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Inflation is differential and restructuring (2021)

economicsfromthetopdown.com

171–180 of 215 posts

Re: Inflation is differential and restructuring (2021)

#171
I found this analysis wildly off-base. No classical economist would suggest that increasing the money supply raises all prices uniformly, but the author seems to think that by showing that different goods' price changes are not uniform, that some how proves inflation is not a monetary phenomenon. What?

From Thomas Sowell's Basic Economics - "Inflation is a _general_ rise in prices. The national price level rises for the same reason that prices of particular goods and services rise - namely, that there is more demanded than supplied at a given price. When people have more money, they tend to spend more. Without a corresponding increase in the volume of output, the prices of existing goods and services simply rise because the quantity demanded exceeds the quantity supplied at current prices and either people bid against each other during the shortage or sellers realize the increased demand for their products at existing prices and raise their prices accordingly."

Note the emphasis on general. There is no reason to expect that the outcome of customers bidding against each other, or producers increasing prices to meet new demand levels would be uniform across all goods and services, furthermore, you would expect that the existing climate of the time would wildly swing the actors' actions involved in these bidding & pricing exercises.

Re: Inflation is differential and restructuring (2021)

#172
I changed the linkbait title* to something that the article actually says, but it's a bit obscure. If there's a different phrase in the article that gives a clearer summary of what it actually says, we can change it again.

* "Please use the original title, unless it is misleading or linkbait" - https://news.ycombinator.com/newsguidelines.html

Re: Inflation is differential and restructuring (2021)

#173
post #166
post #156

Earlier quoted context omitted.

You haven't convinced me. After all... what about short-term bills? Are they considered savings or investment? What about FX accounts? What about operating capital? In other words... what is "not invested"? An axiomatic definition is imperative... not turtles all the way down. Savings and investment are largely synonymous so I stand by my initial statement. How can one expect to buy a house if they're precluded from…

Short term bills are serving a useful economic function and pay interest, because they are useful to people. When I was saving for a deposit on a house I kept the money in savings accounts and ISAs, again those serve a useful economic function and pay interest. The basic fact is that money is a financial instrument created and managed by a government for their own purposes. They create it and therefore obviously they…

Useful is in the eye of the behold... that's largely the point. No one can judge what or how "useful" something is besides the rightful owner of the asset. That includes cash (under a mattress), bonds, stocks, options, toilet paper, apples, bananas, etc.

If short term bills are serving a "useful economic function" and "in-the-mattress savings" does not... then there must be some asset that serves "the most useful economic function". No? Are you suggesting to know the true intrinsic value of all assets?

So, to assert that "Devaluing in-the-mattress savings is a good thing" one needs to assume that this objective way to measure value exists. Otherwise how can we [de]value things if we can't objectively valuate them?

Unfortunately, since the value theory of labor fails in so many ways where the subjective theory of value does not, it's hard to see your rational as anything but an appeal to authority.

Continuing a mindless appeal to authority just leads to tyranny. And therein lies the slippery slope.

Re: Inflation is differential and restructuring (2021)

#174

Earlier quoted context omitted.

> 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...

Oh goodie we have an outlier of a country which we can hold as an example of the majority of the world. So if Canada is so good at testing and knowing the change in quality they must be able to predict when something is going to fail. Right? So why do things pack up in Canada then?

> Oh goodie we have an outlier of a country which we can hold as an example of the majority of the world.

"Addressing the Quality Change Issue in the ConsumerPrice Index" by US BLS (1997):

* https://www.brookings.edu/bpea-articles/addressing-the-quali...

"On quality bias and inflation targets" in Journal of Monetary Economics (2014):

* http://www.columbia.edu/~mu2166/quality_bias/quality_bias.pd...

I'm sure all these peer-reviewed folks are wrong about calculating the CPI and measuring inflation, and you're right. That the academic researchers, pension funds, futures traders, bond traders, union negotiators… all those folks missed this. But you… you've blown the whole thing right open.

The other possibility is that perhaps the professionals know what they're measuring and the pros-and-cons of various metrics.

Re: Inflation is differential and restructuring (2021)

#175

I found this analysis wildly off-base. No classical economist would suggest that increasing the money supply raises all prices uniformly, but the author seems to think that by showing that different goods' price changes are not uniform, that some how proves inflation is not a monetary phenomenon. What? From Thomas Sowell's Basic Economics - "Inflation is a _general_ rise in prices. The national price level rises for…

It feels as though nowadays people feel entitled to make stuff up and have it be real through sheer force of repetition and words with multiple syllables. It's concerning that there are degrees in qualitative economics and non-programming computer science.

Re: Inflation is differential and restructuring (2021)

#176

Earlier quoted context omitted.

> […] but instead that they are shorter lived and not as large. Which of course does not match the historical record: * https://www.theatlantic.com/business/archive/2012/08/why-the... * https://archive.ph/FWKcL

The Atlantic article mentioned the necessity to abandon gold standard temporarily in order to fund WW1, however the American people did not want to enter the war and were unwilling to fund it directly. An alternate telling would be that abandoning the gold standard allowed the government to circumvent the will of the people and enter a war there was no appetite to get involved in.

> […] circumvent the will of the people and enter a war there was no appetite to get involved in.

You may wish to re-examine that claim:

> Germany also made a secret offer to help Mexico regain territories lost in the Mexican–American War in an encoded telegram known as the Zimmermann Telegram, which was intercepted by British intelligence. Publication of that communique outraged Americans just as German submarines started sinking American merchant ships in the North Atlantic. Wilson then asked Congress for "a war to end all wars" that would "make the world safe for democracy", and Congress voted to declare war on Germany on April 6, 1917.[4] U.S. troops began major combat operations on the Western Front under General John J. Pershing in the summer of 1918.

* https://en.wikipedia.org/wiki/American_entry_into_World_War_...

The declaration passed 82-6 in the US Senate, and 373–50 in HoR:

* https://en.wikipedia.org/wiki/United_States_declaration_of_w...

Sound like a fairly popular action.

Re: Inflation is differential and restructuring (2021)

#177

Earlier quoted context omitted.

> […] but instead that they are shorter lived and not as large. Which of course does not match the historical record: * https://www.theatlantic.com/business/archive/2012/08/why-the... * https://archive.ph/FWKcL

The article presents two graphs of arguably manipulated/unreliable CPI rates, and that's somehow being using as evidence for whether crises are larger or smaller? The article from the beginning uses obviously incredibly biased language throughout, it's a pure opinion hit piece; the author isn't even attempting to present an impartial view on the topic. It always amuses me how strongly people come out in opposition to…

> The article presents two graphs of arguably manipulated/unreliable CPI rates […]

And you can tell this because… ?

> […] the author isn't even attempting to present an impartial view on the topic.

Neither would someone who was arguing the Earth was round.

> It always amuses me how strongly people come out in opposition to the idea of the gold standard, when it demonstrably seemed to work for America, it powered the country from the time it was a collection of colonies to the time it had men driving buggies around on the moon.

No, it caused some huge boom and bust cycles, deflationary periods, and much suffering. It certainly made the Great Depression worse:

* https://www.nber.org/papers/w3488

Gold-as-currency was useful when we didn't know better, but we've moved on. See The Power of Gold: The History of an Obsession by Bernstein for a good history:

* https://www.goodreads.com/book/show/249245.The_Power_of_Gold

Re: Inflation is differential and restructuring (2021)

#178

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.…

Get some popcorn and enjoy the discussion.

The real point is that "inflation" is a badly defined term, and everybody uses a different meaning. So one person using the number measured by averaging the prices of a few real items says it's not purely monetary, while another using the value that converts monetary unities into real goods on the macroeconomic equations yells "what do you mean it's not purely monetary? It's defined that way, any real data was removed" (as a hint, you can't even measure that one).

If you get tired of this, there is a related discussion about the Keynesian investment multiplier. It's just as fun.

Re: Inflation is differential and restructuring (2021)

#179
post #148
post #142

Earlier quoted context omitted.

What is "in-the-mattress" savings exactly... besides one person's savings that another wants to spend differently? Who should be the ultimate judge of how capital is saved and invested? You? The government? What about the person who actually did the saving? Taken to it's logical conclusion, saying that "devaluing in-the-mattress savings is a good thing" sounds a lot like "let's soak the rich" to me.... and it's a ver…

In-the-matress savings are money that is not invested, such as cash stuffed in a matress. This is the opposite of soaking the rich. The well-off generally have a very large proportion of their wealth invested in productive economic activities, with returns well above inflation.

That is true but also feels somewhat circular. “The set of people who are prone to make optimal choices with their money is correlated with the set of the people who have more money today.”

It’s not clear the direction of the causal link and it’s almost surely a bit of both. Having more money affords the luxury of making (and time to research or money to outsource) better decisions. Making better decisions leads to having more money.

If the predominant economic paradigm were one that favored in-mattress-saving (such as persistent deflation might be), would the “rich” still be as inclined to invest in today’s productive-given-inflation assets or would they pivot to being heavy in-mattress savers? The ones that didn’t adjust would presumably become relatively less rich over time.

Re: Inflation is differential and restructuring (2021)

#180

Earlier quoted context omitted.

> Yes, but gold, bitcoin, and giant rocks can't be inflated at will, which is what the OP was complaining about. Governments have been fiddling with metal-based currencies going back to Ancient Rome and Han China: * https://en.wikipedia.org/wiki/Seigniorage Never mind what the general public has done as well: * https://en.wikipedia.org/wiki/Methods_of_coin_debasement#Coi... See Bernstein. > With simulated pieces of g…

"Fiddling with" is not the same as "can create arbitrarily without limit". You're still not addressing the OP's actual complaint.

Governments can (and has!) "created arbitrarily without limit" metal currencies too. Given their monopoly on violence, they can just say "this coin now pays for ten pigs, not one, as you thought before". (Of course, they'd also decrease required tax payments correspondingly to maintain stable inflation.)
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