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Have we been thinking about inflation all wrong?

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Re: Have we been thinking about inflation all wrong?

#151

Post by dragonwriter »

scottiebarnes wrote: post #142
overtonwhy wrote: post #122

Earlier quoted context omitted.

Disregard new accounts that claim the sky will be falling. The debt will always be going up and there will always be inflation. That's how fiat currencies work. Research the federal reserve and it's stated objectives to understand why.

If the way fiat currencies work is constant devaluation in the name of increased short term spending, then it makes the currency utterly terrible to invest and save in in the long term. If this is how its supposed to work, then your money is a toxic asset which should be handed off as quickly as possible to someone else. And so if no one actually wants this asset, then it makes it valueless.

> then it makes the currency utterly terrible to invest and save in in the long term.

That's why it's called “current-sy” (only slightly joking) It's for current use as a medium of exchange. For investment/savings, you go to productive assets.

That's the whole point. Mixing those functions doesn't help anything.

Re: Have we been thinking about inflation all wrong?

#152

Post by spaetzleesser »

jonnycomputer wrote: post #146

It'd be one thing if we weren't seeing high economic growth at the same time as inflation. But we are. So maybe this is the thing we need to get labor back in a place where their salaries match their productivity.

“So maybe this is the thing we need to get labor back in a place where their salaries match their productivity.”

Otherwise all the economical growth is just BS for most people.

Re: Have we been thinking about inflation all wrong?

#153

Post by roenxi »

jbay808 wrote: post #57

When it starts to get really burdensome to keep your promises, the idea of breaking them gets really attractive. But that doesn't come for free. It costs credibility. The cost of central banks breaking their inflation-control commitment when inflation starts running hot, is that the market starts pricing in their unwillingness to raise interest rates. This fuels a whole bunch of other inflation feedback loops, and th…

> It costs credibility.

I enjoy the cut of the jib, but credibility isn't really that important. From memory, Argentina isn't credible. All that means is they have to pretend that they will pay high interest rates before people will lend to them. If the question is "can they pay back all their debts with real value?" angle the US position isn't credible either, the numbers have gotten too large. Doesn't mean much in practice.

The real issues with a default are:

1. A country is being run by people who don't believe that written words should decide what they do and who won't keep their promises even in the most watertight of cases.

2. Either the polity or political leadership are incapable of medium term planning.

3. The sort of people who think 10-30 years ahead are being tricked into making bad financial decisions.

So on the one hand a default doesn't matter to people who don't directly own the debt. On the other hand, if there is a default, a host of other problems are going to hit and the country won't be ready for them. It is a bad sign.

Re: Have we been thinking about inflation all wrong?

#154

Post by dragonwriter »

tharne wrote: post #150
giaour wrote: post #143

Earlier quoted context omitted.

Or for young wage earners who have significant student debt. Pretty much anybody who has more current liabilities than current assets can expect to benefit from some degree of inflation

> Pretty much anybody who has more current liabilities than current assets can expect to benefit from some degree of inflation Except for the fact that they're getting a pay cut year after year. This is why the general public gets so mad about inflation. Like another commenter mentioned, inflation screws over anyone who works for a wage.

> Like another commenter mentioned, inflation screws over anyone who works for a wage.

At worst, anyone who works for a fixed wage (and even then, the demand dynamics that create a fixed wage with inflation mean instead people just lose their jobs without inflation, because of the stickiness of nominal wages.)

Re: Have we been thinking about inflation all wrong?

#156

Post by oonerspism »

We will always be thinking about inflation wrong, if we consider it in isolation. (a rule true of most things, but I digress...)

Intrinsic to inflation is it's relationship with Interest Rates. The global pendulum swings to inflation for a phase, and then it swings back to high(er) interest rates for a phase. "The squeeze" (or "the expansion"!, depending upon which side of the equation one falls) is put on in one direction, and then, some years later, the tables are turned and the squeeze is eventually applied in the opposite direction.

So to consider inflation as though it were an isolated system able to be managed in it's own right will always be problematic, in the way of trying to change one cog of a clock mechanism (without considering the whole).

Re: Have we been thinking about inflation all wrong?

#157

Post by jbay808 »

dnautics wrote: post #132
jbay808 wrote: post #57

When it starts to get really burdensome to keep your promises, the idea of breaking them gets really attractive. But that doesn't come for free. It costs credibility. The cost of central banks breaking their inflation-control commitment when inflation starts running hot, is that the market starts pricing in their unwillingness to raise interest rates. This fuels a whole bunch of other inflation feedback loops, and th…

> If your goal is stability this is the thing to be questioned. Stability, at what cost? Is it worth tearing up the environment, tricking people into buying shitty disposable consumer products, financializing the economy, and stealing from the poor and unborn to give to the rich in the here and now? I don't really see anyone challenging the tradeoffs of stability in the economic discourse, it's just so often given as…

Hmm; all of those things are what I would associate with breaking the stability promise, that is, reneging on inflation control and holding interest rates low. That encourages borrowing and propels the price of assets.

I'd expect your objection to be associated with growth at all costs, not with stability.

Re: Have we been thinking about inflation all wrong?

#158

Post by robbedpeter »

dnautics wrote: post #132
jbay808 wrote: post #57

When it starts to get really burdensome to keep your promises, the idea of breaking them gets really attractive. But that doesn't come for free. It costs credibility. The cost of central banks breaking their inflation-control commitment when inflation starts running hot, is that the market starts pricing in their unwillingness to raise interest rates. This fuels a whole bunch of other inflation feedback loops, and th…

> If your goal is stability this is the thing to be questioned. Stability, at what cost? Is it worth tearing up the environment, tricking people into buying shitty disposable consumer products, financializing the economy, and stealing from the poor and unborn to give to the rich in the here and now? I don't really see anyone challenging the tradeoffs of stability in the economic discourse, it's just so often given as…

A significant part of answering that question in a good way depends on how exactly the current policies and infrastructure are responsible for the unprecedented-in-human-history decline in suffering and extreme poverty and increase in population and average quality of life.

To frame the question - in order for things to be as good as they are, is it required to have a system in which winners like Jeff Bezos are inevitable, or in fact necessary for the system to function?

You can plan and abstract theories and rule changes and ethics and morals, but human systems are chaotic and strange.

Fallibility and mistakes and whim make economics at scale a really hard thing to predict.

Another question would be if you think things are relatively good, does switching to better policies run the risk of destabilizing and losing all the relative gains for extended periods before the better system breaks even?

Re: Have we been thinking about inflation all wrong?

#159

Post by sirspacey »

kkoncevicius wrote: post #73
sleepingadmin wrote: post #50

Earlier quoted context omitted.

>The best one-sentence description of inflation I've heard is: inflation is a hidden tax on savings. People who save money are hurt the most. It's as if the newly printed money is generated by taking a bit from anyone according to how much cash he/she has stored away. Who are the people who save money? Or rather, more specifically are either holding cash or in bonds whose real-yields are very negative? Tourists, down…

Everyone is quick to talk bad about the "ultra rich". Ultra rich have means, they are intelligent, they have advisors, and they know how to adapt. If economy turned towards deflation those ultra-rich would liquidize their assets, store money, and benefit from that instead. When two opposing processes can benefit the rich I would say it's not in the process but in how you react to the undergoing changes and how you ad…

Yes and no. It slows the pace of expansion, but it doesn’t not necessarily mean they liquidate. I’ve yet to meet a billionaire who wants their net worth driven by the bond market.

Re: Have we been thinking about inflation all wrong?

#160

Post by spaetzleesser »

whakim wrote: post #3

The basic assumption here is that inflation reduces inequality. That's plausible (it certainly was a strong contributing factor to the great reductions in inequality that occurred between 1920 and 1950). But inflation is also an extremely blunt-force instrument: lots of people who aren't very wealthy also get hurt. I'm not sure why we'd want that in a world where fiscal policy (i.e., taxation) exists, unless we've ju…

In the Germany of the 1920s inflation increased inequality enormously. People who had some assets had to start selling them off until they had nothing. Only people with large reserves could survive this and actually prosper because they could buy up more assets. Inflation kills the middle class who was on the way up. Germany still has a trauma from the 1920s. And rightfully so.

Also: the wealthy will steer policy towards their benefit when things get tough for them. The bailouts of 2008 clearly showed this.

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