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Who: Kimball Corson. Text and Photos not disclaimed or that are obviously not mine are copyright (c) Kimball Corson 2004-2016
Port: Lake Pleasant, AZ
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How America Avoids Deflation

24 May 2016 | Pago Pago, American Samoa
Kimball Corson
As I have written, America is dominated by republican supply side policies while what is needed are policies to promote aggregate demand instead. Republicans have it backward. Worse they do not understand that production is limited by demand. Produce more than demand and inventories rise and production must be cut back. At least that is the conventional wisdom.

There is another way, but its sustainability is more limited. It is this: when inventories are too high merchants and producers can cut their prices. Of course that eats into their profits, but it does reduce inventories by increasing demand. If sustained and increased, it can eat through profits down to variable costs and then fixed costs. The compromise of the latter two are not sustainable. Loss of profits is bad enough.

In fact, American commerce does have periodic sales and going out of business sales, but the primary means of controlling inventories to bring them into alignment is to reduce production to the level of demand. But there is another way and I have already alluded to it.

When prices are decreased, so are profits, but as long as there are some profits wide scale price reductions are sustainable, but such price reductions are what creates deflation, a horrible bugaboo in the American economic lexicon.

The desire of producers and merchants to maintain their profit margins is what makes prices so "sticky" to downward adjustment. That is why production and sales cutbacks are the preferred means of keeping inventories in line with demand. Lower prices of course increase the quantities demanded.

This is the primary means America avoids deflation and it is also the mechanism by which we live in a "new lower low" as a consequence of excessive income inequality which constrains demand.

Few understand these matters or what is truly needed are not supply side policies, but policies to increase aggregate demand on the demand side. We are getting it backwards.
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Vessel Name: Altaira
Vessel Make/Model: A Fair Weather Mariner 39 is a fast (PHRF 132), heavily ballasted (43%), high-aspect (6:1), stiff, comfortable, offshore performance cruiser by Bob Perry that goes to wind well (30 deg w/ good headway) and is also good up and down the Beaufort scale.
Hailing Port: Lake Pleasant, AZ
Crew: Kimball Corson. Text and Photos not disclaimed or that are obviously not mine are copyright (c) Kimball Corson 2004-2016
About:
Kimball Corson: I am a 75 year old solo sailor, by choice. However, I did take on a personable, but high maintenance female kitten, now a full grown cat, named KiKiPoo when she is sweet, or KatKatPo after she has just killed something like a bird or bat. [...]
Extra:
Although I was a lawyer and practiced law with good success for thirty years, creating significant new law, I never really believed in the law, the politics of law or in the over reaching self-interest of most lawyers I met. Too much exposure to Nietzsche and other good and seriously thoughtful [...]
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Profile

Who: Kimball Corson. Text and Photos not disclaimed or that are obviously not mine are copyright (c) Kimball Corson 2004-2016
Port: Lake Pleasant, AZ