Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

What the Great Inflation (1965-1982) taught us

imgracehuang.medium.com

Post reply on HN
Print view View original

41–50 of 125 posts

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

#41

Post by neilwilson »

galaxyLogic wrote: post #4

If inflation is caused by people having too much money then it is a self-correcting problem because as prices go up people will no longer have as much money. Soon enough they will not have too much money at all. So what is the real problem with inflation? Is it the economic inequality it brings to those who have to live on fixed income? I've been following the discussion on US TV and it seems they are saying we need…

Inflation is never caused by there being 'too much money'. It's caused by people spending and choosing to pay the higher prices on offer, rather than shopping around, saying 'no deal' or saving.

A $100 in a drawer can't cause inflation. It's not a stock problem; it's a flow problem.

Inflation is always, everywhere, a lack of effective competition. In situations of excess supply you have very little to no inflation. Firms are too scared to push prices for fear of losing market share.

We don't need hair shirt people going around confiscating assets from people. What we need is more investment to create more capacity to supply, and anti-trust action in any areas where a monopoly has arisen.

We don't need an Office of Budget Responsibility, we need an Office of Price Competition.

The target should be to maintain leptokurtic turnover vs price curves in all markets. Then we'll have stable prices.

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

#42

Post by Roark66 »

Well, US having the dollar as a the world's reserve currency has it much better in general when it comes to inflation. Just look how Euro has been free falling. I've had an opportunity to observe inflation, followed by hyperinflation, then attempts to fight it with sky high interest rates bringing up massive unemployment and collapse of a lot of businesses. All this happened in the early 1990s in Poland freshly after the communist system went bankrupt and had no choice but to agree to transition to some form of market based economy(with lots of perks for old officials of course - that was the price of peace).

It is interesting because back then the method used to fight the inflation was a list of interest rate hikes, followed by privatisation of a lot of state property that was sold for peanuts then liquidated(snapped very quickly by various people "with connections"). However, the tax burden was quite low (no VAT at the beginning, and the huge majority of businesses activity was in the "grey market" anyway). It took years and years for the situation to improve. Of course as with everything in economy there were many factors that led to the crash, not just interest rates.

However, it is interesting to see how the current government is taking an opposite path to "fighting inflation". There are some interest rate hikes, but no where near what they should be to quash 20% inflation which we have now. Instead there are various attempts to "buy time". "One time" extra benefits for the pensioners have been quite generous. Laws to help borrowers by forcing 3 months of repayment holidays on mortgages were brought up. VAT for food was taken to 0%, taxes on fuel were lowered. A subsidy for house heating fuel was created, freeze of electricity prices for people and businesses that keep within certain usage limits, direct subsidies to high energy consuming industries. Of course all those things are available as tools, because the country went into this period of time with pretty good finances, but still it is very interesting to see if this "alternative" approach allows the relatively small peripheral economy survive this recession and keep its one of best in EU unemployment rates for long. Especially in light of having to double its military expenses and various expenses connected to the War.

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

#43

Post by terminalcommand »

Rufbdbskrufb473 wrote: post #40
terminalcommand wrote: post #15

Earlier quoted context omitted.

Another perspective, we have 83.45 %/year CPI inflation in Turkey. This is the official number an independent research group of academics claim it is nearing 200%. The official interest rate is 10.5%/year. You get maximum 20-25%/year interest on savings accounts. Real estate market and rents go up 220%/year (by the official numbers). Before doing FIRE purchase your own home or sign a really long term lease with upfro…

> It is simply not possible to invest in anything that can keep up with the inflation Why not just invest in diversified real estate rather than betting on a single property and its local market? In expectation, the returns should be similar on average but with lower volatility. I'd rather rent and put capital in a real estate investment fund. I guess something could be said for buying a property if you're very certa…

That's a good idea, real estate investment funds accepting investment from retail investors don't really exist in my country. There are real estate investment companies which I can buy shares in. I am afraid of buying stocks, but I may consider that.

Principally speaking you are right to think that real estate investment funds should bring on par profit with real estate increases but during times of very high inflation as in Turkey, you lose some because funds don't 100% invest in their base asset, a significant part (around usually 20%) stays liquid. From that 20% you lose the ability to cope up with inflation, as the official interest rates are negative. (In Turkey's case above -70% a year).

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

#44

Post by c7b »

galaxyLogic wrote: post #4

If inflation is caused by people having too much money then it is a self-correcting problem because as prices go up people will no longer have as much money. Soon enough they will not have too much money at all. So what is the real problem with inflation? Is it the economic inequality it brings to those who have to live on fixed income? I've been following the discussion on US TV and it seems they are saying we need…

Think about it: if inflation is caused by a higher growth rate of the money supply than the real output growth rate, as you suggest, then how would higher prices change anything about that? The money that you leave in the shop doesn't leave the system, it just flows to employees, suppliers and owners of the business, ie to other people. It's still very much in the system, the money supply hasn't changed at all.

Inflation is anything but self-correcting, as countless episodes of hyperinflation have demonstrated: a thousand percent a year, ten thousand, ten billion percent - we've seen it all [0]. And that is the real problem with inflation: it truly has no upper bound. And above certain levels, it's very hard to bear.

[0] https://en.wikipedia.org/wiki/Hyperinflation

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

#45

Post by rogersnm »

nverno wrote: post #38
rogersnm wrote: post #37

Earlier quoted context omitted.

The Fed is doing exactly that: https://fred.stlouisfed.org/series/FEDFUNDS

Ah thankyou, do you think it will spike anything like it did in the 80s? [edit: I see she discusses this in article as well, now]

Predicting the future is always difficult, there are elements of now that are similar to the past, and there are elements that are different. It also helps to have experienced those past events and been able to learn lessons from them.

It seems highly likely that inflation will remain at its current elevated level for at least another 12 months, beyond that horizon, the trajectory will be determined by what happens between now and then.

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

#46

Post by 1vuio0pswjnm7 »

galaxyLogic wrote: post #4

If inflation is caused by people having too much money then it is a self-correcting problem because as prices go up people will no longer have as much money. Soon enough they will not have too much money at all. So what is the real problem with inflation? Is it the economic inequality it brings to those who have to live on fixed income? I've been following the discussion on US TV and it seems they are saying we need…

"I've been following the discussion on US TV and they say we need more unemployment."

The Federal Reserve Chairman actually said this in a speech several months ago.

Maybe if we sacrifice a lamb, things will get better.

For this unemployment "solution" to work, more people have to be out of work. Sacrificial lambs in 2022.

As things improve, "the rising tide will lift all boats". Except for the sacrificial lambs who will sink like stones.

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

#47

Post by rogersnm »

c7b wrote: post #44
galaxyLogic wrote: post #4

If inflation is caused by people having too much money then it is a self-correcting problem because as prices go up people will no longer have as much money. Soon enough they will not have too much money at all. So what is the real problem with inflation? Is it the economic inequality it brings to those who have to live on fixed income? I've been following the discussion on US TV and it seems they are saying we need…

Think about it: if inflation is caused by a higher growth rate of the money supply than the real output growth rate, as you suggest, then how would higher prices change anything about that? The money that you leave in the shop doesn't leave the system, it just flows to employees, suppliers and owners of the business, ie to other people. It's still very much in the system, the money supply hasn't changed at all. Infla…

> how would higher prices change anything about that?

Higher prices reflect a new equilibrium between the quantity of money and the quantity of goods and services being produced. Until that revised equilibrium is reached, you generally suffer from shortages of goods and rising prices.

> It's still very much in the system, the money supply hasn't changed at all.

The money supply doesn't need to decrease for inflation to stop, it just needs to stop increasing on an output-adjusted basis (and even then you need to wait for the equilibrium to be roughly reached before price levels stabilise).

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

#48

Post by c7b »

jnwatson wrote: post #11
galaxyLogic wrote: post #4

If inflation is caused by people having too much money then it is a self-correcting problem because as prices go up people will no longer have as much money. Soon enough they will not have too much money at all. So what is the real problem with inflation? Is it the economic inequality it brings to those who have to live on fixed income? I've been following the discussion on US TV and it seems they are saying we need…

Inflation isn’t caused by too much money. It is caused by too much money velocity. That’s why the last huge injection of money in 2008 didn’t cause inflation. Folks sat on their money and didn’t spend it. Raising interest rates isn’t about causing unemployment (directly at least). It is about causing capital investment to be less lucrative than tying the money up in treasuries, reducing money velocity.

Monetary velocity is defined as the price level times real output over the money supply. There is a mechanical relation with inflation (which is the delta of the price level), but saying that's a unidirectional casual link is a disingenuous interpretation.

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

#49

Post by rogersnm »

neilwilson wrote: post #41
galaxyLogic wrote: post #4

If inflation is caused by people having too much money then it is a self-correcting problem because as prices go up people will no longer have as much money. Soon enough they will not have too much money at all. So what is the real problem with inflation? Is it the economic inequality it brings to those who have to live on fixed income? I've been following the discussion on US TV and it seems they are saying we need…

Inflation is never caused by there being 'too much money'. It's caused by people spending and choosing to pay the higher prices on offer, rather than shopping around, saying 'no deal' or saving. A $100 in a drawer can't cause inflation. It's not a stock problem; it's a flow problem. Inflation is always, everywhere, a lack of effective competition. In situations of excess supply you have very little to no inflation. F…

> It's not a stock problem; it's a flow problem.

It's arguably both a stock problem and a flow problem (MV = PQ). If the stock is constant and the flow increases, you get inflation. If the flow is constant and the stock increases, you get inflation.

> Inflation is always, everywhere, a lack of effective competition. In situations of excess supply you have very little to no inflation.

Excess supply at a given price level almost by definition means prices should trend downwards (it is price that ultimately balances supply and demand, and therefore it is too high a price that causes the relative excess of supply/lack of demand).

The price of commodities around the world is going up, by definition this cannot be due to a lack of competition - there must be something else at play.

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

#50

Post by CraigJPerry »

rogersnm wrote: post #49
neilwilson wrote: post #41

Earlier quoted context omitted.

Inflation is never caused by there being 'too much money'. It's caused by people spending and choosing to pay the higher prices on offer, rather than shopping around, saying 'no deal' or saving. A $100 in a drawer can't cause inflation. It's not a stock problem; it's a flow problem. Inflation is always, everywhere, a lack of effective competition. In situations of excess supply you have very little to no inflation. F…

> It's not a stock problem; it's a flow problem. It's arguably both a stock problem and a flow problem (MV = PQ). If the stock is constant and the flow increases, you get inflation. If the flow is constant and the stock increases, you get inflation. > Inflation is always, everywhere, a lack of effective competition. In situations of excess supply you have very little to no inflation. Excess supply at a given price le…

>> If the flow is constant and the stock increases, you get inflation

That seems like it’s missing a variable to describe when increased supply is spent vs when it is saved.

If stock increases but is not channeled through flow, i.e. i take a loan at 2% to save in my bank’s savings offer of 5.25% then flow stays the same (i still spend on the same things each month) but money supply went up and inflation remained uninfluenced by my activities as supply slowly regresses to almost prior state while i pay off each month. Not quite prior stage because i get to save the extra from interest rate arbitrage.

Post reply on HN