Cost Pressure and Long-Term Decline

I am always willing to say prices are influenced by the spending we do. That's demand-pull, the always-and-everywhere "monetary phenomenon".

However, I am never willing to let people deny the fact that cost pressures exist. Cost-push forces are just as real as demand-pull forces.

Here's the difference:

With demand-pull, the excess of demand over supply drives prices up. The inflation can be suppressed by suppressing demand and economic growth. Then, when demand returns to normal, the economy gets back to normal.

With cost-push, there is an underlying pressure that drives prices up. Inflation can still be suppressed by suppressing demand and economic growth. And when the inflation subsides, we expect things to return to normal. But as long as the cost pressure exists, the economy cannot get back to normal.

Cost pressure, when it exists, is not necessarily short-lived. The pressure may exist and exert upward pressure on prices for a prolonged period, perhaps decades. This longevity is all the more likely to occur when the consensus assumption dismisses rather than confronts the problem of cost pressure.

Finance creates continuing cost pressure in our economy. This cost pressure arises not from a sudden increase in prices such as we saw with oil, but from the continuing growth of finance relative to the size of our economy.

As long as finance continues to grow, the cost pressure exists. As long as finance continues to grow, the threat of inflation remains, and economic growth declines.