Hughesair (Inflection Point)

Retired physician and air taxi operator, science writer and part time assistant professor, these editorials cover a wide range of topics. Mostly non political, mostly true, I write more from experience than from research and more from science than convention. Subjects cover medicine, Alaska aviation, economics, technology and an occasional book review. The Floatplane book is out there. I am currently working on Hippocrates a History of Medicine and Globalism. Enjoy!

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Monday, May 09, 2022

Inflation

 1.181 2022    24.10 Trillio    332,630,000   72453     10% 69.8% wealth   33.1% income

10.418 2010

Velocity of M1 as the product in the Gross Domestic Product (GDP)

The most fundamental economic measurement defines economic activity as a simple multiple of money times the number of times it gets spent in the current time period. When we buy groceries, that money jumps rapidly through many hands: the salary of grocery clerks, the rent on the building, the truckers, the aggregated supplier, the warehouse, the truckers again and finally the farmer. Furthermore, each recipient of a portion of our purchase turns around and spends a portion of their share, thus supporting business productivity at many levels. It comes at no surprise that this market productivity came to a near stop during the COVID 19 pandemic. 

GDP alone fails to reflect the standard of living for a population. Attempting to measure individual economic conditions, economists divide GDP by the total population. That would work if income were more equally divided, but 33% of income and 69.8 % of wealth goes to the top 10% of our population.

Productivity and price along with turnover combine to add to the velocity. Therefore, in the short term, raising interest rates will either raise prices or depress the GDP. (GDP= price x money available)

As a multiple in the GDP, velocity is much smaller a number than M1. (1.181 versus 24.10 trillion) therefore only a small growth in Velocity creates a big growth in GDP. Furthermore, growth in velocity benefits the demand and small business side of the market while increased money supply tends to benefit only the supply side. The Fed’s credit easing resulted in available liquidity to the banks as M2, available to favored big business at low interest but to the working side of the market at high interest. 

Promoting employment, productivity and exchange of goods and services demands local production. Buy American. Block the imports. Such strategy would reverse the drain on the middle class at the expense of foreign profits, big business and banking while increasing GDP and resulting in a more even distribution of wealth and income while all along controlling inflation. 

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