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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?

#441

Post by fuzzfactor »

dnautics wrote: post #120

> If inflation were allowed to run a bit higher, it could deliver a long-overdue win for young people who have had to face a combination of stagnant wages and rising housing costs what the hell? Inflation exists as a policy to stiff wage-earners. This is arguably more likely to go exactly the other way than the author expects. Take it from a nobel laureate: https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-hi…

>what the hell?

Hell, no.

You have exceeded the wisdom normally allocated to economists.

Do not pass GO, do not collect $200.

More than ever it seems there should be a prize for this.

It didn't used to be that way.

Fewer and fewer workers will be able to pass GO and there will not be as many $200 bills in your pocket even if there are more in "circulation" overall.

Much less likely to afford any houses on your property, or very much property at all.

Odds are not looking good when there are so many decision makers and advisers who don't appear to have been paying any attention at all during the Nixon Recession and the still-lingering incomplete recovery in the USA.

Re: Have we been thinking about inflation all wrong?

#442

Post by fuzzfactor »

pashamur wrote: post #328
dnautics wrote: post #263

Earlier quoted context omitted.

Sure because the people who decide what is "good for the economy" have different interests than pretty much every other individual in it.

It’s a real thing: https://en.m.wikipedia.org/wiki/Paradox_of_thrift You get ahead by saving, but everyone can’t do that all together or the economy collapses.

Only collapse of the consumer economy, which in the first place should never be allowed to rise to enough significance to be much of a show-stopping collapse when it happens.

Re: Have we been thinking about inflation all wrong?

#443

Post by eru »

didericis wrote: post #343
zozbot234 wrote: post #129

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…

You might like the work of George Selgin.

He's an Austrian economist, but not of the 'Internet Austrian' persuasion. He's done lots of work on the history of money and banking.

Re: Have we been thinking about inflation all wrong?

#444

Post by trashface »

nverno wrote: post #356
stormbrew wrote: post #353

Earlier quoted context omitted.

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.

Generally US banks require medium to high W-2 income and a secured asset (house) to get a reasonable interest rate loan, a lot of people in the US don't have one or both.

Re: Have we been thinking about inflation all wrong?

#445

Post by danaris »

nine_k wrote: post #204
wolpoli wrote: post #179

Earlier quoted context omitted.

> It's important that errors be promptly corrected, and expectations about future policy remain properly "anchored" to the right target. It would be interesting to know if inflation expectation has become unanchored in the mind of the general public, because, ultimately, inflation expectation causes inflation.

I don't think that inflation is as easy to cause without a fresh supply of money. And you know who prints fiat money.

"Who can print money" and "who can introduce money into the economy" are not the same question.

Obviously, only the federal government can change the rate of printing new dollars. But inflation of the monetary supply, in practice, is not merely about "how many dollars are in existence." It's about "how many dollars are circulating in the economy."

Thus, given how much money has been hoarded by the very wealthy over the past 50 years, they have an unprecedented ability to cause inflation themselves simply by deciding to spend more of it.

Re: Have we been thinking about inflation all wrong?

#446

Post by danaris »

HarryHirsch wrote: post #261
lumost wrote: post #182

Earlier quoted context omitted.

Except, with higher interest rates the nominal price of housing falls relative to wages. A worker can reasonably hope to buy there way out of rents at some point in the future (assuming the price of the house is set as a multiple of it's rental equivalent cash flow discounted over time)

You are discussing the theory. The practice is that housing has been severely underproduced since 2008. Since the GFC, the state of Massachusetts has been adding on average 15000 units/year. You can't buy what doesn't exist, and with the present shortages you can't even build. It's a long-standing policy problem, but not a monetary policy problem.

I don't know about anyone else, but a figure like that (15000 units/year) is meaningless to me without context. What's the change in demand year on year? What was the rate of adding new units before 2008?

We're not all experts in Massachusetts' housing market, so it would be helpful to include information that makes your numbers meaningful.

Re: Have we been thinking about inflation all wrong?

#447

Post by scottiebarnes »

colinmhayes wrote: post #360
scottiebarnes wrote: post #335

Earlier quoted context omitted.

> 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.

You realize the yield on a 1 yr US treasury bond is currently 1%, and the yield of it one year ago was 0.1%? And that bonds pay coupons denominated in dollars?

The savings rate at Bank of America is 0.01% APY.

A person has no risk-free ability to save, and is forced to speculate in asset markets just to keep up with inflation.

Re: Have we been thinking about inflation all wrong?

#448

Post by HarryHirsch »

danaris wrote: post #446
HarryHirsch wrote: post #261

Earlier quoted context omitted.

You are discussing the theory. The practice is that housing has been severely underproduced since 2008. Since the GFC, the state of Massachusetts has been adding on average 15000 units/year. You can't buy what doesn't exist, and with the present shortages you can't even build. It's a long-standing policy problem, but not a monetary policy problem.

I don't know about anyone else, but a figure like that (15000 units/year) is meaningless to me without context. What's the change in demand year on year? What was the rate of adding new units before 2008? We're not all experts in Massachusetts' housing market, so it would be helpful to include information that makes your numbers meaningful.

It's not hard to discover that the population of MA went from 6.54 million in 2008 to 6.89 million in 2019. Just one look at the housing price indices is enough to tell that there's a severe shortage. (Anecdotally, around here (Western MA), ruins of type as-is-where-is that no bank will give you a mortgage on sell for > 125 USD/sqft.)

Anyone who disagrees should be cheery about the shortage of automobile parts and make sure it continues. Nowadays you pay more for a 3-year used car than you used to pay for a new one three years ago! Finally, you can invest in a car!

Re: Have we been thinking about inflation all wrong?

#449

Post by TremendousJudge »

digisign wrote: post #347
TremendousJudge wrote: post #64

Earlier quoted context omitted.

Brazil has had its inflation under control (for Latin American standards, anyway) since the 90s, after the Plan Real. Also, Latin American runaway inflation is something that has been happening since the 60s, every measure under the sun has been tried to fix it, with only limited success in some cases. Anyway, it's a bit more complicated than "spending money like crazy and being corrupt".

In the last few years the Real has dropped about 50% compared to gold and the dollar.

Inflation != value compared to the dollar

Unlike other Latin American countries, Brazil's economy is mostly decoupled from the dollar -- people don't save in dollars, they save in reales. Prices are all in reales (including housing and cars, something that is usually in dollars in other countries), and most importantly, the national debt is in reales, and mostly internal. A rise in the price of the dollar is not necessarily harmful to the people living there if the prices don't rise the same way, and it can even be beneficial by making the exports more competitive in the world market.

Re: Have we been thinking about inflation all wrong?

#450

Post by HarryHirsch »

danaris wrote: post #445
nine_k wrote: post #204

Earlier quoted context omitted.

I don't think that inflation is as easy to cause without a fresh supply of money. And you know who prints fiat money.

"Who can print money" and "who can introduce money into the economy" are not the same question. Obviously, only the federal government can change the rate of printing new dollars. But inflation of the monetary supply, in practice , is not merely about "how many dollars are in existence." It's about "how many dollars are circulating in the economy ." Thus, given how much money has been hoarded by the very wealthy over…

they have an unprecedented ability to cause inflation themselves simply by deciding to spend more of it

They spend it in the stock market, that's where the inflation is. I remember a time when a P/E ratio of 12 was a signal that the company was highly valued, and a P/E ration of 15 was a signal of a bubble. Nowadays that number for Tesla is ~ 100! That's insane.

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