On the cause of long-term decline

This item turned up first on my FRED Search results for components of GDP. It looks like long-term decline to me:

Graph #1: Long-term decline of GDP Growth

Long-term decline in the modern economy is the result of cost-push inflation, with the cost pressure provided by the growth of finance.

For the "no-such-thing-as-cost-push-inflation" people:

Yes, inflation of the quantity of money causes inflation of prices. Yes. But there is a causal relationship there: the increase in money causes the increase in prices. Oh, and I wish you would stop using the word "inflation" to mean monetary increase, and use it instead to mean the increase of prices.

We can as a rule say that the increase of prices always has a cause, and that this cause always is increase in the quantity of money. In the case of a war like World War II, a big one, there is a big increase in the quantity of money during the war. The resulting increase in spending causes prices to rise. Prices continue to rise until they absorb all the "excess" money. Then prices can stabilize again.

So now I see a chain of causality: 

• war (for example) leads to printing money
• the increase in money leads to an increase in spending
• the increase in spending leads to an increase in prices.

This chain of causality describes the process that is called "demand-pull" inflation.

With cost-push inflation there is a different chain of causality:

• costs increase
• wages and/or prices rise to cover costs
• prices and/or wages rise to cover those costs...
• the quantity of money is forced to increase, to cover the increased spending.
  

This is just a rough approximation, and the cost pressures may vary. However, with cost-push inflation, the initial problem is rising cost. That is why the inflation is identified as "cost-push" inflation.

People who say "there's no such thing as cost-push inflation" insist that price inflation can only be caused by the increase in money. I have no problem admitting that they are right about that. However, just as I use the word "inflation" to mean "rising prices", I use the term "cost-push inflation" to refer to inflation that is driven by rising cost (as opposed to inflation that is driven by "excess" money). That's just the way it is.

Again: It doesn't mean prices can rise without the increase in the money supply. It is simply a term used to refer to inflation where the initial cause is rising cost and the response creates excess money. Sometimes it does happen that the monetary authority creates money in response to a cost problem. When the prices go up, then, it is cost-push inflation.

The "no such thing" people have to stop interrupting the conversation at the definition-of-terms level or we will never solve the problem of long-term economic decline. From this moment forward, the people who say "there's no such thing" deserve all the blame for allowing economic decline to continue.

Demand-pull inflation is driven by excess money. When people have excess money, times are pretty good: Except for the inflation, times are pretty good.

Cost-push inflation is driven by excess cost. When people have excess cost, times are hard.

Now let me separate "cost-push inflation" into two parts: the cost pressure, and the results. The resulting inflation, again, is due to increase in the quantity of money. I'm not arguing that point. But that's not the problem; it is the response. The increase in the quantity of money is a response to the cost pressure. The cost pressure is the problem. In "Inflation in One Page", Henry Hazlitt explains:

If, without an increase in the stock of money, wages or other costs are forced up, and producers try to pass these costs along by raising their selling prices, most of them will merely sell fewer goods. The result will be reduced output and loss of jobs.

When costs rise, and the quantity of money does not increase enough to meet the rising costs, the result is "reduced output and loss of jobs." And that's according to Henry Hazlitt.

Because the continuing growth of finance creates continuing cost pressure throughout the economy, the "reduced output" noted by Hazlitt has become long-term economic decline. A continuing-cost problem will result in either slowing growth or cost-push inflation, or some combination of the two, depending on the level of "accommodation" provided by economic policy.

Why has there been a long-term decline of economic growth? Because of the cost pressure. Cost pressure leads to reduced output and loss of jobs. And again, in our era the cost pressure is created by finance. 

This is the Arthurian argument.