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Inflation is differential and restructuring (2021)

economicsfromthetopdown.com

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Re: Inflation is differential and restructuring (2021)

#71

Post by FabHK »

quickthrower2 wrote: post #30
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…

You need a model of all brains. I don’t care that tomatoes have doubled in price in 24 months because I can eat something else. But if all fruit and veg doubles then now we are talking inflation! I can no longer get a nutritional diet at the same cost. But my neighbour eats only McDonalds burgers and is largely unaffected. So I am not a matrix to apply to the vector. Maybe more like a neutal net.

You're a vector.

Re: Inflation is differential and restructuring (2021)

#72

Post by refurb »

BlargMcLarg wrote: post #55
refurb wrote: post #50

Earlier quoted context omitted.

Because non-wage compensation has made up a bigger and big part of total compensation - healthcare, 401k match, fringe benefits, bonuses, etc. My dad worked as a teacher and got a super fat pension - that’s not included. Total compensation has risen much more than hourly wage.

Do you think those increases truly make up the huge gap between productivity increase and hourly wage increase? What's more, do you think most of near median earners get any significant benefits? I don't think article is necessarily wrong in pointing out the huge gap when most big total comp increases only seem to apply to the upper middle class. At the very least, I don't think Pizza Friday is going to make up that…

I think you’re underestimating the impact of non-wage compensation, even for normal, middle class jobs. Your “pizza Fridays” is a pretty flippant way to describe things like health insurance, retirement benefits, etc.

When you add up the share of income that goes to employees, total compensation growth keeps up with productivity growth.

https://www.nber.org/digest/oct08/total-compensation-reflect...

Re: Inflation is differential and restructuring (2021)

#73

Post by FabHK »

dataflow wrote: post #40

At the risk of going off-topic: I'd also like someone to write a similar blog post providing a convincing explanation of why the national debt supposedly isn't wrecking the US's future big time. To me it absolutely is, because you can only keep borrowing money and paying the (increasingly large) interest on it for so long. Eventually it'll exceed your revenue and you have no choice but to print money and hyperinflate…

> To me it absolutely is, because you can only keep borrowing money and paying the (increasingly large) interest on it for so long.

No. This is modelled and understood reasonably well. There are limits, of course (though the Reinhard-Rogoff paper stipulating a significant drop in growth beyond a certain level of debt to GDP is considered flawed [1]). But moderately growing debt can be sustained indefinitely.

A blog post explaining this well would be useful indeed, I wonder whether Krugman has written one (but haven't found one after a quick search).

[1] https://www.newyorker.com/news/john-cassidy/the-reinhart-and..., https://en.wikipedia.org/wiki/Growth_in_a_Time_of_Debt, https://krugman.blogs.nytimes.com/2013/05/26/reinhart-and-ro...

Re: Inflation is differential and restructuring (2021)

#74

Post by denton-scratch »

dividedbyzero wrote: post #58
pjc50 wrote: post #48

Earlier quoted context omitted.

> said in a lot of places that then went through extreme political turmoil Well, yes; inequality and shortages that the elite refuse to address lead to a lot of the classic Latin American revolutions, as well as the earlier Chinese revolution and Russian revolution. This is the concept referred to as "redistribution is insurance against pitchforks". > wilful ignorance on the part of the elites This really characteris…

> but the money is simply deleted What an interesting idea. Is there any historical precedent for actually deleting/destroying money?

> What an interesting idea. Is there any historical precedent for actually deleting/destroying money?

Bitcoin?

Re: Inflation is differential and restructuring (2021)

#75

Post by kklisura »

As an absolute layman to this field, the Friedman’s "inflation is ‘always and everywhere a monetary phenomenon’" has appeal to me in that it offers a (simple?) solution: "government austerity" as noted in the article. Whenever I read other views on inflation and even this article, they fail on providing any solution for either fixing or taming the inflation.

Re: Inflation is differential and restructuring (2021)

#76

Post by js8 »

notahacker wrote: post #32
imtringued wrote: post #4

The author talks about how accounting identifies are weird gotchas but the problem here isn't that there is a weird gotcha, the problem with MV = PT is that pretty much all variables are unknown except the general price level. Nobody knows what the real quantity of money is, nobody knows what the velocity is since it would require marking individual dollars and counting how many times they change hands.

The real quantity of money is pretty well known (notwithstanding disputes over which monetary aggregate is the "correct" measure of inflation, which made monetarist monetary aggregate targeting impractical in practice). PT is basically GDP, and obviously we also track the P component so transaction volumes can be inferred The problem with the monetarist version of MV = PT isn't that we can't measure the variables, it…

Forgetting the money velocity is very apparent for example in discussions about basic income, where people who claim it will cause inflation forget that BI redistribution is a big change of V.

Re: Inflation is differential and restructuring (2021)

#78

Post by pjc50 »

dividedbyzero wrote: post #58
pjc50 wrote: post #48

Earlier quoted context omitted.

> said in a lot of places that then went through extreme political turmoil Well, yes; inequality and shortages that the elite refuse to address lead to a lot of the classic Latin American revolutions, as well as the earlier Chinese revolution and Russian revolution. This is the concept referred to as "redistribution is insurance against pitchforks". > wilful ignorance on the part of the elites This really characteris…

> but the money is simply deleted What an interesting idea. Is there any historical precedent for actually deleting/destroying money?

Yes, all sorts; an example which comes to mind is the Indian demonetization. https://en.wikipedia.org/wiki/2016_Indian_banknote_demonetis...

It was pretty disruptive: "The move reduced the country's industrial production and its GDP growth rate. It is estimated that 1.5 million jobs were lost." and it seems to not have been very effective in its stated aim to move the "black economy" back into visibility.

The Cyprus "bank haircut" could count as another example, in that it's deleting secondary money - bank deposits which had become unbacked and unbackable - rather than primary money. https://www.ft.com/content/4a1bb1d6-9926-11e2-af84-00144feab...

Re: Inflation is differential and restructuring (2021)

#79

Post by ekianjo »

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…

> f people want to exchange more, they need more coupons.

thats a fallacy. nothing prevents you from exchanging more even if you had a fixed number of coupons. you would just have to consider that the value of each coupon becomes more, not less, over time, so you need to use subdivisions of coupons more.

Inflation, even at low levels, is ultimately value destruction over time.

Re: Inflation is differential and restructuring (2021)

#80

Post by lordnacho »

FabHK wrote: post #66
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…

> 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].

There's a lot of theorems in economics that I basically think of as math theorems. Arrow's Impossibility Theorem for instance. Various things in game theory as well, just about all of Tirole's book (IO? Can't remember).

But I think of them as math, with the very particular term "theorem" precisely because they are defined like math problems, with very specific assumptions.

They are really math theorems that are dressed in economics words like "demand function" in the same way that you can have a theorem in physics, eg the Bubble Theorem about what angles arise. Or that theorem that says you can't balance a magnet statically.

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

That's what engineers tend to care about though.

Now about averages, I think the point really does matter that the person who spends the average basket isn't representative. The guy in the 1% just doesn't care much at all about his beans and rice getting expensive. The family in the bottom 1% may well end up not eating for a day. Sweeping everything into one number causes some real problems with our decision making.

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