There wasn't a whole lot of chatter about sluggish productivity in the mainstream financial press, but in his recent podcast, Peter Schiff pointed out that it could have significant ramifications for the economy - and on your pocketbook. If you're counting on productivity to keep a lid on consumer prices, you have a big problem.
"That is the only way to keep prices from rising when you're creating all of this money is to have an increase in productivity."
As Peter pointed out, rising productivity doesn't prevent inflation. It merely masks it. Most Americans don't understand what inflation actually is. In fact, the mainstream has effectively redefined the term, as Ron Paul explained during an episode of his Liberty Report. Peter provided a succinct explanation of inflation during his podcast.
"Remember, a lot of people think that inflation is what happens to prices. It's not. Inflation is what happens to money. That's where the word comes from. Inflate means to expand and prices don't expand. Prices go up, prices go down. What expands? The money supply. It expands during inflation, it contracts during deflation. A result of an expansion of the money supply inflation is that prices tend to rise. But they might not rise. If productivity is rising faster, prices might not go up at all."
So, even if increasing productivity keeps prices from rising as fast as they would during an inflationary period, it still harms consumers because they could have benefited from even lower prices.
"If inflation robs you from the benefit of increased productivity, that's still an inflation tax. This is still harming the economy. But the modern day bankers and Wall Street - everybody - they're only worried about inflation if it makes prices go up, not if it prevents them from going down, although now they actually want inflation to make prices go up. They just don't want inflation to make prices go up too much. In fact, if inflation doesn't make prices go up enough, that is supposedly a problem, right? Inflation is too low. That's what's been fueling a lot of the monetary policy."
- Source, Seeking Alpha
