Inflation is not a natural disaster, and pandemics do not imply inflation either. You can debate various ways to account for the inflation, but you do have to actually account for the inflation.
Exactly right. And usually there are multiple causes, some are temporary, some are permanent.
For example there are currently chip shortages. Supply and demand says that when there are shortages prices go up. Chips are in everything, so the knock on effect is huge. Which in turn drives up prices, but also results in some other shortages (like cars) which in turn has ripple effects.
It's possible, perhaps even probable, that these shortages are short-term, and prices will stabilise, meaning that they'll find a new "fixed" level. Corrections in supply may lead to over-supply and prices coming down, or demand may drop and prices come down.
There was a shortage of lumber, coupled with high demand, during the first year of the pandemic due to low staffing at Mills, combined with people at home with time on their hands. Back to work means not just supply being restored, but lower demand, and prices have fallen (although not necessarily to pre-pandemic levels.)
These are just two examples, with very different supply/demand curves. Literally everything will have its own curve.
Pandemics do not imply inflation, but a massive stay-at-home is going to affect supply, at every possible level (production, distribution, retail) so inflation is certainly likely. In sectors where demand increases from people staying at home the effect is more pronounced.
I agree this is bad. But there’s good reasons for it. Namely, at least some experts think a portion of current inflation is temporary and will soon pass. You can always give employees a raise but it’s very difficult to cut their pay. They don’t take kindly to it. Some managers say you may as well just fire them if you’re going to cut their pay. So what is an employer to do in the face of potentially temporary inflation?
By the next generation moving and staying in cities rather than sprawling suburbs. It concentrates public resources and hugely reduces transportation costs. Combined with most services like medicine, finance, and education, getting remottified and automated, deflation is possible. I think ownership is going to get really expensive, we can't have abandoned building hogging space.
Deflation occurs on the supply-side when spending/credit/lending decreases significantly, it doesn't need to have anything to do with the gold standard.
We had CPI-measured deflation as recently as May 2020, were we on the gold standard then? Or were there velocity of money explanation for the deflationary activity?
> Economies are chaotic systems, but the long term trends are predictable.
A nitpick: these are contradictions in terms. Chaotic systems are precisely those systems which are not predictable in the long run. Perhaps you mean stochastic?
I was pedantic earlier, but this is wrong in a more profound way:
> But it's like the weather. We can predict long term climate reasonably accurately, but we can't predict next week's weather.
No we can predict medium term (decades) climate reasonably but over even longer timescales even general predictions about climate can break down (centuries or millennia), as is the nature of chaotic systems.
This is true as well of economic "laws" and why I agree that economics is chaotic. Those laws that hold at the millisecond level are different than those that hold at the second level, which are in turn different on the time scale of years, which are different from those of decades, and in turn centuries and millennia. There are general patterns whose efficacy and predictive ability are more resilient than the rest but those too are eventually worn down by the relentless march of chaos.
Regardless, there is absolutely no necessity for a gold standard to be implemented for deflationary activity to occur. It occurs in fiat currencies as a function of the velocity of money dropping suddenly.
The opposite of inflation is not deflation, it is stability (ie the lack of inflation).
Deflation is much worse than inflation, and quite difficult to actually make happen, so you don't need to worry about that.
In fact even steady, regular, inflation is not bad, but employers just need to understand the need for inflation based increases for all staff every year. Employers in the US are not used to that, and have been generally slow to keep up, but will eventually figure it out.
And yes, there won't be the same number for all, so expect plenty of cherry-picking example articles for years to come. And generally workers (and customers) will be losers, because, well Capitalism.
In most countries there is stable, regular, inflation and somehow they cope. The US has some catching up to do, but they'll figure it out. Albeit that the impacts of naked capitalism will be more pronounced there.
Gas went from $3.50 - $5 overnight where I live. I guarantee it will not drop back down to $3.50 that quickly. Did my income rise to cover the extra $45 it now costs to fill up my truck? No. Same with everything else. Prices are going up like gangbusters, but my income is static. Those rising prices MAY come down someday, but probably not back to where they used to be.
Ah, I understand, you're saying that from a consumer perspective prices go up, but are slow to come down. That is clearly the case.
Ultimately inflation works by driving prices up. So the extra $45 will ultimately be made up on your income side, basically by you putting your prices up, thus fueling the cycle. Inflation on basic necessities like energy and food have more knock ons than non essentials.
Ultimately the fuel vendor is covering not just the increase in fuel to him, but also the increases needed for his staff.
you can't cut their pay, but you can have bonuses be variable based on company performance. People don't get as mad about a bonus being smaller if they know it affected the whole company.
Here's a good heuristic: if those same experts are ones that denied that inflation was a risk before it actually happened, you can take their opinion with a grain of salt.
I saw many classical economist types denying that printing trillions of dollars and flagellating the global supply chain would lead to inflation. They were proven very, very wrong.
If you don't give a raise that matches inflation, you are cutting pay. Even if inflation drops to 2% next year, the value of the money you're paying to your employee doesn't go up.
If inflation is 7% this year and I raise your $100,000 salary to $107,000, an inflation rate of 2% next year doesn't mean I'm overpaying you by $5,000. It means that I once again need to give you a 2% raise for you to get the exact same amount of value for your labor. The inflation rate would need to rubber band to a negative rate for anyone to shed tears for the employers.
If your landlord doesn't raise rents, he's getting a paycut.
If your utility company doesn't raise rates, they're getting a paycut!
If the grocer doesn't raise prices, he's also getting a paycut.
But now we're back to you. Everyone else has raised prices to compensate so now you've got to charge more for labor again which eats into their margins and the vicious cycle continues. Sooner or later, someone will have to blink or this will continue to get even further out of hand.
You should take it up with the economists that spend their lives thinking about this stuff. All I know is that inflation has been positive (numerically) for essentially my entire life and most of the country's history leading up to my birth. I doubt it was designed to "end".
I believe it doesn't exactly work this way; because the initial driver of the inflation was someone (let's say the landlord in your example) raised their prices. Yes everyone else should raise their prices to adapt, but it's not everyone.
One can argue that the higher prices (eg by landlords) were due to increased demand with supply that couldn't keep up. Still, this doesn't mean that they are permanent, since supply can improve, or demand can return to normal, stopping the inflationary cycle. If you assume that demand cannot go down (eg for high perf chips, not land, which more and more industries utilise now), then I can't think of a reason that supply can't go up in the long term (unless the supplier is profiteering).
Nobody "blinks" they just run out of pricing power.
Raising prices due to inflation is not particularly different than trying to raise prices for any other reason. What limits you doing it more is that you can't.
So inflation is generally "eaten" by the least powerful actors in the system - those with the least ability to raise prices.
In a loose sense, all pricing is a kind of negotiation.
Inflation is messy and price updates take time to propagate due to stickiness, inertia, contracts, negotiation costs etc. Also psychology. It is very helpful if others in your industry announce they are raising prices...
Many consumer facing businesses e.g., supermarkets, utilities, consumer SaaS can in theory raise prices instantly (subject to market forces, public opinion, regulation, etc).
Workers on the other hand, need to switch jobs or wait for reviews. B2B companies and suppliers may need to wait for contract renewals.
After the delays and messy details are taken into account what's left are market forces. This looks a lot like "who has the upper hand in pricing".
New taxes are similarly complex and it is often not clear who will be able to pass them on and who will ultimately absorb them.
It doesn't end, but it is a subtle push to increase productivity over your competitors do that you make a higher margin (or lower prices to get more markets share).
Deficit spending benefits from inflation. The value of loans decrease as a currency value decreases. So a govt can get $1 of value with each $ spent now, and pay less paying off the loan later.
Put another way, if inflation is 10% then you get 10% more tax dollars in, to offset the loans.
Of course _never_ actually paying them back is even cheaper :)
Sure, for past loans this is true. But for governments that run perpetual deficits, they have to go out to the market to service ongoing obligations. As some point the market catches on and interest rates snap upward, leading to increased real costs of financing debt.
Interest rates are a policy decision by the federal reserve. Maintain a debt instead of printing money is a policy decision by Congress.
In practice the government going into debt denominated in its own currency, and printing more of its own currency are essentially the same thing.
Mechanically, when the interest rates go higher the Fed policy, the fed just buys the debt itself, driving up the market price (therby down interest rate). In effect, this converts US debt into cash. Similarly, they can sell treasury debt, driving up the interest rate.
It is just a quirk of bookkeeping that the we keep track of how much money the treasury owes the federal reserve.
The stimulus check represented 804 billion dollars in direct to citizen spending of the government's 6 trillion dollars in spending. If your argument is "giving money directly to individuals causes inflation" we can start there, but government spending alone does not cause inflation; the Emergency Economic Stabilization Act did not meaningfully grow inflation.
We probably would not know fully in 5-10 years, but my own hypothesis is that America had it's own dark labor pool of incredibly cheap labor and when (1) Citizens were allowed to have some breathing room and look for better oppurtunities and (2) the CBP used Covid to massively ramp up deportations, labor became more expensive which clearly affected the rest of the economy.
This isn't a meaningful distinction. The United States has been deficit spending since 9/11, and the last large deficit spending was the 2008 crisis, which did not lead to any meaningful inflation.
This seems like its going to be a continual moving of goal posts until there is no data to back any position. Before the loans were paid back, inflation went negative. To be clear, I'm not arguing that the government can and should spend their way out of any crisis; the point I'm trying to get across, which you keep evading is that there is no data to back your claim that government spending led directly to inflation, especially when there are so many other obvious factors. In fact, before 2020, there is no modern economy where you could clearly point to and say "the government overspent, and caused massive inflation". Japan desperately tried to spend it's way to inflation and failed. For something that is a "law of nature", there seems to be so few data points to back it up. As far as I can tell, it's a neoliberal talking point used to dissuade any form of direct to citizen welfare.
I wish people would stop adding words to my statements, and then arguing based on the added word.
In this case, "directly".
> In fact, before 2020, there is no modern economy where you could clearly point to and say "the government overspent, and caused massive inflation".
Did you forget the 1970's United States?
Expanding on that, from 1800 to 1914 the US had zero net inflation. Zero. We've had inflation ever since. What changed in 1914? The switch to a fiat money system, which enables endless deficit spending.
The same thing happened with every other country that switched to fiat money. Yes, I know about Japan, but not much about it. I did read that they have no GDP growth. The lack of inflation could be because people simply stash their money in the bank, keeping the excess money out of the economy.
How do you explain the historically near all-time-low inflation rates from 2009-2021 despite colossal amounts of deficit spending and quantitative easing (pick a 10-year period if you prefer)?
That is a great question, and it has stumped a lot of people. Some people regard it as proof that economic laws are different now.
My take on it is that it's like physics - if you conduct an experiment and determine that the laws of physics don't apply, you've either made a mistake or our understanding of physics is all wrong. Which is much more likely?
My take on the 2009-2021 not causing huge inflation is there was something else going on. Two possibilities:
1. quantitative easing deferred the inflation to the future. There's been a lot of talk in the last few months about it putting the whole financial system onto another precipice.
2. That it did cause inflation - it's just that it compensated for massive deflation caused by the banking collapses.
Or maybe the 25% inflation we see today is just a delayed effect.
(Yes, I know the official rate is 7.5%. But everything I buy seems to have gone up 25%.)
How else is someone supposed to interpret "That has to happen. The government cannot deficit spend for free. The cost is inflation" and "It is a law of nature."? Now it's not direct, but happens through the ether. I can also argue inflation happens whenever my dog sees his shadow.
We've gone from "It's a law of nature" to "only when the government does deficit spending" to "only when the loans aren't paid back" to "it's not direct".
>What changed in 1914? The switch to a fiat money system, which enables endless deficit spending.
What's the argument here? That the Unites States should revert to producing cotton? That the United States should return to having a smaller economy than 1920's India? The amount of economic change between 1914 and now; as well as the intentional effects of inflation on US investment absolutely dwarfs any comparison you are trying to make. Zero net inflation is not a desirable thing on it's own. This is a luddite argument; in lieu of actually providing evidence that hyperinflation is a direct consequence of deficit spending, you've simply argued we should to return to living like cavemen. It's like seeing a car crash and pointing to the invention of the Model T as the downfall of modern society.
If the economic laws are so clear cut as you claim there shouldn't be ambiguity; and yet here we are as you struggle to even clearly explain why the "laws of nature" were so clearly upended in 2008.
It’s a supply/demand issue exacerbated by the fuel price rise. Now that inflation is setting in, the next wave is the psychological change in the market. When people start making their price adjustments in advance because they expect inflation, that’s a tough one to change.
given that payment means giving something of value you would rather not part with it is clear that at the micro-level there may well be free lunches, which I find amusing because obviously the idea of the free lunch comes from the micro-level.
If Italy really got the Germans to take the fall for their deficits a few years ago and suffered no negative effects from it then there would be a free lunch at the macro level as well, although I find that unlikely.
I know, I was wondering, if they did suffer negative effects for it then it was the obvious no free lunch.
Reconsidering things on the macro level I think while there may be no free lunches there are obviously lunches that coincidentally may be so cheap that they are next to free.
For example: aid received from France by Americans during Revolutionary War, treaties signed said supposed to be paid off by Americans siding with France in case of war between France and England, but since French Government changed since time of treaty signing when war came America said oops sorry, we're staying out. That was a really cheap lunch.
We've been paying with the deficit for how many decades now?
The economy has pretty consistently getting better and poverty has been going down since the 70s despite increasing our deficit spend rising every single year and inflation steadily going up.
Having an outlier period in inflation over the past three years because of a deadly pandemic is hardly a condemnation of the idea of deficit spending.
Economics is not physics. It has no laws. And the field could not exist if it were zero-sum.
Edit: I should clarify that economics does not have laws in the same way physics does. The ‘law of diminishing returns’, for example, is more of a trend or generalization than an absolute, and is frequently violated in a way that gravity is not.
Economics is also still not a well understood field. There may be government policies with unexpected effects due to that incomplete understanding. We have seen this many times.
It's not as if capitalist models of economics are that successful either at important goals like equality or sustainability. All models are wrong; some are useful.
Sort of. For the Federal Government having a budget surplus is not the same thing as actually spending less than it takes in. Due to various off budget expenditures the fed's total debt continued to increase even when it declared a budget surplus.
It's not a law of nature. There are many hypothetical scenarios where deficit spending does not lead to inflation (usually variations of the theme that deficit spending's wealth creation outpaces the spending amount and the deficit spending can eventually be scaled back while wealth creation continues).
Whether those hypothetical scenarios are realistic and likely to happen is an entirely separate topic, but it's not an ironclad law of nature in the same way that gravity is. It is a much more contingent and circumstantial observation.
But the argument wasn't that increasing the money supply doesn't have any negative repercussions. The argument was that increasing the money supply doesn't always result in inflation. Inflation is the "one way" and sometimes we pay with the "another".
> The government cannot deficit spend for free. The cost is inflation
Although perhaps you mean by the second portion ", and guess who pays - you and me." that it's not always inflation and can show up in other ways [I don't mean this in a snarky fashion, this is perhaps what you meant?]?
Where's Japan's inflation? They actually spent more % GDP than the US did on COVID relief.
Note, currently a lot of other countries besides the US are having inflation because of international supply issues. They didn't print money - that suggests we'd also be seeing it if we hadn't printed some.
Actually, we definitely would be seeing economic issues if we hadn't rescued everyone, because we'd all be incapacitated due to COVID. That's called successful investment.
No, they were caused by people not wanting to go to restaurants or travel when they were constantly hearing ambulance sirens outside their window. Also, if your grandparents are dead or you don't want your children exposed you're still incapacitated (via depression, providing childcare, etc) even if personally safe.
Hong Kong is currently providing an example of what happens when you keep society running (via incoming travel bans) so well that nobody bothers getting vaccinated for when it does break through. But since that's omicron, which is a bit milder, they're still doing better than we would've done.
CDC data shows that exposure was never a serious risk for children. COVID-19 is less dangerous to children than RSV, and we never shut down society because of RSV.
I don't think Japan is the example you think it is. They've had stagnant GDP growth for the last 20 years (< 2%). In the 1980s they were the fastest growing countries and were the "China" of their time. Spending causes market distortions.
I do think it is the example I think it is. Their deflationary pressure is so strong they’ve been “printing money” for years before this, are doing even more now, and price inflation has barely happened.
What matters is if the money is spent past supply limits, not if it’s printed.
Although, if you go there the quality of life is high enough that it always seemed like they’re just sandbagging the numbers to keep everyone else away. It’s not all leftover 80s investment.
So you don’t believe that worker productivity can increase? History disagrees. Do you invest your money or do you view that as somehow getting free lunch?
You usually pay up in order to receive increased productivity. It's not the result of some human evolutionary advancement. It's capex spending and modern managerial techniques, both of which cost money.
What is the hypothetical scenario in which deficit spending (creating more money supply) doesn’t lead to more dollars chasing the same goods and services?
The standard scenario would be that the addition of liquidity allows trade to occur when it otherwise wouldn't. The growth in real production can exceed the growth in the money supply. This is generally what we imagine happening with credit cards and other forms of finance.
Simple example: A government goes from spending 1% of GDP to deficit spending 6% of GDP to build an interstate highway network. CPI goes down, because we have _more_ goods and services.
Also, with higher interest rates, more people would buy government bonds instead of investing privately. Deficit spending on its own doesn't logically imply inflation or money-printing, or even an inflation pay cut. Wasteful spending does.
And in both examples, inflation did not skyrocket like it is today. Therefore QE is not solely responsible for most of the inflation that we are seeing
Look at housing prices and tell me again there's been "not much inflation". Who cares if goods which are ten percent of your spending went down in price when housing and healthcare skyrocketed?
You actually hit on a great example of why inflation numbers are flawed. The product you are comparing is "top of the line smartphones". However, the 2022 version of that product is barely even comparable to the 2012 version. The phone, the computer, the car, the house, or the medical care that you purchase today is greatly improved compared to the same item you would have purchased in the past. That improvement is ignored in inflation calculations.
Phone are the only item I listed that receive a hedonic adjustment and you can't exactly quantify the difference in quality between an iPhone 12 and a Motorola StarTAC. They are a fundamentally different products.
You're a doctor. I hire you in the public sector for $100 and you save that $100 in a drawer (or a bank account).
How does putting money in a drawer cause prices to go up? How do you have a deficit without somebody somewhere putting money in a drawer?
Money supply is a stock. Spending is a flow. Spending is from income less taxation, which means the next person earning the income gets less than you spend. If the spending continues then all the income disappears in tax. There is a finite transaction sequence and no deficit.
What that tells you is that government spending even if there is a balanced budget can cause inflation - because it depends upon the level of flow, not the stock.
> How does putting money in a drawer cause prices to go up
If I know lots of drawers stacked with cash exist, I'll value it less. At some point those dollars will chase the goods and buying and render the dollars I'm holding less valuable.
"If I know lots of drawers stacked with cash exist, I'll value it less."
Pension funds are stuffed full of savings, and they get bigger with every passing year. Do they ever decrease? If not then when is that going to happen?
Are you valuing your income less because of the ever increasing level of savings?
Let's say I have a cryptocurrency and I premine a thousand units and make a hundred available for use. Those 900 could enter the market at any time and drop the value, so for me, I'd price that in.
Same thing with cash in a drawer, it may exit the drawer someday.
I think deficit spending was a very tiny part of this. I think the bigger factors are:
1. Demand experienced a little blip while supply was and still is decimated. Most of the middle class kept their jobs and kept spending, despite the fact that factories shut down for significant periods of time and crushed the supply chain so badly that it will not catch up for years.
That was just enough to provide a month or two of head start so that the real demand driver could kick in: People working flexibly who now had no commute spending, no vacation spending, and kept their high wage office jobs.
The amount of money the typical office worker has saved on just those two expenses is more than the stimulus checks.
Wages over the same time period are about 4 times the amount of total COVID relief spending of all types combined. The dollar value of the COVID relief may be less of an impact than the fact that it prevented a larger labor market collapse and kept people earning wages. The stimulus was just a spark that kept the larger American consumerism machine chugging strong.
there wasn't just stimulus though. There were a whole host of things, pause on loan payments, child tax credits, rental assistance, small business loans ect ect.
That's like saying people cannot save for free - because a government deficit is nothing more than the accounting counterparty of the excess savings of the non-government sector.
Since when did savings cause price changes?
What we have is less stuff being produced because of an increase in bureaucracy and shirking. If we got rid of the bureaucracy and sacked the shirkers, then prices would come back under control.
Or alternatively we can tax those in favour of bureaucracy and shirking, so that the transfer is 'fully funded'.
This does not match observations. The government has been in deficit spending for a long time without much inflation. There's something different about recent government spending(that it gives money to poor people), and the inflationary response by property owners is class warfare.
Greedy responses by the rich arent things that have to happen, they're things allowed to happen by a broken market. Proper competition would limit this
> The government has been in deficit spending for a long time without much inflation
There was still inflation due to the deficit spending. Just because inflation was low doesnt mean it wouldnt have been lower without the deficit spending
A lot of people predicted it. It's not a novel concept that if you increase the money supply by 25% in one year, you risk seeing a rise in prices. We saw this first on asset prices. During the most uncertain and scariest time of the pandemic where we had no idea if the world was going to end, the stock market rose significantly above pre-covid levels. Later on many, including myself, thought there was a good chance it'll spread to consumer prices. I wrote a whole series about this starting on April 2, 2021
The fed should have predicted this as its pretty textbook economics. But they won't be held to account and working class people will pay the price through higher prices and lower wages. Then the remedy will be higher interest rates and a risk of higher unemployment and economic stagnation,
And economists have predicted 8 of the last 3 recessions. I'm sorry, I've been hearing inflation predictions for 40 years now. You can only cry wolf so many times. Was there anybody who said we wouldn't get inflation in 2008 but would in 2021? If so I'll listen to them.
The Fed has caused many recessions in the last 40 years because they prematurely raised interest rates because they were scared of the inflation boogeyman.
I believe the Fed is doing a fabulous job threading the needle between inflation and recession in a very challenging, no right answer environment.
Government spending on deficit doesn't have to cause inflation immediately. it just is likely to cause inflation eventually.
For example Debt to GDP was low and interest rates were high throughout most of the last 40 years so it mostly didn't cause inflation, it caused us to move towards higher debt to GDP and lower rates. But that game eventually plays out and the system requires the stimulus to avoid a deleveraging event but you don't have rates to dig into or GDP to borrow against.
But just saying we did it a bunch and it didn't have that effect last time I think really misinterprets the situation
They were deficit spending in times of actual economic growth, not times of economic contraction. At some point the rubber has to hit the road when people have more money and less stuff.
The government has been in deficit spending for a long time without much inflation.
And the mortgage industry handed out mortgages without checking if they can be repaid for a long time before the 2008 crash.
Markets don't respond instantaneously.
And this was exactly what was predicted with QE after 2008 - inflation would happen and the government wouldn't have the discipline to pull back quickly enough.
In 2008 there was a financial crises and a drop in demand. A lot of people lost their jobs. Unemployment was around 10% so price levels dropped.
Also it depends on how you measure inflation. Technological progress leads prices down over time. So money printing eats up all the gains from technological progress and then some on top of that. If there was no deficit spending or money printing we would see prices go down every year, because why wouldn't they? Every year we get better and more productive. Economists have convinced themselves that lower prices are a bad thing and politicians use it as cover to print money and spend
> There's something different about recent government spending
It could be scale. It's double what its been at its peak in 2008 and for two years straight now.
> (that it gives money to poor people),
12 trillion was allocated, less than half of which went to legislative programs like income support and direct payments. More than half went to things like asset repurchases, liquidity measures, lending facilities, etc. Relatively little spending was "money to poor people"
Giving money to poor people is what drives inflation of common goods.
If everyone has more money to spend, goods like meat will go up as more people want to buy it. This is simple supply and demand.
Deficit spending does not always produce this because it doesn't always put extra cash in peoples pockets to spend.
A better headline: most US workers had no choice but to accept the pandemic profiteering of corporations that have little, if any, competition, leading them to raise prices for no reason other than shareholder rewards and stock buybacks.
We talk about inflation as if it is some law of nature or some ethereal boogeyman. It's giant corporations deciding that muH suPpLy ChAiN DisRUpTiOn is a great excuse to paper over their own greed.
This last round of earnings calls have been nuts. So many times, the answer of "why are you raising prices when our profit margins are so high?" is always some corpspeak version of "cuz we can".
My link does refute that point because it considers corporate profits as a percentage of GDP. That factors in costs, not just revenue, because paying employees (or buying supplies) is part of GDP.
The products and services with the greatest increase in prices are all categories in which supply has been greatly disrupted, or demand has boomed due to lifestyle changes. There’s no conspiracy here, just basic economics.
None of this is true, I'm sad to see such a misunderstanding of basic facts on HN of all places.
To actually believe something as stupid as you're claiming, you'd have to assume that the giant corporations suddenly decided to crank the greed knob in lockstep with a massive amount of money being printed in the last two years.
On top of that, you'd also have to assume that housing (which is in no significant way controlled by corporations) coincidentally skyrocketed at an unprecedented rate at the exact same time (along with equities) caused by a completely separate mechanism.
> you'd have to assume that the giant corporations suddenly decided to crank the greed knob in lockstep with a massive amount of money being printed in the last two years
I mean, corporations are understood to behave as greedily as they can get away with.
What you're ignoring is that a large proportion of the money printed (trillions) went towards "corporate welfare", inflating the profits of the very companies who then turned around and told their employees "sit tight we're tightening the purse strings due to the pandemic, no raises for you we can't afford it"
The empirical evidence supports that view - once you drop below the aggregate [0]
Housing increases in price because the market doesn't produce enough housing to go around. During the pandemic we saw the price of Used cars start to rise and behave like housing normally does. Did we call that 'inflation', or did we say 'we need to produce more cars'.
That housing increases in price is the sign of an oligopoly, not inflation. Smash the oligopoly, distribute the work around the country and build sufficient houses so that houses depreciate in value and that will fix that particular problem. As it does with cars.
Housing increases in price because the market doesn't produce enough housing to go around.
Are you claiming that housing supply shrinking during the exact time of M2 expansion is the main reason that housing appreciation skyrocketed compared to other previous years?
Even if you make that claim, what's your (separate) theory with equities?
As for your link, I read it, it's propaganda and not actual substance. There's no mention of how CPI is calculated with consumer substitution of mind to smooth out increased variance, on top of that this guy completely ignores weighting.
No one gives a shit if suddenly tissues and tic tacs are 1/100th of their previous price when rent doubles along with health insurance.
The price goes up because there is an inadequate supply of equities - hardly surprising given all the buy backs and lack of new issues.
Supply and demand used to be the basis of economics. If prices go up for a thing, that encourages more of the thing to be made.
So we fix it by making more stuff. That's what the market clearly wants - more houses and more investment opportunities.
The trouble with monetarists who quote 'M' series as thought they were handed down from Mt Sinai is that they are obsessed with looking at the cow from the smelly end.
It all becomes clear when you look at it from the smiley end.
The number of shares has nothing to do with supply. Making “more shares” doesn’t increase supply. What happened with equities is that the dollar became worth less because their are more of them.
This is true for everything else except for some physical commodities it is further exacerbated by some physical shortages (you aren’t wrong about a housing shortage but that doesn’t affect the second derivative here).
To actually believe something as stupid as you're claiming, you'd have to assume that the giant corporations suddenly decided to crank the greed knob in lockstep with a massive amount of money being printed in the last two years.
Alternatively, it would be incredibly naive to assume flavors of this are not happening. Remember, just because collections of entities do similar actions at the same time (in lockstep) does not mean they are colluding or organized, it simply points to the fact that these entities the same motivations and same external forces at the same time.
> you'd have to assume that the giant corporations suddenly decided to crank the greed knob in lockstep with a massive amount of money being printed in the last two years
No need to assume that, they're perfectly capable of all independently noticing the rise in headlines mentioning inflation and independently choosing to use it as a cover for price gouging.
so you think that the companies couldn't price gouge until their were a certain threshold of news articles mentioning inflation, that's your theory? They were waiting to do this?
"Let's use this as an opportunity to raise prices only to increase profits" has probably been said at most board meetings on most years over the last 10 years. We know this because it's just business people acting in their own interests, doing what they want to do, and in a lot of cases we have proof. When we don't have hard proof, we do know of companies that raised prices and reported record profits. It's been all over the news.
I don't know why you are acting like this is unbelievable or a conspiracy, it's kind of just business as usual at this point.
From Wikipedia: The Transylvania Times is an American, English language bi-weekly newspaper in Transylvania County, North Carolina, in the United States, and its surrounding area.
> For SAD you can buy these cute little light therapy boxes that are supposed to help, but they don't, because they are not bright enough to make a difference. Waste of money.
This is completely false. There are multiple studies that show the effectiveness of light therapy. I myself have been using it for years and it makes a huge difference in my mood. If the light is less bright, you'll need to use it for a longer time each day to compensate.
183 comments
[ 43.0 ms ] story [ 525 ms ] threadFor example there are currently chip shortages. Supply and demand says that when there are shortages prices go up. Chips are in everything, so the knock on effect is huge. Which in turn drives up prices, but also results in some other shortages (like cars) which in turn has ripple effects.
It's possible, perhaps even probable, that these shortages are short-term, and prices will stabilise, meaning that they'll find a new "fixed" level. Corrections in supply may lead to over-supply and prices coming down, or demand may drop and prices come down.
There was a shortage of lumber, coupled with high demand, during the first year of the pandemic due to low staffing at Mills, combined with people at home with time on their hands. Back to work means not just supply being restored, but lower demand, and prices have fallen (although not necessarily to pre-pandemic levels.)
These are just two examples, with very different supply/demand curves. Literally everything will have its own curve.
Pandemics do not imply inflation, but a massive stay-at-home is going to affect supply, at every possible level (production, distribution, retail) so inflation is certainly likely. In sectors where demand increases from people staying at home the effect is more pronounced.
We had CPI-measured deflation as recently as May 2020, were we on the gold standard then? Or were there velocity of money explanation for the deflationary activity?
A nitpick: these are contradictions in terms. Chaotic systems are precisely those systems which are not predictable in the long run. Perhaps you mean stochastic?
But it's like the weather. We can predict long term climate reasonably accurately, but we can't predict next week's weather.
> But it's like the weather. We can predict long term climate reasonably accurately, but we can't predict next week's weather.
No we can predict medium term (decades) climate reasonably but over even longer timescales even general predictions about climate can break down (centuries or millennia), as is the nature of chaotic systems.
This is true as well of economic "laws" and why I agree that economics is chaotic. Those laws that hold at the millisecond level are different than those that hold at the second level, which are in turn different on the time scale of years, which are different from those of decades, and in turn centuries and millennia. There are general patterns whose efficacy and predictive ability are more resilient than the rest but those too are eventually worn down by the relentless march of chaos.
Consider "A implies B". That does not mean "B implies A".
Deflation is much worse than inflation, and quite difficult to actually make happen, so you don't need to worry about that.
In fact even steady, regular, inflation is not bad, but employers just need to understand the need for inflation based increases for all staff every year. Employers in the US are not used to that, and have been generally slow to keep up, but will eventually figure it out.
And yes, there won't be the same number for all, so expect plenty of cherry-picking example articles for years to come. And generally workers (and customers) will be losers, because, well Capitalism.
In most countries there is stable, regular, inflation and somehow they cope. The US has some catching up to do, but they'll figure it out. Albeit that the impacts of naked capitalism will be more pronounced there.
So perhaps you are suggesting that you cannot practically reduce prices because you become addicted to the extra income?
Ultimately inflation works by driving prices up. So the extra $45 will ultimately be made up on your income side, basically by you putting your prices up, thus fueling the cycle. Inflation on basic necessities like energy and food have more knock ons than non essentials.
Ultimately the fuel vendor is covering not just the increase in fuel to him, but also the increases needed for his staff.
I saw many classical economist types denying that printing trillions of dollars and flagellating the global supply chain would lead to inflation. They were proven very, very wrong.
If inflation is 7% this year and I raise your $100,000 salary to $107,000, an inflation rate of 2% next year doesn't mean I'm overpaying you by $5,000. It means that I once again need to give you a 2% raise for you to get the exact same amount of value for your labor. The inflation rate would need to rubber band to a negative rate for anyone to shed tears for the employers.
Deflation would probably cause lots of layoffs, tears would be shed for many.
If your landlord doesn't raise rents, he's getting a paycut.
If your utility company doesn't raise rates, they're getting a paycut!
If the grocer doesn't raise prices, he's also getting a paycut.
But now we're back to you. Everyone else has raised prices to compensate so now you've got to charge more for labor again which eats into their margins and the vicious cycle continues. Sooner or later, someone will have to blink or this will continue to get even further out of hand.
One can argue that the higher prices (eg by landlords) were due to increased demand with supply that couldn't keep up. Still, this doesn't mean that they are permanent, since supply can improve, or demand can return to normal, stopping the inflationary cycle. If you assume that demand cannot go down (eg for high perf chips, not land, which more and more industries utilise now), then I can't think of a reason that supply can't go up in the long term (unless the supplier is profiteering).
Raising prices due to inflation is not particularly different than trying to raise prices for any other reason. What limits you doing it more is that you can't.
So inflation is generally "eaten" by the least powerful actors in the system - those with the least ability to raise prices.
In a loose sense, all pricing is a kind of negotiation.
Inflation is messy and price updates take time to propagate due to stickiness, inertia, contracts, negotiation costs etc. Also psychology. It is very helpful if others in your industry announce they are raising prices...
Many consumer facing businesses e.g., supermarkets, utilities, consumer SaaS can in theory raise prices instantly (subject to market forces, public opinion, regulation, etc).
Workers on the other hand, need to switch jobs or wait for reviews. B2B companies and suppliers may need to wait for contract renewals.
After the delays and messy details are taken into account what's left are market forces. This looks a lot like "who has the upper hand in pricing".
New taxes are similarly complex and it is often not clear who will be able to pass them on and who will ultimately absorb them.
Didn't Italy get the Germans to take the fall for their deficits a few years ago?
Put another way, if inflation is 10% then you get 10% more tax dollars in, to offset the loans.
Of course _never_ actually paying them back is even cheaper :)
In practice the government going into debt denominated in its own currency, and printing more of its own currency are essentially the same thing.
Mechanically, when the interest rates go higher the Fed policy, the fed just buys the debt itself, driving up the market price (therby down interest rate). In effect, this converts US debt into cash. Similarly, they can sell treasury debt, driving up the interest rate.
It is just a quirk of bookkeeping that the we keep track of how much money the treasury owes the federal reserve.
The stimulus check represented 804 billion dollars in direct to citizen spending of the government's 6 trillion dollars in spending. If your argument is "giving money directly to individuals causes inflation" we can start there, but government spending alone does not cause inflation; the Emergency Economic Stabilization Act did not meaningfully grow inflation.
We probably would not know fully in 5-10 years, but my own hypothesis is that America had it's own dark labor pool of incredibly cheap labor and when (1) Citizens were allowed to have some breathing room and look for better oppurtunities and (2) the CBP used Covid to massively ramp up deportations, labor became more expensive which clearly affected the rest of the economy.
I didn't say that, either. I was clearly talking about deficit spending.
I wish people would stop adding words to my statements, and then arguing based on the added word.
In this case, "directly".
> In fact, before 2020, there is no modern economy where you could clearly point to and say "the government overspent, and caused massive inflation".
Did you forget the 1970's United States?
Expanding on that, from 1800 to 1914 the US had zero net inflation. Zero. We've had inflation ever since. What changed in 1914? The switch to a fiat money system, which enables endless deficit spending.
The same thing happened with every other country that switched to fiat money. Yes, I know about Japan, but not much about it. I did read that they have no GDP growth. The lack of inflation could be because people simply stash their money in the bank, keeping the excess money out of the economy.
This is simply false [1].
[1]: https://www.minneapolisfed.org/about-us/monetary-policy/infl...
Also, I don't mean exactly zero. It's an inconsequential difference spread out over more than a century compared with 1914 to today.
My take on it is that it's like physics - if you conduct an experiment and determine that the laws of physics don't apply, you've either made a mistake or our understanding of physics is all wrong. Which is much more likely?
My take on the 2009-2021 not causing huge inflation is there was something else going on. Two possibilities:
1. quantitative easing deferred the inflation to the future. There's been a lot of talk in the last few months about it putting the whole financial system onto another precipice.
2. That it did cause inflation - it's just that it compensated for massive deflation caused by the banking collapses.
Or maybe the 25% inflation we see today is just a delayed effect.
(Yes, I know the official rate is 7.5%. But everything I buy seems to have gone up 25%.)
How else is someone supposed to interpret "That has to happen. The government cannot deficit spend for free. The cost is inflation" and "It is a law of nature."? Now it's not direct, but happens through the ether. I can also argue inflation happens whenever my dog sees his shadow.
We've gone from "It's a law of nature" to "only when the government does deficit spending" to "only when the loans aren't paid back" to "it's not direct".
>What changed in 1914? The switch to a fiat money system, which enables endless deficit spending.
What's the argument here? That the Unites States should revert to producing cotton? That the United States should return to having a smaller economy than 1920's India? The amount of economic change between 1914 and now; as well as the intentional effects of inflation on US investment absolutely dwarfs any comparison you are trying to make. Zero net inflation is not a desirable thing on it's own. This is a luddite argument; in lieu of actually providing evidence that hyperinflation is a direct consequence of deficit spending, you've simply argued we should to return to living like cavemen. It's like seeing a car crash and pointing to the invention of the Model T as the downfall of modern society.
If the economic laws are so clear cut as you claim there shouldn't be ambiguity; and yet here we are as you struggle to even clearly explain why the "laws of nature" were so clearly upended in 2008.
If Italy really got the Germans to take the fall for their deficits a few years ago and suffered no negative effects from it then there would be a free lunch at the macro level as well, although I find that unlikely.
Nobody said they didn't suffer negative effects from it.
Reconsidering things on the macro level I think while there may be no free lunches there are obviously lunches that coincidentally may be so cheap that they are next to free.
For example: aid received from France by Americans during Revolutionary War, treaties signed said supposed to be paid off by Americans siding with France in case of war between France and England, but since French Government changed since time of treaty signing when war came America said oops sorry, we're staying out. That was a really cheap lunch.
The economy has pretty consistently getting better and poverty has been going down since the 70s despite increasing our deficit spend rising every single year and inflation steadily going up.
Having an outlier period in inflation over the past three years because of a deadly pandemic is hardly a condemnation of the idea of deficit spending.
Or is this time really different, as we approach 125% of GDP?
I didn't condemn deficit spending. I simply pointed out that the extra money doesn't come for free - you and I are inevitably going to pay the bill.
Edit: I should clarify that economics does not have laws in the same way physics does. The ‘law of diminishing returns’, for example, is more of a trend or generalization than an absolute, and is frequently violated in a way that gravity is not.
Economics is also still not a well understood field. There may be government policies with unexpected effects due to that incomplete understanding. We have seen this many times.
Is that an Economics law?
> Economics is not physics
Countries often deny the reality of economics, until their economies crash. Not one has successfully repealed the laws of economics.
Wishful economic thinking never works.
It's almost as if it's fundamentally a law!
We had a budget surplus in 2001 didn't we?
Any private company doing government-style accounting would find themselves in jail for fraud. "off budget expenditures" - what a scam.
Whether those hypothetical scenarios are realistic and likely to happen is an entirely separate topic, but it's not an ironclad law of nature in the same way that gravity is. It is a much more contingent and circumstantial observation.
I didn't say it did. Don't omit any of the words I wrote.
Although perhaps you mean by the second portion ", and guess who pays - you and me." that it's not always inflation and can show up in other ways [I don't mean this in a snarky fashion, this is perhaps what you meant?]?
Note, currently a lot of other countries besides the US are having inflation because of international supply issues. They didn't print money - that suggests we'd also be seeing it if we hadn't printed some.
Actually, we definitely would be seeing economic issues if we hadn't rescued everyone, because we'd all be incapacitated due to COVID. That's called successful investment.
Source?
Hong Kong is currently providing an example of what happens when you keep society running (via incoming travel bans) so well that nobody bothers getting vaccinated for when it does break through. But since that's omicron, which is a bit milder, they're still doing better than we would've done.
https://gbdeclaration.org/
CDC data shows that exposure was never a serious risk for children. COVID-19 is less dangerous to children than RSV, and we never shut down society because of RSV.
https://www.cdc.gov/coronavirus/2019-ncov/cases-updates/burd...
https://emergency.cdc.gov/han/2021/han00443.asp
https://tradingeconomics.com/japan/gdp-growth
What matters is if the money is spent past supply limits, not if it’s printed.
Although, if you go there the quality of life is high enough that it always seemed like they’re just sandbagging the numbers to keep everyone else away. It’s not all leftover 80s investment.
Relatively speaking, if the dollar is strong and the US continues to export goods/services, then some of the inflation is absorbed by other countries.
Also, with higher interest rates, more people would buy government bonds instead of investing privately. Deficit spending on its own doesn't logically imply inflation or money-printing, or even an inflation pay cut. Wasteful spending does.
You talked past the conclusion here.
QE after the 2007 financial crisis also didn't cause much inflation
Not to mention there are some real estate markets that have lost value in recent years
Cherry picking one or two categories which are impacted by countless other issues does nothing to prove your point.
How does putting money in a drawer cause prices to go up? How do you have a deficit without somebody somewhere putting money in a drawer?
Money supply is a stock. Spending is a flow. Spending is from income less taxation, which means the next person earning the income gets less than you spend. If the spending continues then all the income disappears in tax. There is a finite transaction sequence and no deficit.
What that tells you is that government spending even if there is a balanced budget can cause inflation - because it depends upon the level of flow, not the stock.
If I know lots of drawers stacked with cash exist, I'll value it less. At some point those dollars will chase the goods and buying and render the dollars I'm holding less valuable.
Pension funds are stuffed full of savings, and they get bigger with every passing year. Do they ever decrease? If not then when is that going to happen?
Are you valuing your income less because of the ever increasing level of savings?
Because nobody else is.
Same thing with cash in a drawer, it may exit the drawer someday.
Similarly all the oxygen molecules in the room may spontaneously move to one corner of the room long enough for you to suffocate.
But I bet you don't walk around in a diving suit.
1. Demand experienced a little blip while supply was and still is decimated. Most of the middle class kept their jobs and kept spending, despite the fact that factories shut down for significant periods of time and crushed the supply chain so badly that it will not catch up for years.
2. Consumer spending categories changed abruptly, again, exacerbating demand issues.
3. Many service workers got a chance to involuntarily experience job hopping in a high labor demand economy. Labor is most expensive on the margin.
4. A lot of people dropped out of the job market for good. Boomers are retiring. And a nontrivial number of people died too.
because businesses and people were given regular financial jolts via deficit spending.
The amount of money the typical office worker has saved on just those two expenses is more than the stimulus checks.
where did all the trillions of dollars go .
it somehow ended up in these people's pockets one way or another.
Since when did savings cause price changes?
What we have is less stuff being produced because of an increase in bureaucracy and shirking. If we got rid of the bureaucracy and sacked the shirkers, then prices would come back under control.
Or alternatively we can tax those in favour of bureaucracy and shirking, so that the transfer is 'fully funded'.
Greedy responses by the rich arent things that have to happen, they're things allowed to happen by a broken market. Proper competition would limit this
There was still inflation due to the deficit spending. Just because inflation was low doesnt mean it wouldnt have been lower without the deficit spending
The fed should have predicted this as its pretty textbook economics. But they won't be held to account and working class people will pay the price through higher prices and lower wages. Then the remedy will be higher interest rates and a risk of higher unemployment and economic stagnation,
[0] https://mleverything.substack.com/p/where-did-the-12-trillio...
The Fed has caused many recessions in the last 40 years because they prematurely raised interest rates because they were scared of the inflation boogeyman.
I believe the Fed is doing a fabulous job threading the needle between inflation and recession in a very challenging, no right answer environment.
For example Debt to GDP was low and interest rates were high throughout most of the last 40 years so it mostly didn't cause inflation, it caused us to move towards higher debt to GDP and lower rates. But that game eventually plays out and the system requires the stimulus to avoid a deleveraging event but you don't have rates to dig into or GDP to borrow against.
But just saying we did it a bunch and it didn't have that effect last time I think really misinterprets the situation
And the mortgage industry handed out mortgages without checking if they can be repaid for a long time before the 2008 crash.
Markets don't respond instantaneously.
And this was exactly what was predicted with QE after 2008 - inflation would happen and the government wouldn't have the discipline to pull back quickly enough.
Also it depends on how you measure inflation. Technological progress leads prices down over time. So money printing eats up all the gains from technological progress and then some on top of that. If there was no deficit spending or money printing we would see prices go down every year, because why wouldn't they? Every year we get better and more productive. Economists have convinced themselves that lower prices are a bad thing and politicians use it as cover to print money and spend
https://wallstreetonparade.com/2022/01/these-charts-are-the-...
It could be scale. It's double what its been at its peak in 2008 and for two years straight now.
> (that it gives money to poor people),
12 trillion was allocated, less than half of which went to legislative programs like income support and direct payments. More than half went to things like asset repurchases, liquidity measures, lending facilities, etc. Relatively little spending was "money to poor people"
[0] https://datalab.usaspending.gov/americas-finance-guide/defic...
[1] https://www.covidmoneytracker.org/
Deficit spending does not always produce this because it doesn't always put extra cash in peoples pockets to spend.
We talk about inflation as if it is some law of nature or some ethereal boogeyman. It's giant corporations deciding that muH suPpLy ChAiN DisRUpTiOn is a great excuse to paper over their own greed.
This last round of earnings calls have been nuts. So many times, the answer of "why are you raising prices when our profit margins are so high?" is always some corpspeak version of "cuz we can".
https://fred.stlouisfed.org/series/CP
Here's a link that also shows profit margins going up a lot: https://www.bea.gov/data/income-saving/corporate-profits
To actually believe something as stupid as you're claiming, you'd have to assume that the giant corporations suddenly decided to crank the greed knob in lockstep with a massive amount of money being printed in the last two years.
On top of that, you'd also have to assume that housing (which is in no significant way controlled by corporations) coincidentally skyrocketed at an unprecedented rate at the exact same time (along with equities) caused by a completely separate mechanism.
I mean, corporations are understood to behave as greedily as they can get away with.
It was obvious when Republicans and MSM were setting the expectation for inflation.
People defended the price hikes during the trade war as “pain for some gain” but it was a president that entertained them so it was ok.
Housing increases in price because the market doesn't produce enough housing to go around. During the pandemic we saw the price of Used cars start to rise and behave like housing normally does. Did we call that 'inflation', or did we say 'we need to produce more cars'.
That housing increases in price is the sign of an oligopoly, not inflation. Smash the oligopoly, distribute the work around the country and build sufficient houses so that houses depreciate in value and that will fix that particular problem. As it does with cars.
[0] https://economicsfromthetopdown.com/2021/11/24/the-truth-abo...
Even if you make that claim, what's your (separate) theory with equities?
As for your link, I read it, it's propaganda and not actual substance. There's no mention of how CPI is calculated with consumer substitution of mind to smooth out increased variance, on top of that this guy completely ignores weighting.
No one gives a shit if suddenly tissues and tic tacs are 1/100th of their previous price when rent doubles along with health insurance.
The price goes up because there is an inadequate supply of equities - hardly surprising given all the buy backs and lack of new issues.
Supply and demand used to be the basis of economics. If prices go up for a thing, that encourages more of the thing to be made.
So we fix it by making more stuff. That's what the market clearly wants - more houses and more investment opportunities.
The trouble with monetarists who quote 'M' series as thought they were handed down from Mt Sinai is that they are obsessed with looking at the cow from the smelly end.
It all becomes clear when you look at it from the smiley end.
This is true for everything else except for some physical commodities it is further exacerbated by some physical shortages (you aren’t wrong about a housing shortage but that doesn’t affect the second derivative here).
No need to assume that, they're perfectly capable of all independently noticing the rise in headlines mentioning inflation and independently choosing to use it as a cover for price gouging.
I don't know why you are acting like this is unbelievable or a conspiracy, it's kind of just business as usual at this point.
https://i.imgur.com/WZz3pIX.jpg
- called Transylvania Times
- comment on US domestic issues
- be inaccessible from EU due to GDPR
This is completely false. There are multiple studies that show the effectiveness of light therapy. I myself have been using it for years and it makes a huge difference in my mood. If the light is less bright, you'll need to use it for a longer time each day to compensate.
https://news.ycombinator.com/item?id=30581628
Both support the claim made in the article.
https://fred.stlouisfed.org/graph/?g=MIWZ