July 1st, 2008


Inflation or not?

Buffett vs. Bernanke: The inflation showdown (CNN Money)

Buffett sees inflation in the broad rise of prices, but Bernanke calls this a "relative price pressure". Strangely enough, I largely agree with Bernanke so far. The problem is since the primary scarcity is in oil, it feeds into everything that is made of oil (nylon, plastics, various chemicals, parts of the electricity supply) and everything that is made or moved with oil as an energy source. So almost all everyday objects are affected. In addition we have a separate scarcity on some staple foods.

The test will come with wages. If wages rise, we do have an inflation. Labor is actually less scarce than it was a couple years ago, so the relative price of labor - that is, wages - should fall. This is also the only viable scenario in the long run. The only solution to a scarcity-induced price rise is less consumption of that resource. If people keep the same standard of living, they will - practically by definition - keep the same consumption. In that case, the price will have to double again, and we have a classical inflation.

How about the capitalists? As commodities (roughly, raw materials) become more expensive, and people don't have more money, factories and wholesalers and retailers all hesitate to raise prices correspondingly: If they do, they will sell less. On the other hand, they cannot sell at a loss, at least for long. So profits are also squeezed. This causes an automatic, non-politic redistribution of money from capitalists to workers. This happens automatically in each downturn, it is just so long sice we've had a real downturn so people have forgotten and thought it was an inherent part of capitalism to suck the workers dry. What actually happens is that capitalists work as a buffer. In good times, they absorb excess money; in bad times, they lose money. If the downturn lasts as long as the boom did, there will be precious few geese left for Obama and his friends to slaughter.

The important thing right now is for policymakers to keep calm. This, unfortunately, has always been their weakest point. The Great Depression of the 30es did not come mainly from the stock market crash in the late 20es, but from the panicky reactions of governments afterwards. Economists know a lot more today than they did back then, but politicians... not so much. They are after all more similar to actors than to scientists. With economists it is the other way around.

Solar power factory. With robots.

First U.S. solar power plant factory goes online (CNN Money / Fortune)

This is not a solar plant. This is a factory making solar plants. With robots. (Of the non-sexy sort.)

Disgusting quote: "However, the future of those jobs – and billions in future investments in renewable energy - hangs on whether Congress extends a crucial investment tax credit that the solar industry and utilities are relying on to make large-scale solar power plants competitive with the carbon-spewing variety. The investment tax credit expires at the end of the year and several attempts to pass legislation extending the ITC have failed despite support on both sides of the aisle."

Uhm, darlings? The price of oil has doubled since those tax cuts were introduced, and natural gas nearly so. This means a goodly number of your competitors are left in the dust. Coal is also being bought faster than it can be transported from the mines, so I think 30% price hike is not unlikely. That means if you cannot compete without 30% tax cuts, you could not have competed in the first run, and the whole project was a scam to get at taxpayers' money. You should probably not say that out loud.