Wow. Who could have foreseen this? I suppose that's different from "Who could have stopped this?" Our economic problems are not easy ones to solve, but when trillions of dollars of are created out of thin air and distributed to the populace, you had to know this was coming.
Most of those trillions were delivered to the ruling/corporate class who has used it to secure assets instead of create value. That is the source of this inflation.
tax the rich? by whom? the same people have gave the rich the money? a bit incestuous, no? This is my point. stop giving these people the power to take from one group and give to another. It only works out for those connected. And guess what? in the history of the world, the poor have never been connected. Lower taxes (lower spending) and the poor get to keep their money and do as they wish with it.
Or even just stop giving the rich money that is taken from regular people. The money may not be directly taken from us, but printing money causes inflation, which is not really different from taking money in the form of taxes. At the end of the day all of us regular people still have less purchasing power.
Well printing it and putting it into circulation causes inflation. If you give Bill Gates $1Tn and he hides it under his mattress, that does not cause inflation.
The problem is more fundamental. The financial system is based on the immoral and parasitic practice of usury. The fiat money we use today is controlled by the whim of the government, which borrows money from the Fed with usury. It has to print money to pay it back because due to usury, it keeps increasing.
How does buying up assets lead to price increases in "groceries (96%), gas (93%), dining out (57%), and clothing (42%)"? Are the Koch Brothers hitting up Costco every day?
Gas is up because of the recent pipeline shutdown.
Grocery prices have been rising since the start of the pandemic. Far more people are now accustomed to cooking at home. Anecdotally, I am one of them. I buy at least twice as many groceries as I did pre-pandemic and that is not going to change. Also the pandemic is still in full force internationally, especially in places where the US sources major food imports.
Clothing is up because commerce with the Chinese textile industry was shut down during the pandemic. It will take at least another year before clothing prices are restored.
Notice that the massive spikes in real estate prices are not even mentioned in the article. This is a propaganda piece. It cherrypicks items that poor people depend on in order to promote backlash against redistribution.
So the trillions being delivered to the rich is the source of inflation (per your comment above) because of... other nefarious things the rich people did, and also other events that they didn't do? Did they need those trillions to be incompetent, maybe? Or to reduce support for redistribution (per your comment pre-edit)?
Obviously it doesn't. In fact, one common long-running justification for why we should helicopter-drop money to ordinary people rather than businesses and banks is precisely that ordinary people will spend it on goods and services whereas the wealthy will not - and it seems like we're seeing the consequences of actually doing this right now.
The trouble is that there's a strong strain of left-wing populism in the US based around a view of the economy that is simple, gives someone convenient to blame (the evil wealthy corporate class sitting on all the wealth like dragons on hoards), and bears almost no resemblance to the way the world really works. Which is why you still get people pushing for wealth redistribution as a solution to this inflation, even though the very argument that was being used to call for it before means that it will make the inflation problem worse.
The article reports that 72% of respondents said their income has not increased. So whatever trillions of dollars were created don't seem to have made it to the populace.
Either the respondents are not a representative sample of consumers, in which case the article's conclusions are of little value; or something other than increased consumer spending, like supply chain issues, is causing the inflation.
Your second sentence does not follow from your first. Trillions of dollars in stimulus have allowed millions of Americans to retain the bulk of their income while not working to produce anything.
If the stimulus money only allowed people to maintain their income level rather than increase it, then the inflation pressure can't be coming from increased consumer spending.
GDP only dropped 2.3% last year [0], so there's approximately the same amount of stuff to buy.
The linked article reads to me like an incoherent attempt to scare people into thinking the stimulus was a bad idea.
It's surprisingly plausible that wages would not rise and inflation would speed up.
This can occur because companies lay off employees due to rising costs and lack of demand (while raising their own prices) or because the money is going to some alternate consumption.
Food prices could increase today simply because one or more of the beneficiaries of those trillions of dollars has allocated it to land acquisition. Retiring of productive capacity for other "economic" purposes will increase inflation.
> It's surprisingly plausible that wages would not rise and inflation would speed up.
I agree entirely. But the linked article explicitly blames increased deficit government spending. The article reads like a stealth attack on stimulus, with the implicit point that inflation should be controlled by ending it, rather than looking more deeply at causes like the ones you suggest -- which might lead to solutions that a Forbes contributor might not like, like taxing the rich.
Take Germany as an example of stagflation. Last year we had to fell a lot of trees because bark beetles. Everyone was dumping their bad lumber. A CDU politician introduced a 85% quota so that the markets can recover but now the situation has reversed and some forest owners are not allowed to harvest their lumber despite high prices. For small businesses losing those last 15% may make it unprofitable to harvest at all. Making it illegal to run businesses serving hot markets is a recipe for cost increases without corresponding wage increases.
However, in the US the investment rate is going up and businesses are expanding production. The biggest factor right now is the semiconductor shortage and there it is just a matter of time before things return to normal.
Anecdotally, I've become skeptical of US business investment and production metrics. Companies can ramp up investment into assets or expand production of assets without producing consumer/b2b goods.
We capture increased production and investment in speculative assets as economic growth when it may not yield any new production.
> something other than increased consumer spending, like supply chain issues, is causing the inflation
My (naive) understanding is these are tightly linked. The process is something like:
=> Consumers have more cash to spend on goods.
=> Consumers buy more goods
=> More demand is created for commodities to build those goods
=> Demand for commodities exceeds demand
=> Commodity prices inflate
=> Manufactured good prices inflate
Yes but the article explicitly states that the vast majority of consumers don't have more cash to spend. So the cause of the inflation must be something else.
Them having the cash doesn't necessarily mean they spent it; plus, they could have spent it on deleveraging their debts (and not on consumption).
I tend to agree that all the inflation we are seeing right now is supply chain related (with the one exception of graphics cards - the liquidity injected into the system probably made price of crypto go up which accelerated the demand for GPUs, so the GPU issue is both a supply problem & demand problem)
actually median savings are at all time highs for the average person. thanks to stimulus payments and enhanced unemployment and also shutdowns preventing people from spending money even if they wanted.
This was due to the pandemic disrupting the global supply chain, not because of the inadequate yet desperately needed stimulus, unemployment supplement and child UBI.
The idea that more cash has driven up the price of basic goods this quickly is almost certainly frivolous. The pressure simply isn't there, especially with wages still so low.
That's not to say prices haven't been suppressed over the years in various ways that combat normal inflation (6oz denim Jeans that are now 10% Spandex I'm looking at you) and there's a ton of money in the system that have mostly went into assets.
You explicitly blamed distribution of trillions to the populace, which I think is the conclusion the article's author wanted people to come to.
Your response illustrates the likelihood that the article is a stealth attack on government stimulus to the non-rich, to deflect the possibility of more straightforward solutions, like curtailing stimulus to the rich.
> My rationale is simply that more dollars to go around means that one dollar is worth less. Simple logic, rather than fancy economics, I guess.
You're looking at the total supply (which is true in the long term, since those dollars have to be spent eventually). However, inflation in the short term has much more to do with velocity and actual spending - if all of that money just sits in bank accounts, there will be no inflation.
So looking at the money supply in isolation will tell you nothing about the actual inflation. It's about what's happening to that money.
Prices aren't up because people are bidding more for finished goods. Prices are up because commodity costs are up, so the inputs to production cost more. Those costs are passed onto end consumers, to the extent they can afford them, or they are passed on in the reduction in the availability of goods.
Trillions were not distributed to the populace, trillions were distributed to businesses and the Fed to leverage even further to prop up the stock market. The “populace” got billions.
The printing isn’t really the problem either, it’s a symptom of policies from both parties for 50-60 years resulting in a nation that functions purely on debt from individual households, small businesses, publicly traded businesses, to the government itself.
Before the pandemic the majority of households couldn’t cover a $400 emergency. But the truth is businesses and governments were in the same position, and even in “the greatest economy the world has ever seen” the majority of them live the equivalent of paycheck to paycheck just servicing their debts.
If you really think this is merely a supply-chain issue, you haven't been watching the continuous stream of Fed easing that has been happening since the GFC, and arguably almost since the end of the .com burst.
The Fed is buying $120 bln in debt per month, every month. Is this because lumber isn't in stock at Home Depot? The Fed now purchases 40% of the debt produced in the economy...maybe it really is because of the pool chlorine supply issues.
I see your response as just another variant of the HN denial on this topic...you're literally suggesting our only problem is not being able to keep up with the awesome.
It took a pandemic to reach 4% inflation. If you are the president of the central bank and your mandate is 2% it is a fantastic show of incompetence.
> If you really think this is merely a supply-chain issue, you haven't been watching the continuous stream of Fed easing that has been happening since the GFC, and arguably almost since the end of the .com burst.
The Fed mostly did two things, set low interest rates (not low enough since the market clearing rate is negative) and give banks more reserves so that they can lend more. When the Fed creates new money it does so via debt, all that new money has to be returned one day so as soon as you raise interest rates we'll automatically get deflation as people pay their debts back.
A lot of the QE money is "hot air" because you have to borrow money to tap into it and large businesses and mortgages get much better terms than consumers and startups. The pandemic is special because the new money actually reached everyone.
One big problem that the Fed faces is that the easy money is being taken by unproductive companies and the ease of access to loans makes it easier for these unproductive companies to survive leaving less room for the productive ones that may not need as much funding. Zombie companies are fine in the short term because they employ people and you get the helicopter money effect. Once you have full employment you get rising wages and inflation, which means it is time to kill off zombies by raising interest rates. However, if it takes 10 years of low interest and inflation to get back to full employment those zombies will have time to gain market share and when it's time for them to go, they may take a big chunk of the market with them.
The benefit of helicopter money is that people spend the money on things they personally need. No need for a government to decide what to spend the money on. No need for companies to do market research on what consumers want.
I tend to agree, though I wonder how much of a "surprise" it is now, versus how much of the expectation has been (or currently being) baked in.
When you look at a number of interviews with bankers / investors and the like recently, the general message is "inflation is here, and the Fed will have to raise rates soon - it's not a question of 'if' anymore but 'when.' "
> Shopkick, which produced the report, is a shopping rewards company. The company provides tracking to monitor consumer engagement along the path to purchase. The company has a pay for performance model.
We were already experiencing inflation (cost of living went up because housing went up because we bailed out a bunch of banks that should have failed.) This time it's just more obvious because the price of things people buy directly went up immediately.
I will never buy a home again if costs don't drop dramatically... because unlike what most people think, a house is generally not an investment, unless you rent it
Literally never got a stimulus. Students, especially poor students on scholarships, are so thoroughly fucked by the US tax system. It's gotten to the point that schools like Princeton and Stanford encourage low-income full-ride students to avoid declaring their tax liability at all, arguing that they're better off dealing with that monster when they actually have income (in software, finance, etc where the tax liability is negligible in comparison to a full-ride to an elite college).
Students with full-ride scholarships (not just at Princeton and Stanford) typically come from households making <65k a year, with around a third (might have changed since mid 2010s) being near the four-person household poverty line.
I would hardly call that elite. For many of these students, these schools are the primary mechanism for class mobility -- taxing their scholarships is a hindrance that many can't afford. At this point, college is so expensive and so much of that is taxable that work study is an accounting trick to offset the tax liability -- this forces poor students, literally not the elite, to operate with unnecessary time and financial pressures.
If they are at Stanford and Princeton, they are definitionally members of the cognitive elite already. Period, and this goes for people that are admitted at all. Considering the median income in the country for a single-earner is about $65k they don't really get much sympathy (nor should they).
They shouldn't be treated better than the people at CSULA by virtue of their "genetic superiority".
A freshman from Compton, CA or rural Alabama who goes to Stanford on a full-ride need-based scholarship is not part of the 'cognitive elite.' Second, these sorts of tax laws can apply to any school, including a UC or CSU (there will just be less taxes due to lower COA).
>Considering the median income in the country for a single-earner is about $65k
Someone from Compton or rural Alabama deserves the same treatment as any other elite that gets into HYPSM - they have access unlimited external social validation by society as smart and accomplished (because they are). I don’t understand why people don’t understand that you need to be a cognitive elite, a truly exceptional individual to get into these schools - normal people don’t get in. To emphasize, no matter your prior background you are an elite, likely on all dimensions, compared to someone that goes to University of Arizona.
If the tax implications are indeed the same for people at CSUs, it’s offensive that you used the Stanford example. It implies that normal people like me - the true 99.9% of society that hold it together - don’t matter at the expense of the people that already have literally everything going for them. I have nothing compared to them.
And yes, the people that get into Stanford are probably genetically superior to the ones at SJSU according to people like Thiel and anyone that buys into IQ having a significant hereditary component.
What's happened over the last 15 years is that schools keep bumping room and board rates (at nearly 10% year-over-year, which is insane). Since anything outside tuition is taxable, that liability has been increasing. The 'income' of a full-ride scholarship student with parents making less than 25k could be 55-60k+ on paper, which then gets taxed. This leads to income that should be used for food and quality of life, like work study, being used to offset a growing tax liability instead.
So you have students who are poor and working way more than their wealthier counterparts not for savings, emergency funds, money for their family, or food, but simply to offset a tax liability they incur... because they are poor and smart. Absolutely bonkers.
I just don't understand why there isn't an income-based tax exemption on need-based full-rides. Like, ideally a need-based full-ride should have parity with the wealthy students with parents footing the entire bill. It could certainly help with the slightly higher attrition rate for poor students.
I suppose you might live in the dorm your freshman year, but there is no reason why you need to take the most expensive housing. I paid $600 a month for my place my last 2 years of undergrad, and I would just take a few loans and/or a job.
Moving out is a popular and valid option, especially with how expensive on-campus meals are. Even if you move out, the school will still calculate a 1098-T based on the total cost of attendance (it might be possible to go out of your way to decline part of your scholarship, but I have no idea how this works). But yes, moving out is a way to save money (but some of that money just funnels back into paying a tax liability, lol).
Economists like Bernanke have talked about dropping money from helicopters in the sky, in order to prevent deflation.
What the government has done in the last year with its $10+ trillion in stimulus, is the exact definition of dropping money from helicopters and yet no one is pointing this out.
Which means we must have narrowly averted a truly horrific situation as a country. The fact that everyone keeps talking about more stimulus means that the government knows more than we do, and the risk of deflation still remains high.
The Fed will do WHATEVER it takes to prevent house price deflation. They've already shown this during the Financial Crisis. Too much of the economy and financial system is based on house prices, there's no way that they can ever afford to see house prices decline in our lifetime.
They will do whatever it takes to prevent asset price deflation in general. The last thing politicians want is people watching their 401k values go down, and they certainly want them to go up.
As far as I’m concerned, VTI is a better inflation protected security than TIPS for any 3+ year investment horizon.
The US government collects data about production capabilities of pretty much every industry in America. Major companies do talk frequently with government officials about potential problems and roadblocks the business are facing, especially internationally.
In addition, they have an enormous spy apparatus operating in probably every country on earth. Military satellites can be used to gauge production around the world. They can monitor metal mines in Australia, track the shipments of ore to refineries, and have a good idea of where the finished products are going.
Clearly, all of this information is gathered and analyzed by different departments, but analysts within the White House can obtain an absurd amount of detailed information of almost any nature.
So what would they know that we don't? Hedge fund and industry analysts also pay a lot of attention to domestic and international production. Even stuff like public company shareholders meetings have a lot of insight.
The issue I would be more concerned with is the overall structure of the economy. For example, only 15% of money lending goes to actual production use. The other 85% is just a house of cards that is lending to be lent again, or invested in nonproductive ways. Basically moneylending inception.
The most obvious example would be military-related. The government would know a lot more than the private sector about troop movement, ordinance production, deployment of assets (fighter jets, naval fleets), sabotage plans. Pretty much anything that is being intentionally hidden from public view by other parties is potentially known about by the government.
Even things like water levels of various bodies around the world are data points the military tracks (food shortages lead to strife) but aren't really easy for civilians to get.
"private sector about troop movement, ordinance production, deployment of assets (fighter jets, naval fleets), sabotage plans"
I don't see these as playing a big role in the economy unless a fight between superpowers breaks out. The contracts for the items involved in these are generally well known.
In an economy where money fell in bags from helicopters from the sky, wouldn't you expect net makers and street sweeping trucks to experience drastic growth?
I've always wondered why the government when doing these ~10 trillion stimulus to various industries just didn't give every person ~$30,000 during the last year spread out over the year. Probably because that would drive actual inflation.
Because the government does not want to upset the social ordering of people. So much of our lifestyle derives from the fact that those at the bottom have no choice but to work for those low wages and poor quality of life at work.
Giving them an option upends all the assumptions that go into loans, and therefore having to raise wages would cause defaults for businesses, and otherwise wreak havoc for those who currently benefit from owning those assets and debt.
A slow increase in quality of life for those at the bottom is okay, but a large increase so that they jump up a few rungs on the ladder would cause pain for those above.
Giving everyone $30k would. Just the extra $300 per week that people were getting is causing them to be dissuaded from subjecting themselves to the bottom tier of jobs.
I’ve spoken to a lot of hotel owners and restaurateurs lamenting their inability to hire people for low wages part time work. And there are fast food restaurants around me that are closed at many times because they have no workers, especially for late night hours that they used to. Some hotel owners I know are closing off portions of their inventory because they cannot find housekeeping staff to clean their rooms for the wages/quality of life/stability they want to provide.
That is also the reason for all the PPP nonsense. Rather than simply paying the workers for lost wages and paying the businesses for lost revenue, PPP stipulations make it so the worker stays tied to the business.
> Just the extra $300 per week that people were getting is causing them to be dissuaded from subjecting themselves to the bottom tier of jobs
Giving people money that you take away if they work dissuades them from taking jobs, especially jobs that net them the same or less than they get without working.
That doesn’t really prove anything about how giving people money that you don’t take away if they work effects their willingness to work.
It does for the low paying jobs that rely on people not having a choice.
They already live on the bare minimum, but they have to clean toilets to get it. Now the government says you can live on the bare minimum, but you do not have to clean toilets.
So now you have to raise wages to entice people to clean toilets.
You are correct that it is not the exact same situation, but I think there would be even more disruption of the same kind the more you increase the government assistance.
> So now you have to raise wages to entice people to clean toilets.
Or so now people doing even more distasteful and/or lower-paid work outside of the formal economy because it can stack with means tested benefits can afford to clean toilets for low wages in the formal economy because it stacks with the now-unconditional benefits. Conjecture as to which effect dominates based on behavior with additional means-tested benefits is on extremely shaky ground.
The government stands more to lose by a rate hike than any other individual entity. Ten year notes are traded in an open market, and sold at auction - Treasury can't just set a price and expect people to pay. If the prevailing ten year rate reverted back to the historical average of 4.9%, 30% of the Federal budget would have to be dedicated to just servicing the interest on the debt.
For Uncle Sam, low rates are about survival. We're in deep caca.
> Treasury can't just set a price and expect people to pay
The Federal Reserve is the largest purchaser of UST, so effectively yes, they can. As long as QE is happening, and as long as the rest of the world doesn't stop calling USTs "risk-free assets", it won't ever stop. If somehow the US loses its grip on that status, though, all bets are off.
I don't get that reasoning. Obviously the Fed will prevent any such loop from happening, and it won't be the least bit controversial. They have many options to do this.
For example, the Fed can in fact print money and buy treasuries (which they already did). They can (and do) pay the "profit" on Treasury bonds to the government, which they could accelerate to immediately, then buy a boatload. Or they can change reserve requirements on banks. Or ...
Whatever you think is going to bankrupt the US government, it's not going to be treasuries. It's just not.
Not OP. I think the idea is that we dumped so much money into the economy and had so little inflation now, that not dropping the money would have meant severe deflation.
Adding $10 Trillion should have created a great deal of inflation - much more than we see. Therefore, if it were not added, we probably would see much worse than no inflation - we would see significant deflation. That's far more ruinous than mild inflation is.
> Inflation is so low right now because the Fed is artificially forcing low interest rates. Dollars in circulation has little impact on it.
Inflation in the short term has more to do with elasticity of supply than demand (unless demand spikes hugely). Low interest rates don't have much to do with it (low rates are usually a tool to stimulate demand, but they only work when you don't have a pre-existing debt bubble that must be deleveraged).
Deflation benefits those with savings and fixed-income and inflation benefits those with a large amount of loans - as well as making government debt easier to repay (at the expense of those with savings, treasury bonds and holders of government debt).
If you have deflation together with a large debt bubble (like we have now), many people & companies will have to default. Not saying it's good or bad, but politically that kind of pain is intolerable (the politicians who support it would get voted out)
Worse: The default process leads to people selling stuff for whatever they can get (either the debtor, trying to avoid default, or the lender, trying to recoup losses). That drives down prices, causing more deflation. This cycle destroys both people and businesses. Look at a crash in the 1800s to see how this plays out. It's horrible. It's very destructive.
But you hate it when the things you sell get cheaper. That's the problem. Even if you're an ordinary employee rather than an owner, you get squeezed when the owner makes less money. Their debts remain fixed while their income decreases.
If that leads to your income being reduced (or you're downsized), you have less to spend and your contribution to demand goes down. That starts the process all over again with whatever you consume. The worst case is a "deflationary spiral" where that keeps going round and round.
It's widely thought that a small (2%) inflation avoids that spiral by encouraging people to spend their money today rather than sit on it. It slowly eats into fixed incomes, which isn't great, but in general it keeps the economy moving for those who are employed. Ideally it pumps the GDP faster than inflation, allowing us to compensate for those on fixed incomes.
You must have been getting a very different information stream than me.
People have been decrying (or praising) the helicopter money of the past year+ since before it even started. Hell, there was even a moment in March/April of last year when people were speculating that Trump might even implement a form of UBI.
Housing, schooling, and healthcare are necessities that people will go deeply into debt to be able to afford. They will pull money out of their retirement to bid on houses or pay for their kids college. They will mortgage anything, and beg from friends and family, to afford healthcare.
These three items are well known to have costs that have risen above inflation for decades.
I offer an alternative explanation: these three items are so vital to people that they will sacrifice spending in other areas to support these costs. All of the unmeasured inflation of the past decades is represented solely in these items.
We have seen massive inflation in asset prices. Just look at housing and the stock market, both of which took off after the Financial Crisis. This is the primary cause of the massive income inequality we see these days, because poor people can't afford houses and stocks but upper middle class and wealthy people can and do.
Another thing people complain about is the wealth gap.
Inflation increases the value of assets. Wealthy people own assets and poor people consume goods to survive. As a result, inflation increases the gap between the wealthy and the poor.
The only realistic way to reduce the wealth gap is to accept deflationary periods. This would also improve the savings rate and reduce debt.
I understand that modern theories believe deflation to be the end of days. I attribute that belief to the fact that a deflationary period was observed during the great depression, and has been believed to be a cause rather than an effect. I frankly disagree with that viewpoint.
I believe that the government has a vested interest in ensuring inflation because the government is a debtor. A protracted period of deflation would bankrupt the government.
People cite the post-war period as one of a smaller wealth gap, but the primary reason for that is that there had been a ten year period of deflation just proceeding it.
>What the government has done in the last year with its $10+ trillion in stimulus, is the exact definition of dropping money from helicopters and yet no one is pointing this out.
Well, kinda. It's like you're only flying the helicopters over company headquarters and LA's suburbs and nowhere else.
The stimulus checks and increased unemployment can be considered helicopter money from a practical perspective though because it reached everyone. It would be even better to spend it on infrastructure or building housing but you have to do something...
"6% indicated they experience price increases on everyday goods and services. Notably, they pointed to on groceries (96%), gas (93%), dining out (57%), and clothing (42%)"
This is a poorly conducted survey if it's trying to show inflation is a problem. This response would be accurate even if inflation was just 2%. The concern isn't inflation but the amount of inflation.
Nominal inflation is fairly well hidden from people. The prices of most goods remain relatively static, or at least stay within a narrow band over an annual cycle. Producers have contracts for fixed prices on inputs and often outputs, so their prices are often fixed for a term. Frosted Flakes may remain $3.99 a box for five years, while a price increase to $4.49 is introduced gradually through sales and promotions.
So if people are experiencing inflation in the short term, that's notable.
Now, it's important to differentiate between inflation due to supply constraints vs. inflation due to long-term cost increases on inputs. For example, lumber is hella expensive right now, but it's probably not going to remain at the levels it is at in the long term. Whereas the cost increases of corn might be permanent.
At my local supermarket the price for food varies week to week depending on whether an item is on sale. For example sometimes items are "2 of 3.00" and sometimes they are 2.00 each. Unless someone is keeping records it would be hard to gauge.
It’s a propaganda piece. The point is to instill poor people with a fear of inflation to promote sentiment against redistribution, which is done by relating it with their everyday lives. Quality reporting is not the priority.
Just a quick correction due to a copy-and-paste error, the article quote is: "86% indicated they experience price increases on everyday goods and services."
That said, I agree, inflation isn't a problem, the rate of inflation is.
I also think folks, right now, are confusing price increases due to supply or demand shocks with inflation.
Housing, cars, computer chips, and many other products are experiencing a mix of a supply shock and a demand shock as last year's decisions to reduce production have bitten us as demand is coming roaring back and production can't be instantaneously re-adjusted for that demand.
That is causing a spike in prices that's rippling through the economy in various ways, from increases in prices of lumber to a spike in used car demand.
This is a fleeting effect that'll go on until supply chains catch up.
The problem is the outcome looks the same: price increases. But the policy response has to be very very different.
The headline confuses me: If that large proportion were 'tightening their belts', economic activity would decline and there would be no inflation. An inflation headline would be, '83% of Americans are buying new cars/computers/homes/washer-dryers' or '83% of Americans have borrowed more than last year'. Inflation is an excess of economic activity - too much money for the available truly valuable investments. It's people buying cryptographic strings, hoping they will go up in value, and the values nominally going up because so many are buying it.
I doubt 83% of Americans know what inflation is, much less know about the current debates around it or understand its effects. I question whether 83% could be reacting to reports of inflation.
Inflation has been turned into a bad word, but the post-Great Recession era of near-nil inflation is the anomaly. Generally, through most of my life of reading economists, a low level of inflation (e.g, 2-3%) is considered the healthiest state.
I think part of it is politicization: Whenever someone talks about government spending or stimulus, particularly around the Great Recession in 2008 and the Coronavirus pandemic, people who advocate for small government use inflation risk as an argument against it. My feeling is that has created two conditions: 1) the stopped clock is eventually right, and 2) they've built up inflation as so much of a demon that people are afraid of it.
The direct effects of inflation are to help people with lots of fixed debt and inflationary income, because your debt of 100,000 is still 100,000 while your income inflates from e.g., 50,000 to 52,000. And it similarly hurts people with lots of fixed income or assets. The indirect effects are complicated, but again, a low level of inflation - higher than recent experience - has long been considered optimal.
> The headline confuses me: If that large proportion were 'tightening their belts', economic activity would decline and there would be no inflation.
83% at the bottom could tighten their belts, and the 17% at the top who control far more wealth could loosen theirs and economic activitt would increase.
> and there would be no inflation.
Even if we assume the first incorrect statement were true, this would still be wrong: there wouldn’t be demand-pull inflation, but there still could be supply-push inflation.
> Inflation is an excess of economic activity -
too much money for the available truly valuable investments.
No, inflation is an increase in consumer price levels, and has nothing directly to do with investments, though there are indirect effects in both direction.
You talk about ways that the headline could be reconciled with inflation, but even if true, the headline certainly doesn't describe an inflationary situation.
> inflation is an increase in consumer price levels
That's a common and well-known symptom (because everyone can see it), but that doesn't define inflation. From Britannica:
Inflation, in economics, collective increases in the supply of money, in money incomes, or in prices.
I used the term 'investments' loosely, rather than spelling out all the possible things on which we can spend money. But actual investments, by the narrow definition, count: asset bubbles, or example, are a form of and sign of inflation (in that one market). Again, inflation is an excess of economic activity for the economic realities of the situation.
> there wouldn’t be demand-pull inflation, but there still could be supply-push inflation
If you mean 'cost-push' inflation, that is caused by increased production costs, which lower production and thus reduce supply and thus, unless demand also decreases, prices increase. If demand also decreases sufficiently, as the headline might suggest, then there's no inflation. Increased production costs aren't the concern behind the inflationary effects of various stimulus measures, which should reduce costs of production (including via cheap debt).
> You talk about ways that the headline could be reconciled with inflation, but even if true, the headline certainly doesn't describe an inflationary situation.
The headline describes a response to inflation, not a cause. You are criticizing it because the response it describes does not explain the cause. Which is a silly criticism; responses aren’t supposed to explain causes.
> The response and cause are inputs in the same system.
But not to the same state. The description is of inflation at T(<n) producing belt-tightening at T(=n). You are complaining that the belt-tightening doesn’t explain the inflation. Of course it doesn’t.
Now, sure, there’s a valid question of “what is causing the inflation”; is it offsetting belt loosening in another group? Is it supply issues?
We are in early days with little inflation. In the sequence of time T(1 .. N), what you describe applies only to T(1). For all time T(>1), the belt-tightening is an input. If 83% of Americans are doing it, inflation isn't an issue for T(>1), in which case it's a moot issue.
> If 83% of Americans are doing it, inflation isn't an issue
Since I already explained why this is wrong in my first post (and you acknowledged it in your response, but shifted your criticism of thr headline to that the belt-tightening doesn’t explain inflation even though it is consistent with inflation from other causes), I think we've come full circle here.
It's not all the funny when you consider that prices fluctuate so wildly that including them would make the numbers meaningless.
Even though they are excluded, they are still a component of other inflation factors. Food & energy costs contribute to the cost of materials & labor. So they are included by proxy in the long term.
And if you are really interested, the Fed does calculate personal consumption expenditures (PCE). See below.
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[ 3.5 ms ] story [ 194 ms ] threadFor example: https://www.msn.com/en-us/news/us/koch-e2-80-99s-foundation-...
https://www.businessinsider.com/bill-gates-land-portfolio-bi...
Grocery prices have been rising since the start of the pandemic. Far more people are now accustomed to cooking at home. Anecdotally, I am one of them. I buy at least twice as many groceries as I did pre-pandemic and that is not going to change. Also the pandemic is still in full force internationally, especially in places where the US sources major food imports.
Clothing is up because commerce with the Chinese textile industry was shut down during the pandemic. It will take at least another year before clothing prices are restored.
Notice that the massive spikes in real estate prices are not even mentioned in the article. This is a propaganda piece. It cherrypicks items that poor people depend on in order to promote backlash against redistribution.
The trouble is that there's a strong strain of left-wing populism in the US based around a view of the economy that is simple, gives someone convenient to blame (the evil wealthy corporate class sitting on all the wealth like dragons on hoards), and bears almost no resemblance to the way the world really works. Which is why you still get people pushing for wealth redistribution as a solution to this inflation, even though the very argument that was being used to call for it before means that it will make the inflation problem worse.
Either the respondents are not a representative sample of consumers, in which case the article's conclusions are of little value; or something other than increased consumer spending, like supply chain issues, is causing the inflation.
GDP only dropped 2.3% last year [0], so there's approximately the same amount of stuff to buy.
The linked article reads to me like an incoherent attempt to scare people into thinking the stimulus was a bad idea.
[0] https://www.bea.gov/news/2021/gross-domestic-product-4th-qua...
This can occur because companies lay off employees due to rising costs and lack of demand (while raising their own prices) or because the money is going to some alternate consumption.
Food prices could increase today simply because one or more of the beneficiaries of those trillions of dollars has allocated it to land acquisition. Retiring of productive capacity for other "economic" purposes will increase inflation.
I agree entirely. But the linked article explicitly blames increased deficit government spending. The article reads like a stealth attack on stimulus, with the implicit point that inflation should be controlled by ending it, rather than looking more deeply at causes like the ones you suggest -- which might lead to solutions that a Forbes contributor might not like, like taxing the rich.
However, in the US the investment rate is going up and businesses are expanding production. The biggest factor right now is the semiconductor shortage and there it is just a matter of time before things return to normal.
We capture increased production and investment in speculative assets as economic growth when it may not yield any new production.
My (naive) understanding is these are tightly linked. The process is something like:
As incomes are still fixed and there are cheaper substitutes for almost everything you want to eat people will modify and reduce.
I tend to agree that all the inflation we are seeing right now is supply chain related (with the one exception of graphics cards - the liquidity injected into the system probably made price of crypto go up which accelerated the demand for GPUs, so the GPU issue is both a supply problem & demand problem)
That's not to say prices haven't been suppressed over the years in various ways that combat normal inflation (6oz denim Jeans that are now 10% Spandex I'm looking at you) and there's a ton of money in the system that have mostly went into assets.
[0] https://www.bea.gov/news/2021/gross-domestic-product-4th-qua...
Your response illustrates the likelihood that the article is a stealth attack on government stimulus to the non-rich, to deflect the possibility of more straightforward solutions, like curtailing stimulus to the rich.
You're looking at the total supply (which is true in the long term, since those dollars have to be spent eventually). However, inflation in the short term has much more to do with velocity and actual spending - if all of that money just sits in bank accounts, there will be no inflation.
So looking at the money supply in isolation will tell you nothing about the actual inflation. It's about what's happening to that money.
The printing isn’t really the problem either, it’s a symptom of policies from both parties for 50-60 years resulting in a nation that functions purely on debt from individual households, small businesses, publicly traded businesses, to the government itself.
Before the pandemic the majority of households couldn’t cover a $400 emergency. But the truth is businesses and governments were in the same position, and even in “the greatest economy the world has ever seen” the majority of them live the equivalent of paycheck to paycheck just servicing their debts.
For some weird reason, HN threads on this topic are immediately flooded by comments trying to debunk inflation...I suppose even HN isn't shill-proof.
The Fed is buying $120 bln in debt per month, every month. Is this because lumber isn't in stock at Home Depot? The Fed now purchases 40% of the debt produced in the economy...maybe it really is because of the pool chlorine supply issues.
I see your response as just another variant of the HN denial on this topic...you're literally suggesting our only problem is not being able to keep up with the awesome.
> If you really think this is merely a supply-chain issue, you haven't been watching the continuous stream of Fed easing that has been happening since the GFC, and arguably almost since the end of the .com burst.
The Fed mostly did two things, set low interest rates (not low enough since the market clearing rate is negative) and give banks more reserves so that they can lend more. When the Fed creates new money it does so via debt, all that new money has to be returned one day so as soon as you raise interest rates we'll automatically get deflation as people pay their debts back.
A lot of the QE money is "hot air" because you have to borrow money to tap into it and large businesses and mortgages get much better terms than consumers and startups. The pandemic is special because the new money actually reached everyone.
One big problem that the Fed faces is that the easy money is being taken by unproductive companies and the ease of access to loans makes it easier for these unproductive companies to survive leaving less room for the productive ones that may not need as much funding. Zombie companies are fine in the short term because they employ people and you get the helicopter money effect. Once you have full employment you get rising wages and inflation, which means it is time to kill off zombies by raising interest rates. However, if it takes 10 years of low interest and inflation to get back to full employment those zombies will have time to gain market share and when it's time for them to go, they may take a big chunk of the market with them.
The benefit of helicopter money is that people spend the money on things they personally need. No need for a government to decide what to spend the money on. No need for companies to do market research on what consumers want.
When you look at a number of interviews with bankers / investors and the like recently, the general message is "inflation is here, and the Fed will have to raise rates soon - it's not a question of 'if' anymore but 'when.' "
We were already experiencing inflation (cost of living went up because housing went up because we bailed out a bunch of banks that should have failed.) This time it's just more obvious because the price of things people buy directly went up immediately.
I would hardly call that elite. For many of these students, these schools are the primary mechanism for class mobility -- taxing their scholarships is a hindrance that many can't afford. At this point, college is so expensive and so much of that is taxable that work study is an accounting trick to offset the tax liability -- this forces poor students, literally not the elite, to operate with unnecessary time and financial pressures.
They shouldn't be treated better than the people at CSULA by virtue of their "genetic superiority".
>Considering the median income in the country for a single-earner is about $65k
Median != 'elite'.
>"genetic superiority".
???
If the tax implications are indeed the same for people at CSUs, it’s offensive that you used the Stanford example. It implies that normal people like me - the true 99.9% of society that hold it together - don’t matter at the expense of the people that already have literally everything going for them. I have nothing compared to them.
And yes, the people that get into Stanford are probably genetically superior to the ones at SJSU according to people like Thiel and anyone that buys into IQ having a significant hereditary component.
Unless you are referring to money for housing? That is probably far more affordable of a tax bill relative to tuition.
So you have students who are poor and working way more than their wealthier counterparts not for savings, emergency funds, money for their family, or food, but simply to offset a tax liability they incur... because they are poor and smart. Absolutely bonkers.
I just don't understand why there isn't an income-based tax exemption on need-based full-rides. Like, ideally a need-based full-ride should have parity with the wealthy students with parents footing the entire bill. It could certainly help with the slightly higher attrition rate for poor students.
We should deal with the effects of inflation when we see the effects of inflation.
If you schedule recurring spending packages to compensate, you'll accelerate inflation by the same amount.
What the government has done in the last year with its $10+ trillion in stimulus, is the exact definition of dropping money from helicopters and yet no one is pointing this out.
Which means we must have narrowly averted a truly horrific situation as a country. The fact that everyone keeps talking about more stimulus means that the government knows more than we do, and the risk of deflation still remains high.
As far as I’m concerned, VTI is a better inflation protected security than TIPS for any 3+ year investment horizon.
Like what?
In addition, they have an enormous spy apparatus operating in probably every country on earth. Military satellites can be used to gauge production around the world. They can monitor metal mines in Australia, track the shipments of ore to refineries, and have a good idea of where the finished products are going.
Clearly, all of this information is gathered and analyzed by different departments, but analysts within the White House can obtain an absurd amount of detailed information of almost any nature.
The issue I would be more concerned with is the overall structure of the economy. For example, only 15% of money lending goes to actual production use. The other 85% is just a house of cards that is lending to be lent again, or invested in nonproductive ways. Basically moneylending inception.
Even things like water levels of various bodies around the world are data points the military tracks (food shortages lead to strife) but aren't really easy for civilians to get.
I don't see these as playing a big role in the economy unless a fight between superpowers breaks out. The contracts for the items involved in these are generally well known.
In an economy where money fell in bags from helicopters from the sky, wouldn't you expect net makers and street sweeping trucks to experience drastic growth?
Giving them an option upends all the assumptions that go into loans, and therefore having to raise wages would cause defaults for businesses, and otherwise wreak havoc for those who currently benefit from owning those assets and debt.
A slow increase in quality of life for those at the bottom is okay, but a large increase so that they jump up a few rungs on the ladder would cause pain for those above.
I’ve spoken to a lot of hotel owners and restaurateurs lamenting their inability to hire people for low wages part time work. And there are fast food restaurants around me that are closed at many times because they have no workers, especially for late night hours that they used to. Some hotel owners I know are closing off portions of their inventory because they cannot find housekeeping staff to clean their rooms for the wages/quality of life/stability they want to provide.
That is also the reason for all the PPP nonsense. Rather than simply paying the workers for lost wages and paying the businesses for lost revenue, PPP stipulations make it so the worker stays tied to the business.
Giving people money that you take away if they work dissuades them from taking jobs, especially jobs that net them the same or less than they get without working.
That doesn’t really prove anything about how giving people money that you don’t take away if they work effects their willingness to work.
They already live on the bare minimum, but they have to clean toilets to get it. Now the government says you can live on the bare minimum, but you do not have to clean toilets.
So now you have to raise wages to entice people to clean toilets.
You are correct that it is not the exact same situation, but I think there would be even more disruption of the same kind the more you increase the government assistance.
Or so now people doing even more distasteful and/or lower-paid work outside of the formal economy because it can stack with means tested benefits can afford to clean toilets for low wages in the formal economy because it stacks with the now-unconditional benefits. Conjecture as to which effect dominates based on behavior with additional means-tested benefits is on extremely shaky ground.
But my conjecture would be we might see lower wages for desirable work, but higher wages for undesirable work.
Remember trickle down economics?
For Uncle Sam, low rates are about survival. We're in deep caca.
The Federal Reserve is the largest purchaser of UST, so effectively yes, they can. As long as QE is happening, and as long as the rest of the world doesn't stop calling USTs "risk-free assets", it won't ever stop. If somehow the US loses its grip on that status, though, all bets are off.
For example, the Fed can in fact print money and buy treasuries (which they already did). They can (and do) pay the "profit" on Treasury bonds to the government, which they could accelerate to immediately, then buy a boatload. Or they can change reserve requirements on banks. Or ...
Whatever you think is going to bankrupt the US government, it's not going to be treasuries. It's just not.
Citation needed. I don't understand the logic here.
Inflation in the short term has more to do with elasticity of supply than demand (unless demand spikes hugely). Low interest rates don't have much to do with it (low rates are usually a tool to stimulate demand, but they only work when you don't have a pre-existing debt bubble that must be deleveraged).
If you have deflation together with a large debt bubble (like we have now), many people & companies will have to default. Not saying it's good or bad, but politically that kind of pain is intolerable (the politicians who support it would get voted out)
If that leads to your income being reduced (or you're downsized), you have less to spend and your contribution to demand goes down. That starts the process all over again with whatever you consume. The worst case is a "deflationary spiral" where that keeps going round and round.
It's widely thought that a small (2%) inflation avoids that spiral by encouraging people to spend their money today rather than sit on it. It slowly eats into fixed incomes, which isn't great, but in general it keeps the economy moving for those who are employed. Ideally it pumps the GDP faster than inflation, allowing us to compensate for those on fixed incomes.
People have been decrying (or praising) the helicopter money of the past year+ since before it even started. Hell, there was even a moment in March/April of last year when people were speculating that Trump might even implement a form of UBI.
These three items are well known to have costs that have risen above inflation for decades.
I offer an alternative explanation: these three items are so vital to people that they will sacrifice spending in other areas to support these costs. All of the unmeasured inflation of the past decades is represented solely in these items.
Inflation increases the value of assets. Wealthy people own assets and poor people consume goods to survive. As a result, inflation increases the gap between the wealthy and the poor.
The only realistic way to reduce the wealth gap is to accept deflationary periods. This would also improve the savings rate and reduce debt.
I understand that modern theories believe deflation to be the end of days. I attribute that belief to the fact that a deflationary period was observed during the great depression, and has been believed to be a cause rather than an effect. I frankly disagree with that viewpoint.
I believe that the government has a vested interest in ensuring inflation because the government is a debtor. A protracted period of deflation would bankrupt the government.
People cite the post-war period as one of a smaller wealth gap, but the primary reason for that is that there had been a ten year period of deflation just proceeding it.
Well, kinda. It's like you're only flying the helicopters over company headquarters and LA's suburbs and nowhere else.
The stimulus checks and increased unemployment can be considered helicopter money from a practical perspective though because it reached everyone. It would be even better to spend it on infrastructure or building housing but you have to do something...
This is a poorly conducted survey if it's trying to show inflation is a problem. This response would be accurate even if inflation was just 2%. The concern isn't inflation but the amount of inflation.
So if people are experiencing inflation in the short term, that's notable.
Now, it's important to differentiate between inflation due to supply constraints vs. inflation due to long-term cost increases on inputs. For example, lumber is hella expensive right now, but it's probably not going to remain at the levels it is at in the long term. Whereas the cost increases of corn might be permanent.
https://www.ers.usda.gov/amber-waves/2008/february/corn-pric...
And the government heavily subsidizes crops.
That said, I agree, inflation isn't a problem, the rate of inflation is.
I also think folks, right now, are confusing price increases due to supply or demand shocks with inflation.
Housing, cars, computer chips, and many other products are experiencing a mix of a supply shock and a demand shock as last year's decisions to reduce production have bitten us as demand is coming roaring back and production can't be instantaneously re-adjusted for that demand.
That is causing a spike in prices that's rippling through the economy in various ways, from increases in prices of lumber to a spike in used car demand.
This is a fleeting effect that'll go on until supply chains catch up.
The problem is the outcome looks the same: price increases. But the policy response has to be very very different.
I doubt 83% of Americans know what inflation is, much less know about the current debates around it or understand its effects. I question whether 83% could be reacting to reports of inflation.
Inflation has been turned into a bad word, but the post-Great Recession era of near-nil inflation is the anomaly. Generally, through most of my life of reading economists, a low level of inflation (e.g, 2-3%) is considered the healthiest state.
I think part of it is politicization: Whenever someone talks about government spending or stimulus, particularly around the Great Recession in 2008 and the Coronavirus pandemic, people who advocate for small government use inflation risk as an argument against it. My feeling is that has created two conditions: 1) the stopped clock is eventually right, and 2) they've built up inflation as so much of a demon that people are afraid of it.
The direct effects of inflation are to help people with lots of fixed debt and inflationary income, because your debt of 100,000 is still 100,000 while your income inflates from e.g., 50,000 to 52,000. And it similarly hurts people with lots of fixed income or assets. The indirect effects are complicated, but again, a low level of inflation - higher than recent experience - has long been considered optimal.
83% at the bottom could tighten their belts, and the 17% at the top who control far more wealth could loosen theirs and economic activitt would increase.
> and there would be no inflation.
Even if we assume the first incorrect statement were true, this would still be wrong: there wouldn’t be demand-pull inflation, but there still could be supply-push inflation.
> Inflation is an excess of economic activity - too much money for the available truly valuable investments.
No, inflation is an increase in consumer price levels, and has nothing directly to do with investments, though there are indirect effects in both direction.
> inflation is an increase in consumer price levels
That's a common and well-known symptom (because everyone can see it), but that doesn't define inflation. From Britannica:
Inflation, in economics, collective increases in the supply of money, in money incomes, or in prices.
I used the term 'investments' loosely, rather than spelling out all the possible things on which we can spend money. But actual investments, by the narrow definition, count: asset bubbles, or example, are a form of and sign of inflation (in that one market). Again, inflation is an excess of economic activity for the economic realities of the situation.
> there wouldn’t be demand-pull inflation, but there still could be supply-push inflation
If you mean 'cost-push' inflation, that is caused by increased production costs, which lower production and thus reduce supply and thus, unless demand also decreases, prices increase. If demand also decreases sufficiently, as the headline might suggest, then there's no inflation. Increased production costs aren't the concern behind the inflationary effects of various stimulus measures, which should reduce costs of production (including via cheap debt).
The headline describes a response to inflation, not a cause. You are criticizing it because the response it describes does not explain the cause. Which is a silly criticism; responses aren’t supposed to explain causes.
> silly
Enough said.
But not to the same state. The description is of inflation at T(<n) producing belt-tightening at T(=n). You are complaining that the belt-tightening doesn’t explain the inflation. Of course it doesn’t.
Now, sure, there’s a valid question of “what is causing the inflation”; is it offsetting belt loosening in another group? Is it supply issues?
But
Since I already explained why this is wrong in my first post (and you acknowledged it in your response, but shifted your criticism of thr headline to that the belt-tightening doesn’t explain inflation even though it is consistent with inflation from other causes), I think we've come full circle here.
Oh sorry, I didn't realize you forbade me from expressing a different opinion.
To the average American, if you food prices increase 50%, it is a big deal.
it's not funny... they fudge the numbers to make politicians look good
Even though they are excluded, they are still a component of other inflation factors. Food & energy costs contribute to the cost of materials & labor. So they are included by proxy in the long term.
And if you are really interested, the Fed does calculate personal consumption expenditures (PCE). See below.
https://www.bea.gov/data/personal-consumption-expenditures-p...
https://fred.stlouisfed.org/series/PCE
As you can see, long term, the trend matches that of inflation. Short term, it is all over the place.