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

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

#521

Post by rsync »

blagie wrote: post #439
dkrich wrote: post #417

The most dangerous thing that can happen to an advanced economy is credit markets grinding to a halt. It was the panic of 1907 that created the federal reserve in the first place. Over the ensuing decades there was a very awkward path to eventually figuring out that at the moments where a complete halt to credit markets looks imminent, the fed should step in and release the jam. What we’ve learned is that just the kn…

I'm kind of inclined to agree. We want to avoid structural damage: Lost jobs, bankrupt businesses, lost mortgages, and so on. Structural damage leads to loss of real productivity, and real harm to people's lives. The only way I knew to get through COVID shutdowns was to devalue currency by about as much as we've done. I didn't mind the short-term money printing, and I expected inflation to result. The inflation is pa…

"We want to avoid structural damage: Lost jobs, bankrupt businesses, lost mortgages, and so on."

I disagree - I think what we need is a constant, low, background level of structural damage - which includes lost jobs and especially bankrupt businesses.

I grow increasingly fond of the forest fire / controlled burns analogy:

We have come to realize that preventing, or extinguishing, every wildland fire causes a dangerous level of fuels to slowly build up, eventually erupting in an unstoppable conflagration that destroys much more than the sum of the fuel overload.

Preventing recessions and keeping business firms afloat that would otherwise fail without easy loan rollover - that's the financial equivalent of refusing to maintain fuel loads with controlled burns.

Eventually the dead fuels (zombie business firms) will overwhelm all firefighting efforts (QE ? Negative interest rates ?) and will take down a much larger portion of the economy than otherwise would have failed along the way ...

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

#522

Post by forgetbook »

hunterb123 wrote: post #380
forgetbook wrote: post #357

Earlier quoted context omitted.

The one tech detail chosen is pretty relevant to the economic (as opposed to style) use-case here. Being able to carry a 4x8' sheet is the difference between a productive vehicle or not for a significant chunk of the contracting tradesman market. Sure, lots of users want trucks for other reasons where a short box does fine or a second row of seat is the winning feature regardless of box space, but the logic being app…

Learn to use straps, really easy to haul a 4x8' in a short bed. Noone wants a normal bed. They want a crew cab short bed. Supply and demand.

short bed with straps: 1] load 4x8' 2] attach straps correctly 3] tighten straps 4*] re-attach straps if incorrect

long bed: 1] load 4x8' 2] close gate

As far as 'noone wants a normal bed', citation needed.

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

#523

Post by [deleted] »

gitfan86 wrote: post #411
mrjin wrote: post #406

The only thing we learnt from history was that *we learn nothing from the history*. For the past decades, what were the central banks all over the world doing? Nothing but printing money. Whenever there was a (economical) crisis, the only measure was printing money, *nothing but printing money*. Were the problems resolved ever? Never!!. They event pretended to be innocent by asking "why there were no inflation". Of c…

At this point the fed seems to be saying that those days are over, they will continue to increase rates until inflation hits 2%. Obviously this cannot go on forever because it becomes impossible to service the debt and you have to print money to pay it off. But it gives you more time and prevents hyper-inflation and we can hope that by then AI and other technological advances have made what we consider "economics" mo…

[deleted]

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

#524

Post by WalterBright »

tsimionescu wrote: post #344
JamesianP wrote: post #331

Earlier quoted context omitted.

It's not so simple though since there's indirect effects that immediately follow. 1. Everyone consume less. Even rich people have to buy less of something else to pay for the higher-priced gas. So demand goes down elsewhere driving down other prices. 2. If margins or salaries increase then it increases the incentive for competition to enter the market and compete on price.

1. Rich people already have much more income than they consume, they would likely only reduce investments/savings. 2. It takes a very long time to create a new manufacturing business, and it's hard to know how gas prices will evolve in 2-5 years time (which is a decent conservative estimate on when you would be able to start selling your products if you start today).

Reducing investment/savings reduces demand, as they are the source of funds for businesses to spend. Reduced demand reduces prices.

Any economic theory that denies the Law of Supply & Demand is false.

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

#525

Post by WalterBright »

wpietri wrote: post #503
WalterBright wrote: post #174

Earlier quoted context omitted.

> the fact that our most stable period of low inflation was under fiat money. And that wasn't just true here. Central banks with well-managed money supplies brought price stability to many countries. Milton Friedman in "Monetary History of the United States" shows with graphs and charts that the instability was higher under the stabilizing hand of the Fed. What the Fed brought was an upward bias to it. > I understand…

Ah yes, the religious person cites religious texts: > Monetary History of the United States That book covers only through 1960, ending 20 years before the low-inflation era I'm talking about. Friedman retired from teaching before the era even started. So yes, I am definitely done here.

I do enjoy the contention that the laws of economics changed in 1960. Nor does "low" inflation prove that inflation is not caused by running the printing press. And nor is "low" inflation actually low. Going through my dad's estate, I'm reminded of how much cumulative inflation there's been since 1980. A 1980 dollar is worth $3.14 in 2020.

https://www.usinflationcalculator.com/

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

#526

Post by rsync »

m0llusk wrote: post #432
0xy wrote: post #375

Earlier quoted context omitted.

California's high-speed rail money pit hasn't had enough cash thrown in? The state is incapable of building nearly anything.

CA HSR is moving ahead. Major infrastructure projects are more difficult and expensive in the US because we have far stronger property rights than China or European nations.

"CA HSR is moving ahead ..."

... minus the "HS" part. Last I checked it was on the politically brokered "non-I-5" corridor (a silly, absurd route) and had a proposed SF->LA trip time of over 2.5 hours.

This is a "high speed" train, circa 1975. Current technology, as demonstrated by running trains elsewhere in the world, would make that route in under 2 hours.

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

#527

Post by stopping »

WalterBright wrote: post #517
stopping wrote: post #348

Earlier quoted context omitted.

Dismissing a contrary position as "propaganda" only stifles debate, and you haven't presented an argument against "sweet spots". It's a good mental model for many situations. What makes you think there doesn't exist an optimal inflation rate? 0% inflation is generally not a safe target. In an economy you want to avoid deflation at all costs. If consumers expect future price drops, demand can dip significantly and ind…

This is all unsupported by any evidence. The "deflationary spiral" theory is as wrong as its sister, the "inflationary spiral". Inflation benefits borrowers, hurts lenders. Deflation hurts borrowers, benefits lenders. The sweet spot is 0. The reason everybody believes that inflation is good for you is because of persistent government propaganda to sell that idea, because what inflation really is is a tax on your mone…

Nothing of what you said is an argument against the points I made. Where is the error in my reasoning? I literally gave an example of my argument applying to a real life, well studied scenario.

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

#528

Post by AnimalMuppet »

WalterBright wrote: post #517
stopping wrote: post #348

Earlier quoted context omitted.

Dismissing a contrary position as "propaganda" only stifles debate, and you haven't presented an argument against "sweet spots". It's a good mental model for many situations. What makes you think there doesn't exist an optimal inflation rate? 0% inflation is generally not a safe target. In an economy you want to avoid deflation at all costs. If consumers expect future price drops, demand can dip significantly and ind…

This is all unsupported by any evidence. The "deflationary spiral" theory is as wrong as its sister, the "inflationary spiral". Inflation benefits borrowers, hurts lenders. Deflation hurts borrowers, benefits lenders. The sweet spot is 0. The reason everybody believes that inflation is good for you is because of persistent government propaganda to sell that idea, because what inflation really is is a tax on your mone…

The "deflationary spiral" has empirical evidence from a fair number of financial crises in the 19th and early 20th centuries. It happened. A lot. And it was really destructive when it did.

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

#529

Post by tsimionescu »

WalterBright wrote: post #520
tsimionescu wrote: post #298

Earlier quoted context omitted.

1. There's no extra money - poorer people just consume less. 2. Because companies just take all of the difference as extra revenue, and prefer to increase salaries (if not just keep everything as profit) rather than reducing prices. Note that I'm not claiming that increased money supply doesn't cause inflation. It obviously does. I'm claiming it's not the only cause of inflation. It's sufficient, but not necessary fo…

When people consume less, prices drop. Again, it's the Law of Supply & Demand. In physics, when momentum is not conserved, I don't have to work through the math to show it is wrong. I know it is wrong. When conservation of energy is denied, I know it is wrong. When someone claims a perpetual motion machine, I know it is wrong. Analogously, when a theory requires denial of the Law of Supply & Demand, I know it's wrong…

> When people consume less, prices drop. Again, it's the Law of Supply & Demand.

No, they don't: not if supply is inelastic.

The law of supply and demand says that the price of a good will tend to the price at which supply meets demand. If supply has a maximum, so does demand: any change in theoretical demand above that max will do nothing to affect the price.

If the entire economy produces 10 gallons of oil per day, the fact that today 100 people wanted 1 gallon each, while yesterday 1000 people wanted 1 gallon each, will do nothing to affect the price: I'm still only going to sell to the 10 highest bidders. Of course, if suddenly only 9 people are left using oil, I will indeed be forced to lower my price - but until then, lower demand will have no impact.

You seem to be basing your opinions on some other "Law" of Supply and Demand that somehow claims that Supply will always rise to meet Demand. That "Law" is simply false, and you should discard it.

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

#530

Post by tsimionescu »

WalterBright wrote: post #524
tsimionescu wrote: post #344

Earlier quoted context omitted.

1. Rich people already have much more income than they consume, they would likely only reduce investments/savings. 2. It takes a very long time to create a new manufacturing business, and it's hard to know how gas prices will evolve in 2-5 years time (which is a decent conservative estimate on when you would be able to start selling your products if you start today).

Reducing investment/savings reduces demand, as they are the source of funds for businesses to spend. Reduced demand reduces prices. Any economic theory that denies the Law of Supply & Demand is false.

Again, reducing demand only reduces prices if there is enough supply. If the demand already exceeded supply, then changes in demand don't do anything to price unless and until demand once again drops below supply.

Not to mention, if you think companies use all their funds every year, you're again using a very bizarre economic model. Companies often accrue money as cash savings to be used at later dates, taking it out of the economy until then.

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