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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?

#221

Post by DethNinja »

rglover wrote: post #93

When you have to write propaganda about a thing that's long-term been identified as "bad," (with ample historical examples) actually being a good thing, you're being willfully dishonest and in denial. Many here will fight and bicker and kick and scream but Bitcoin is the only solution to the absolute ruin being dangled over the millenial and younger generations (primarily because it disconnects state/human control of…

High inflation rates just after a supply shock will wipe-out the middle class and push most to poverty.

Honestly, I can't believe more people aren't buying Bitcoin at this stage.

Re: Have we been thinking about inflation all wrong?

#222

Post by mring33621 »

nimbius wrote: post #213
jbay808 wrote: post #57

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 th…

absolutely agreed, but the feds also faced with a none too enticing sword of Damocles in raising interest: corporate credit. The fed never acquiesced to its prior commitment to end quantitative easing measures after the great recession of 2008, instead they simply shifted their weight to bond buybacks during covid and shoveled yet more coal into the engines of commerce...the result was a booming stock market during p…

I'm not disputing the whole of your comment, but I don't think "christmas sales languished" was true at all for 2021.

Re: Have we been thinking about inflation all wrong?

#223

Post by cma »

jbay808 wrote: post #169
roenxi wrote: post #153

Earlier quoted context omitted.

> It costs credibility. I enjoy the cut of the jib, but credibility isn't really that important. From memory, Argentina isn't credible. All that means is they have to pretend that they will pay high interest rates before people will lend to them. If the question is "can they pay back all their debts with real value?" angle the US position isn't credible either, the numbers have gotten too large. Doesn't mean much in…

The credibility I'm referring to is: when Jerome Powell says "we have the tools at our disposal to control inflation, and if it persists, we will not hesitate to use them", how much do you update your expectations of future inflation and interest rates? If statements like that start to sound like a bluff and no longer cause you to update your expectations away from high inflation and low interest rates, then the Fed…

They have a dual mandate on both employment and inflation, and have to balance.

Re: Have we been thinking about inflation all wrong?

#224

Post by BitwiseFool »

Avshalom wrote: post #27
djrogers wrote: post #5

It's telling that the vast majority of the pushback on the 'inflation is bad' viewpoint comes from well-off academics, tech folks, and just generally people who are hurt the least by inflation.

I unload trucks and stock shelves at Target. You think my viewpoint about inflation is gonna get published in a way that anyone sees?

There's a viral video going around of a Target employee placing a new price tag on Jimmy Dean breakfast biscuits. Sure it's not getting treated as seriously as an article in the New York Times written by Paul Krugman, but it's arguably having a greater impact than one of his milquetoast columns on the subject. So please, do share what you're seeing.

Re: Have we been thinking about inflation all wrong?

#225

Post by dnautics »

giaour wrote: post #186
tharne wrote: post #150

Earlier quoted context omitted.

> Pretty much anybody who has more current liabilities than current assets can expect to benefit from some degree of inflation Except for the fact that they're getting a pay cut year after year. This is why the general public gets so mad about inflation. Like another commenter mentioned, inflation screws over anyone who works for a wage.

> inflation screws over anyone who works for a wage It can, but inflation affects current assets and liabilities immediately and only depresses wages over time. If inflation was 7% over the course of the year, you now owe 7% less on your outstanding loans (in real terms), while any real wage decrease would be amortized over the course of the year. Assuming inflation occurred at a fixed rate and that your nominal wage…

> the average person just doesn't sit down and do the math for their own situation > Do the math.

Suppose you are poor and are spending 90% of your income on day-to-day expenses. We get 5% inflation and now you are spending 94% of your income on day-to-day expenses. That is a 40% loss of survival margin. Suppose you're really poor, and you are spending 96% of your income on day-to-day expenses. Under 5% inflation, you are now underwater.

Suppose you are rich and are spending 20% of your income on day-to-day expenses. With 5% inflation, you are lose ~8% of your survival margin.

> The median member of the general public is a debtor

Yes, but the poorest don't even have access to credit at all. The guy hanging out in the TL is not in debt. Plus median member of society isn't getting an ultra-low interest rate that is covered by inflation. That is the domain of financialized assets (like forex etc) which mostly benefits the wealthy

> so modest inflation (or high inflation over a short period) is usually good for them

IF their wages catch up. If their wages don't, do the math.

> Deflation, on the other hand, could destroy them.

Why? Because they will have a wider margin of survival? Do the math.

Re: Have we been thinking about inflation all wrong?

#226

Post by diob »

soVeryTired wrote: post #113
mdavis6890 wrote: post #12

The thing to keep in mind is that what really matters is stuff : The goods and services that add economic value to our lives, like shoes, houses, food, sports games, accounting services, haircuts, etc. Also called the metaphorical "pie." Inflation is bad to the extent that it causes the total stuff we produce to go down or to become more poorly distributed, and good to the extent that it does the opposite. And a shri…

In economics, this viewpoint is known as the "classical dichotomy" [0]. IMO it's a bit of a dangerous way of seeing things since it blinds you to some important aspects of the economy. Inflation is particularly hard on people who don't have negotiating power, and in general those people aren't doing great to begin with. While the size of the pie is important, so is the means of distributing the pie and the assurance…

And what's more, the majority, vast majority have no negotiating power.

Re: Have we been thinking about inflation all wrong?

#227

Post by aahortwwy »

naasking wrote: post #194
cool_dude85 wrote: post #171

Earlier quoted context omitted.

Why haven't I been reading this kind of hemming and hawing over the lack of full employment for, oh, the last 50 years or so? The fed has a mandate for that too, but somehow when they didn't manage to achieve it, I never heard about how society is going to collapse any minute now. Only when poor people are making income gains. Strange.

Full employment is not a desirable goal. There should always be some degree of unemployment because it indicates the labour market is actually working, with people moving between jobs, leaving jobs to get retrained, etc.

"Full employment" is not 100% employment. It's exactly what you describe. From Wikipedia:

> Full employment is a situation in which there is no cyclical or deficient-demand unemployment. Full employment does not entail the disappearance of all unemployment, as other kinds of unemployment, namely structural and frictional, may remain. For instance, workers who are "between jobs" for short periods of time as they search for better employment are not counted against full employment, as such unemployment is frictional rather than cyclical. An economy with full employment might also have unemployment or underemployment where part-time workers cannot find jobs appropriate to their skill level, as such unemployment is considered structural rather than cyclical. Full employment marks the point past which expansionary fiscal and/or monetary policy cannot reduce unemployment any further without causing inflation.

Re: Have we been thinking about inflation all wrong?

#228

Post by dnautics »

dragonwriter wrote: post #154
tharne wrote: post #150

Earlier quoted context omitted.

> Pretty much anybody who has more current liabilities than current assets can expect to benefit from some degree of inflation Except for the fact that they're getting a pay cut year after year. This is why the general public gets so mad about inflation. Like another commenter mentioned, inflation screws over anyone who works for a wage.

> Like another commenter mentioned, inflation screws over anyone who works for a wage. At worst, anyone who works for a fixed wage (and even then, the demand dynamics that create a fixed wage with inflation mean instead people just lose their jobs without inflation, because of the stickiness of nominal wages.)

> people just lose their jobs without inflation, because of the stickiness of nominal wages

Does deflation mean suddenly that once people "lose their jobs" they will never find another one?

Re: Have we been thinking about inflation all wrong?

#229

Post by xapata »

lumost wrote: post #180
jbay808 wrote: post #57

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 th…

Counterpoint: Stability is a critical optimization criteria, but should be balanced with the need to maintain "dynamism". New ideas can't win if any time the entrenched hit problems they are bailed out. Maintaining employment is necessary for long-term societal stability, maintaining Goldman Sachs is not. In recent years our definition of stability shifted to one where market winners remain winners indefinitely.

The old idea was that corporations should survive at the expense of temporarily high unemployment.

Re: Have we been thinking about inflation all wrong?

#230

Post by diob »

flavius29663 wrote: post #202
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…

Economists were saying some time ago on NRP that inflation becomes a vicious circle when it encourages/forces employees to demand higher wages "because everything is more expensive", which in turns makes everything more expensive, because wages are higher now. I think we are already there, everyone is jumping ship to get a higher wage right now, rampant inflation is here to stay

This seems like an alarmist take, the truth is wages haven't been going up much and yet inflation was occurring regardless. What caused inflation then?

Why do folks only ever worry about inflation when it comes to increasing the bottom wages?

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