What About the Benefits of Inflation?

All the media attention to Inflation is given Inflation a bad reputation. Yes, Inflation can be bad, but it isn’t bad by default. It’s a lot like Intelligence. Depending upon how high or low your Intelligence rating is there are favorable and unfavorable aspects of what implications that ‘score’ has for numerous situations and areas of your life. [Note: In comparing Inflation to Intelligence measures, it is critical to know that they have an inverted evaluative relationship. A high Intelligence score is viewed favorably while a low Inflation score is favored; and vice versa. There are other attributes between the two concepts which are not as easily aligned, such as there is no ‘negative’ Intelligence score except perhaps for politicians, but you can have negative Inflation: aka Deflation.]

So, how can increasing costs ever be a good thing? Is the media involved in some duplicitous effort to prevent the public being duly “informed” about the issues related to Inflation? Is the Financial industry and companies avoiding these aspects of Inflation because they have their own financial interests in the public’s perception that when you hear “Inflation” it only means bad things? What about the nation’s economists, have they somehow been drawn into a conspiracy of silence?

No, it’s just that the benefits of Inflation are often longer-term effects and some of the benefits occur and no one mentions or associates the fact that Inflation played a role in delivering the benefits. Another factor is that the negative side can often occur rapidly and have an immediate impact upon individuals’ lives and financial circumstances. There is a behavioral economic phenomena: Loss Aversion, which illustrates a disconnect between actual human behavior and the ‘rational’ consumer of classic economic theory where the value of a loss is greater than the value of the cost of the item that would be lost. The logic of cause and effect and the perception of value are not reliable facets of real-world economic operations. The benefits of Inflation suffer from both the missed or diminished attribution of “cause and effect” and the proper perception of the value that can be derived from it. To contort a well-known quote: “This Inflation is not the one you are looking for.”

In looking at Inflation, we see a rise in price. We don’t always know why the price increased but there is always at least one reason sometimes several. But let’s step back and look at the big picture. Somewhere in the process(es) that make the product/service that you are buying there is something that is causing the cost / price relationship to change. The thing that changes may be the cost of the material it is made from. It may be the cost of the workers who produce the material, fabricate the goods/parts that it is made of, or assemble it into its final for sale product. It may be the cost of fuel to run machinery or transport the goods, even the capacity of shipping ports or trucks, or to keep them at the right temperature. Let’s call theses causes: Type A – Supply Issues.

At this point, you know that there is another Type coming. Prices can also go up because you can make more profit if you charge more. In basic economic theory this a consequence of the supply-demand model. When demand increases and supply doesn’t increase to meet it, suppliers raise their prices because consumers will pay. This ‘scarcity’ effect can be due to there literally being no more of the supply available or that the ability to product more supply is limited by some part of the process which creates the product. You can’t grow more of the annual apple crop this year no matter how much demand there is for them. It doesn’t matter what caused the apple crop to be limited or the demand to be what it is. There is only what there is. Each apple becomes more valuable as long as consumers will keep paying more. Type B – Scarcity.

If the conditions are right, the supplier can raise the price just because they believe they can make more profit at the higher price. This only works if there is insufficient competition that the consumers are aware of.  Type C – Lack of Competition.

These different types of supply conditions create the necessity or opportunity for Inflation. And they also create the opportunity for how Inflation can produce benefits. With increased prices there are openings for someone to seize an opportunity to address one of the ‘causal’ conditions which creates a counter-response to the side of Inflation that we don’t like. Investments can be worth making in infrastructure or in production facilities, new fuel options can become cheaper than older ones, farmers can choose to plant more apple trees or to increase yields via new varieties, and entrepreneurs may enter the market and produce the equivalent or better products at lower prices. And the opportunity that Inflation creates may focus investment in research and innovations that alter the market for the product from marginally to completely out-competing it and replacing it in the marketplace.

Most of these benefits of course are less rapid than the conditions that sparked them; but there is no doubt that Inflation can be and is a significant factor in prompting efforts to counter its negative impacts. Yes, too much Inflation is bad mostly because the systems that have to respond to it are not able to adapt fast enough to avoid disruptions and problems for consumers but how much progress would have never occurred or been substantially delayed because it was too low?

These benefits are, I am sure, of little comfort to consumers today because they only feel the discomfort and frustrations. Perhaps we should consider how much our Consumer-driven economy mimics the answer to that awkward sentiment: “If you want to know what the problem is, take a look in a mirror.”

 

National Debt-Ceiling – The US’s Political Game of Chicken

Last week the Democrats and Republicans came to an ‘arrangement’ (an ‘agreement’ might be the impolitic term to use) to defer the resolution of the 2021 National Debt-Ceiling crisis by two months until second week in December. This means that they effectively increased the Debt-Ceiling sufficiently to bridge that “gap” of time. The problem itself is not really solved at all, it is just “kicking the can down the road” as almost everyone in the media is stating.

However, while Kicking-The-Can-Down-The-Road (KTCDTR) is a very typical political strategy for dealing with an issue that cannot be forced by one side because they control sufficient votes in both houses of Congress or they don’t have sufficient bi-partisan support to pass their decision. Since the Republicans chose what they see as a politically good strategy to improve their 2022 election campaign prospects, the Democrats cannot easily get approval for increase the Debt-Ceiling. It doesn’t matter that this is a pretty standard item to get approved with bi-partisan support, the Republicans see advantages for them to provide none. This is what politicians do.

While the deferral to December is a described as KTCDTR, a more appropriate analogy for the current maneuver is a game of “Chicken”. Whichever party or sub-group of politicians is trying to gain some advantage(s) in negotiations on the Debt-Ceiling issue, the strategy is basically playing “Chicken”. Whoever blinks, jumps, or calls uncle first loses. Sometimes no one ‘blinks’ and there is no winner and the public receives the “prize” which results from not getting the issue resolved. The “prizes” in the past from not passing Debt-Ceiling increases have not been good for the US or the public. So, the game of Chicken is still very much the right context to consider in the current crisis or the Christmas present crisis that is now to be anticipated.

The Democrats’ problem and thus President Biden’s is that without a couple of Republicans providing support in the Senate, they can’t just pass the increase which has been the standard and very simple solution. The Republicans have pushed the Democrats to the brink and believe they have a win-win situation. No matter what happens, it will be Biden’s and the Democrats fault for whatever happens.

Now, there is a solution for the Democrats, particularly for President Biden which solves their problem. It is a fairly easy solution in fact. That the counter to the Republican’s strategy is easy means that the leaders and members of both parties have done a bad job of problem-solving. The Republicans picked a strategy which is trivial to counter and turn the table on them. The Democrats haven’t been able to solve the problem the Republicans created which doesn’t speak well to their political skills either.

Someone is going to ask, “Well what is the solution, bright guy?” And the answer is that just look at the game. It is a game of Chicken. So that should provide a sufficient context to let you find any of the rather self-evident three solutions that are available. With a little savvy strategic planning, a very beneficial strategy can be had. Whether anyone in the Democratic party can find one of the solutions, we will have to wait and see; but they did not find it the first time around and have had to defer the game of Chicken until December.

Perhaps the solution isn’t so obvious to politicians or political operatives. They may not have mind-sets that are amenable to this type of problem-solving, if any type. Politicians nor their advisers may be all that experienced in strategic problem-analysis or solving. If their obstacle to finding a solution is their deficiencies in the skill-set, competencies, and knowledge for problem-solving methodologies then they may have to resort to the basic method that businesses sometimes use when they are unable to figure out how to solve a problem facing their business; hiring a consultant(s) that can lay out the options and even recommended a particular strategy.

Facebook's Terribly Hard Problems With Very Easy Solutions

Today’s CBS Sunday Morning segment on Facebook’s misinformation risks/dangers presented yet another assessment that there are severe societal problems that Facebooks has not just revealed but which it and other social-media platforms have enabled and empowered. Your piece used the COVID pandemic’s plethora of misinformation as it’s central focal point, but it has long been known that social-media has wrought a wide variety of harmful ills with the ability to spread more easily, broadly and dangerously.

Even the researchers on social-media’s impacts on society presented yet another societal problem which Facebook creates. Facebook may have the ability and right to restrict and block anyone they choose that might be investigating the ills of social-media or of the corporations which provide or profit from social-media but that just adds to an already long list of enabled problems. While Facebook doesn’t deny in total that there are problems with their platform or with social-media in general, they insist that they are working diligently to address and overcome these problems. Facebook also notes that this isn’t easy to do and that they have an obligation to their users, clients, and the business to not engage in censorship or other practices which would be wrong or illegal. Even the researcher talked about how difficult the problems that Facebook is enmeshed are to deal with and solve. This is where I fall off the log.

I am aware that Facebook and other social-media entities have claimed that the problems which are of grave concern or are just seen as minor annoyances are very hard to resolve. They even take credit and pride in stating how much time, effort, and resources they are ‘pouring’ into handling and correcting these problems they are investing. Facebook actually created an “Oversight Board” to monitor their performance in applying their standards and procedures properly, fairly, and effectively to prevent grave abuses by any Facebook users who are violating those standards. Technology experts, journalists, and reports also present assessment of the problems and the technical or business challenges and difficulties that need to be overcome to resolve any given problem area. And of course politicians, who provide no substantive value or comprehension of the problems or solutions to these problems, are also chiming in about the critical, urgent, and responsible need to ‘fix’ these problems. Note: As with anything that politicians are engaged with, there are opposing views of what the problems are since some problems exist only in the ideological views of the politicians as a fund-raising theme.

But what if the difficulties that Facebook, Twitter, YouTube, Google, Instagram, WhatsApp, … and other platforms providers, technology experts, social-media researchers, journalists, politicians, and the public at large are wrong? Is there a Law of Physics which requires that the solutions to the identified ills, abuses and problems with social-media are difficult? Is there some technological capability which is not yet within our grasp or competence to use in resolving these problems? Does the business or profitability model of social-media depend upon the very abuses and problems that the general public agrees need to be dealt with and solved? I suspect that many, maybe most if not all, think that none of the problems have relatively simple solutions or available solution strategies. However, there is no Law of Physics that prohibits this, there is no technical barrier to be breached, nothing about the social-media business eco-system or profitability model requires these problematic attributes to operationally persist. It may be the case that perception is reality in this context but then all that needs to change is one’s  perception and then “poof!” the reality is that these problems can be solve. And, they can be solved today; without a key breakthrough in technology (e.g. some advance in Artificial Intelligence capabilities); without a huge or even significant investment of time, effort, or resources; and without the need to sacrifice one’s business mission or profitability. In fact, solving these issues can be highly valuable to the social-media entities and to their clients and users. There of course may be some who don’t benefit, like politicians who won’t be able to raise campaign funds on these issues or they will not be able to legislate solutions which either utterly fail or make the problems worse.

So, why is it just accepted that there are no good solutions that are available? The answer to this problem may be that no one has asked the rather simple question: “What are readily available methods, approaches, strategies, and options for dealing with the [fill-in-the-blank] problem on Facebook (or any social-media platform)? The COVID Misinformation problem ought to have provided an excellent opportunity to ask this question, and Facebook should have at least one innovative designer or problem-solver who could have presented a dozen or more solutions that could have been and could still be implemented with little difficulty. Social-media experts and researchers should be able to present some insightful solutions. Journalist, reporters, and news media entities should have found someone who can explain the simplicity of solving these issues. I would say what politicians should have been able to do except, well: politicians!

If Facebook is serious about addressing these problems and haven’t found solutions that will work, have they done what any good and well-managed company would do when stumped by a business problem? Have they asked for help?