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

Interesting. It isn't obvious to me how the Fed(a US org) setting interest rates necessarily affects non-US entities. Could you explain the causal chain?

Do non-US entities tend to have more assets in USD or more debts? I'd assume the former, which means that a US interest rate increase is actually net beneficial to non-US entities.

Just quickly on ShadowStats, and why it's complete bullshit (it's not slightly it's 120% conspiratorial :D)

http://blog.jparsons.net/2011/03/shadow-stats-debunked-part-...

https://www.thestreet.com/economonitor/emerging-markets/deco...

https://www.bls.gov/opub/mlr/2008/08/art1full.pdf

> If the price of the S&P 500 for instance is higher due to an asset bubble, it decreases my ability to purchase shares of it.

BLS says that the CPI doesn't track savings, just day-to-day living expenses. And that's okay, people want these indices to do everything. (And the Fed is not even using the CPI, they are using the PCE ... and there's a bunch more https://www.bea.gov/resources/learning-center/quick-guide-so... And the PCE is considered too broad, because it has inputs from businesses, nonprofits, etc. But of course it's not like business costs are irrelevant to the economy...)

That said, I think the biggest problem is that these general indices are used for things like welfare calculations, but they already don't represent the average welfare recipient. So adding equity would make it even less useful for that. (Which is mostly just an argument for having more indices, each representing a large chunk of society. But of course the cynic in me says that we already have one for the important people, the SP500, and poor people only matter when they are undecided voters in swing states.)

> Now, supply is (mostly) recovered, but demand still remains elevated.

Mostly, though basic input like oil is still not at the early 2020 levels. Aaand OPEC cut production just yesterday.

https://ycharts.com/indicators/world_crude_oil_production (5Y chart)

> we are really looking at an “imbalance between supply and demand” due in part to all of economic, social, and political factors.

Yep. And every think tank from the political zoo has their own critique of the actions of the Fed, but monetary policy is simply a blunt tool, and all of the structural problems are ... surprise surprise ... structural conflicts between big powerblocks. (One common laughing stock is the Jones Act. US shipbuilding is basically non-existent, and what's left is useless for "national security" purposes anyway. But it's somehow completely entrenched. Similarly other protectionist policies that serve special interests serve exactly one purpose to enrich members of those special interest groups. It's bad for consumers, it's bad for the economy, it's bad for labor markets, etc.)

All in all there's an argument in this about how the US fucked up the transition during globalization. (The big one is using market access as a carrot in WTO, but then not enforcing reciprocity with China and others. And the lack of any real and effective management of wage deflation in the affected areas, like the rust belt, goes without saying.)

> But isn't inflation measured by some kind of average price index?

CPI (Consumer Price Index) is often used to measure inflation, but is an imperfect measure. First, it only measures the prices of household consumption, not wages, business expenses, etc. Second, as this BLS article says: "The CPI has been criticized for having both an upward bias (overstating inflation) and a downward bias (understating inflation). Much of the criticism asserting an upward bias comes from the academic community. In 1995, Congress, aware of such criticism, commissioned a group of academic economists, led by Michael Boskin, to study and report on the CPI. The resulting study, titled "Toward A More Accurate Measure Of The Cost Of Living" (but often referred to as the Boskin Report), summarized the viewpoint that the CPI was upwardly biased. The report asserted that the CPI overstated inflation because of three main reasons: it omitted consumer substitution, did not fully account for quality change, and failed to properly reflect the addition of new goods. BLS has introduced some methodological changes since the report came out in 1996. Although these changes were intended to make the CPI more accurate, some think that they have introduced a downward bias."

https://www.bls.gov/opub/btn/volume-1/consumer-price-index-d...

> Is it possible to measure "how much money public will want to hold"?

No, not directly. We can only measure proxies, then debate how useful the proxies are.

The more holistic a metric is, the better a gauge of inflation it is. To the extent it measures relative price changes, rather than total-market price changes (including the price of labor), it may incorporate economic effects other than inflation. One flaw of the CPI for serving as a complete measure of inflation is right there in the name: Consumer Price.