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Ask HN: How much of inflation is caused by supply rather than demand issues?

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Re: Ask HN: How much of inflation is caused by supply rather than demand issues?

#61

Post by mariodiana »

some_banker_guy wrote: post #41
mariodiana wrote: post #10

Full disclosure: My understanding of economics is heavily influenced from what's called the Austrian School. On that understanding, we have two main factors that are contributing to the rise in prices. Only one of them is, properly speaking, inflation. Putting the subject of inflation aside for the moment, the first cause is the destruction of capital. Capital destruction, which broadly speaking includes our ability…

I think this is slightly misguided, the cost of shipping was what exploded (see link below). It wasn't really a capital destruction as much as logistical issues/spill over from coronavirus. https://www.freightos.com/freight-resources/coronavirus-upda... I've seen so much discussion and threads being overly reductive about inflation, essentially the end prices of goods are a function of their inputs and the competitio…

I think you're right, and I corrected myself (before I saw your post) in answering a question to my original post:

https://news.ycombinator.com/item?id=35263238

Logistics got screwed up, I agree. And the increase in the costs of transportation impacts everyone else's calculations and ability to produce. Your chips and cars example is excellent, by the way.

Re: Ask HN: How much of inflation is caused by supply rather than demand issues?

#62

Post by voldacar »

mariodiana wrote: post #57
voldacar wrote: post #19

Earlier quoted context omitted.

Can you elaborate on capital destruction? Who is destroying capital and why?

Thank you. I don't think I was being careful in my phrasing. By capital, I'm referring to the actual machinery and so forth used for production. Also, I expanded on that idea (as I noted) by including transportation, considering transportation to be, broadly speaking, involved with production and contributing to its cost. But, as your question points out, I'm not really talking about destruction so much as I am about…

So by capital destruction you're referring to shutting down large sectors of the economy due to the coronavirus? Or was this already taking place before 2020?

I didn't think you were referring to a conspiracy. I just didn't know what you meant, since if you have capital, it's not really rational to destroy it

Re: Ask HN: How much of inflation is caused by supply rather than demand issues?

#63

Post by Rury »

It's not one or the other. People looking at this as it's more of a demand issue, or more of a supply issue aren't looking at things correctly. What matters is the ratio of demand/supply. If supply falls, and demand doesn't, this means there's too much demand for the supply, so saying it's caused by too much demand is as equally correct as saying it's caused by too little supply. It's the ratio what matters, not demand or supply alone.

For hyperbole, houses would never sell for millions of dollars, if only 2 dollars existed in the worldwide economy, not even if the housing shortage was so bad that there only was 1 house available in the entire world. People may try as they might, but they'd never get more than the total money in existence (2 dollars). Ergo it's entirely possible to make a money shortage worse than any "supply" shortage and force prices down. The Fed controls interest rates, and how many dollars exist, so they do have quite a bit of influence over the situation.

So, yes the Fed does have power to tame the current bout of inflation, but it takes time, and it is blunt. That said, there is a ceiling to how much money they can suck out of the economy, as they have little power to destroy dollars physically hoarded by people with no debt, or lost in a roadside ditch somewhere. But this doesn't matter much, as that money in practice, is out of the economy for the time being, as if it doesn't exist anyhow.

Re: Ask HN: How much of inflation is caused by supply rather than demand issues?

#64

Post by refurb »

KingOfCoders wrote: post #31
refurb wrote: post #7

Fuel prices have skyrocketed in the past with little impact on inflation. I think one could argue they exacerbate inflation - rising prices can trigger more price increases, but in the end its money supply that drives an erosion of the value of currency.

When fuel prices in the 70s skyrocketed, so did inflation (talking about Germany where the Vietnam war/gold standard was not a factor).

When oil prices went from $86/bbl in 2007 to $176/bbl in 2008, inflation went from 2.5% (2007) to 3.7% (2008), which was within "target" for the fed.

Oil peaked at $108/bbl during Covid, and that's not inflation adjust. You can't tell me that when oil prices doubled in in 2008 and no inflation happened, that oil prices drove inflation now when it went up far less.

Like I said, supply constraints can drive inflation when there is excess money supply. But without excess money supple, the inflation impact of supply constraints is muted because, well, there isn't the money to feed demand - consumption just drops.

Re: Ask HN: How much of inflation is caused by supply rather than demand issues?

#65

Post by NeuNeurosis »

Great observation and interesting timing. Your post was right after this article was posted. https://news.ycombinator.com/item?id=35260210 https://annpettifor.substack.com/p/banks-as-collateral-damag... The author actually touches on your point of supply side commodity speculation causing inflation instead of wage increases. She does an adequate job of putting into words the flip side of the coin where by raising interest rates and taming inflation it puts a real deflationary effect on wages. This is to satisfy a small group of creditors over the larger group of debtors. Its an interesting read and leaves a lot unexplained but I think captures the heart of the matter.

Re: Ask HN: How much of inflation is caused by supply rather than demand issues?

#67

Post by BigCryo »

comte7092 wrote: post #22

Keep in mind that this forum is very competent when it comes to software discussions, while tending to overstate its economic knowledge. To your question: what it comes down to is that the fed is charged with managing inflation and unemployment. Regardless of the effectiveness of their tools, they are required to do what they are able to do. With that in mind, it’s possible that there is a better course of action. Pe…

Yeah maybe we need to leave these sort of high level discussions to experts and the media... Ordinary people don't have any business discussing these issues because they don't have the expertise and the credentials

Re: Ask HN: How much of inflation is caused by supply rather than demand issues?

#68

Post by comte7092 »

jerf wrote: post #48
Atlas22 wrote: post #46

Earlier quoted context omitted.

I don't think they were claiming that academics are responsible for politicians behavior, rather that politicians often use academic work with little to no understanding of it and/or as an excuse to give their predetermined conclusion (increase spending) "expert backing."

This is correct. Economic theories are merely one of a portfolio of reasons to spend lots of money, and not anywhere near the most important ones. Though I would submit that they do have some pretty significant impacts in a couple of particular places, at the Treasury and the Fed. In Congress, of course, it's probably all but irrelevant except as which fig leaf some more sophisticated ones may reach for.

If I handed a lit match to a toddler, I’d consider myself responsible for what happened next.

Re: Ask HN: How much of inflation is caused by supply rather than demand issues?

#69

Post by ted_bunny »

BigCryo wrote: post #67
comte7092 wrote: post #22

Keep in mind that this forum is very competent when it comes to software discussions, while tending to overstate its economic knowledge. To your question: what it comes down to is that the fed is charged with managing inflation and unemployment. Regardless of the effectiveness of their tools, they are required to do what they are able to do. With that in mind, it’s possible that there is a better course of action. Pe…

Yeah maybe we need to leave these sort of high level discussions to experts and the media... Ordinary people don't have any business discussing these issues because they don't have the expertise and the credentials

The best thing about economics credentials in the US is that the process to earn them isn't ideologically gated

Re: Ask HN: How much of inflation is caused by supply rather than demand issues?

#70

Post by mhuffman »

comte7092 wrote: post #22

Keep in mind that this forum is very competent when it comes to software discussions, while tending to overstate its economic knowledge. To your question: what it comes down to is that the fed is charged with managing inflation and unemployment. Regardless of the effectiveness of their tools, they are required to do what they are able to do. With that in mind, it’s possible that there is a better course of action. Pe…

My education is in economics and finance. I just happen to have also programmed for a long, long time. The first thing I would say is that economics is as slippery as nearly any other social science. So no one really knows what will and will not work in macroeconomics because even when they try there could be many convoluting factors to make a reasonable assessment of what actually happened.

>Personally I find the arguments of MMT to be strong. This forum has charactered the theory as an excuse for profligate spending, however, the actual proponents simply state that budget deficit are ok so long as inflation is under control. Therefore, the theory would posit that the actual resolution to this would be to shrink the deficit spend in order to properly tame inflation.

My problem with MMT is the same problem I have with all political economic schemes in the US ... it goes to those that already have it. We already know one thing that does seem to work in a lot of places -- if you have a prosperous middle class, your economy starts booming for everyone! This makes plenty of sense. If wealthy people get money they buy financial or hard assets. If anyone else gets money they tend to (or have to) spend it. It is that churn of money between people that makes an economy really work out. I fear that MMT would just be a debit card for the wealthy with a veneer of helping the middle class or poor. We got a bit of an example with the Covid loans and hand outs. Nearly all of that money ended up in the hands of the rich ... even the money that was given directly to the poor, it just took a few months.

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