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The Ultimate Guide to Inflation

lynalden.com

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Re: The Ultimate Guide to Inflation

#321

Post by bern4444 »

I've believed for a bit of time now that the only real reason for the FED to pursue a 2% inflation goal (and I personally believe inflation is far higher than 2%) is to reduce the US's increasing debt burden over time.

If the debt were far lower and more manageable, inflation wouldn't be as necessary a goal as a mechanism to try and reduce its actual value over time.

As this article discusses a bit, inflation is a great way to rob the middle and lower class of value in a way that the upper class is more able to avoid (though not completely) especially due to lack of wage growth at lower levels.

Or perhaps stated in a different context, the target inflation goal might be very different with a much smaller debt.

Now that the US (and many other economies) are addicted to near 0 interest rates, and with all the increased spending (regardless if anyone thinks the spending is "good" or "bad"), I have difficulty seeing how we can dig out of what appears to me as a bit of a hole even with the potential productivity gains the current spending is supposed to spur.

Raise interest rates at this time, and everyone takes a big hit especially as the US is spending a ton more so that's not really an option anytime soon. Keep them low and the only solution to the next economic downturn is to again spend our way out, only furthering the need to keep interest rates close to 0 (making this a bit of a vicious cycle).

No one knows where this ends (I certainly don't and I think any economist who says otherwise is lying whether they know it or not) but the rising cost of the majority of goods that people spend on (health, education, homes and rent) scares me quite a bit as a young adult looking at the next 20 years as I think about wanting to establish my life despite my own luck in having a high paying career in software engineering.

Re: The Ultimate Guide to Inflation

#322

Post by anm89 »

dnautics wrote: post #207
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.

While most of the article is good, It's really sad that she apes the old refrain that inflation hurts the poor because they are in debt. Many of the poor cannot even be in debt because they have no access to the financial system. Those that do, mostly have access to payday lending. It's laughable to hold the opinion that inflation will do anything for someone who owes 10% on top by next month. For the middle class, i…

I think you are misunderstanding her argument and tbh I don't think anyone makes the claim that inflation hurts the poor because they are in debt. If anything it is the exact opposite. Inflation is a benefit to debtors because they get to pay back principal in devalued currency. That's why a cheap 30 year mortgage is an amazing deal in an inflationary environment

Inflation hurts people who don't have access to debt and who are more dependent on cash and on fixed incomes. This is exactly what Lyn claims here:

> There are, however, some groups in lower income brackets that do poorly in inflationary environments. If someone doesn’t have a lot of money and lives on a fixed income in retirement, they have a lot of vulnerability to inflation. Those sorts of folks should consider owning inflation hedges to protect their lifestyle, if they expect that high levels of inflation have a reasonable probability of occurring.

Re: The Ultimate Guide to Inflation

#323

Post by jbay808 »

MontyCarloHall wrote: post #284
midasuni wrote: post #221

Earlier quoted context omitted.

Top model iPhones have increased price about 15% per year since launch

Yes, and they’ve also improved by orders of magnitude in terms of processing power, camera quality, etc. Today’s top-end iPhone probably would have cost upwards of $10,000 in 2015, if it were even possible to manufacture. As an aside, someone did a back-of-the-envelope calculation and found that the equivalent computing power of a 2014 iPhone would have cost $32 million in 1991: https://www.aei.org/technology-and-inn…

This is a great example, because if Apple had launched the iPhone SE in 2015 at $10,000 alongside their $199 6S, it would have bounced like a bad joke, and probably only a few wealthy people would have bought them.

So in one sense, yes, tech has gotten cheaper, but in another sense there's a limit to how much deflation can really be stated because you can't say someone buying a new iPhone in 2020 is saving $9000 relative to what they would have spent five years prior. They wouldn't have spent it.

There's also a recent inflationary trend in tech, in that old computers actually slow down due to the growing CPU/memory demands of software and web apps to deliver more or less equivalent value to what they used to.

Re: The Ultimate Guide to Inflation

#324

Post by TchoBeer »

mlyle wrote: post #169
TchoBeer wrote: post #149

Earlier quoted context omitted.

If you permit me to be terribly econ 101 about this, if netflix had a perfectly elastic supply curve (because the marginal cost of an extra netflix subscriber is fixed and doesn't increase with high numbers of subscribers) then an increase in demand would lead to an increase in quantity supplied but not an increase in price.

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.

Actually no, even if they face a downward sloping demand curve (which everyone does but I know what you mean) if their supply curve is perfectly horizontal (infinite elasticity) then an increase in demand would still hold price steady and see only an increase in quantity supplied.

Re: The Ultimate Guide to Inflation

#325

Post by TchoBeer »

mlyle wrote: post #193
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…

Thanks, and I understand that... but I feel like you don't understand the context of my reply. Mr. Beer above stated that an increase in demand for Netflix would not increase the market price of Netflix. But because Netflix is a quasi-monopoly, they would be likely to increase prices to find the new equilibrium maximum profit point. That is, he made a microeconomic argument which was invalid-- arguing that because Ne…

>But because Netflix is a quasi-monopoly, they would be likely to increase prices to find the new equilibrium maximum profit point.

That's the thing though, if they have a perfectly horizontal supply curve, then the maximum profit point would move horizontally but not vertically, and price would not increase. This sort of analysis is surely too simplistic, but that's the model.

Re: The Ultimate Guide to Inflation

#326

Post by TchoBeer »

mlyle wrote: post #302
anon98356 wrote: post #264

Earlier quoted context omitted.

My reading of GPs comment was more about the cause and effect of any corresponding price increase, not whether Netflix would actually increase their price in this scenario. For a physical good, if you have a surge in demand as more people can afford you're product you start running into supply issues. This will likely result directly in a price increase as you can't increase profit by just selling more when you don't…

Sure, there's no "force" to increase the price. But finance and marketing wonks read books like "Pricing and Revenue Optimization", and seeing a big upswell in demand are tempted to do the math again and see what the new maximum profit point is if they have pricing power.

If the marginal cost of a new subscriber is 0 then increasing their costs should only decrease revenue.

Re: The Ultimate Guide to Inflation

#327

Post by ClumsyPilot »

treeman79 wrote: post #134
ClumsyPilot wrote: post #123

Earlier quoted context omitted.

Housing prices are not driven by scarcity, they are driven by financialization of our economy. There are multiple cities in England where population has decreased but house prices increased. During lockdown 700k people left London, but house prices kept going up.

Triple the housing supply. Prices will go down.

I keep hearing people reiterating this idea, but can you show at least one example where this has worked, anywhere in the world?

Or is it a case of 'it will work this time', just like communism?

Re: The Ultimate Guide to Inflation

#328

Post by ClumsyPilot »

midasuni wrote: post #222
treeman79 wrote: post #134

Earlier quoted context omitted.

Triple the housing supply. Prices will go down.

Housing supply hasn’t decreased in london, but demand has. Housing costs are driven by what people will pay, which is driven by salary, there’s always an option to not pay for housing in london - housing in Stoke is cheap, and not much further commute from Bloomsbury than say surbiton. Places like Luton are cheap and are a very respectable commuting distance, but people will pay far more for a house in Hackney

What people will pay is not driven by salaries, it is driven by how much bank will lend.

If tomorrow the banks offer a 1000-year loan you can pass on to your children, people will take it and single-bedroom apartments will cost 50 million plus.

Re: The Ultimate Guide to Inflation

#329

Post by animex »

saiya-jin wrote: post #305
lbschenkel wrote: post #276

Earlier quoted context omitted.

Economics is not a subject that I can say that I know anything about, so this is my completely subjective interpretation. I think the problem was that Brazil got into a positive feedback loop, and we had what Wikipedia calls "inertial inflation" [1]. We got this going for so long that everybody internalized the inflation, and expected it, and behaved as it was a foregone conclusion that there was going to be inflatio…

why didn't everybody switch simply to USD? That's some hard cash that doesn't care about some petty Brazil's issues. Anything local in such a situation, no matter how well designed or intended, would be suspicious to me.

“Give me control of a nation's money and I care not who makes the laws.” - Mayer Rothschild

Re: The Ultimate Guide to Inflation

#330

Post by vmception »

OscarCunningham wrote: post #231
vmception wrote: post #48

Earlier quoted context omitted.

For people that want to understand this better: “Print” is a misnomer, as only the US Mint prints paper currency and mints metal coins which is a very tiny sliver of the M0 money supply. So to rephrase what actually happens: “in 2008, the Federal Reserve decided to buy a notional amount of $2 trillion in bonds and debt securities, every time it bought some it created the same amount of new US dollars at the time of t…

> “Print” is a misnomer, as only the US Mint prints paper currency and mints metal coins which is a very tiny sliver of the M0 money supply. If you're going to be pedantic, the Mint only does coins. The Bureau of Engraving and Printing prints the paper money.

Yes, good catch.

More about breaking down exactly how the Fed's digital dollar ledger updates actually result increasing the money supply.

Despite everyone knowing the "printer go brr" meme being just a colloquialism, I don't think people are really clear on what the reality is. It is Just-In-Time creation of dollars upon transaction.

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