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Have we been thinking about inflation all wrong?

thewalrus.ca

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Re: Have we been thinking about inflation all wrong?

#251

Post by dnautics »

giaour wrote: post #242
dnautics wrote: post #225

Earlier quoted context omitted.

> 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, yo…

I guess if you are free of debt and living paycheck to paycheck, inflation is pretty bad. But that's not most people. > IF their wages catch up. If their wages don't, do the math. It depends on your situation. If you have $20K in remaining student debt and make $40K a year, then, yes, assuming a fixed wage, any real decrease in the value of your outstanding debt would be wiped out by the decrease in your real wages o…

> That's an important case,

Let's think for a second here. You don't think that's a particularly important case? There is a reason why being indebted is viewed with a tinge of moral disgust -- debthood makes it so that when you fail, someone else also is at a risk of failure. Now, there is a sense in which having some of this is good because it creates shared social interest; but goosing it and making that risk systemic pushes it beyond the organically healthy state for the economy. A person who has no debt (low wages or otherwise) is, actually, a force for stability in the economy. Not of course, the type of stability that the fed cares about.

Re: Have we been thinking about inflation all wrong?

#252

Post by imtringued »

prichino wrote: post #211
uses wrote: post #173

Earlier quoted context omitted.

Inflation doesn't exist as a policy to stiff wage earners. Inflation exists as a reality of a growing economy (more goods and services needs more money to cover them). The alternative is deflation, which would be extremely bad. So what we aim for, is low inflation. Which we've had for ~40 years. Low, controlled inflation is the vastly preferable alternative to any amount of deflation, so it's the side of the scale we…

This deflation is bad meme comes straight from the big international bankers of the early 20th century (JPM et al.). They cared mostly about liquidity and stable exchange rates. Unless you are one of them, please stop parroting "would be extremely bad". Would it be different from now? Probably. Extremely bad? For whom?

Deflation is bad enough that it collapsed every single implementation of the gold standard.

Re: Have we been thinking about inflation all wrong?

#253

Post by Ericson2314 »

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…

MM it's more complicated than that. The classical dichotomy people, simplified, think money is arbitrary like "inches" are arbitrary, and you can always choose different units.

On hand hand, that's saying money doesn't matter, on the other hand, that's saying that, ignoring the coefficient, the "monetary economy" and "real economy" do the same things.

Spending the time to talk about both separately is acknowledging the relationship is complex. That is good.

---------

> Inflation is particularly hard on people who don't have negotiating power, and in general those people aren't doing great to begin with.

This is extremely misleading. Read your https://delong.typepad.com/kalecki43.pdf

- Inflation is good for debtors

- Real wages have gone up since 2019! The poorest in this country have done the best!

- Raising rate hurts poor people. Is there another plan to deal with this all?

- There is still pandemic disruptions; people should increasing go do social things (consumption back to services) and that would ease pressure on the bottlenecks.

Re: Have we been thinking about inflation all wrong?

#254

Post by jbay808 »

lumost wrote: post #232
jbay808 wrote: post #190

Earlier quoted context omitted.

I fully agree with your counterpoint, except that I don't think it's a counterpoint, because to my mind, such a focus on short-term stability (ie, bailouts) are a major driver of long-term instability! The reasoning for that seems inexorable to me. Once you lop off the deeply negative tail of any risk curve, market actors will gorge themselves on investments that have a positive average payoff but large systemic tail…

Tbh I think central bankers were betting that 0 interest rates would have inflated the economy out of bad debts. The pass on effect never materialized and asset managers went crazy. If inflation hit 10% in ‘08 the banks would have been hammered on paper due to fixed income bets, but would never have been in danger of running out of cash due to new deposits.

I don't think it's as easy as people think to inflate away debts, because you have to do it without incentivizing debt growth at the same time. Maintaining high inflation and low interest rates strongly incentivizes new debt creation, so the debt burden doesn't decrease.

Re: Have we been thinking about inflation all wrong?

#255

Post by jbay808 »

imtringued wrote: post #220
clairity wrote: post #162

Earlier quoted context omitted.

an inherently unstable but critical element of an economic system shouldn't be allowed to float on the whims of a few humans, especially with overwhelming corruptive pressure lapping against them incessantly. a central bank should be trying with all its might to precisely match the amount of money in the system exactly with the amount of productivity being generated. it shouldn't be trying to implement 'fiscal policy…

That's impossible without demurrage or negative interest rates.

Why do you think so?

Re: Have we been thinking about inflation all wrong?

#256

Post by imtringued »

sleepingadmin wrote: post #66

The walrus being a far-left MMT proposing place wrote this when inflation was at 3.5% or so. It's now much higher and very evidently out of control. The article quotes Mark Carney, as if he were on their side. BoE under Carney have raised interest rates twice: https://tradingeconomics.com/united-kingdom/interest-rate and that hasn't even dented inflation. https://tradingeconomics.com/united-kingdom/inflation-cpi I be…

Inflation is never out of control, the only thing that is out of control is our desire to deny reality.

You can stop inflation at any point with a negative interest rate. The moment you do that you can start increasing reserve requirements, if you are ambitious you can go all the way to 100%.

Re: Have we been thinking about inflation all wrong?

#257

Post by ajross »

roenxi wrote: post #153
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…

> 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…

> 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.

The US is only slightly above median in debt to GDP among industrial nations: https://worldpopulationreview.com/country-rankings/debt-to-g...

I know it's popular to imagine that the government is spending out of control, especially when it's being run by people you didn't vote for, but it's really not. If we're going to collapse then we've got a lot of headroom, given how far ahead of us Japan is on the spending ladder.

Re: Have we been thinking about inflation all wrong?

#258

Post by hparadiz »

vorpalhex wrote: post #172
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.

We are pretty close to full employment. Rising groceries and fuel costs hurt everyone, but that hurt is more so on the poor who have less overall cash flow.

I remember gas hitting $4 during the Bush administration on the east coast when I was still in high school. Meanwhile I'm currently paying 4.50 at costco for Premium gas. Given recent inflation I think that we're actually paying less for gas than we did during the Iraq war.

Re: Have we been thinking about inflation all wrong?

#259

Post by hparadiz »

dnautics wrote: post #130
fennecfoxen wrote: post #126

Earlier quoted context omitted.

Don't worry, it'll be great! You'll get a 10% raise, and prices will only be up 15%.

To be frank, for a small sliver of wage:mortgage ratios this could be fucking fantastic... for "young wage-earners" who already have a house (like me! but I'm not really that young anymore). For other wage-earners, not so much, sad trombone.

Bought a house 4 months ago and suddenly all this inflation stuff is basically just telling me I can pay it off much faster than I thought.

Re: Have we been thinking about inflation all wrong?

#260

Post by imtringued »

scottiebarnes wrote: post #56
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…

Have you ever wondered why the people that have the money that represents the government's debt isn't returning, ever?

When go the austerity route your economy collapses faster than you can pay your debts back, isn't there something odd with that? If money is supposedly cheap why does it refuse to show itself?

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