John Maynard Keynes theorized and explained the necessity of aggregate supply/demand equilibrium, the Fed messed it all up and now you’re all screwed up with Higher Prices for Longer, while producers compete globally by increasing prices and cost of production with the aim of extracting profit margins with higher retail prices, all of which, won’t be sustainable in the long run.

“a proportionate increase of both supply and demand, less consumption, more investments.”

Was that a mistake to exponentially increase the power of purchase, at a time when supply was indeed shrinking to null ? consequences, a permanent shift upward in the clearing of prices, cost of production and wages. Hence Higher Prices for Longer. The only mechanism that allows prices to decrease and converge to a supposed symmetric level, happens only when producers don’t find anylonger any marginal buyer for their products, so producers can’t clear their cost of production and they have to shrink wage costs, at first. producers try to balance out with less output and reduce the variable overhead while firing employees, hence unemployment shows up in various forms, frictional, voluntary and involuntary unemployment.

Another particular feature of involuntary unemployment can be defined when with a small or considerable rise in prices of wage-goods, relatively to the money=wage, both the aggregate supply of labor willing to work for the current money-wage and the aggregate demand for it at that wage would be greater than the existing volume of employment. The Inflationary spiral produces Involuntary unemployment, considering that the demand for workers in aggregate becomes high in function and correlation of high prices. Seems there are a lot of unfilled job vacancies because prices have become Inflated and costs are high, so Producers are illuded that more workers aggregate supply could lower costs or at least increase output. But it won’t work, simply because the level setting of price in terms of cost of production, cost of commodities for producers, and cost of consumer goods has been shifted higher, by a disproportionate increase of money supply. Hence the whole economy has been Inflated. When producers try to shed workers and produce less output to keep the same level of Inflated prices to clear the cost margin of their business, then kicks in the tweaking of aggregate demand, because a rising number of unemployment starts to kick in.

Only at this point, producers recognize that they need to lower consumer prices, in order to find aggregate demand for their products, and therefore stay in business. So the level of aggregate demand and aggregate supply shifts back to the long-run equilibrium level of output. Will we see ever prices declining back down to a certain level? nobody knows, or you can all sit and wait for USDollar hyperinflation.

will prices keep increasing? anything is possible, but the aftermath will produce a much larger financial and economic crisis. an example? more than $ 1.0 TRILLION Dollar in outstanding Credit Cards Consumer DEBT. Consumption goes on in America at very high retail prices, but at what cost for economic stability and financial stability? will these extreme economic and financial imbalances tip over immediately? nobody knows, however imbalanced systems of all kinds, don’t stay in that state for longer, at some point, disequilibrium materializes in economic and financial crisis.


Leave a Reply