What the Great Inflation (1965-1982) taught us

> The second is misdirected money supply which steers money towards sweatable assets like property and stock ownership, and away from productive investment, original invention and research, and small business creation.

You appear to be arguing that an increase in the money supply for "sweatable assets" comes at the cost of a reduction in the money supply for everything else. If this were true, you'd expect inflation in "sweatable assets", and deflation elsewhere, which is not what's observed (we currently have inflation in consumer goods, and if anything, housing & stocks are deflating).

> Inflation has very little to do with money velocity, interest rates, unemployment, wage rises, or any of that other supply side nonsense.

It seems to be a substantial leap to suggest that inflation has little to do with interest rates, given that Central Banks are tasked with managing inflation, and the main lever that they pull on are interest rates. A more typical view is that, in the long run, inflation depends on the quantity of money, and interest rates affect that quantity.

> There is also a government role in making sure an efficient and fair market exists for goods, by working against cartels and monopolies for instance.

> The gas price shock is partly caused by a massive supply shock, but also an unwillingness of the cartel to increase supply, since they are doing just fine with the high prices.

I certainly agree with these points.

> I think we are seeing something similar with (for instance) Amazon. A gross simplification is that Amazon has achieved market dominance in many goods. This has reduced competition from smaller businesses, who can't compete in price. However those local stockholders would have been more resilient in the supply chain crisis than the Amazon ecosystem, because they bulk shipped stock to their warehouse (where they held stock), vs drop shipping it on demand from some distant place. This was costlier at the time, but arguably better for the environment and the resilience of the economy.

Retail shopping remains one of the most competitive sectors in the economy. It is true Amazon has raised the bar for service, choice and price, and benefits from economies of scale, which has made it difficult for other businesses to compete, however we’re very far from Amazon having a monopoly on retail shopping (you can also see this in their very slim margin on their retail business - if they were dominating, they’d have a substantially bigger margin.).

> Right now Amazon is not the cheapest on anything ... It doesn't fulfil its promise of being cheaper or faster.

It is somewhat unfair to say that Amazon is bad because smaller businesses cannot compete on price, and also say that Amazon is expensive and other providers are cheaper - both of these statements cannot be true.

> In some sense, the only relevant partition is the quantity of money that is actually in circulation

Yeah thats the bit i’m trying to get my ahead around. Specifically:

>> It's arguably both a stock problem and a flow problem

I’m thinking the key variable here is flow

>>> it's a flow problem

You cant have inflation without increased flow, but i’m still wondering about stock because it’s not as simple as just excess money.

Perhaps it is correct enough to just frame it as a flow problem, since that variable is always dominant in every inflation scenario.

> depends on the bank's net lending to you

Yeah that makes sense, so my example should have been a loan from one bank and a savings account at another

This article is missing a lot. For instance, it misses the international element completely. It does not mention one of the most important monetary facts of the 20th Century: that the USA dollar was allowed to float 1971. This was the end of the Bretton Woods system:

https://www.bundesbank.de/en/tasks/topics/1973-the-end-of-br...

The floating exchange rate helped the USA to hold on to manufacturing jobs, but caused inflation to go higher. This is a big fact to miss.

"What the Great Inflation Taught Us" leans too much on accounts from Paul Volcker and Warren Buffet. It only shares the point of view of the market and investors. It does not include any point of view associated with manufacturing or labor.

The essay doesn't mention the international context, the fact that inflation was often higher in other countries besides the USA. It doesn't attempt to explain some of the anomalies of the era, such as Japan, where inflation peaked at 26% despite the fact that Japan had a strengthening currency.

The inflation of the era was international, and its beginning and end can only be understood in the international context. I made an attempt to look at this era from the point of view of the relationships between the developed and underdeveloped nations, and their currencies:

https://demodexio.substack.com/p/why-did-the-west-deindustri...

Agreed. Also misses the global effect of the Arab oil embargo over US support for Israel in the 1973 war, which was amplified further by the rise of OPEC and the concommitant rise in international oil prices. This in turn caused a balance-of-payments problem, which in turn led to petrodollar recycling and the military-economic alliance between Gulf Arab states and the USA (and also, though this is largely forgotten, the Shah of Iran was a major player in that system before being deposed by the Iranian Revolution).

Andrew Scott Cooper's The Oil Kings covers that in some detail:

https://www.goodreads.com/book/show/12348743-the-oil-kings

It's very relevant today as the spike in oil prices is fairly similar, and current US tensions with Saudi Arabia are not all that different from similar tensions with the Shah of Iran at the time.

Additionally, I'm a bit skeptical about the author's claim that full employment is the number one cause of inflation.