Economists used to argue that inflation (increases in the money supply, and the consequent rise in general price levels) helped to stimulate the economy. But then it became clear that what really worked was strictly unanticipated inflation. If everybody realized that prices would be 10% higher next year, they would allow for it in contracts, lending, purchases, plans, etc. — and so there was no stimulative effect.

In order to goose things, therefore, the inflation rate had to accelerate. Then when folks got used to planning for that, the rate of acceleration itself had to accelerate ... and so forth, ramping up higher and higher derivatives — until the system broke down completely. Likewise, during the dot-com bubble quarterly corporate earnings had to exceed so-called "analyst" predictions ... and then those predictions rose, at an accelerating pace, etc., etc., as above.

The lessons to be learned? Some simple, old clichés are still true. "Fool me once, shame on you; fool me twice, shame on me." And "No tree ever grows to the sky."

(see also TheCancerIdeology (19 May 1999), MoneyWisdom (20 May 2001), PopGoes (19 Jun 2001), BubbleBusters (6 Feb 2002), ... )

TopicEconomics - TopicSociety - 2004-08-13

(correlates: LoLa, 2007-09-12 - Oakview Hill Work, DazzlingDarkness, ...)