn't even remotely related to Hillary

[anne]

"Hillary I deserve to be president because uneducated white folks in West Virginia prefer me over that black man Clinton."

Vile sexist lying monster.

[paine]

stagflation
quick and dirty answer:

a feint hearted job recession
engineered by credit policy
not sharply contractionary enough
to wring the unacceptably high
trend rate of wage inflation
out of the economy

result for society at large
an increased secular output gap
and a forstalling of capacity exspansion
ie
a system that must operate
at seriously reduced macro speed
because of the threat of first
over tight job markets
and eventually
a vicious stagflation

the whole cycle
is obviously
a key registration
of the sub optimality
of our present system
of corporate exploitation

we remain
despite "good will " on all sides
hopelessly entwined
in deeply embedded class contradictions

[Mikko]

Inflation is a monetary phenomena. Or at least one type of inflation is.

Consider money as a commodity as everything else, just it's value to people is that it is easily exchangeable to other goods. Increase money supply more than increase in production means money is less scarce and its value will go down.

One reason why US has been able to expand its monetary base without significant inflation is that foreign banks have been accumulating all those dollars in their vaults. What happens when you continue increasing the supply and those banks will not take the surplus?

The amount of money in circulation increases, and at the same time the economy is not expanding, so the only choice becomes that some things become more expensive (compared to money).

Increasing money supply is a tax on everyone who owns money.

You don't have to be austrian to understand such a simple thing.

[paine]

mikki clear so far as you go

but ...this !!!1

"You don't have to be austrian to understand such a simple thing"

ahhh but have u understood enough ???

various firms in various market structures
with various commodity types
produced and /or sold in them
form their prices how ???....

that is not a simple or well enough modeled
set of processes

and inflation is about the pricing processes

the marvel of smplicity
the cantillon-hume theory of money
though extendable past commodity money
to pure credit money
still has no "built in " adequate model of price formation

[Barack "Da Man" Obama]

Hillary gonna lose. Belie' dat.

[anne]

What is evidently beyond understanding of some, for some bizarre reason, is that all that matters is the intense disdain for Hillary Clinton that supposed progressives or liberals have shown these many months. I come on the disdain continually and am simply driven further away from the disdainers.

So be da-this and da-that, but know that I understand the politics of intimidation and will neither be intimidated or supportive of intimidators. Da, da, da, deeeee.

[Barack "Da Man" Obama]

Anne, you don't support me because you don't like my kind. You are a racist, and Hillary Clinton is too.

That's how I see it.

[anne]

"----, you don't support me because you don't like my kind. You are a racist, and Hillary Clinton is too."

Again, what is always but always important is to attack and destroy Hillary Clinton. There is the issue, nothing else counts but to harm Clinton is any possible way. I understand completely, so please do continue the attacks.

[anne]

Interesting about the pretense in identity, in many ways.

[Barack "Da Man" Obama]

What's so great about Hillary?

[anne]

Actually I like both Democratic candidates, and I like the idea of a tough extended primary period for allowing as much policy definition by candidates as the press will permit. Paul Krugman pointed out repeatedly in 2000 and 2004, how little policy discussion there was in the press. To my surprise, analysts early on in this campaign would dismiss the need for policy definition but the toughness and length of the campaign has given us definition.

[anne]

Possibly more than can be expected after the nomination, both Obama and Clinton have had to set down policies that will make the nominee, who will be Obama, less inclined, even less able, to shade to Republican interests simply for the sake of polling more favorably. Since change has become the theme, then we have a sense of change from and to what that voters will find clearer no matter the press than in 2000 or 2004.

Obama forced Clinton to become more of an anti-war candidate, which from my many perspectives was essential, while Clinton has forced more policy definition from Obama and my worry about Obama has been too little definition from health care to the Middle East.

[anne]

From the perspective of temperament, I have never had a complaint with Obama. The only complaints being policy, and wanting more of recognition of middle class economic needs and always a softening on international affairs from the current American stances. Clinton lacks Obama's polish, but she has been the only woman in our history to be a viable Presidential candidate and simply refuse to allow being treated in any way adversely as a woman be a deterrence. Obama has been just as determined, and similarly offered a chance to vote for a viable African American candidate who looks to be the nominee.

[anne]

Were the campaign to continue to the convention, I would not be the least disappointed though we understand the advantage of Obama. Continuing may be important, simply for Clinton to show that a woman can be President, really can be. Why should she have stopped campaigning months or weeks ago or stop now?

There were voters, simply Puerto Ricans, who were able to think that the Commonwealth matters and our support matters. I like that. I like a Puerto Rican woman being able to vote for Clinton, or Obama, but to know finally there is a primary for us unlike any other in our history and candidates unlike any other in our history.

[anne]

Had Clinton won in Iowa, I cannot imagine wanting Obama to leave the race. Were the situation reversed, I would want Obama to be campaigning just as hard as Clinton. Edwards had fine ideas but never reached the people Clinton and Obama reached, though I would not mind having had Edwards around longer as well.

What I like about Clinton is ideas and courage, and I Obama the same for the matter.