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Inflation is at a 40 year high. What can history teach us?

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Re: Inflation is at a 40 year high. What can history teach us?

#171

Post by jacknews »

IncRnd wrote: post #73

A good working definition of inflation is a general increase in prices and a fall in the purchasing value of money. There will generally be inflation when there are fewer goods to purchase or when the money supply increases. History teaches us that the government, often through good intentions, decreases the supply of available goods. There are many reasons this happens. Recently, people were told to stay at home, an…

"There will generally be inflation when there are fewer goods to purchase or when the money supply increases."

But these seem like entirely different problems. If there's too much money, then you should reduce the money supply by increasing interest rates, stoking job fears, etc.

If there are not enough goods, and the market isn't responding by producing more, you can't solve it by making sure people have less money. Or, you can but you are really make people poorer, not just curbing runaway prices.

Re: Inflation is at a 40 year high. What can history teach us?

#172

Post by gumby »

WalterBright wrote: post #127
gumby wrote: post #126

Earlier quoted context omitted.

It was Carter who did most of the deregulation (air travel, trucks, trains — elimination of icc). Reagan switched to a deficit-based fiscalized economy, hollowed out manufacturing, and channeled cash upwards towards the wealthy. Sure, the “prosperity of the 80's was great” for me — I was getting FAANG scale salary as a new grad to do AI development. But plenty of my friends were on the losing side of that divide (thi…

Carter didn't deregulate the gas, which was a huge drag on the economy as everyone had to wait hours in line for gas. > Reagan switched to a deficit-based fiscalized economy, That was caused by the Democrat-controlled Congress. Reagan tried to get a balanced budget, and Congress stymied him every time. > hollowed out manufacturing, and channeled cash upwards towards the wealthy. That's just propaganda. > “breaking aw…

> “breaking away”

is a fictional movie. Please use factual references.

I'm thinking of my friends who didn't go to university, or got their GED at 16, and have struggled as their factory jobs went away.

Re: Inflation is at a 40 year high. What can history teach us?

#173

Post by WalterBright »

foobarian wrote: post #148
WalterBright wrote: post #113

Earlier quoted context omitted.

> Of course, that is almost a tautology Inflation lags the money printing, so it isn't a tautology. > So what do you do to get that sweet spot of about 1-2% inflation? I'm amazed that propaganda of a sweet spot gets so heavily embedded into the popular wisdom. If there is a sweet spot for inflation, it's 0%. Note that the US had net 0% inflation from 1800-1914, while growing from subsistence farming to superpower.

I don’t know, the concept just makes sense to me intuitively. There are enough weird effects in systems and math when things are at zero that I just can’t tell what would happen. Example, in queueing theory when input rate is equal to output rate under reasonable randomness you get large backlogs. When everything drains at just a few percent over zero it just seems like a better system. The US also had a civil war du…

We still have boom and bust cycles, but with persistent inflation.

As for the Civil War, the US government printed fiat money during it.

Re: Inflation is at a 40 year high. What can history teach us?

#174

Post by WalterBright »

wpietri wrote: post #167
WalterBright wrote: post #137

Earlier quoted context omitted.

> This is just absurd. Not only is this a period so different than a modern economy that it's not useful for comparison, I hear that a lot. Nobody is ever able to explain what law of economics changed in 1914. The Law of Supply & Demand was just the same as it always was. > but during that period it was a roller coaster of inflation and deflation, both of which are terrible for people. Those curious can see the volat…

This is a straw man: > what law of economics changed in 1914 Again, you're just ignoring the fact that our most stable period of low inflation was under fiat money. And that wasn't just true here. Central banks with well-managed money supplies brought price stability to many countries. I understand that goldbuggery is a religion, which like many religion requires ignoring inconvenient facts. You're welcome to keep pr…

> the fact that our most stable period of low inflation was under fiat money. And that wasn't just true here. Central banks with well-managed money supplies brought price stability to many countries.

Milton Friedman in "Monetary History of the United States" shows with graphs and charts that the instability was higher under the stabilizing hand of the Fed. What the Fed brought was an upward bias to it.

> I understand that goldbuggery is a religion

All I'm pointing out is the true cause of inflation. The voodoo is all the other theories trying to deny what it is.

As for stability, is that what you call the last year? All under the enlightened hand of the Fed. Prices in the supermarket have often doubled in the last year.

> Central banks with well-managed money supplies brought price stability to many countries.

Have they? Compared to what? Which countries since 1914 did not have a fiat money system?

Re: Inflation is at a 40 year high. What can history teach us?

#175

Post by WalterBright »

senectus1 wrote: post #160
WalterBright wrote: post #106

Earlier quoted context omitted.

> You do realize that the US has had fiat money for decades, right? Yes, since 1914 when the US switched to fiat money. > Including our longest period of low inflation, a run of nearly 4 decades The US had zero net inflation from 1800 to 1914. How much net inflation do you think happened in those 4 decades? What would a 1914 US dollar be worth today? I'll help you out. $29.92 https://www.usinflationcalculator.com/

yes but in August 15, 1971 the US stopped using the gold standard. Ever since then when the Fed needs more money they just printed it. Reminds me of that scene in Douglas Adams Hitchhiker Guide to the Galaxy "“Thank you. Since we decided a few weeks ago to adopt the leaf as legal tender, we have, of course, all become immensely rich. [...] "But we have also," continued the management consultant, "run into a small inf…

The US went off the gold standard in 1933. Since it was illegal to trade dollars for gold, any "gold standard" was a legal fiction.

Re: Inflation is at a 40 year high. What can history teach us?

#176

Post by WalterBright »

sbf501 wrote: post #145
WalterBright wrote: post #122

Earlier quoted context omitted.

> Inflation occurs because the owners need to remain wealthy, hence prices go up everywhere. The fun thing about HN is I hear all sorts of unique economic theories not found in any econ book. P.S. If the wealthy (or everyone else) needs more money, and just raising prices will work, why don't they do that anyway? The answer is Supply & Demand, it's the Law, and is in every econ textbook.

> why don't they do that anyway? Ever heard of a company called Apple? They raise prices all the time because they can. Same with AT&T, or banks ATM Fees, or gas prices. Right now gas prices are at an all time high, and so are gas profits. > The answer is Supply & Demand, it's the Law, and is in every econ textbook. Also, that's Econ 101. Which isn't quite reality, it's idealized for simplicity because it is an intro…

> They raise prices all the time because they can.

Why don't they raise the iphone to $10,000?

> Right now gas prices are at an all time high, and so are gas profits.

Have you ever noticed gas pump prices going down? I'm curious as to your explanation for that? Do you notice that pump prices change on a daily basis? What's your explanation for that?

Re: Inflation is at a 40 year high. What can history teach us?

#177

Post by WalterBright »

lagrange77 wrote: post #163
WalterBright wrote: post #125

Earlier quoted context omitted.

Some good questions. The answer isn't simple, but I'll try. It comes down to how banks work with fractional reserve banking. (To keep this post short, I'll refer you to google if you don't know what it is.) Banks loan out a multiple of their deposits. In other words, banks create money when they make loans. Amazing, isn't it? But, banks don't loan money unless there is collateral . The next part is tricky to understa…

> Banks loan out a multiple of their deposits. In other words, banks create money when they make loans. Amazing, isn't it? I've heard about that, and it's really amazing. If i understand it correctly, the loan interest i have to pay is money that also does not exist yet, at the point of time, when i get the cash. The bank faces the risk of me not being able to generate (get from others, who potentially also take loan…

> What instance decides, if some printed money does or does not have collateral?

A great question. No actual decision is made, it's just that there are more dollars floating chasing the same value, so the price in dollars gets bid up.

Re: Inflation is at a 40 year high. What can history teach us?

#178

Post by WalterBright »

jollybean wrote: post #170
lagrange77 wrote: post #163

Earlier quoted context omitted.

> Banks loan out a multiple of their deposits. In other words, banks create money when they make loans. Amazing, isn't it? I've heard about that, and it's really amazing. If i understand it correctly, the loan interest i have to pay is money that also does not exist yet, at the point of time, when i get the cash. The bank faces the risk of me not being able to generate (get from others, who potentially also take loan…

This is kind of a misunderstanding. Banks retain assets for loans they make. They don't print money. But imagine this scenario: you deposit $10 at bank A, they loan that $10 to person B, that person B puts their $10 account at Bank C, thank bank loans out that $10 to person D etc.. You can see all of a sudden, $10 turns into $100! or $1000 in assets! So what we require banks to do is keep a part of the assets they re…

> They don't print money.

Oh, absolutely they do. That's why currency is called "banknotes". The banks printed them. Each bank printed their own banknotes. You can find their images in numismatics books.

In 1914, the government took over the function of printing banknotes. But the banks still print money. We just call them "cashier's checks", "money orders" and "travelers' checks". But more normally, they simply credit your account with created money.

> If stuff is harder to make or is more rare, prices will go up irrespective of money supply.

That isn't inflation, because extra dollars are not being created. For example, tomatoes going up in price in the store because of crop failure isn't inflation, because more money doesn't appear in your pocket to pay the premium. What happens is you wind up with fewer dollars in your pocket, meaning you buy less of other things, and with the annoying Law of Supply and Demand, the prices of those other things drop.

Re: Inflation is at a 40 year high. What can history teach us?

#179

Post by WalterBright »

jollybean wrote: post #150
WalterBright wrote: post #125

Earlier quoted context omitted.

Some good questions. The answer isn't simple, but I'll try. It comes down to how banks work with fractional reserve banking. (To keep this post short, I'll refer you to google if you don't know what it is.) Banks loan out a multiple of their deposits. In other words, banks create money when they make loans. Amazing, isn't it? But, banks don't loan money unless there is collateral . The next part is tricky to understa…

I think you are misunderstanding fractional lending and collateral. Fractional lending seems a bit odd, but it's not like there is 'no collateral' - rather, there ends up being 'partial collateral'. As it turns out, that 'partial collateral' is enough - it's actually reasonable thing to do, because the vast majority of loans are repaid, it's not necessary to fully collateralize everything on the whole. Banks have to…

Rather bluntly, a central bank is central economic planning. Central economic planning always falls short of what free markets do. The idea that a central bank is able to control the financial markets better than free market forces is shown to be false (with actual data) by Friedman in "Monetary History of the United States".

> The 'government' does not print money, the Central Bank does.

I said "print money" as a euphemism for what the Fed actually does, which is the same thing, it just doesn't involve doing the old fashioned way. They do it by issuing debt with no collateral.

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