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Inflation is differential and restructuring (2021)

economicsfromthetopdown.com

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Re: Inflation is differential and restructuring (2021)

#111

Post by [deleted] »

pjc50 wrote: post #84
frankfrankfrank wrote: post #57

Earlier quoted context omitted.

The thing that has nagged at you as it has me, is the simple fact that not only was “economics” conjured and molded by and for the interests of the upper echelon of society, to control the language and thoughts about its terms; but that at the core of it, it’s nothing more than fraud, deception, con artistry. That’s all inflation is too, fraud that if you would commit it, e.g., you added filler to some product you de…

> then more of those coupons are just forged than correspond to actual work having been done Is this Karl Marx's critique of inflation?

[deleted]

Re: Inflation is differential and restructuring (2021)

#112

Post by yxhuvud »

onlyrealcuzzo wrote: post #61
lordnacho wrote: post #39

Wow, this was the article I was looking for, it summarizes a number of thoughts about economics that I'd been having since the undergraduate days: - There's an authority about the field that really isn't deserved. The models are not made properly, and there's a lot of hand-waiving. I studied economics with a class of engineers and everyone pointed this out. - The pop-sci version of economics is a bunch of easy quips.…

The article talked a lot about winners and losers. It's interesting that there's no mention of debtors and creditors. The biggest winners in hyperinflation are people in massive debt. It's inflated away to nothing. The biggest losers are creditors for the opposite reasons. When inflation is just abnormally high (~8%), your debt doesn't get deflated to nothing, but you're getting a ~6% discount.

The most common reason for hyperinflation is that the productive capabilities of society has gone down the crapper. That mean everyone is a loser. Some more than others, but even the debtors are losers in that situation.

Re: Inflation is differential and restructuring (2021)

#113

Post by throw0101a »

dataflow wrote: post #40

At the risk of going off-topic: I'd also like someone to write a similar blog post providing a convincing explanation of why the national debt supposedly isn't wrecking the US's future big time. To me it absolutely is, because you can only keep borrowing money and paying the (increasingly large) interest on it for so long. Eventually it'll exceed your revenue and you have no choice but to print money and hyperinflate…

> To me it absolutely is, because you can only keep borrowing money and paying the (increasingly large) interest on it for so long.

Define "so long".

Not too long ago the UK refinanced debt from South Sea Sea Bubble (1700s), Napoleonic and Crimean Wars (1800s), and World War 1 (1910s):

* https://www.theguardian.com/business/blog/2014/oct/31/paying...

There were points in British history that debt hit >250% of GDP:

* https://en.wikipedia.org/wiki/United_Kingdom_national_debt#M...

And people lived through it all and the country is still around, and not a bad place to have lived, all things considered, during its history. Most of the times you may not have wanted to live there were unrelated to finances (e.g., Civil War, if you were Catholic during the 1500s).

Re: Inflation is differential and restructuring (2021)

#114

Post by helen___keller »

onlyrealcuzzo wrote: post #61
lordnacho wrote: post #39

Wow, this was the article I was looking for, it summarizes a number of thoughts about economics that I'd been having since the undergraduate days: - There's an authority about the field that really isn't deserved. The models are not made properly, and there's a lot of hand-waiving. I studied economics with a class of engineers and everyone pointed this out. - The pop-sci version of economics is a bunch of easy quips.…

The article talked a lot about winners and losers. It's interesting that there's no mention of debtors and creditors. The biggest winners in hyperinflation are people in massive debt. It's inflated away to nothing. The biggest losers are creditors for the opposite reasons. When inflation is just abnormally high (~8%), your debt doesn't get deflated to nothing, but you're getting a ~6% discount.

> When inflation is just abnormally high (~8%), your debt doesn't get deflated to nothing, but you're getting a ~6% discount.

That’s only true for fixed rate debt, which is common to think about for Americans due to the popularity of the 30 year fixed rate mortgage but in many countries ARMs are more popular or most popular.

In theory, fixed rate debt products should be priced in to reflect interest rate risk as well, so it’s hard to say the creditors are losers per se.

Re: Inflation is differential and restructuring (2021)

#115

Post by simonh »

ibeckermayer wrote: post #101
klipt wrote: post #86

Earlier quoted context omitted.

> the value of each coupon becomes more, not less, over time Deflation has historically been a bad thing every time it's happened.

Nonsense. Sure, deflationary shocks can be calamitous, like the Great Depression or the GFC. But steady deflation over time is logically the natural and good outcome of improvement over time—as technology advances and we get better at producing things, they should get cheaper, on average. Instead, our savings are buying us LESS over time, so that government can buy votes, fund wars, bail out defense contractors, phar…

Devaluing in-the-mattress savings is a good thing, hence all the many government schemes to incentivise small scale productive investment. Here in the UK that's through tax free consumer savings accounts like ISAs, but also pensions. Savings that are invested do work in the economy fund businesses, promote economic activity and aid job and wealth creation. Stuffed mattresses are a boat anchor on the economy.

Having said that, deflation isn't always the awful spectre of doom it's sometimes made out do be, especially if it's due to technological improvements or increased supply. As the article we're all notionally discussing explains, inflation in a reasonably well managed economy is generally differential and reflects shifts in the structure of the economy.

Re: Inflation is differential and restructuring (2021)

#116

Post by yxhuvud »

lucozade wrote: post #94
lottin wrote: post #51

Inflation is a change in the price level, i.e. an average. TFA argues that inflation is misleading because prices don't change uniformly, and therefore inflation doesn't fully explain every change in the price of every possible commodity and service. I think it's a straw man argument, because nobody claims that inflation fully explains changes in the prices of commodities. Instead, measuring inflation allows us to de…

That's not what he's arguing. He's saying that restricting money supply as a solution to inflation only makes sense if the average price inflation represented price movements well. His contention is that it doesn't so restricting money supply isn't a solution. I find that argument reasonably persuasive. His other point about inflation indices themselves being effectively useless, because of the inter price variabilit…

The points made about variance being a measure of structural change in society, and that it is what actually is painful about inflation, was also very interesting.

Re: Inflation is differential and restructuring (2021)

#117

Post by throw0101a »

kklisura wrote: post #75

As an absolute layman to this field, the Friedman’s "inflation is ‘always and everywhere a monetary phenomenon’" has appeal to me in that it offers a (simple?) solution: "government austerity" as noted in the article. Whenever I read other views on inflation and even this article, they fail on providing any solution for either fixing or taming the inflation.

> As an absolute layman to this field, the Friedman’s "inflation is ‘always and everywhere a monetary phenomenon’" has appeal to me in that it offers a (simple?) solution: "government austerity" as noted in the article.

Government austerity is bad policy and has been for just about all of its history:

* https://en.wikipedia.org/wiki/Austerity:_The_History_of_a_Da...

(Of course this doesn't mean spending should be done without thought.)

Re: Inflation is differential and restructuring (2021)

#118

Post by yxhuvud »

dividedbyzero wrote: post #58
pjc50 wrote: post #48

Earlier quoted context omitted.

> said in a lot of places that then went through extreme political turmoil Well, yes; inequality and shortages that the elite refuse to address lead to a lot of the classic Latin American revolutions, as well as the earlier Chinese revolution and Russian revolution. This is the concept referred to as "redistribution is insurance against pitchforks". > wilful ignorance on the part of the elites This really characteris…

> but the money is simply deleted What an interesting idea. Is there any historical precedent for actually deleting/destroying money?

Banks do it every day. It is what happens when someone repays a loan. Likewise money is created when that loan is created.

Re: Inflation is differential and restructuring (2021)

#119

Post by throw0101a »

Terry_Roll wrote: post #23

Inflation, in all theories, doesnt measure the change in quality of the product either. Planned obsolescence is a stealth and legal form of product destruction that the buyer doesnt know about until after they have purchased something which is why the saying exists "buyer beware".

> Inflation, in all theories, doesnt measure the change in quality of the product either.

Actually it does. See The Canadian Consumer Price Index Reference Paper by StatCan, chapter seven, "Quality Change and Adjustment":

* https://www150.statcan.gc.ca/n1/pub/62-553-x/2014001/chap/ch...

Re: Inflation is differential and restructuring (2021)

#120

Post by lesam »

helen___keller wrote: post #114
onlyrealcuzzo wrote: post #61

Earlier quoted context omitted.

The article talked a lot about winners and losers. It's interesting that there's no mention of debtors and creditors. The biggest winners in hyperinflation are people in massive debt. It's inflated away to nothing. The biggest losers are creditors for the opposite reasons. When inflation is just abnormally high (~8%), your debt doesn't get deflated to nothing, but you're getting a ~6% discount.

> When inflation is just abnormally high (~8%), your debt doesn't get deflated to nothing, but you're getting a ~6% discount. That’s only true for fixed rate debt, which is common to think about for Americans due to the popularity of the 30 year fixed rate mortgage but in many countries ARMs are more popular or most popular. In theory, fixed rate debt products should be priced in to reflect interest rate risk as well…

Creditors definitely do lose money when they price debt at 2% but inflation runs at 7%.

Talking about mortgages misses the larger fixed rate bond market (government and company long term debt).

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