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What the Great Inflation (1965-1982) taught us

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Re: What the Great Inflation (1965-1982) taught us

#121

Post by galaxyLogic »

BizyDev wrote: post #24
bfung wrote: post #7

Earlier quoted context omitted.

> it is a self-correcting problem because as prices go up people will no longer have as much money. It’s not as simple as that, and thinking about the second and third order follow-ons is important. History has taught us it goes something like this: 1. People have more money, so the majority spend it (instead of saving it). 2. Companies, seeing more demand, but can’t expand supply as quickly, raise prices. 3. People…

Certainly what you point out is probably part of the problem but it is, in my opinion, certainly not the biggest part. For me, current inflation is caused by the fact that people have too much money the do not need and they invest it instead of buying goods. This leads too more speculation on everything, stocks, cryptos, energy, real estate and even staple foods. In the last 10 years every of those indexes has gone m…

You make a great point if I understand it correctly:

Problem is not that people have too much money. Problem is that (some) people have more money than they need.

Re: What the Great Inflation (1965-1982) taught us

#122

Post by galaxyLogic »

AnimalMuppet wrote: post #107
Aunche wrote: post #81

Earlier quoted context omitted.

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.

It is easy to understand that way. If people lose their jobs that will reduce demand which will reduce inflation. The goal of Fed is to reduce inflation and one way of getting there is to slow down the economy which causes more unemployment.

But Fed has another goal too which is preventing unemployment. They are in a twist.

Re: What the Great Inflation (1965-1982) taught us

#123

Post by nostrademons »

galaxyLogic wrote: post #119
nostrademons wrote: post #103

Earlier quoted context omitted.

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. Ev…

> 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 price The first business receiving inflated prices does not really affect what their suppliers are charging them does it? When a business makes more money and if there is competition they can afford to sell at a lower price and still make profit. And they…

It does affect them, but in non-uniform ways. Basically if you are the only one of your supplier's customers that is making more money, you can pocket the windfall as profits. If all of your supplier's customers are making more money, your supplier raises their prices to capture that (modulo the existence of their competitors that might compete to hold prices down). If some of your suppliers customers are making more money and some aren't, or if your supplier has competitors that are willing to underbid them, you split the difference.

Take a look at Bay Area home prices & inflation for a consumer example. When only startup founders were making multi-million-$ payouts, the price of homes remained reasonable. When everyone started making multi-millions, the price of homes rose to multi-million-$ levels.

Inflation, by definition, means that everybody or at least a large segment of the population has more money, so it's closer to the second scenario. The non-uniformity of competition dynamics is part of why some people reported 50% raises in 2021 but other people got nothing, though.

Re: What the Great Inflation (1965-1982) taught us

#124

Post by credit_guy »

arc-in-space wrote: post #116
BoiledCabbage wrote: post #112

Earlier quoted context omitted.

You were right, up until you were wrong. Most peeps looking at this situation ignore (or are unaware) of the first level issue. It's it demand side or is it supply side. Demand side can rebalance eventually and is less harmful. Supply side means everyone is now poorer and it's more painful on top of also including a unequal distribution of that pain. The 1970s was supply side - driven most significantly by the fallou…

It... sounds to me like you're agreeing? What you're describing in the second part of your post is exactly what I mean by supply side inflation. What's your issue with what I said?

I'll step in with a disagreement: CPI is a fact. The attribution to CPI to demand and supply is just a theory. And it's not all that relevant anyway.

The Fed has a job to do by law. Who cares who or what caused the inflation? Powell explains after each FOMC meeting that inflation is bad for the economy, and in order to have a healthy economy the inflation has to be reduced back to reasonable levels, around 2%. And the Fed will raise rates and keep them there until inflation is tamed.

He admits that there's supply side, but he repeatedly said the Fed can only control the demand side, and that's what they are doing.

Re: What the Great Inflation (1965-1982) taught us

#125

Post by arc-in-space »

credit_guy wrote: post #124
arc-in-space wrote: post #116

Earlier quoted context omitted.

It... sounds to me like you're agreeing? What you're describing in the second part of your post is exactly what I mean by supply side inflation. What's your issue with what I said?

I'll step in with a disagreement: CPI is a fact. The attribution to CPI to demand and supply is just a theory. And it's not all that relevant anyway. The Fed has a job to do by law. Who cares who or what caused the inflation? Powell explains after each FOMC meeting that inflation is bad for the economy, and in order to have a healthy economy the inflation has to be reduced back to reasonable levels, around 2%. And th…

I don't particularly disagree with any of this from the perspective of the Fed, but that is a different discussion entirely - the distinction *is* crucial for the purpose of answering the original question of 'how is inflation bad'.
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