How come inflation is built into the US economy? It has been at least

[raccoon]

since the end of WWII. In previous decades, prices rose, sometimes they fell. But there wasn't this steady uphill climb of inflation that there has been for about the last 60 years.

See http://en.wikipedia.org/wiki/Image:US_Historical_Inflation.svg for a chart of US historical inflation.

[enki23]

1. err..... you know that graphic only goes back to the turn of the century, right?

and most of the the region where "prices rose, sometimes they fell" was known as "the great depression."

just, you know, for some truth in advertising. you might want to take a google university class on "deflation" and "deflationary spiral" before going off on this one.

[raccoon]

2. Yes, I know it goes only back to the turn of the 20th century. I couldn't

find one that went back further.

I've seen stats indicating that in the 19th century there was price fluctuation but not a steady upward trend as there has been in the past 60 or so years.

[ProfessorGAC]

5. The Velocity Of Money Was Too Low in the 19th Century. . .

. . .for any meaningful comparison to the 20th. In fact, it's really hard to make valid comparisons, without using some normalizing techniques of the current era to anything before the advent of wire transfers as common banking or billing operations. (Say prior to 1960.)

In fact, your premise is flawed in that as the number of people with discretionary income goes up, and grows at a rate that is barely under gains in productivity, prices will rise. Companies raise prices when they raise wages because even socially responsible companies don't want the profit margins to fall. They at least want them to stay the same. So if expenses rise, so do costs.

As a result, if one were to run a moving average trend line over any extended period of time, that line with have a positive slope, including all the way back to British mercantilism. Now, like i said, you can't compare that era to this one, but over the period of mertcantilist economics, you'd see the same thing you're seeing in your chart.

The Professor

[raccoon]

6. Good point about the velocity of money. nt

[On the Road]

3. While Runaway Inflation is Generally a Bad Thing

hard money zero-inflation policies are generally good for the rich. A certain amount of stimulus leads to growth, which is better for most working people.

[ramapo]

4. It is part of the growth strategy

Higher wages, higher costs,

Higher costs, higher wages

Higher population, higher costs

Higher costs, higher population

It is a runaway train

[RaleighNCDUer]

7. I'd say it's all about consumer credit.

Putting it very simply;

$1 = 1 bushel of corn.

That's very stable. The amount of work to plant and harvest doesn't significantly change from year to year.

but, if you're buying 'stuff' then when it comes time to buy that corn you have to borrow. If you borrow from the bank, at 4% interest you have

$1.04 = 1 bushel of corn.

If you put it on your credit card, at 15% interest you have

$1.15 = 1 bushel of corn.

The hell of it is, in the end the farmer still only gets the $1 - and since the upward pressure created by the consumer credit economy has to be paid for the actual value of the bushel drops by a commensurate degree, so the farmer's real take is $.96, or even $.85. Obviously he can't afford to take a loss, so he raises his price to make up the difference back to $1. Which then, paid for by credit card, costs the consumer $1.32 a bushel.

Etc. Etc. Etc.