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

In Fed and Out, Many Now Think Inflation Helps

nytimes.com

Post reply on HN
Print view View original

141–150 of 236 posts

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

#141

Post by ra »

jswinghammer wrote: post #110
ra wrote: post #63

Earlier quoted context omitted.

"Given that the entire point of the Federal Reserve is to promote inflation" No, that's not what they do. Too much inflation is bad, but you need a little bit. So they seek to maintain a "healthy" amount of inflation. Typically around the world this is something like 2-3%. http://en.wikipedia.org/wiki/Inflation_targeting

Real monetary expansion is much greater than 2-3% on average. The price inflation they calculate might be 2-3% but look at college or healthcare costs. That new money finds a home somewhere and I'll tell you now that that's where it ends up these days.

I don't know about the cost of healthcare or college in the US, but those are affected by other non-inflationary factors.

Eg: political changes, supply and demand, changes to the definition of the service. i.e. Imagine the difference in what treatments are covered by healthcare today as opposed to say 25 years ago.

Don't forget the "new money" also finds a home through population increases and export of actual money (black and white market).

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

#142

Post by [deleted] »

drakaal wrote: post #135
jafaku wrote: post #90

Earlier quoted context omitted.

> Deflation means houses and capital assets are worth less than they were before, so people with a positive net worth are "hurt". That's wrong, houses can be bought with less money because the purchasing power of money increased, not because houses are losing value. In a deflationary economy, the owner of a house could be richer if instead he holds money. By holding the house instead of money he has the same wealth (…

You countered your own argument. If your house stays at $100k but there is 5% deflation. You made 5%. If your house is worth $100k but falls to $95k because of deflation, your networth has dropped, and your buying power has stayed the same. In the first scenario you can do a happy dance, in the second scenario, if the house is 100% paid off you aren't out anything. If you have paid off 75% of the house you are behind…

[deleted]

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

#143

Post by hudibras »

jayfuerstenberg wrote: post #112
hudibras wrote: post #45

Any comment in this thread that doesn't contain the words "liquidity trap" can safely be ignored. I know that a lot of HNers don't believe that economics is a real science and would rather go with gut feelings or whatever Ron Paul says, but please take a few minutes to read the seminal paper on liquidity traps: http://www.brookings.edu/~/media/projects/bpea/1998%202/1998... You may not agree with it, but at least you…

I live in Japan and the Japanese government, under its Abenomics movement, decided on another round of QE and injected 20% more currency into the market earlier this year. I get that the yen is too strong and needs to weaken in order to protect the trade balance between itself and other countries. But the inflation eventually reached us consumers and every day items have gotten that much more expensive. Now my 10,000…

The inflation rate in Japan since last year (the "Abenomics" effect) has only moved from -1% to 1%, not exactly a huge effect. http://www.tradingeconomics.com/japan/inflation-cpi

Yet even this small amount of increased inflation (or technically, the expectations of future inflation) is the primary driver behind the recovering economy. The additional currency in the market is irrelevent and is the whole point of this exercise: it does very little or nothing in a liquidity trap.

For what it's worth, I also live in Japan and I haven't seen anything like you have experienced regarding your purchasing power. My rent costs the same, my train and bus tickets are the same, can't tell any difference at the grocery, etc.

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

#144

Post by sien »

mistermann wrote: post #98
cotsuka wrote: post #78

Earlier quoted context omitted.

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…

Economics forecasting is harder than the weather.

How do you build an economic model that can deal with the introduction of mobile phones? What about some new energy source that cut the cost of energy dramatically? What about the fall of Communism?

Also the weather doesn't have expectations that react to the weather forecast. Economic models get incorporated into people's expectations and this feedback can actually alter the economy. If you read up on The Phillip's Curve and stagflation you can see an example of this interaction.

Weather is actually decent for forecasting. You can constantly get new data to verify your model against. If you are forecasting for a week you have hundreds of tests to do per week.

Any forecasting where the predictions matter over the scale of decades is harder because the time span means you will have less data available for validation.

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

#145

Post by [deleted] »

jswinghammer wrote: post #109
7Figures2Commas wrote: post #100

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.

[deleted]

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

#146

Post by gruseom »

7Figures2Commas wrote: post #100
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?

Dean Baker called the housing bubble as early as 2002:

http://www.cepr.net/index.php/reports/the-run-up-in-home-pri...

By 2004 he even sponsored a $1000 contest for whoever could make a good case that there wasn't a bubble:

http://www.nytimes.com/2004/01/18/business/personal-business...

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

#147

Post by BrandonMarc »

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.

Sure, if you have some money to start with. If you're at the lower rungs of the ladder, inflation hurts you even worse.

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

#148

Post by clarky07 »

acslater00 wrote: post #116

I'm happy to see this article written, and it will hopefully start to change the attitude of evaluating central bank actions through the lens of 'high inflation bad, low inflation good'. This whole debate is an unfortunate example of what's called "Partial Equilibrium Reasoning" (as opposed to "General Equilibrium Reasoning"). All things being equal, higher inflation is bad. That's clear. But all things aren't equal,…

>This dynamic is why the Fed needs to break the attitude that its job is to keep inflation as low as possible.

I'm not sure where you've been the last 5 years, but the current Fed has not in any way had a policy of trying to keep inflation low. Not in the slightest. Bernanke is extraordinarily paranoid about deflation and as such has had 0 interest rates since the crisis started. In addition to that, they are printing 100's of billions of dollars and piping it to the markets. The balance sheet of the Fed is in the trillions now. This is the exact opposite of trying to keep inflation low.

Now, I'm not going to argue for or against this policy here, I'm just pointing out that they haven't been trying to keep inflation low. That being said, there is ample evidence that "high" inflation sucks. There is also ample evidence that deflation sucks.

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

#149

Post by shard972 »

rz2k wrote: post #140
7Figures2Commas wrote: post #100

Earlier quoted context omitted.

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

Clearly meant as a rhetorical question, what do you really mean by it? How many auditors caught the problems with Worldcom, Enron or Tyco? Extremely small minorities did, and yet people don't question whether 'accounting works, but they may question the incentives for companies to provide honest books to auditors, and the compensation awarded independent auditors. Let's say that you need someone to think that it will…

> Clearly meant as a rhetorical question, what do you really mean by it?

I think he means, out of the establishment economists (eg: Federal reserve members, Columnists, Government economists, etc.)

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

#150

Post by phyalow »

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…

Krugman<-Spew
Post reply on HN