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Inflation is differential and restructuring (2021)

economicsfromthetopdown.com

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Re: Inflation is differential and restructuring (2021)

#61

Post by onlyrealcuzzo »

lordnacho wrote: post #39

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.…

The article talked a lot about winners and losers.

It's interesting that there's no mention of debtors and creditors.

The biggest winners in hyperinflation are people in massive debt. It's inflated away to nothing. The biggest losers are creditors for the opposite reasons.

When inflation is just abnormally high (~8%), your debt doesn't get deflated to nothing, but you're getting a ~6% discount.

Re: Inflation is differential and restructuring (2021)

#62

Post by cm2187 »

Inflation isn’t measured on an average, it is measured on a basket. They are the same mathematically but the intention matters. If meat goes up 50% and fruits down 50% and the average is unchanged, that means the price of the basket that you will pay at the till is also unchanged, and you aren’t poorer.

Now you can argue that CPI baskets aren’t representative, and I think they often underweight real estate. But that doesn’t mean that you are measuring the wrong thing by using a basket.

It does explain though why the money printing 2008-2019 didn’t translate into CPI inflation, because that money was injected in the financial system, asset prices shot up, asset managers and VC investors got rich, but that didn’t affect main street. In 2020-2022, the pace of money printing massively accelerated and was directly introduced in everyone’s pockets through furlough schemes.

Re: Inflation is differential and restructuring (2021)

#63

Post by lordnacho »

frankfrankfrank wrote: post #57
lordnacho wrote: post #39

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.…

The thing that has nagged at you as it has me, is the simple fact that not only was “economics” conjured and molded by and for the interests of the upper echelon of society, to control the language and thoughts about its terms; but that at the core of it, it’s nothing more than fraud, deception, con artistry. That’s all inflation is too, fraud that if you would commit it, e.g., you added filler to some product you de…

> The thing that has nagged at you as it has me, is the simple fact that not only was “economics” conjured and molded by and for the interests of the upper echelon of society, to control the language and thoughts about its terms; but that at the core of it, it’s nothing more than fraud, deception, con artistry.

Yeah this true, but I wonder if it's as straightforwardly sinister as that. I'm sure there are a lot of economists, esp in the mid 20th century, who would have liked to turn economics into physics. Some of those ideas are of no real merit after further inspection, but are kept alive by political interests.

You do come across a lot of thought pieces by think tanks, which seem to be more political than science.

> You are given currency coupons in exchange for your work, and then more of those coupons are just forged than correspond to actual work having been done, thereby defrauding you out of the value of your work, also commonly called theft of service.

The problem with that is there are legitimate reasons for printing more coupons, they're just mixed in with less legit reasons.

If people want to exchange more, they need more coupons. Otherwise everyone would have to wait for their income to arrive before sending it on, and while they wait some of the opportunities will vanish. A little bit of creation isn't so bad.

Re: Inflation is differential and restructuring (2021)

#64

Post by barry-cotter »

lordnacho wrote: post #39

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.…

> The econ 101 version of economics is dominant in popular thought. You see it everywhere in newspapers.

If only. Rent control wouldn’t exist. Policies that couldn’t pass any sane cost benefit trade off would be abolished. There would be a smooth, graduated marginal tax schedule. There would be congestion taxes on traffic.

The world would be incredibly different if Econ 101 was widely understood.

Re: Inflation is differential and restructuring (2021)

#65

Post by flybrand »

lordnacho wrote: post #63
frankfrankfrank wrote: post #57

Earlier quoted context omitted.

The thing that has nagged at you as it has me, is the simple fact that not only was “economics” conjured and molded by and for the interests of the upper echelon of society, to control the language and thoughts about its terms; but that at the core of it, it’s nothing more than fraud, deception, con artistry. That’s all inflation is too, fraud that if you would commit it, e.g., you added filler to some product you de…

> The thing that has nagged at you as it has me, is the simple fact that not only was “economics” conjured and molded by and for the interests of the upper echelon of society, to control the language and thoughts about its terms; but that at the core of it, it’s nothing more than fraud, deception, con artistry. Yeah this true, but I wonder if it's as straightforwardly sinister as that. I'm sure there are a lot of eco…

> straightforwardly sinister

If the impact is sinister, then debating the motive just extends the duration of the pain experienced.

Motives matter at the time of trial - when the action and pain are over. Until then, debating motive is just a distraction from stopping the unjust activity.

Re: Inflation is differential and restructuring (2021)

#66

Post by FabHK »

lordnacho wrote: post #39

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.…

I thought the article made a lot of noise about very little.

Sure, inflation reports the change in price of an average basket, and some prices in the basket might have gone up a lot, and some down a lot. But that is a different issue, and not inflation.

The basket is carefully constructed to mirror what the average consumer consumes. Thus, the inflation of the basket measures how much more the average consumer has to spend on his consumption. That is certainly a useful number.

To your further points:

- [...] The models are not made properly, and there's a lot of hand-waiving.

I'd disagree, you must have come across the wrong models. Theoretical economics has many beautiful models precisely laid out. For example, the Arrow-Debreu equilibrium model [1] utilises "the Kakutani fixed-point theorem on the fixed points of a continuous function from a compact, convex set into itself." I doubt that any engineer can find fault with the specification of that model. Similarly, the Heckscher–Ohlin model of international trade is well specified and yields five informative theorems [2].

To which extent those models reflect, or can be applied to, the real world is an entirely different question of course.

Then there is empirical economics, a whole different ball park. But if you look at national accounts [3], for example, all those measurements are defined in excruciating detail, and there are books just dedicated to define the terms correctly.

- The pop-sci version of economics is a bunch of easy quips

Agreed. Some of them are more informative than others.

- The econ 101 version of economics is dominant in popular thought.

Yes, and that is quite bad, and is often exploited particularly by the political right, the business-friendly laissez-faire libertarians. James Kwak calls this Economism, and he has a great book about it [4].

- Inflation [...] can't look at it as a single figure.

Again, to the extent that it reflects the price increase for the consumption basket of an average consumer: yes, it is an interesting and important number, and in particular, it is one number. Obviously, with more numbers a more nuanced discussion is possible.

- Relative price changes are what matter in society.

Sure, they matter. But inflation in itself really matters also, per se.

By the way, Keynes pointed out that inflation need not be a bad thing. One thinks it is obviously bad because the average consumer has to pay more for his basket, thus can afford less of it. However, if there was, for example, a fiscal stimulus in the wake of a recession, and that leads to everyone having more money at their disposal, and aggregate demand rising, then there will be a new equilibrium with more demand, more supply, and higher prices (=inflation), but the average consumer having more of their basket than before. Good, not bad.

[1] https://en.wikipedia.org/wiki/Arrow–Debreu_model

[2] https://en.wikipedia.org/wiki/Heckscher–Ohlin_model#Conclusi...

[3] https://en.wikipedia.org/wiki/National_accounts

[4] https://economism.net/

Re: Inflation is differential and restructuring (2021)

#67

Post by brabel »

onlyrealcuzzo wrote: post #61
lordnacho wrote: post #39

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.…

The article talked a lot about winners and losers. It's interesting that there's no mention of debtors and creditors. The biggest winners in hyperinflation are people in massive debt. It's inflated away to nothing. The biggest losers are creditors for the opposite reasons. When inflation is just abnormally high (~8%), your debt doesn't get deflated to nothing, but you're getting a ~6% discount.

My car loan just increased the interest rate I have to pay due to "increased costs". I had no idea they could do that (yeah, didn't read the fine print). I'm pretty sure consumer goods' creditors are doing just fine with rising inflation!

Re: Inflation is differential and restructuring (2021)

#68

Post by js8 »

If economists accept that there are winners and losers in society, they will never agree on a single theory. Therefore, the most successful economic theory, neoclassical economics, rejects that assumption, despite it being factually wrong. It is successful precisely because it can be agreed by all economists.

Re: Inflation is differential and restructuring (2021)

#69

Post by lordnacho »

onlyrealcuzzo wrote: post #61
lordnacho wrote: post #39

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.…

The article talked a lot about winners and losers. It's interesting that there's no mention of debtors and creditors. The biggest winners in hyperinflation are people in massive debt. It's inflated away to nothing. The biggest losers are creditors for the opposite reasons. When inflation is just abnormally high (~8%), your debt doesn't get deflated to nothing, but you're getting a ~6% discount.

With hyperinflation yes, because then there are only real incomes, prices (and debts) become meaningless. A plumber can fix the toilet for a carpenter who makes a doorframe for the plumber, they don't need a number if they can agree those services are worth the same. Thus real incomes are still real.

With merely high inflation you still have insecurity. Many salaries are not inflation indexed (I struggle to think of anyone I know), so the only way to maintain your budget is to get a new job. For many lines of work, especially at the lower end of the scales, that's utterly unappetizing, and people would rather pressure their union to push up salaries.

Re: Inflation is differential and restructuring (2021)

#70

Post by FabHK »

lottin wrote: post #56
j7ake wrote: post #14

Inflation can be thought of as a high dimensional vector with dimensions equal to the number of objects you buy with money. Each person is affected by this inflation differently because they buy different things. To “solve” this problem, the government has decided to collapse this high dimensional object into a scalar number. And now we are seeing a divergence between this scalar number and the actual high dimensiona…

> Inflation can be thought of as a high dimensional vector with dimensions equal to the number of objects you buy with money. No, that's just the changes in individual prices. Inflation is the change in the price level, and it has always been that. Nobody has changed subreptitiously the definition of inflation in order to rip you off.

Inflation the scalar product (inner product) of the vector of price changes and the vector of basket quantities, with the former being uniform for the entire market, but the latter being different for different consumers, which is why an "average" basket is chosen for the official inflation number.
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