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The Ultimate Guide to Inflation

lynalden.com

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Re: The Ultimate Guide to Inflation

#251

Post by refurb »

dlp211 wrote: post #236
refurb wrote: post #226

Earlier quoted context omitted.

The fed is creating money. They buy treasuries with money that doesn’t exist as a way of increasing the money supply.

You mean they are buying assets and thus the money is simply providing liquidity and has tangential value. They aren't just printing it and giving it away, this subtle but significant difference is one of the reasons that money supply and inflation have very little if anything to do with one another.

Yes, buying assets, but basically buying risk-free treasuries that come in inexhaustible quantities. When they make the purchase that money goes directly to the federal government to be spent.

And that money is in competition with others who are buying treasuries, driving down the interest rate (since it’s an auction) and presumably pushing that money to other uses.

So you are right, it’s not “given away”, but it’s a pretty frictionless way for “new money” to enter the financial system. It’s not like the money is put in a bank account and just sits there.

But your point is well taken. There is no “2 + 2 = 4” rule when it comes to money supply and inflation.

Re: The Ultimate Guide to Inflation

#252

Post by karatinversion »

PhaedrusV wrote: post #211

I get the argument from the fed about hedonic adjustments and increased quality of life, but that's not how people measure their happiness. Subjective happiness is how you're doing relative to those around you. The hedonic adjustments are all about objective quality of life. Sure, my resources in my working class midwest neighborhood would be the envy of Louis XVI's court, but that doesn't matter to me when my neighb…

> coupled with the stagnation of median wages

But this is an effect that only appears in real, i.e. inflation-adjusted, wages?

Re: The Ultimate Guide to Inflation

#253

Post by ur-whale »

cerved wrote: post #213
anm89 wrote: post #16

So awesome to see Lyn Alden at the top of Hacker News. She is an absolute genius! If you aren't familiar with her work and thinking I think a good introduction interview is: https://www.youtube.com/watch?v=f_JmGLMjIOk&t=35s Fun fact: She is an electrical / industrial engineer by trade, not an economist.

If she's not an economist, what is it that lends credence to her writing about economics and monetary policy?

> what is it that lends credence to her writing about economics

The fact that she's not an economist.

Re: The Ultimate Guide to Inflation

#254

Post by zby »

127 wrote: post #249

Just throwing this in the air: in the 1970, getting off the gold standard made it possible to take much more debt in varied ways. This probably enabled the rich and the corporations to drain a much larger part of the economy for themselves. Also throwing this in the air: debt might not actually increase productivity unless it's explicitly only used for productive purposes. Even then it seems dubious. The whole argume…

"The whole argument of using debt to build a business smells fnny" - so what is the alternative? Do you believe that equity is the only way to finance a business?

Re: The Ultimate Guide to Inflation

#255

Post by ur-whale »

imtringued wrote: post #246
matheusmoreira wrote: post #227

Earlier quoted context omitted.

> Sometimes to prevent a total collapse, the fed needs to print some money. Endless bailouts paid for by population can't possibly be a sound long-term solution. Maybe it's better to just let it collapse.

Actually, it's the long term solution. The short term solution is to stop all trade deficits and let your country suffer over the long term.

Krugman would be proud.

Re: The Ultimate Guide to Inflation

#256

Post by lbschenkel »

Some personal anecdotes. I grew up during the hyperinflation days in Brazil (80s, early 90s): talking about 60% a month.

People would get their salary and run to the supermarket and buy everything they needed for the month, because if they waited a single day the prices would have changed. A lot of people internalized that habit and still do that nowadays (not in the sense of running to the supermarket, but buying a lot for the whole month).

This was before barcodes, and every item had a price label on it. Supermarkets had people employed full time just to be remarking the items. I remember running to pick up an item on one end of a shelf while the employee was remarking the items coming from the other end, so you could buy the item at yesterday's price.

I lived through 6 currency changes. Usually when prices started being in the scale of millions, the government would announce that in a very short period (sometimes that being next week), there was a new currency with a new name and 1000 OLD = 1 NEW. Until the government could replace all existing bills, the old bills would be accepted as if they were the new bills (at 1/1000 of the face value, of course). Old bills passing through the banking system would be stamped with the name of the new currency and the new value before being put back into circulation.

Contracts like rentals were all indexed: there was a clause saying the price would be corrected every month using the official index that tracked the inflation. Or were pegged to the dollar. This by itself fed into the positive feedback loop that was perpetuating the hyperinflation.

The government tried some bizarre measures to tame inflation. Often they would try freezing all prices, but that was never sustainable for long. The craziest one was probably in 1990 when the government simply froze 80% of everybody's money in the bank for 18 months to reduce the amount of money in the economy. This was a total disaster and even caused many suicides.

In 1994 hyperinflation was finally tamed when the current currency, Real, was introduced. It was the culmination of an ingenious plan that actually worked.

Feel free to ask me more, if you're interested.

Re: The Ultimate Guide to Inflation

#257

Post by ur-whale »

midjji wrote: post #229

Has anyone seen any study or discussion of inflation arbitrage? Not in the trivial sense of if you predict inflation borrow and invest, but in the case of viewing a country as multiple separate markets and there being inflation differences between them, which in turn means there is opportunity for arbitrage? It seems to me like a failure to accept that adjacent markets sharing a currency can have different rates of i…

To do arbitrage, you need velocity and amplitude deltas.

Assuming that inflation has enough amplitude deltas from one region to the next (I doubt that's the case), there is still a great lack of velocity.

Re: The Ultimate Guide to Inflation

#258

Post by atq2119 »

cortesoft wrote: post #197
atq2119 wrote: post #137

Earlier quoted context omitted.

> Normally, an increase in money supply would cause consumer goods to increase in price, since more people are able to buy them This isn't actually true, though it's a widespread belief (quite a number of pundits kept making incorrect predictions after the global financial crisis). Where the logic goes wrong is that an increase in money supply doesn't automatically translate into higher disposable incomes. (And highe…

You are right, not all money supply increases are equal. However, I have thought about this more in the context of proposals around UBI or other wealth redistribution ideas. The common complaint about them is around just what you talk about, that distributing wealth to poor people will increase disposable income and cause inflation from not being able to keep up with increased demand. I wonder how much of that is tru…

FWIW I agree with your thought process here.

Proclamations of certainty around UBI are common, but the only intellectually honest position is that we simply do not have enough empirical data to tell with a useful level of confidence how a UBI would affect inflation.

Also, I believe that the only way to collect that empirical data is to implement a UBI at a sufficiently large scale and see what happens.

Re: The Ultimate Guide to Inflation

#259

Post by agent008t »

panarky wrote: post #187
mlyle wrote: post #169

Earlier quoted context omitted.

If you're going to be "terribly econ 101", note that Netflix is not in a perfectly competitive market and almost certainly encounters a downward sloping demand curve... and that its maximum profit point is not going to be at the point where the most units are supplied and may indeed shift as the demand curve shifts.

Many people speak with great confidence about inflation, the money supply and "econ 101". Most of those with the greatest confidence in their own knowledge are not familiar with the fundamental equation of exchange, MV=PQ. Here, M is the money supply, V is the velocity of money, P is the price level, and Q is the real quantity of goods and services. It's easy to see that if M increases and Q increases the same amount…

Slightly off topic, but talking about absolute price levels does not make much sense to me. Let's say V goes down, because consumers have discovered the value of thrift and are storing cash under their mattresses. Prices then should come down, to reflect the new economic reality, send signals to decrease production etc.

Then, if money is unexpectedly debased, absolute price levels may not change, but they would go up relative to where they should have been. Contracts still end up being distorted. People with cash under their mattresses still end up with their holdings devalued.

I wonder, if one had the task of building an economic system from scratch, if they would come up with the current system or with something else. The current system seems like a mess of patches upon patches, many heuristics, and is not very philosophically sound.

Re: The Ultimate Guide to Inflation

#260

Post by notahacker »

roenxi wrote: post #250
panarky wrote: post #187

Earlier quoted context omitted.

Many people speak with great confidence about inflation, the money supply and "econ 101". Most of those with the greatest confidence in their own knowledge are not familiar with the fundamental equation of exchange, MV=PQ. Here, M is the money supply, V is the velocity of money, P is the price level, and Q is the real quantity of goods and services. It's easy to see that if M increases and Q increases the same amount…

Yeah, but that is redirecting the focus away from the major problem that we face in practice, which is that M doubles and the money gets given to people who didn't earn it. To add insult to injury, they are also usually wealthy and taking extreme risks that destroy value. It doesn't matter if prices double, remain constant or halve. It matters is people can afford more, the same or less stuff. At the moment, the rapi…

It isn't "given" though, it's loaned, or used to purchase an asset (generally a government bond which the government is obliged to pay the holder coupon payments on in future if the holder doesn't sell)
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