What the Great Inflation (1965-1982) taught us
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What the Great Inflation (1965-1982) taught us
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Re: What the Great Inflation (1965-1982) taught us
#2It's a weird choice to (1) pick 1965 as the starting date and (2) not discuss at all the fact that peak inflation followed the oil price shock of 1973.
Re: What the Great Inflation (1965-1982) taught us
#3It's a weird choice to (1) pick 1965 as the starting date and (2) not discuss at all the fact that peak inflation followed the oil price shock of 1973.
1965 is when inflation started kicking in (we have a recording of a family dinner from around that time and the mother was complaining about inflation).
It looks like there were three peaks in overall inflation mountain range, and only one of them was from the oil price shock.
I believe the author might have been using the article she linked as a major source:
https://www.federalreservehistory.org/essays/great-inflation
Re: What the Great Inflation (1965-1982) taught us
#4If 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 more unemployment. We need economic hard time so that people will not have too much loose money any more. We need more unemployment so that employers don't have to pay bigger wages causing wage-inflation.
To me this sounds counter-intuitive. How can the solution be more unemployment? People will then have even less money after paying the grocery and gas-bills.
Re: What the Great Inflation (1965-1982) taught us
#5It's a weird choice to (1) pick 1965 as the starting date and (2) not discuss at all the fact that peak inflation followed the oil price shock of 1973.
1965 is a commonly picked start date because it is the worst time in the last 100+ years to retire with a self-funded portfolio. It’s commonly used in the FIRE community to check withdrawal plans.
Re: What the Great Inflation (1965-1982) taught us
#6If 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…
> People will then have even less money after paying the grocery and gas-bills.
Precisely. The less money people have the lower prices have to go for sales to be possible so increased unemployment is a downward force on prices but isn’t all that successful right now when there’s also a massive skilled labor shortage in the vicinity of record expansions of the money supply.
Re: What the Great Inflation (1965-1982) taught us
#7If 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…
> it is a self-correcting problem because as prices go up people will no longer have as much money.
It’s not as simple as that, and thinking about the second and third order follow-ons is important. History has taught us it goes something like this:
1. People have more money, so the majority spend it (instead of saving it).
2. Companies, seeing more demand, but can’t expand supply as quickly, raise prices.
3. People are feeling good cause their companies are doing well, but wait… we should get a raise and get some of that profit!
4. see #1.
For example, when companies can produce a good at a rate X, they can up prices at rate 1.05X. But suddenly, they run out of resources and can only produce at constant, instead of rate X, but continue to raise prices due to “projected” demand.
You have to break the cycle somewhere, and it’s painful no matter where you start, from unemployment or raise taxes or add regulations.
The US Fed only has 1 tool out of the 3, as congress is the ones with power to raise taxes or add regulation.
Re: What the Great Inflation (1965-1982) taught us
#8If 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 only initially caused by money supply. once inflation expectations become embedded, it becomes a self-reinforcing perpetual motion machine.
e.g. imagine you negotiate a 13% raise because inflation was 13% last year (btw so did everyone else). congrats - everyone just guaranteed that they will have enough money to create 13% inflation next year, when the cycle will repeat
unemployment solves this because it's a "-100% raise" and takes spending power out of the economy
and inflation is generally considered bad because among other things it distorts markets for savings and loans
Re: What the Great Inflation (1965-1982) taught us
#9It's a weird choice to (1) pick 1965 as the starting date and (2) not discuss at all the fact that peak inflation followed the oil price shock of 1973.
1965 is a commonly picked start date because it is the worst time in the last 100+ years to retire with a self-funded portfolio. It’s commonly used in the FIRE community to check withdrawal plans.
It depends on your individual consumption preferences. Just because the CPI is 7%/year does not mean you are losing 7%. If you have $1 million in cash and your expenses are $40k/year and CPI goes up 10%, then all you need is to invest the $960,000 in fixed income to negate the increase of $4k due to inflation, which is easily doable. If you are taking that $1 million and buying only energy or only food with it, then you would lose a lot of potential purchasing power but most people do not do that. Food and energy are only a small % of one's wealth beyond a certain amount.
Re: What the Great Inflation (1965-1982) taught us
#10If 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…
Higher unemployment is generally deflationary according to mainstream economic theory and empirical evidence