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Have we been thinking about inflation all wrong?

thewalrus.ca

351–360 of 518 posts

Re: Have we been thinking about inflation all wrong?

#351

Earlier quoted context omitted.

There will not be many working people if the economy is deflationary. Please read a macro book so you at least understand what you're arguing against before spouting nonsense.

Japan says its economy has been in deflation since the 90s.[1] Everybody is working. Sure, the numbers aren't going up and there aren't constant booms of new companies being valued at 100 billion and exploding (which draws ire from economists and billionaire investors), but quality of life has been consistently high for normal people. Homelessness is barely present and people who want a job can find one quickly. If t…

> Homelessness is barely present

Can be vulgar to point this out, but the homelessness in America is a policy choice. If America had the same economy as Japan, we would still have lots of homelessness, because that is how we choose to organize our society.

This sounds facile, but then again consider how we choose to organize our healthcare system.

Re: Have we been thinking about inflation all wrong?

#352

Earlier quoted context omitted.

Congratulations, you created the Argentine Peso. You ended up in a debt crisis and had to hyperinflate your currency.

> Congratulations, you created the Argentine Peso I’m pretty sure I didn't invent anything, you just picked a random currency that meets neither your implicit goals not my explicit ones, because it's convenient for a pre-canned argument you wanted to make.

And you didn't design anything either. You basically said you wanted a super fast car that's super light and has a huge gas tank and is cheap.

Re: Have we been thinking about inflation all wrong?

#353
post #345

Earlier quoted context omitted.

> 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. I'm pretty sure that's been priced in for quite a while now, really. Interest rates have rarely gone up by much over the last 30 or so years, and for most of the last 20 they've been as close to 0 as they can go and still be called…

> They just give it right to the finance industry I don't think this is the whole story. It passes through the finance industry, but when interest rates are low, everyone outside the finance industry (who is taking out loans) benefits as well. Interest rates are levers that the central bankers can use to control the amount of outflow through the dam that is the finance industry.

The thing is it wasn't flowing out, except in some specific ways, and in spite of decades of low to virtually zero interest rates. Every QE event has led to a ballooning of the stock market and asset holdings on things that can be mortgaged, which are both things that disproportionately benefit only some of 'everyone'.

This is the point I'm making. Interest rates stopped being a lever a long time ago, whether by choice or because the abstractions economists have built up are proving to be less universal than they believed them to be. Either way, the money has largely just sloshed around everywhere but regular people's cashflow.

It definitely does also lead to 'easier' lending to those people as well but the interest rates that get paid on consumer debt (ie. credit cards) aren't really related to central banking interest rates, and are often bordering on usurious anyways. Through that, the finance industry effectively collects taxes on the poor that the government is unwilling to (for good reason).

Re: Have we been thinking about inflation all wrong?

#354

Earlier quoted context omitted.

Yup. The kernel of truth behind Austrian theories of macroeconomics/the business cycle is that interest-rate based policy setting is inherently an unstable system. If the central bank makes policy errors that fail to stabilize the underlying target (whether inflation, nominal income, exchange rates, whatever) the whole system starts spiraling away from that unstable equilibrium point, and the subsequently needed corr…

Austrian theories appeal to me/seem correct beyond just a kernel, but I’d consider myself an amateur/haven’t read enough to be confident about my opinion. Specifically, the emphasis on relative value seems correct, the emphasis on the importance of keeping pricing signals pure/unaffected by artificial monetary supply changes to effectively allocate resources seems correct, the argument that market incentives exist fo…

Austrian economics is all anti-empirical say-so internally-consistent models that aren't tested against reality. Traditional economics is stuff that claims to be more empirical but fails to do so and focuses almost entirely on official stats and on its own versions of models that aren't tested against reality.

The whole field of economics is overall messed up. It's insular, arrogant, and extremely resistant to outside criticism. And it's dangerous as economics claims are used to justify so much.

Random amazing example:

In https://www.npr.org/transcripts/980841456 and from "My question is, what is the M1 money supply, and the M2 money supply, for that matter?" last third of it, insanely clear and amazing. In short:

Q: more money! does that mean inflation? check with this econ textbook author

Author: oh, that's embarrassing, that chapter shouldn't be there

Q: so what causes inflation?

Author: people buying stuff more, demand going up (unless it's insane money supply like Venezuela or Zimbabwe level insane)

Q: so why is the chapter in your textbook?

Author: um, publisher said that if we don't say that more money means inflation then econ professors won't use our textbook. They learned that idea in their original studies, so they will only use a textbook that lets them teach it. But it's wrong, and we shouldn't have put it in the book.

Re: Have we been thinking about inflation all wrong?

#355
post #338

Earlier quoted context omitted.

> So you go from saying what I claimed "isn't born out in the data" to saying there's no way of knowing when the effects kick in No, I didn't "go from" one of those criticisms to the other. I am making both of them. I am saying both of the following: (1) The variation in the data can be explained by things we already know happen: seasonality and new variants emerging. So there's no need to hypothesize an additional e…

You cannot make both criticisms and remain internally consistent in your argument. Either you do know what is in the data or you can't know what's in the data. You cannot argue both, and yet you continue to try. Nothing else in your comment follows, since this does not follow.

> You cannot make both criticisms and remain internally consistent

Sure I can. The inconsistency you think you see is in the straw man version of my argument that you have concocted in your head, not in my actual argument.

Re: Have we been thinking about inflation all wrong?

#356
post #345

Earlier quoted context omitted.

> They just give it right to the finance industry I don't think this is the whole story. It passes through the finance industry, but when interest rates are low, everyone outside the finance industry (who is taking out loans) benefits as well. Interest rates are levers that the central bankers can use to control the amount of outflow through the dam that is the finance industry.

The thing is it wasn't flowing out, except in some specific ways, and in spite of decades of low to virtually zero interest rates. Every QE event has led to a ballooning of the stock market and asset holdings on things that can be mortgaged, which are both things that disproportionately benefit only some of 'everyone'. This is the point I'm making. Interest rates stopped being a lever a long time ago, whether by choi…

I agree, it doesn't seem to be working as well as you'd hope. I wonder how much of that is due to people not taking advantage of the opportunity for cheap money, either because they don't know about it, or have no ideas how to use it.

Re: Have we been thinking about inflation all wrong?

#357

Earlier quoted context omitted.

Austrian theories appeal to me/seem correct beyond just a kernel, but I’d consider myself an amateur/haven’t read enough to be confident about my opinion. Specifically, the emphasis on relative value seems correct, the emphasis on the importance of keeping pricing signals pure/unaffected by artificial monetary supply changes to effectively allocate resources seems correct, the argument that market incentives exist fo…

Austrian economics is all anti-empirical say-so internally-consistent models that aren't tested against reality. Traditional economics is stuff that claims to be more empirical but fails to do so and focuses almost entirely on official stats and on its own versions of models that aren't tested against reality. The whole field of economics is overall messed up. It's insular, arrogant, and extremely resistant to outsid…

More money inflates the supply of money. This is why cryptocurrencies that burn crypto are considered deflationary.

These Econ professors are responsible for inflating a giant bubble based on their politically motivated propaganda.

Inflation is not about prices, it’s about simple math. Printing dollars out of thin air, makes the ones in your pocket less powerful. But if you are a the direct beneficiary of the newly printed dollars, (government) who cares! You get to spend it!

Re: Have we been thinking about inflation all wrong?

#358

Earlier quoted context omitted.

> Inflation kills the middle class who was on the way up. It can be argued it was the hyperinflation of the early 1920s that radicalized a lot of people in Weimar Germany. It was the driving force helping the National Socialist German Workers‘ Party into power. Tragically, inflation policy was inflicted onto the Germans by the early Weimar governments supported by moderate political forces — not the communists or Naz…

You're wrong. Deflation caused both world war one and two. There is quite an interesting german book called Das Experiment von Wörgl where literally every single town in Austria and Germany was struggling with mass unemployment except this tiny 400 people town known as wörgl. There was no inflation or deflation, no money printing, no ddeficit spending. Just a small demurrage fee. Taxes were paid ahead of time. A brdi…

> Deflation caused both world war one and two.

There was no deflation (or inflation, really) prior to World War I. Prior to WWI, most countries pegged their currency to either silver or gold at a fixed rate of exchange which meant that inflation was both extremely low and extremely predictable. The "experiment" you're describing (no inflation, no money printing, no deficit spending) basically describes the way all governments operated prior to the early 20th century.

Re: Have we been thinking about inflation all wrong?

#359

Earlier quoted context omitted.

Austrian economics is all anti-empirical say-so internally-consistent models that aren't tested against reality. Traditional economics is stuff that claims to be more empirical but fails to do so and focuses almost entirely on official stats and on its own versions of models that aren't tested against reality. The whole field of economics is overall messed up. It's insular, arrogant, and extremely resistant to outsid…

More money inflates the supply of money. This is why cryptocurrencies that burn crypto are considered deflationary. These Econ professors are responsible for inflating a giant bubble based on their politically motivated propaganda. Inflation is not about prices, it’s about simple math. Printing dollars out of thin air, makes the ones in your pocket less powerful. But if you are a the direct beneficiary of the newly p…

"Inflation is not about prices" is the silliest thing I've ever heard.

You might as well say that gravity has nothing to do with up and down.

The only thing anyone MEANS when they say "inflation" is that it's short for "price inflation".

But to deal with your point directly: if the U.S. Treasury literally printed a quadrillion dollar bill but then gave it to someone with a contract saying that they agree never to spend it, it will have zero effect on anything. And if people get dollars and never spend them, it's the same effect in practice. Or if someone with a quadrillion-dollar bill gives it as a gift to someone else who then later gifts it, and that's all that ever happens… again, no effect on inflation.

Inflation is one thing and one thing only: it's when people who make the decisions about setting prices for things choose to inflate (increase) the prices and that this happens on a noticeable system-wide scale. If the people who set prices chose not to change them, there would be no inflation, period. The interesting thing in studying inflation amounts to studying what patterns correlate with people making the decision to increase prices. And yes, knowledge that buyers have more dollars to spend is a factor that could (and does) influence those decisions on setting prices.

The same thing happens with "demand" (so, that professor I summarized above is still not quite right when he asserts that demand and spending is what causes inflation). Sellers can very well (and do often enough) keep prices unchanged even when demand is high and everything just sells out quickly. The result of that isn't inflation, it's shortages — unless the shortages somehow motivate people to just produce more — in which case increased spending just leads to increased production and consumption without inflation or shortages.

Shortages don't mathematically cause inflation. Inflation ONLY EVER happens if price-setters choose to increase prices. Nobody is EVER forced to increase prices. You just have the ramifications of doing so or not. Maybe keeping prices the same means less profit. Or maybe it means going bankrupt.

And yes, any one decision to change a price has an impact on other people who may choose other prices. That's why all the interacting decisions from all the actors adds up to patterns we can potentially (but always imperfectly) predict.

This is human beings making decisions and taking action in a complex game we play around money. Yes, there are mathematical aspects to it. But it's not some pure math abstraction. And relying too heavily on math abstractions is one of the deepest flaws in the whole field of economics.

Re: Have we been thinking about inflation all wrong?

#360

Earlier quoted context omitted.

Fiat money isn't supposed to be held for long periods of time. That's literally the point. The government is incentivizing you to invest/consume it, otherwise we're in a liquidity trap. It's just supposed to allow people to to make transactions and be confident that the thing they are selling won't be worth 20% more tomorrow.

> It's just supposed to allow people to to make transactions and be confident that the thing they are selling won't be worth 20% more tomorrow. Huh. I'm pretty sure the things people are buying costs 7.5% more compared to last year. Those stupid people shouldn't have been holding money for a year, they should have bought that stuff a year ago.

I mean yea, you shouldn't be holding cash for a year. Put it in short term bonds if you want it liquid.
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