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Have we been thinking about inflation all wrong?

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Re: Have we been thinking about inflation all wrong?

#51

Post by napoleon_thepig »

kkoncevicius wrote: post #21

The best one-sentence description of inflation I've heard is: inflation is a hidden tax on savings. People who save money are hurt the most. It's as if the newly printed money is generated by taking a bit from anyone according to how much cash he/she has stored away.

This assumes that the only possible cause of inflation is fiscal deficit monetization. This is just wrong.

You could have scenarios where the central bank does not change policy but money supply increases because banks are lending more money and therefore using the discount window more.

Also people could expect more inflation in the future, so they try to get rid of cash faster to buy goods. This increase in money velocity will also increase inflation.

Re: Have we been thinking about inflation all wrong?

#52

Post by kkoncevicius »

wodenokoto wrote: post #37
kkoncevicius wrote: post #21

The best one-sentence description of inflation I've heard is: inflation is a hidden tax on savings. People who save money are hurt the most. It's as if the newly printed money is generated by taking a bit from anyone according to how much cash he/she has stored away.

The whole point of inflation is to keep people from storing money under the mattress. Savings are to be invested. If investments can’t beat inflation then you have a shrinking economy and no amount of deflation is going to get the wheels turning again. It’s not that Keynesian economists don’t understand that inflation is a tax on money, it’s that they see the purpose and reason for inflation from a completely differe…

Say we trade and I give you an apple. In return you give me a note saying "this note is a proof wodenokoto owns me one apple and can be exchange for one apple at any time". What good does making this note depreciate over time serve, except as a pressure for me to demand you return the apple as soon as possible?

It acts as a mechanism which nudges me to lend less apples overall. If inflation is good, why not ramp it up to 200%? At that level it's clear that nobody would accept money and barter would take place instead. And my thinking goes that it is also bad at those lower percentages, except to a lesser degree. I don't see how it can suddenly turn to positive at, say 10%.

Re: Have we been thinking about inflation all wrong?

#53

Post by kkoncevicius »

jbluepolarbear wrote: post #46
kkoncevicius wrote: post #34

Earlier quoted context omitted.

The things is that markets adapt but lag behind. For a while the old prices are still in place while the money is being printed. Then, slowly, the market "notices" that the amount of money increased so the prices readjust. While the prices readjust - everything becomes more expensive. Your haircut is more expensive - so the hair stylists salary catches up. Your bread becomes more expensive so the farmers that produce…

That’s not true at all. Salaries aren’t increasing at the same rate that food, goods, and services. Stuff gets more expensive at a greater rate than wages increase.

That's relative. If food gets more expensive - that money goes to someone, someone who is producing or selling food. Prices cannot increase without someone at the same time making more money.

Re: Have we been thinking about inflation all wrong?

#54

Post by AnimalMuppet »

TameAntelope wrote: post #17
jhawk28 wrote: post #7

Earlier quoted context omitted.

If anything it increases inequality. It hurts the poor the most. The wealthy are more immune because they will have their wealth in things that go up with inflation. When it is caused by the government spending more than it takes in, it is effectively a hidden tax. NONE of these things are new concepts. Even the belief that the inflation won't hurt is new. Many other societies have blindly thought they were immune un…

The article's point is that it doesn't hurt the poor as much, because more poor people can find jobs, pay off their loans more easily, and they do make more money. Not to mention that the price of everything isn't going up a single number -- poor people can adjust their spending to account for the items that reflect the highest inflation, and focus on the goods that are least effected. The article isn't suggesting th…

But the article is wrong - it does hurt the poor. The reason is timing.

Prices go up. Then, later, wages go up. That time gap is hard on poor people. The poorer they are, the harder it is.

Re: Have we been thinking about inflation all wrong?

#56

Post by scottiebarnes »

sneeze-slayer wrote: post #33

Rampant inflation is a problem. The inflation seen now in many places is not quite there. 7% is higher than we would like, but if the alternative is to have shrinking GDP and massive unemployment, I would rather have some inflation. In the US at least, a lot of the raise in the US CPI is due to rising energy costs (predicted months ago due to cold winter in Asia), used and new cars (the infamous chip shortages), and…

> but if the alternative is to have shrinking GDP and massive unemployment, I would rather have some inflation.

This is the general problem with central banking.

Politicians and governments will ALWAYS take action to "save the economy", whether that is a small downturn or a big one. There's too much pressure to not use the magic money printer. Short term election cycles incentivize everyone to just fix the problem as fast as we can, future consequences be damned.

You can get away with it in the short term, but over a long enough time horizon, you start to run out of bullets, as all the real value has already been plundered.

The US Federal debt is currently $30 trillion USD. This is never getting balanced, ever. There's only one possible eventual outcome with this system.

Re: Have we been thinking about inflation all wrong?

#57

Post by jbay808 »

When it starts to get really burdensome to keep your promises, the idea of breaking them gets really attractive. But that doesn't come for free. It costs credibility.

The cost of central banks breaking their inflation-control commitment when inflation starts running hot, is that the market starts pricing in their unwillingness to raise interest rates. This fuels a whole bunch of other inflation feedback loops, and then before you know it, the central bank wants to get inflation back under control again. But now nobody believes that they'll do what they say they're going to do, so they end up having to work twice as hard.

If your goal is stability, it's better to just keep your promises to begin with.

Re: Have we been thinking about inflation all wrong?

#58

Post by ccuqui »

Inflation is the direct result of governments printing money like crazy to hide why they spend money like crazy and continue to be extremely inefficient and corrupt instead of cutting expenses and becoming more efficient and leaner. And it mainly affects the poorest in society. How can that be good?! Don't take my word for it: see what is happening in Argentina, Venezuela, Brazil, etc and then decide for yourself how "good" it is to live in a country with high inflation rates...

Re: Have we been thinking about inflation all wrong?

#60

Post by jbluepolarbear »

kkoncevicius wrote: post #53
jbluepolarbear wrote: post #46

Earlier quoted context omitted.

That’s not true at all. Salaries aren’t increasing at the same rate that food, goods, and services. Stuff gets more expensive at a greater rate than wages increase.

That's relative. If food gets more expensive - that money goes to someone, someone who is producing or selling food. Prices cannot increase without someone at the same time making more money.

That money doesn’t go to the people that need it. It goes to fuel, shipping, taxes, etc. the person stalking the shelves gets nothing, the person that works at the gas station gets nothing, the person on fixed income gets nothing, and on and on. Inflation only helps the top and the bottom gets recked.
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