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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?

#381

Post by didericis »

quadrangle wrote: post #354
didericis wrote: post #343

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…

I know Austrians make a lot of noise about “not being empirical” (to their detriment), but I think that’s a bit misinterpreted, and I get where they’re coming from. I get not wanting to try to parse out a theory from a stream of data complex enough to justify nearly any initial hypothesis. You can still test whether core ideas on the Austrian side fit the facts via historical analysis and looking at how things respond to fed decisions/do at least a rough qualitative empirical analysis. I think the business cycle is an Austrian idea that has empirical evidence behind it at this point, for example.

My gut impression of economics from the outside is similar to yours, though, even though I think Austrians seem to have mostly the right core theory.

Are there any economic schools you or anyone else know of or forums where people discuss these types of things from a less ideological lens? I ran across this video a while ago by Scott Kominers, was very inspired by the example given and the lucidity of the explanation of what was going on/what helped improve things. https://youtu.be/JCKwkuzROzs .

Do you think economics is just too broad a field to avoid ideological schools that generalize/applied economics is better? Part of why I haven’t dug into theory more complicated than basic Austrian ideas is it feels kind of self referential and a waste of time. Applied economics seems like it might be different/an area where good rules and bad rules become evident, but idk.

Even if macro economics is ideological and arrogant and hand wavy, still curious about different arguments and counter arguments between schools

Re: Have we been thinking about inflation all wrong?

#382

Post by NumberWangMan »

Ericson2314 wrote: post #253
soVeryTired wrote: post #113

Earlier quoted context omitted.

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 t…

Hmm, I take issue with one of your points. To say that real wages have gone up since 2019, does not mean that they wouldn't have gone up more if we had lower inflation. There are all sorts of reasons why real wages change. Maybe increased worker bargaining power as a result of the stimulus checks is a factor.

As for raising rates hurting poor people -- inflation hurts poor people a lot too, especially if they're not in debt but are trying to save. Though to be fair, covid stimulus checks are one of the rare cases where increasing the money supply actually helps the poor because they're the ones who got the money, instead of banks, as I understand it.

Re: Have we been thinking about inflation all wrong?

#383

Post by baryphonic »

m348e912 wrote: post #379

This isn't talked about much but it has to be considered. There is a relationship between interest rates and the repayment rate of the 30 Trillion in US debt that's owed. Even a moderate increase in rates, to 5-6% (way short of almost 20% we saw under Volker), would be catastrophic in terms of being able to service the debt which would affect bond and treasury interest payments. Perhaps the Fed is stuck between a roc…

I've had a similar thought for a few years. It began to doubt it when it looked like we might actually correct for this with decent growth, including real increases in productivity-improving technologies. But the pandemic has now disabused me of any trust.

We seem to be in some sort of regulatory-debt trap. The government needs growth to sustain itself, but it can't do that because it has no control over the administrative state. So therefore it inflates, which harms growth (and has horrible distributional effects) but helps with debt, at least until lenders stop showing up to the bond auctions.

Re: Have we been thinking about inflation all wrong?

#384

Post by bubbleRefuge »

stormbrew wrote: post #331
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…

> 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…

Agreed 100%. The fed has been trying to create inflation for 30 years and has not been able to do so. Its about time to admit that monetary policy doesn't work the way it supposed to according to the Monetarist School. But, I will take it a step further, by saying this: raising interest rates can perhaps can have an inflationary effect. How is that ? Well the federal government is a net payer of interest. Interest income flowing into the private sector from the government goes up when rates go up. So maybe the fed is actually stepping on the gas pedal rather than on the brakes when they raise rates.

This is why we call them dismal scientists.

Re: Have we been thinking about inflation all wrong?

#386

Post by pdonis »

mdavis6890 wrote: post #81
pdonis wrote: post #32

Earlier quoted context omitted.

> 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. Even doing the opposite can be bad if it's the wrong stuff. It's not just the total amount of stuff that matters; it's how much of the stuff is stuff people actually need or want, as opposed to stuff that gets produced but never actually used bec…

Yes, this is an important refinement of my position. And the next refinement would be to quantifiably measure the value of different stuff and prioritize and allocate resources among the products, taking into account their changing value over time and with respect to how much we already have. I'm sure we could keep going with this... But really if we could just start thinking in terms of stuff rather than money I thi…

> if we could just start thinking in terms of stuff rather than money

Well, there are good reasons for thinking in terms of money instead of stuff for ordinary everyday affairs. It's a lot easier to keep track mentally of transactions if there is a common unit of value to assign to lots of different kinds of stuff.

The issue isn't money in itself but the supply of money, and who gets to control it. Ideally the money supply would be fixed by something that nobody could manipulate. But no society in history has been able to actually achieve that ideal.

Re: Have we been thinking about inflation all wrong?

#387

Post by pdonis »

imtringued wrote: post #297
pdonis wrote: post #29

Earlier quoted context omitted.

Exactly. If more economists acknowledged this obvious truth, it would be much easier to have saner policies in this area. One thing to add is that, in addition to being a tax on savings, inflation also leads to misallocation of resources, because the newly printed money is not distributed equally. (If it were, it would actually have little economic effect, because all prices, including wages, would rise by exactly th…

Enjoy your tax on savings. You will bark at the wrong tree for the rest of your life. Permanent money causes inflation because the physical world isn't permanent. It needs a constant energy input to keep running. This energy input is simply ignored. So it has to be modeled after the fact via inflation. A negative interest rate on cash makes money no longer permanent meaning money no longer has to be replicated endles…

> Money should age via negative interest rates to be consistent with the laws of thermodynamics.

This is nonsense on so many levels that I don't even know where to begin.

Re: Have we been thinking about inflation all wrong?

#388

Post by kriskrunch »

djohnston wrote: post #326
colinmhayes wrote: post #323

Earlier quoted context omitted.

Japan isn't a very good example because their economy has absolutely tanked because of their horrible monetary policy. Japan was in a liquidity trap caused by their low inflation for literally decades which caused their economy to grow barely 1% annually. The reason their unemployment rate is low is because they've been stuck in this rut for literally 30 years, so people have adjusted. That doesn't mean it isn't caus…

Real wages for Americans also haven't grown in decades: https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us... What's the harm?

The total benefits chart they provide is more accurate than just looking at cash compensation.

Non-monetary compensation, like health insurance, still costs the business a lot of money.

Would you be in favor of getting rid of mandatory health insurance and passing that money to employees instead?

Re: Have we been thinking about inflation all wrong?

#389

Post by didericis »

Rediscover wrote: post #375
didericis wrote: post #343

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…

I found Simon Kuznets multi-volume piece on economics (including cycles) really interesting ~35 years ago. Many U.S. university libraries have a copy if/when You want to peruse it - it greatly expanded my thinking about those systems regardless if I am a "True Believer" or not. Those volumes can be pretty challenging at times, but extremely in-depth. Fascinating intro to cyclic theories of economics for a person who…

Thanks for the reading recommendations, looks like a solid set of material. Do you know where I could find copies of the periodicals? Looks like there are some scattered hard copies on ebay, but the web archive mentioned here is down: https://rs.resalliance.org/2009/02/03/whole-earth-web-archiv...

Re: Have we been thinking about inflation all wrong?

#390

Post by bubbleRefuge »

missedthecue wrote: post #264
imtringued wrote: post #256

Earlier quoted context omitted.

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%.

Lower interest rates decreases inflation? Can you explain the mechanics behind that? If interest rates went negative, I would literally borrow and spend and much money as I could.

MMT 101. The federal government is a net payer of Interest to the private sector. Thus, when interest rates are increased, Interest income to the private sector increases. Interest paid by the US treasury to the private sector is kind of printing money. When interest rates go down, interest income to the private sector decreases.
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