In the 80's we began to export our jobs, unions, and our pollution to the third world. Then, technologic unemployment in the form of personal computers and software killed off not just jobs, but cities and towns, like Detroit MI, Youngstown OH, Buffalo, NY. I argue that what killed inflation was not the Federal Reserve but rather the erasure of the middle class.
What the Great Inflation (1965-1982) taught us
101–110 of 125 posts
Re: What the Great Inflation (1965-1982) taught us
#102Earlier quoted context omitted.
As I note elsewhere, the U.S. unemployment rate dropped from 10.8% in 1982 (3.8% inflation) to 6.6% in 1986 (1.1% inflation).. so, inflation plunged while employment boomed... doesn't that completely upset that argument? Looking through the data, this doesn't really look like an outlier. The 1950s also had low unemployment and low inflation. (Note also that official unemployment numbers don't count the long-term unem…
over many periods there has been a short-run tradeoff. https://images.squarespace-cdn.com/content/v1/52cdc300e4b012... the phillips curve can shift, that is of course worthy of study. one interesting thing that happened in that period is oil prices collapsed. you either believe in supply and demand, or you don't. if you believe in it, then greater than full employment leads to rising wages, and inflation if productiv…
Supply and demand isn't monotonic across all categories, so treating demand for basic necessities like food and energy the same as demand for luxury items (gaming consoles say) makes little sense. Furthermore, if you look at that data, there's never been greater than full employment (and again, unemployment stats undercount the long-term unemployed).
Clearly, when energy prices spike, everything else follows (including food, which relies on energy for transport and production). Currently, fossil fuel interests are reaping record profits and share values have jumped over 50% since Dec 2021, an even bigger windfall than the defense contractors are pulling in. Ignoring this reality is hard to justify.
Re: What the Great Inflation (1965-1982) taught us
#103If inflation is caused by people having too much money then it is a self-correcting problem because as prices go up people will no longer have as much money. Soon enough they will not have too much money at all. So what is the real problem with inflation? Is it the economic inequality it brings to those who have to live on fixed income? I've been following the discussion on US TV and it seems they are saying we need…
It's not really self-correcting. When a consumer spends their money at inflated prices, it doesn't disappear. It goes to the business owner, who just received inflated prices for their goods. They, in turn, usually need to pay their suppliers, who can charge them inflated prices and make all their windfall profits disappear.
In my view, the main problems with inflation are:
1. It introduces a transaction cost tax. Every time a business raises prices, they need to spend time re-printing menus, marketing materials, websites, etc. They need to spend time renegotiating contracts. They need to re-figure their cost structure, and see if it still makes sense to use the same suppliers.
2. It disincentivizes long-term investment or planning over short-term consumption. If money's going to be worth less later, spend it now, regardless of whether you need what you're spending it on. Any long-range plans or savings will likely be invalidated by changing cost structures anyway.
As a concrete example, in times of high inflation the rational thing for an employee to do is to completely ignore their actual work and spend all their time focusing on getting a new job. Existing employees usually fall behind inflation, because they aren't actively negotiating their labor contracts and usually have no negotiating leverage anyway. The folks who make it up are those who job-hop. There is some employer out there willing to pay more than your current one; go find them, ask for 20% more than your current salary, and reap the windfall.
But if everybody does this, no actual work gets done, exacerbating any supply shortages. People become so incentivized to chase higher dollar values that they don't pay any attention to what those dollars represent.
Re: What the Great Inflation (1965-1982) taught us
#104Earlier quoted context omitted.
Inflation isn’t caused by too much money. It is caused by too much money velocity. That’s why the last huge injection of money in 2008 didn’t cause inflation. Folks sat on their money and didn’t spend it. Raising interest rates isn’t about causing unemployment (directly at least). It is about causing capital investment to be less lucrative than tying the money up in treasuries, reducing money velocity.
So why not go for the even simpler solution of forcing everyone to use checks which only clear once a week? If money velocity causes inflation forcing people to use less efficient methods of exchanging money should stop it.
Because people will compensate and take out more money.
Re: What the Great Inflation (1965-1982) taught us
#105So no talk about abandoning the gold standard, basically robbing everybody, and printing USD tokens?
Re: What the Great Inflation (1965-1982) taught us
#106Earlier quoted context omitted.
Agreed. Also misses the global effect of the Arab oil embargo over US support for Israel in the 1973 war, which was amplified further by the rise of OPEC and the concommitant rise in international oil prices. This in turn caused a balance-of-payments problem, which in turn led to petrodollar recycling and the military-economic alliance between Gulf Arab states and the USA (and also, though this is largely forgotten,…
Economics is a thin veneer we paint over thermodynamics because we haven't figured out how to drink oil and eat uranium yet. That high ranking economists can complete gloss over facts like that today is as scandalous as medieval chroniclers who talk about god punishing them for their wickedness with plague and famine without mentioning the sun was blocked out by a volcano for a decade.
> god punishing them for their wickedness with plague and famine without mentioning the sun was blocked out by a volcano for a decade.
You might be glossing over the fact that perhaps god did the punishing by way of volcano eruption. Just like how god was upset about what the dinosaurs did (the blasphemy of those guys!!) by punishing them with an asteroid.
Re: What the Great Inflation (1965-1982) taught us
#107Earlier quoted context omitted.
"I've been following the discussion on US TV and they say we need more unemployment." The Federal Reserve Chairman actually said this in a speech several months ago. Maybe if we sacrifice a lamb, things will get better. For this unemployment "solution" to work, more people have to be out of work. Sacrificial lambs in 2022. As things improve, "the rising tide will lift all boats". Except for the sacrificial lambs who…
Please share a source. I googled this with several different variations of quoting and only saw your HN comment
What the Fed actually said is that they need to raise interest rates to get inflation under control, even though that will likely cause greater unemployment. Various people twist this into the Fed saying that unemployment is the goal, instead of a negative side effect.
I don't know why people twist things in this way, but I've seen people repeatedly do so.
Re: What the Great Inflation (1965-1982) taught us
#108Since they tag 1965 as the start, the miss the largest change in US monitory policy. Surprised no one mentions it. Before 1965, 10, 25 and 50 cent coins made in the US was 90% silver. In 1965 all coins changed to a base metal. So that alone caused prices to rise in the 1960s to early 70s, and all silver coins disappeared from circulation. As others mention, 1973 and the again 1978(?) the oil shock happened, which put…
Nit: After 1965, half-dollar coins were 40% silver for a few years.
And, not long after, the dollar was convertible to a fixed amount of gold, either. I forget the year for that change.
Re: What the Great Inflation (1965-1982) taught us
#109Earlier quoted context omitted.
So why not go for the even simpler solution of forcing everyone to use checks which only clear once a week? If money velocity causes inflation forcing people to use less efficient methods of exchanging money should stop it.
Because people will compensate and take out more money.
It's almost like velocity of money doesn't exist or something.
Re: What the Great Inflation (1965-1982) taught us
#110Earlier quoted context omitted.
I'll try to give you the most charitable read, but even if I do, the simple fact that inflation is happening world wide seems like there's no way the cause can simply be what you said. It also ignores the flip side. COVID relief packages have also helped in many ways, it's unclear what outcome is worse, current inflation or what else would have happened without that assistance. Finally, I tried to do some fact checki…
The reason inflation is happening world-wide is because all major governments are following roughly the same policies. They all gave various forms of financial assistance to their citizens to get through the lockdowns. They also all held interest rates down, below their natural levels, to stimulate economic growth during the recovery. Except for Turkey and Russia, most of them are starting to raise rates again now th…
I think I have a bit of an issue with your overconfidence on this.
There's no proof of this it seems, while I agree it's one of many hypothesis, I find it crazy that you can jump from the hypothesis to conclude it's true just like that.
How do you simply dismiss all the other possibilities and compounding factors? There was a never seen before global pandemic, there was major disruptions in production and sourcing of goods, there was a major attrition and rotation of the labor force, there's the conflict with Russia, there were dramatically overvalued stocks, there was a trade war, there was a ton of people that died, etc.
I'd be suspicious of anyone who claims they just know the truth here, follow your guts isn't a proven way to determine what's really happening. I need some more proof, a simulation model, some actual experiments, etc.
The intuition of experts is often more likely correct, but economists are very divided here, to me it still feels like we don't know the cause of the inflation, we don't properly understand why it's happening and how to fix it.
Another aspect that's also been bothering me is that it isn't clear if inflation is a problem or not. Say it was caused by too much money having been injected, ok prices go up, but everybody has extra money, so it evens out, and doesn't really mean anyone is worse off.
Inflation doesn't really seem like it necessarily implies people are worse off, especially from the point of view of: would that person had been worse off if they'd have been evicted from their home during the pandemic and lost their job and not been given out support? Or are they worse off having had that help to make it past that and now have to deal with some inflation?
Especially assuming the inflation is due to increase money supply.
Like I just feel the actual effects of inflation are also not clear.
If inflation is driven by a loss of jobs, lack of goods, and difficulty sourcing materials, that's bad, even ignoring the inflation that's bad. If inflation is caused from too much money but there's still enough jobs, goods, and sourcing is easy and cheap, is that bad?