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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?

#291

Post by colinmhayes »

NovemberWhiskey wrote: post #45
sneeze-slayer wrote: post #33

Rampant inflation is a problem. The inflation seen now in many places is not quite there. 7% is higher than we would like, but if the alternative is to have shrinking GDP and massive unemployment, I would rather have some inflation. In the US at least, a lot of the raise in the US CPI is due to rising energy costs (predicted months ago due to cold winter in Asia), used and new cars (the infamous chip shortages), and…

> The US federal government could subsidize farmers that grow real vegetables, not just corn and soybeans. I mean they could also just stop subsidizing corn production quite so much; that would probably be preferable to providing a larger subsidy to grow other things.

Making food more expensive is pretty much the opposite of politically viable.

Re: Have we been thinking about inflation all wrong?

#292

Post by NovemberWhiskey »

rory wrote: post #281
NovemberWhiskey wrote: post #164

Earlier quoted context omitted.

If interest rates don't rise, then sure - inflation is likely to show up in higher housing costs, which means you'll deflate away that loan and your asset will appreciate. If interest rates rise, then you have one or two problems. If your loan isn't at a fixed rate, then you'd better hope you can still afford your mortgage. Say you paid a 20% downpayment on a home worth $375K. A $300K note at 3% is a $1,250 per month…

While everything you said is true: 1) 2) Treasury rates are still super low, even with high CPI inflation. It's not at all obvious interest rates will go up by much even with sustained 5-10% inflation, since society's ratio of capital to productivity is at an unprecedented level.

At this point, most of those who perform augury on the intentions of the Fed are predicting five to six 25bp interest rate increases before the end of 2023.

Re: Have we been thinking about inflation all wrong?

#293

Post by scottiebarnes »

ericmay wrote: post #216
scottiebarnes wrote: post #165

Earlier quoted context omitted.

No, money is supposed to be good at storing value as well. That's why gold evolved as the world currency over the last 8000 years, and that's why central banks still hoard it in bunkers. You can't easily devalue it by creating more of it. You're failing to understand that treasury bond markets have an important function in the macro economy; ideally, a safe way to save and store value with low risk. And they are larg…

> No, money is supposed to be good at storing value as well. I think you’re confusing wealth/assets with mediums of exchange. Gold for example is a pretty decent store of value but a nightmare for exchange. Want to buy a pack of gum? Why don’t you shave a tenth of a gram off right here on the counter so I can measure it.. etc. You can see how crappy that is. USD however have never been great stores of value but are g…

3 functions of money:

1) Store of value

2) Unit of account

3) Medium of exchange

Go ahead and design a money that you intend to have last forever (because good design/engineering stands the test of time, right?)

Tell me which tradeoffs you make.

Re: Have we been thinking about inflation all wrong?

#294

Post by [deleted] »

robbedpeter wrote: post #158
dnautics wrote: post #132

Earlier quoted context omitted.

> 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 inevi…

[deleted]

Re: Have we been thinking about inflation all wrong?

#295

Post by colinmhayes »

imtringued wrote: post #266
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.

There will always be inflation (temporary and permanently via mining) and debt goes up with a gold standard too. That's actually a general property of permanent money.

Depends on your definition of inflation. If you're just talking about money supply, sure. If you're talking about prices, no. It is entirely conceivable that consumption increases faster than the speed at which we can mine, which would probably set off a deflationary spiral as wall st starts to hoard cash.

Re: Have we been thinking about inflation all wrong?

#296

Post by NovemberWhiskey »

colinmhayes wrote: post #291
NovemberWhiskey wrote: post #45

Earlier quoted context omitted.

> The US federal government could subsidize farmers that grow real vegetables, not just corn and soybeans. I mean they could also just stop subsidizing corn production quite so much; that would probably be preferable to providing a larger subsidy to grow other things.

Making food more expensive is pretty much the opposite of politically viable.

About a third of all corn goes to ethanol production, so we could plant a lot less corn without impacting food production.

Re: Have we been thinking about inflation all wrong?

#297

Post by imtringued »

pdonis wrote: post #29
kkoncevicius wrote: post #21

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.

Exactly. If more economists acknowledged this obvious truth, it would be much easier to have saner policies in this area. One thing to add is that, in addition to being a tax on savings, inflation also leads to misallocation of resources, because the newly printed money is not distributed equally. (If it were, it would actually have little economic effect, because all prices, including wages, would rise by exactly th…

Enjoy your tax on savings.

You will bark at the wrong tree for the rest of your life. Permanent money causes inflation because the physical world isn't permanent. It needs a constant energy input to keep running. This energy input is simply ignored. So it has to be modeled after the fact via inflation.

A negative interest rate on cash makes money no longer permanent meaning money no longer has to be replicated endlessly to model energy losses or liquidity costs.

Yes, nature is stealing your youth, it's clearly a tax on youth. Imagine if you could just simulate your age being 18 on your id and everyone thinking that you are 18 forever by legal decree. At some point people will notice your grey hair and the ruse is over. They get the silly idea of adjusting your age back to your real age. Money should age via negative interest rates to be consistent with the laws of thermodynamics.

Re: Have we been thinking about inflation all wrong?

#298

Post by colinmhayes »

scottiebarnes wrote: post #165
dragonwriter wrote: post #151

Earlier quoted context omitted.

> 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.

No, money is supposed to be good at storing value as well. That's why gold evolved as the world currency over the last 8000 years, and that's why central banks still hoard it in bunkers. You can't easily devalue it by creating more of it. You're failing to understand that treasury bond markets have an important function in the macro economy; ideally, a safe way to save and store value with low risk. And they are larg…

good store of value just means its value is predictable. Fiat currency actually make money a much better store of value, because monetary policy can be used to control inflation. Using intrinsically valuable goods as currency is horrible for store of value because people will always be worried that a new use or way to produce the good will be found.

Re: Have we been thinking about inflation all wrong?

#299

Post by dragonwriter »

scottiebarnes wrote: post #293
ericmay wrote: post #216

Earlier quoted context omitted.

> No, money is supposed to be good at storing value as well. I think you’re confusing wealth/assets with mediums of exchange. Gold for example is a pretty decent store of value but a nightmare for exchange. Want to buy a pack of gum? Why don’t you shave a tenth of a gram off right here on the counter so I can measure it.. etc. You can see how crappy that is. USD however have never been great stores of value but are g…

3 functions of money: 1) Store of value 2) Unit of account 3) Medium of exchange Go ahead and design a money that you intend to have last forever (because good design/engineering stands the test of time, right?) Tell me which tradeoffs you make.

For #1, I want increase in value over time, but don't care much about volatitlity or ease of exchange.

For #2, I want low volatility (both in value and it's first derivative).

For #3, I want low volatitlity in value and logistical ease of exchange.

So, for #1, I want a different thing than for #2 & #3, for which I might want the same thing, since the needs are, though not identical, at least overlapping.

Productive investments serve #1 well, so I’d leave it to them, and leave the design of money to balance #2 & #3.

Re: Have we been thinking about inflation all wrong?

#300

Post by gumby »

hammock wrote: post #271
zozbot234 wrote: post #129

Earlier quoted context omitted.

Yup. The kernel of truth behind Austrian theories of macroeconomics/the business cycle is that interest-rate based policy setting is inherently an unstable system. If the central bank makes policy errors that fail to stabilize the underlying target (whether inflation, nominal income, exchange rates, whatever) the whole system starts spiraling away from that unstable equilibrium point, and the subsequently needed corr…

True to form, since the Fed was created, each new crisis has been bigger and sooner than the last.

Apart from the comments talking about crises under the Fed, look at the 18th century where gold strikes (or the lack thereof) caused several more serious crises, with both inflation and deflation driving crises, due to the money supply being completely uncorrelated with economic activity.
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