Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Inflation is at a 40 year high. What can history teach us?

yarn.pranshum.com

Post reply on HN
Print view View original

91–100 of 550 posts

Re: Inflation is at a 40 year high. What can history teach us?

#91

Post by jollybean »

IncRnd wrote: post #73

A good working definition of inflation is a general increase in prices and a fall in the purchasing value of money. There will generally be inflation when there are fewer goods to purchase or when the money supply increases. History teaches us that the government, often through good intentions, decreases the supply of available goods. There are many reasons this happens. Recently, people were told to stay at home, an…

I'm wary that this is a problematic articulation.

The government rarely if ever controls markets to the point where it causes material price increase for things.

The US government has not taken measures to materially affect the cost of goods imported from China, or gas, for example.

Yes, the Central Bank sometimes creates more liquidity than is required for a given economic cycle, but in most cases, this is due to economic calamity i.e. banking collapse, pandemic, war etc. in which case the resulting inflation is the 'accounting adjustment' made to accomodate for that 'external factor' (i.e. factor external to the regular economy).

A pandemic, banking failure, getting invaded etc. can be the result of government action (I mean, especially if the nation is 'choosing to go to war', as in Vietnam) but not necessarily.

Finally, and importantly, the Central Bank is not the 'government' rather, part of 'governance' - they are very different things and act for different reasons. If the 'government' did control the money printing we would all be in trouble!

Re: Inflation is at a 40 year high. What can history teach us?

#92

Post by foobarian »

ryanisnan wrote: post #62
foobarian wrote: post #20

Earlier quoted context omitted.

> History teaches us that inflation will continue as long as the government keeps printing fiat money. Of course, that is almost a tautology. The devil is in the details. No inflation is bad because the economy stops. High inflation is bad because of erosion of purchasing power and negative impact on nearly every participant in the economy. So what do you do to get that sweet spot of about 1-2% inflation? I'd say rai…

I'm not very versed in economics, but can you explain "No inflation is bad because the economy stops."?

There are some other comments that probably described it better, but as an example: let's say inflation is negative. That means it is good to keep cash. What happens is everyone starts hoarding cash under their mattresses and there is no liquidity around to help exchange goods, and everything slows down.

With a small inflation, there is no incentive to hoard cash, and there is enough liquidity to make sure goods get exchanged without too much delay. At the end of the day that is what an economy is, exchanging goods.

Re: Inflation is at a 40 year high. What can history teach us?

#93

Post by WalterBright »

UncleMeat wrote: post #41
rnernento wrote: post #36

Earlier quoted context omitted.

I don't think you realize just how much of the money has been printed in the last 2 years. See fed balance sheet over time: https://www.federalreserve.gov/monetarypolicy/bst_recenttren... See M2 over time: https://fred.stlouisfed.org/series/M2SL

So? The argument is that inflation always happens when there is fiat printing. We printed a shitload of dollars between 2000-2020, yet inflation was low throughout that period. So the explanation is clearly insufficient.

> The argument is that inflation always happens when there is fiat printing.

The whole point of fiat money is to print excessive amounts of it. It's attractive for governments because they can then spend money buying votes without having to raise taxes (though inflation is a tax). Meanwhile, they blame "speculators" and "profiteers" as scapegoats for the inflation.

> yet inflation was low throughout that period

The cumulative was a lot, and note that there was never any deflation.

Re: Inflation is at a 40 year high. What can history teach us?

#94

Post by merely-unlikely »

sbf501 wrote: post #48
WalterBright wrote: post #15

History teaches us that inflation will continue as long as the government keeps printing fiat money with no backing. For a historical example, the Confederacy had high inflation. The printing press was in Richmond. When Richmond was threatened with a siege, the Confederacy hustled the printing press out to get it to a new, safer location. Confederate inflation paused during the move. The reason is pretty simple - the…

The more currency flooding the economy, the less wealthy the rich people are. Inflation occurs because the owners need to remain wealthy, hence prices go up everywhere. If it were possible for the top few to do with a little less, prices wouldn't have to skyrocket.

I'm skeptical of that claim since the rich hold more assets than dollars. To the extent inflation hurts the economy then your claim is true but that is a second order affect. All else equal, inflation can simply lead to asset inflation in which case the rich maintain their wealth.

In economics circles inflation is generally considered a tax on the poor who only hold cash and whose wages are slower to rise vs price inflation.

Re: Inflation is at a 40 year high. What can history teach us?

#95

Post by boole1854 »

seydor wrote: post #58
boole1854 wrote: post #43

Earlier quoted context omitted.

> It is a fact that incomes have not risen for decades Is this a fact? I just checked the data from the US Census Bureau [1]. Here is what I see (all numbers inflation-adjusted to 2021 equivalent [2]). Note: I chose 1994 as the comparison year since that was as far back as the Census data I looked at goes. 1994 median individual income: $44,618 2021 median individual income: $60,008 1994 mean individual income: $58,0…

https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us...

I have spot checked the data cited there to compare with the Census data...

The 'median' earnings data they cite comes from the BLS 'usual weekly earnings' release.

One can check that release on the bls.gov website. It is labeled "Series Id: LES1252881500". I compared Q1 1994 to Q1 2021, inflation adjusted using the PCE index:

1994: $750

2021: $983

That is an increase of 31.1%. The Census data which I cited previously is annual earnings, not weekly, but it seems relatively consistent with the BLS data, as the Census data showed a growth rate of 34.4%.

In short, both sets of data show relatively consistent income growth over that period.

Re: Inflation is at a 40 year high. What can history teach us?

#96

Post by jollybean »

ForHackernews wrote: post #24
WalterBright wrote: post #15

History teaches us that inflation will continue as long as the government keeps printing fiat money with no backing. For a historical example, the Confederacy had high inflation. The printing press was in Richmond. When Richmond was threatened with a siege, the Confederacy hustled the printing press out to get it to a new, safer location. Confederate inflation paused during the move. The reason is pretty simple - the…

Ok, but why now? Why not 14 years ago, or 10 years ago, or 5 years ago? We've been in a zero-interest-rate, QE world for quite a while. Somehow I do not think it is as trivial as your 8th grade econ textbook might suggest.

Because we just went through a massive existential shock with COVID, in which the Fed took on a staggering amount of assets i.e. liquidity - and - we've had material global problems which cause major increase in the cost of goods and fuel.

In 2008 we had a 'banking crisis' but that was an 'accounting crisis' otherwise the economy was normal. We had to re-allocate.

With COVID, we had a real shock to the system, and then lasting shocks due to increased prices.

So both the money printing and regular higher prices are coming back to hit the economy.

Re: Inflation is at a 40 year high. What can history teach us?

#97

Post by seydor »

mc32 wrote: post #22
nsxwolf wrote: post #12

Print lotsa money, get lotsa inflation.

Apparently the history of Weimar, Zimbabwe and Turkey don't provide proof enough that high inflation is bad.

theres a difference between high inflation and hyperinflation. which developed country had hyperinflation? (even turkey doesnt have it)

Re: Inflation is at a 40 year high. What can history teach us?

#98

Post by sometimeshuman »

Unfortunately I leaned on history to make investment decisions during this period of rising inflation. Gold, stocks, and real estate were historically good hedges against inflation and cash holdings should be minimized. But that conventional wisdom has been a bad strategy this time.

As a reminder one ~sure bet is iBonds (the i is for inflation). Last I checked the yield is little shy of 10% and your money only needs to be locked up for 1 year. Too bad there's a $10k annual deposit limit.

Re: Inflation is at a 40 year high. What can history teach us?

#99

Post by WalterBright »

zie wrote: post #28
WalterBright wrote: post #15

History teaches us that inflation will continue as long as the government keeps printing fiat money with no backing. For a historical example, the Confederacy had high inflation. The printing press was in Richmond. When Richmond was threatened with a siege, the Confederacy hustled the printing press out to get it to a new, safer location. Confederate inflation paused during the move. The reason is pretty simple - the…

This is a very simplistic viewpoint. One could also argue that Inflation happens when people don't trust that their government will pay back all the money borrowed. The US govt has been on a spending spree as of late, but hasn't yet bothered to mention how they are going to pay for it. In 2008/2009, the US govt was also on a spending spree, but did promise to pay the bill eventually. Inflation didn't spike in 2008/20…

> perhaps it's more correct than your version.

My version has lots and lots and LOTS of history backing it up.

Did you know that the US had inflation when on the gold standard during the California and Yukon gold rushes?

Did you know that Spain experienced massive inflation during the period when they were shipping the silver in S. America across the Atlantic?

I could go on and on.

> One could also argue that Inflation happens when people don't trust that their government will pay back all the money borrowed.

This sort of thing happens with private banknotes, which would trade at a discount based on the level of trust. But that is a one-time discount, not a cumulative process.

Re: Inflation is at a 40 year high. What can history teach us?

#100

Post by saynay »

nichohel wrote: post #46
lagrange77 wrote: post #26

Earlier quoted context omitted.

> History teaches us that inflation will continue as long as the government keeps printing fiat money. That's what you hear a lot, especially these days. But is it really true? What exactly is the signal path, that leads from more money to a higher inflation? I guess, there is a fair amount of psychology involved.

The "signal path" is simply the presence of more money, which means that purchasers have more money to pay.

That is a bit of an oversimplification. The presence of money is no sufficient, that money must be in circulation. For example, they can print all the money they want, if they just toss it all in a big bank account and never remove it, there will be no inflation.

That was a big reason why printing a lot of money in the past did not contribute to a lot of inflation: most of that money ended up sitting in the accounts of a few big institutions, who then did not end up spending it on anything.

This time around, we both gave that money directly to people (who then spent all of it), but also were dealing with global supply issues, an energy crunch, a food crunch, etc. Everyone had more money to spend, but there were less things to spend it on, leading to dramatic price increases.

Post reply on HN