So, I don't have a formal education in economics but I've been trying to untangle the economics implications of Brexit politics. So riddle me this -
With deflationary pressures from low wages due to automation and weak savings after the 2008 crash, as well as the destruction of the personal wealth that most people had in place - my question is, why isn't it necessarily a bad idea to counteract that with inflationary policies such as deporting a number of illegal migrants, pushing up prices and wages in the process, and imposing some low level protectionist measures, such as labeling China a currency manipulator?
I understand, yes, that wages have been taking off at a better pace and there is some wage growth going on right now under Obama. But I'm curious if Trump's policies have the potential, in the short run, to benefit the United States, or could even be beneficial if watered down?
Obviously, massive tariffs would drive up prices sharply and cause an economic shock. I'm more thinking of gradual protectionism and some ways to counteract deflation.
I'm a free trader, but I wanted to ask what would happen. It's probably a dumb question in any case.
You are asking, why would not US want to cause inflation by ensuring that there are fewer goods chased by the same amount of money? Seriously, what do you think will happen, if you have fewer goods consumed in the US? Nothing much - you will eat somewhat less, dress somewhat worse, and be similarly benefited in many other ways. It is a great idea, if you want to consume less, while working longer hours for smaller real pay. I guess, while you are at it, you could also cut an arm and a foot, to make sure your life really improves.
US has no real deflationary problem - definitely, not one caused by "automation". The reason recent growth has been sluggish has to do with the fact that the last recession was, fundamentally, financial - and those things are very difficult to recover from. Still, prices are not falling. Inflation is where the Fed wants it - if anything, the concern there is not to miss an upsurge. In fact, the way the Fed would have to react to your proposals is to start destroying the liquidity that, up till now, has been sucked into the cheap Chinese imports, etc. You would get a nice deep recession as a reward. Wouldn't that be great?
I mean, for god's sake... People dislike deflation not because they hate falling prices, but because deflation results in recessions and, in the end, in lower output and consumption. A suggestion to cut output in order to make sure prices go up is among the most hare-brained ideas I have heard in my life.
