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In Fed and Out, Many Now Think Inflation Helps

nytimes.com

121–130 of 236 posts

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

#121

Earlier quoted context omitted.

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 ou…

> 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.

That's also because of the American Government's idiotic policies on those two "items", in my opinion.

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

#122

Earlier quoted context omitted.

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

Zero unless they are rewriting history to claim they saw it 6 months to a year out when it was obvious to anyone who wasn't drunk on soaring home and equity prices.

http://en.wikipedia.org/wiki/Peter_Schiff

He saw it in 2007

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

#123
post #69

Earlier quoted context omitted.

And oil prices have gone up just as much. Once upon a time oil was a dollar a barrel... Come on, inflation increases the value of all commodities, gold, silver, oil, corn, wheat, etc... It's not like gold is special.

Gold is shiny though. How could it not be special?

Yeesh, goldbugs make me giggle sometimes.

It is a pretty cool (pun) metal though, I'll give them that.

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

#124

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.…

Exactly. Continuous inflation is frankly the only plan the government has to deal with the national debt. Borrow now, and in the future when your currency is weaker and less valuable, the amount borrowed will seem smaller (and in pragmatic terms will be by that point). Of course it's destructive to the average person / taxpayer, but who cares about them? Nobody does who's in charge, that's for sure.

Economic growth is the only plan to deal with the debt. If your debt financing costs you 1% of GDP/year but your GDP grows at 3%/year eventually the debt will become insignificant vs. GDP even if it is never paid off.

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

#125

Earlier quoted context omitted.

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

How would an economist get information about a bubble? Magic? Until they burst, anything you could say about them is speculative. Everyone talks about how education is the next big one, but education and real estate are such different markets they might as well be on different planets. It's impossible to know what's going to happen until it happens. The housing bubble caught a lot of really smart people off guard. Ho…

Interesting comment. If I am to understand it correctly, and follow it to its logical conclusion:

1. Economists have no tools for studying the topics that they're supposed to study, such as asset prices.

2. They are unable to make predictions because doing so would be "speculative."

3. Because we can't know what is going to happen until it happens, we might as well do away with professional economists because they can provide no input of practical (read: forward-looking) use. They can only try to explain why what happened happened.

As for the requirement that one have "special, insider information" to have predicted the housing bubble, this is simply not true. There were a number of people from a variety of professions who recognized the housing bubble. One, Robert Shiller, to answer my own question, is an economist who also predicted the .com collapse[1].

There were also politicians[2] and market participants who predicted a collapse. Some of the latter, like John Paulson, who made billions betting against subprime, didn't publicly promote their beliefs, but others, like Peter Schiff[3], did.

[1] http://www.nytimes.com/2005/08/21/business/yourmoney/21real....

[2] http://www.youtube.com/watch?v=mnuoHx9BINc

[3] http://www.youtube.com/watch?v=jj8rMwdQf6k

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

#126
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?

The more interesting question is: How many "professional" economists lost their jobs, or at least the esteem of their industry, for not seeing the housing bubble?

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

#127
post #92
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…

> data to validate it.

You've accidentally illustrated the disconnect. Because the fundamental disagreement between the Austrians and the more mainstream academic schools of thought is epistemological. Data can only settle differences when both sides agree on the epistemological ground rules.

I have an advanced science degree. I'm not afraid of math, and I've plowed through Keynes "General Theory". It doesn't come close to passing the sniff test for basic scientific rigor. It can't.

Economists can't control their variables, and they have no way of knowing what their error bars are. They can make empirical models that work most of the time, but they can't know what regime those models are valid for, and where the breaking point is. There is every indication that economic systems are chaotic, and prone to sudden discontinuous phase changes.

Worse, unlike a chaotic system like weather, the underlying primitives are not at all primitive. We can say very precisely how a cubic meter of air (for example) behaves under widely varying conditions. This is why our weather and climate models keep getting better -- you can use more processing power and better algorithms and use the basic laws of physics to get the right answers, despite a system of incredible complexity.

But economists have nothing like that to work with. There is no meaningful sense in which we have good statistical models of human economic behavior. We have very limited snapshots, that are invalidated the moment customs or conditions change beyond the originally observed regime.

All of this means that you can't even build empirical models unless you have a preexisting, a priori theory of economic cause and effect, and you have no experiments strong enough to falsify bad a priori assumptions. The Austrian argument is simply that all economists are actually engaged in a priori theorizing, despite their protestations claiming to be empiricists.

I find the assertion that the Austrian school is more "intuitive" and accessible to be silly. Nobody who has actually tried to study the primary texts would claim so. It takes a pretty strong background in philosophy just to follow the first several chapters of Human Action -- precisely because they focus on epistemological issues.

It doesn't require a conspiracy theory to explain the popularity of econometrics. Lots of social sciences spent the whole 20th century pretending to be as rigorous as physics and chemistry, to bask in the reflected glow of progress. Nobody likes to admit that their field has no experimental lodestone, and so drifts along as a popularity contest.

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

#129

Earlier quoted context omitted.

Average income grows faster than inflation because of real economic growth. In the U.S. we've had positive inflation numbers for most of the last 80 years, which has coincided with significant across-the-board improvements in standard of living.

Tell me again about that across the board improvement: http://www.bloomberg.com/news/2012-10-02/top-1-got-93-of-inc...

Sure, here's a short list off the top of my head of products and services that have become more widely available and affordable within the last 80 years.

- antibiotics

- health insurance

- air conditioning

- telephones

- TVs

- washing machines

- meat

- automobiles

- air travel

- medical imaging

- computers

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

#130

Earlier quoted context omitted.

It is a tax. It actually occurs the moment anyone takes out a loan in a fractional reserve system. The money is created from nothing at that moment. Government just tends to borrow huge sums of money through this mechanism.

Thinking that loans are evil is where misean ideology really breaks down. If you give me a piece of paper that says you will pay me X dollars a month for Y months, that piece of paper has value depending on how likely you are to honor the obligation.

Counterfeiting money is evil not because it hurts the counterfeiter, but because it takes away wealth from everybody else. Whatever the counterfeiter buys that is in limited supply, the rest of the people have to do without.

To the extent that debt resembles counterfeiting, it is evil. Here's an example: suppose you want to buy a prime waterfront property which is offered for auction. You've worked hard, saved your money in the bank, and you finally have enough deposited to make a substantial offer. At the auction, you meet Joe. Joe also wants the property. Joe hasn't saved as much money as you have, but he has a line of credit from the bank, a line of credit made possible because the bank is using your on-deposit money as a reserve against which it can loan out new money. Whether or not you win the auction, the price of the real estate is higher than it would otherwise be because of Joe's ability to bid against you. This seems wrong. Why should the fact that you saved money enable a non-saver to drive up your prices?

Note that without fractional reserve banking, Joe's line of credit would be backed by money deposited for a term. So the saver's prices should not be affected by the borrower, because the while the borrower is using the money, the saver has agreed not to use it. Under 100% reserve banking, a depositor never has to bid against his own deposits.

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