Inflation
A primary and persistent challenge for leaders responsible for guiding national economies is managing inflation, which is the rate at which the general level of prices for goods and services is rising, subsequently eroding purchasing power. This raises two fundamental questions: Firstly, why is inflation so difficult to eliminate completely? Secondly, what strategies and policies can be employed to ensure that inflation remains within a manageable and predictable range, preventing significant economic harm?
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Money serves a key function as a tool for delaying purchases. Instead of consuming goods or services now, you can hold money to consume them later. This concept is known as "deferred consumption." When capital markets operate openly and freely without undue restrictions, the ability to use money in the future comes at a sort of discounted price compared to using it now. This price is reflected in interest rates, which essentially act as compensation for delaying consumption.
The interest rate provides a measure of assurance that the money you save today will allow you to purchase goods or services in the future. Market interest rates are not set arbitrarily. They emerge from the collective knowledge, expectations, and motivations of numerous individuals and institutions participating in the market, all with a vested interest in predicting future economic conditions accurately.
Historically, particularly in economies centered on producing physical goods, when consumers chose to save money rather than spend (deferring consumption), businesses would often see their unsold products accumulate in storage facilities like warehouses. However, this model doesn't apply well to goods that expire quickly, such as fresh milk or eggs. For these perishable items, consumption cannot easily be deferred by storage, meaning consumer spending patterns must adapt more immediately to supply and demand.
To get a clearer view of underlying price trends, economists often calculate "core inflation." This measure typically excludes items with highly volatile prices, like food and energy (oil), because their rapid fluctuations can obscure the broader inflation picture. By removing these unstable variables, core inflation is often seen as a better reflection of the effectiveness of economic policy decisions and provides a more reliable basis for policymakers to act upon. This is partly because factors like oil prices can be heavily influenced by global events or decisions made by other countries, putting them outside the direct control of domestic policymakers.
In many developed economies, technological advancements such as automation and highly efficient mass production have significantly lowered the relative cost of essential goods like basic food and transportation. As a result, a larger proportion of the population in these economies now earns their primary income from providing services (e.g., healthcare, education, finance) rather than producing physical goods. This shift creates a challenge: services, unlike goods, cannot be produced in advance and stored in a warehouse. Consequently, if people reduce their spending on services deferring consumption, it often leads directly to job losses or reduced hours for service workers, as there is no inventory buffer. The situation can also force workers into schedules that clash with family life or personal needs, creating suboptimal working conditions. These economic and social pressures can lead to societal tensions, which are often addressed through various mechanisms like government welfare programs, government spending designed to stimulate the economy as Keynesian grants, private donations of philanthropy, investment in new businesses as startup funding, and community work without pay of volunteering.
Economic downturns in contemporary economies are often characterized fundamentally as a crisis of confidence - a widespread loss of trust in financial commitments, the stability and predictability of interest rates, and the reliability of saving money for future use like deferred consumption.
In modern, data-intensive societies, financial and accounting systems strive to efficiently link consumer demand with the necessary funding for production. Essentially, accounting mechanisms work to connect customers who want goods and services with the producers who can supply them. This dynamic changes traditional financial planning questions, such as the conservative approach of asking "How much money do you need to save for retirement?". A more progressive way of thinking, prompted by advancements in robotics and artificial intelligence, reframes the question to focus on future needs: "What specific goods and services will you actually require in one year, ten years, or thirty years?". Forward-thinking entrepreneurs identify these future needs, secure the necessary investment (raise the money), acquire the appropriate technology (buy the machinery), and build the capacity to meet those anticipated demands. In doing so, they create avenues for individuals to contribute through their work, skills, expertise, or financial resources.
It's likely that services provided directly by people will become comparatively more expensive, especially relative to goods or services produced through automation. The pricing and availability of these human-provided services are often influenced by the scarcity of skilled individuals and their time, creating a competitive environment sometimes described (perhaps loosely) as a zero-sum game. Consequently, assessing workforce needs changes significantly; for example, the question evolves from simply "How many nurses does this region need?" to the more complex question of "What tools, technologies, and support systems do nurses require to effectively meet the population's healthcare demand?".
The text asserts that some Asian nations have already taken proactive steps to address similar long-term economic and demographic challenges. For example, China engaged in extensive construction of housing, anticipating the needs of its aging population. South Korea invested heavily in highly automated robotized factories to boost production capacity for both domestic consumption and foreign demand. Furthermore, the Bank of Japan (日本銀行) historically favored low interest rates as a policy aimed at rewarding productive work with wages and stringent accounting. We are contrasting this with returns from activities perceived as secondary importance to proper accounting or potentially exploitative represented by "volunteers, promises, crypto fraudsters and economic exploitation" of the era. This indicates an ongoing process where different progressive economic strategies are being implemented globally - "The game is on."