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In Fed and Out, Many Now Think Inflation Helps

nytimes.com

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Re: In Fed and Out, Many Now Think Inflation Helps

#91

Post by greenyoda »

firstOrder wrote: post #40
greenyoda wrote: post #7

"Rising prices help companies increase profits" I don't see how that could be true. If prices are rising, all of a company's expenses rise along with their revenues: raw materials, salaries, benefits, rents, etc. (Unless the company wants to screw their employees and give them raises that are less than the rate of inflation.) Inflation does benefit debtors, the biggest being the U.S. government: they can repay their…

Salaries don't rise along with inflation, it's one of the reasons why inflation is being propounded by the Fed. If the inflation rate is 3%, you give all your employees a 2% raise at the end of the year. You've given them a 2% raise but have effectively cut their salary. Of course unions were wise to this in the 1970s, one of the reasons there was such massive inflation then, because wages were keeping up with inflat…

If salaries don't rise with inflation, then two things will happen:

1. Workers will have less disposable income to spend, so economic growth will slow down.

2. Workers will be more likely to leave their jobs if offered a salary that's just a few percent higher. The companies that are having problems finding and retaining workers now will have even more problems if the total worth of the compensation package they're offering (in real dollars) goes down.

You don't need to be a unionized worker to notice that your salary can buy less and less stuff every year.

Re: In Fed and Out, Many Now Think Inflation Helps

#92

Post by TreyS »

enoch_r wrote: post #53

Absolutely no discussion of inflation is complete without recognition of the fact that inflation and inflation expectations are at historically low levels [1] right now. Economists aren't arguing that we should inflate our way out of debt--they are arguing that we should return to the historical norm. Of course, it's possible that these economists are secretly just pushing inflation as the "hidden tax" we're all up i…

"it does raise questions about why the school's arguments which seem so utterly convincing to so many people, don't manage to gain many converts among people who research the subject professionally."

I think it would be easier to convince people with no physics knowledge that a bowling ball falls faster than a golf ball. Intuitively, it seems that bowling ball should fall faster. Austrian economics seems to follow a similar thread. It's more intuitive and easier to grasp than the economics taught in the textbooks, but doesn't have much data to validate it.

Re: In Fed and Out, Many Now Think Inflation Helps

#93

Post by jayfuerstenberg »

snowwrestler wrote: post #75
jswinghammer wrote: post #8

Given that the entire point of the Federal Reserve is to promote inflation it's probably good that they think it's a good idea-otherwise why do they think that they exist? The whole problem is that inflation is theft. You are basically having your property taken out from under you without realizing it. It's historically been very popular as a means of taxing the public without them realizing that's what you're doing.…

Inflation is only theft if you insist on storing value in cash--a financial instrument that is not designed to hold value. A major reason to manage for low, consistent inflation is to train people to put their money into real assets.

I agree that people should get into real assets but this sounds a lot like it's okay to beat your kids in order to train them to run faster.

Re: In Fed and Out, Many Now Think Inflation Helps

#94

Post by lsc »

Mikeb85 wrote: post #31
ams6110 wrote: post #18

Earlier quoted context omitted.

Exactly. Inflation is a painless (for the government) way out of the debt problem the government itself has created. That's why they favor it, nobody has to make any hard choices, and the middle and lower income families get screwed, again, because everything now costs more.

Inflation actually favours the middle and lower income families if they own a house, have any debt, or any investments. Which of course is most of them.

Why is this down-voted? Higher inflation has historically been considered a populist idea. The idea being that the poor had fixed-interest rate debt, and if you have fixed-interest debt, inflation is very good for you (and deflation is brutal)

I mean, there are counter arguments, but the idea that inflation favors the poor has been the standard, conventional wisdom for as long as I am aware, and this discussion has been going on for a long time. Read up on bimetallism (the most interesting part, I think, is the 'free silver' movement, which was the 'helicopter[1]' Bernanke of it's day.)

[1]Now, we haven't had significant inflation on Bernanke's watch, and really, he is pretty mild. I just... well, had to make a joke about free silver, and the hard money folks are awful riled at Bernanke. When Bernanke was appointed, it was thought that he would be much more aggressive than he has been. His PhD thesis focused on how to deal with the zero lower bound (which is to say, how to increase the money supply when interest rates are already at zero.) This caused some people to fear that he would cause massive inflation. He has also talked about ways to expand the money supply as the fed chairman, in which he references Friedman's "helicopter drop"

his thesis: http://dspace.mit.edu/bitstream/handle/1721.1/29839/05915220...

speech in which he makes the 'helicopter' comment: http://www.federalreserve.gov/boardDocs/speeches/2002/200211...

Re: In Fed and Out, Many Now Think Inflation Helps

#95

Post by jayfuerstenberg »

mistermann wrote: post #61
tokenizer wrote: post #47

Earlier quoted context omitted.

I'd recommend Peter Schiff or Max Kaiser for an interesting look into the Fed's QE policy minus Mainstream Media hype/ The problem with the FED, and every Keynesian economist is that they think the US will indefinitely be the world currency reserve, and that 5,000 years of gold based monetary policy is less stable than the post war economics that have given us rising inequality, lowering employment, indefinite QE, Ch…

Recent history would seem to indicate the US can somehow simply buy their own debt. It seems impossible to me but its been working so far.

Well the US is exporting its debt (counterintuitive as that sounds) overseas by buying goods made abroad.

If I recall correctly 40% of US currency is actually outside the country.

Re: In Fed and Out, Many Now Think Inflation Helps

#96

Post by TreyS »

ekianjo wrote: post #80
cotsuka wrote: post #60

Earlier quoted context omitted.

Austrian school not holding much weight with academics is like wondering why creationism doesn't hold much weight with academics. Lots of things can be explained with creationism, but it doesn't mean it's right. Many Austrian economists rail against the use of quantitative models and such. But without them, how can you measure the efficacy of your policies? Faith that the policy works... But most academics like to be…

Academics being funded by Keynesian politicians has surely nothing to do with it.

Anecdotal but I would imagine it's similar in reputable state schools in red states: Texas has very few Keynesians yet economics professors at the University of Texas are overwhelmingly Keynesian.

Re: In Fed and Out, Many Now Think Inflation Helps

#97

Post by philwelch »

pasbesoin wrote: post #23

My personal opinion going into this mess was that, sooner or later, the U.S. was going to inflate its way to a lesser impact of existing obligations. As it became clear that the big banks would remain... "sacrosanct", I figured that the inflation would start once they were out from under their own balance sheet woes with particularly with respect to lower performing loans and paper built thereon. Et voilà. TL;DR: The…

That's not inflation, that's the economic effect of the world starting to run low on petroleum.

Re: In Fed and Out, Many Now Think Inflation Helps

#98

Post by mistermann »

cotsuka wrote: post #78
mistermann wrote: post #72

Earlier quoted context omitted.

I'm not sure how this casts doubt on the Austrians or supports the Keynesians, or vice versa.

I'm saying calling something Austrian or Keynesian is inherently political. We should come up with economic models, whether they're Austrian, Keynesian, alien, or dumb, test them against data to see if they hold up, and refine until we get close. Aka, what scientists do. Great article the other day from Krugman about this very topic. Economics might be a science, but economists are not being scientists about it. http…

You can make models all day, and I think it should be done in the pursuit of knowledge, but to imply these models can accurately predict behavior is a bit naive IMHO.

Economics in a globally integrated economy are of similar complexity as weather, if not worse.

Keynesians have been driving the bus for quite some time now, if they have it all figured out as many seem to imply, why do so many things (deficits and debt plus extreme government interference in the bond market, as just a few examples) seem to continue to deteriorate.

I don't know if Austrians would do a better job, but to look down one's nose at them seems a bit delusional to me.

Re: In Fed and Out, Many Now Think Inflation Helps

#99

Post by jswinghammer »

snowwrestler wrote: post #75
jswinghammer wrote: post #8

Given that the entire point of the Federal Reserve is to promote inflation it's probably good that they think it's a good idea-otherwise why do they think that they exist? The whole problem is that inflation is theft. You are basically having your property taken out from under you without realizing it. It's historically been very popular as a means of taxing the public without them realizing that's what you're doing.…

Inflation is only theft if you insist on storing value in cash--a financial instrument that is not designed to hold value. A major reason to manage for low, consistent inflation is to train people to put their money into real assets.

No it isn't. It is theft if you are making wages at X price with the understanding that X bought you Y goods in return. If inflation drives up the costs for Y goods so you get Y-Z goods in return then suddenly you got less than you intended for your labor. In a free market prices generally fall.

In the current market they rise at random rates across sectors. Currently we have people spending a lot of time figuring out how to pay for medical care and higher education because that's where the inflation has hit the hardest.

Re: In Fed and Out, Many Now Think Inflation Helps

#100

Post by 7Figures2Commas »

enoch_r wrote: post #53

Absolutely no discussion of inflation is complete without recognition of the fact that inflation and inflation expectations are at historically low levels [1] right now. Economists aren't arguing that we should inflate our way out of debt--they are arguing that we should return to the historical norm. Of course, it's possible that these economists are secretly just pushing inflation as the "hidden tax" we're all up i…

Here's a question: how many "professional" economists sounded the alarm about the last bubble?
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