United States 4-week average jobless claims have increased to 240,000 from the previous 238,000, indicating that the U.S. economy is slowing the pace of hiring while the marginal profitability of American businesses shrinks.
Price Stability is a Total fallacy and an Economics misnomer in practicality
The aim of Central Banks for price stability is a controversial and frequently discussed topic. Academics have debated for decades about the viability of inflation targeting and whether 2.0% is the optimal goal for monetary policy. This question is indeed profound and involves transformative thinking about monetary policy. In fact, Central Banks’ price stability and inflation targeting can be seen as an inherent contradiction within the economic system known as capitalism. The presumption of exponential and constant growth requires the continual increase of prices, which includes the idea of added value. Essentially, capitalism requires growth, and growth necessitates the rise of prices, hence, inflation.
Monetarists and Central Banks aim for price stability, which often contradicts the economic system they are supposed to support, leading to price growth and inflation. Among the many unintended consequences of the instability in the free market capitalist system is unemployment. This occurs when businesses can no longer increase prices for their output or cannot find buyers at their required clearing prices. Consequently, businesses and multinationals lay off workers and halt hiring because their products do not sell in the necessary quantities at retail market prices. To match the declining aggregate demand, businesses reduce their output and, as a result, shrink their labor input.
When prices continue to rise, central banks often miss their inflation targets and price stability goals, which are typically set around 2%. Despite rising prices, employment levels may remain stable. However, when prices reach unaffordable levels and ordinary people become heavily indebted with consumer credit, prices begin to decline towards the central bank’s price stability target. This decline often comes at a cost: increasing unemployment and layoffs, as businesses struggle to operate in an environment of price growth and inflation.
The Federal Reserve faces a significant economic contradiction. To achieve economic growth and full employment, it often fails to maintain price stability, leading to out-of-control inflation. Conversely, to achieve price stability and keep inflation around the 2% target, the Federal Reserve may fail to achieve full employment, as maintaining price stability often requires large-scale unemployment.
The global economic system and monetarism, as enforced by central banks, are in profound theoretical and practical contradiction. The foundations of the global economic system and monetarism are built on contradictions that manifest in periodic economic crises. These economic and monetarist structures are not based on solid epistemic concepts, axioms, and foundations but are instead rooted in intrinsic and idiosyncratic contradictions. Achieving one objective often requires neglecting and failing another.
The word “crisis” originates from the Greek word “κρίση,” which means a paradigmatic change in observing and understanding the real, concrete world. When such a crisis occurs, it necessitates a profound shift in thinking to comprehend the changes and events. Unfortunately, the economic system and monetarism have never been intellectually equipped to recognize the need for a paradigm shift to understand the real world. Instead, capitalism has continued on an idiosyncratic, destructive path, leading to economic crises and social instability.
