The effects of price increases and wage stagnation: a preview for the US?

Posted by $ blarman 9 years, 11 months ago to Economics
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Japan faces deflation, but are coupling their economic woes with tax increases on businesses, who, in turn, pass those increases on to consumers. The overall effect is price inflation without real economic growth.

Sound familiar? If not, this is exactly what has been happening in the United States because of bad policy. The one thing Japan has going for it, however, is that at least they aren't racking up deficit spending as if it were a fire sale.
SOURCE URL: http://www.japantimes.co.jp/news/2014/04/14/business/higher-prices-risk-abenomics-backlash/#.U02hkleJT1G


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  • Posted by CircuitGuy 9 years, 11 months ago
    I'm always skeptical of analyses that say, "We have inflation, which means the prices of almost everything you buy goes up. The only exception is whatever goods and services YOU the reader happen to produce and sell. Those things won't tolerate a price increase." It obviously doesn't make sense b/c everyone works in different industries, so it makes no sense to tell everyone that whatever they produce won't tolerate price increases but people who produce everything else can raise prices without losing sales.
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    • Posted by $ 9 years, 11 months ago
      Taxes aren't necessarily the same thing as inflation, but they definitely lead to price increases. If those price increases are across the board, then what you are doing is establishing a new minimum wage level needed to maintain purchasing power, i.e. inflation.

      Government should be VERY careful about instituting taxes because as you point out, rising prices affect demand for those goods, which in turn affects production and can become a vicious cycle.

      Whether or not the price increase comes out of the pocket of the consumer (the tax is passed through) or the manufacturer (the tax comes out of earnings), either way it is going to hurt someone. Companies operating on smaller profit margins have less money with which to offer raises or pay for benefits. Customers who have the same amount of money to buy more-expensive goods see their purchasing power decrease which leads to a drop in quality of life and fewer market transactions overall.
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      • Posted by CircuitGuy 9 years, 11 months ago
        I agree that taxes take away money you have to spend and they cause you to need to earn more to have the same spending power.

        I don't agree that taxes cause inflation. I think they actually discourage inflation, but not in a good way. Either way, we agree taxes on families and individuals reduce their purchasing power.
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