Inflation is much more complicated than the basics they teach you in the first two years of university Econ. We have a set of broad stroke theories that apply on a macro level in various circumstances. These theories often contradict one another and it is not always clear which one should be the dominant force at any given time. At a fundamental level out understanding of this is imperfect at best and at a practical level it is pretty obvious that central bankers do not have a complete grasp of the central concept that they devote their lives trying to control.
It appears that the relationship between interest rates and inflation is still an open question in economics, which is kind of fascinating, because it's like trying to drive a moving car when the relationship between the speedometer and the brake pedal is still being debated by experts.
There are similar debates when it comes to employment. Is a high level of employment inflationary? The established wisdom of the Phillips curve is that it is, because low unemployment leads to high labour bargaining power which leads to wages rising faster than productivity, which results in inflation. But there are many economists wondering if it's not the other way around, because people are employed to produce in-demand goods, while unemployed people don't produce goods but still need to eat. These unresolved questions create questions around the inflationary impacts of eg. a jobs guarantee (https://en.wikipedia.org/wiki/Job_guarantee) relative to a universal basic income (https://en.wikipedia.org/wiki/Universal_basic_income) have some economists arguing for and others against. There is no widespread consensus about the outcomes of such policies.
> It appears that the relationship between interest rates and inflation is still an open question in economics
Thanks. I have never understood why a zero sum interest would lower inflation. Or why fewer employed poatoe farmers would make potaties cheaper. And people talk about it like it was obvious but can never explain.
I find that people who fling around the term “basic economics” rarely have a good understanding of economics, usually basing their opinion on overly simplistic ideas that don’t reflect reality.
Many of the things mentioned in the article, specifically causes of inflation, are talked about by other economists. This tells me your idea that “anyone with some background in basic economics” are all in agreement (with you) is wrong.
Feel free to share a proper criticism, there is a decent amount you could discuss from the causes of inflation to her potential solutions. That would make for a more interesting discussion than hand-waving the entire article as “pure trash”, which I don't think is a fair description of the article even if you disagree with Weber.
Huge stimulus programs over the past five years absolutely overcooked the economy and fueled high inflation. Fiscal policy, hands bound by the rise of populism, is doing nothing to help, while central banks, free from the constraints of worrying about electability, are using the only tool they have to try stop the bleeding.
The solution, of course, is to tighten fiscal policy in the way of reducing spending or increasing taxes. But that's political suicide.
Remember 20 years ago when the war against terror was just getting started and we were worried about the US debt level at $4 trillion? Now we're over six.
It costs 13% of all federal spending just to keep the plates spinning. I don't know if there's a way to dig out of those kinds of figures.
The only way for the record profits was an increase in funds to spend at the corporations. There is no magic behind this. People had more money to chase fewer goods and companies were able to raise their prices.
Where are you getting this information? Raises are not keeping up with inflation. A few thousand in stimulus dollars years ago is not driving anything. PPP money didn't increase wages.
Feel free to downvote this because it is a very simple observation and not based on deep academic study. I really hate wages have been so stagnant and have not kept up with inflation. I feel like I've been treading water the last 10 years of my adult life despite making above minimum wage. But I also can't help but notice a lot of people used to say "$15 dollars per hour is going to equal $15 dollar hamburgers" and now where I live $15 dollars per hour has become a pretty common starting wage and now everything is more than usual inflated.
Individuals and businesses received direct payments in the form of stimulus checks. I have to think also money got into people’s hands by lending as the banks are how the new money gets into circulation. That’s my layperson’s understanding of a very complex system.
People need to stop using "people are getting free money and that's raising inflation" excuse. Prices are rising and people are going into their savings or credit to keep spending. That's it.
It's not solely due to increase in funds (I assume you mean stimulus?) I'm fairly sure corporations are getting money that would've went to other things (savings, for example).
If so, how do said corporations get access to the the money that would have previously gone to savings?
More plausible to me is the idea that stimulus — printing new money by fiat — resulted in more cash in circulation. Corporations are like organisms that have evolved to capture and eat cash. They fed on the surplus cash, and their waistlines show it afterwards.
Meanwhile those of us with savings accounts pay the price when inflation reduces the buying power of the cash we had diligently set aside for future use.
Well usually I save my surplus cash. But if stuff costs more, I now save less implicitly. That is corporations getting access to my savings by raising prices. They aren't getting any stimulus money from me here because I never got any.
I could and am in a macro sense. But when things I normally buy are a little more expensive and I'm gonna buy them anyways (a grocery trip is a good example), I don't especially notice the haircut.
I guess you can blame me for not micromanaging every dollar I spend? But if I'm sitting in a drive thru grabbing a burger and fries and notice it's $5 more than it used to be, I'm probably still gonna buy the burger and fries. And I probably will still go grab one occasionally when I want it. Because saving $5 every so often isn't gonna really affect an activity that makes up a microscopic amount of my expenses (I've got fast food including coffee at 2.5% last I reviewed my data.)
But regardless I think what I'm describing is a real bit of human behavior at scale - and isn't that just economics at the end of the day?
I don't know. Over the years, I've stopped drinking alcohol, eating fast food and cut down on pointless spending. Sure, grocery shopping is more expensive, so I also stopped buying certain items that also affect my health and the planet... most meat. I changed my spending habits to focus on becoming healthier and happier as I age. I look at my dad who, like his father, refused to change anything and decided to break the cycle.
I've been learning the same thing. I did a big review of my finances (downloads CSVs and crunched them) and found like
$4000 of easy money .. across a bunch of in-a-vacuum "small" expenses I wouldn't balk at. That's a new water heater and then some!
I'm not sure people outright have more money. I think a big part of it is that the average person has access to a lot of credit.
Generally the way I suspect it goes is
1. Draw from savings to buy essential goods.
2. Slowly load whatever you can't afford on your credit cards.
3. Get new credit cards before you start missing payments.
4. Load more on your cards.
5. Have nowhere else to go so start taking payday loans.
6. Run out of money.
Which is in stark contrast to pre-2000s recessions where access to credit was far more limited.
As it is currently, if you've had a credit card, it is incredibly easy to get more and you can get an incredibly large amount of accessible credit. The average american has around 30k USD in available credit (10k for 18-22 and 20k for 23-38 but 30k overall) with only around 5k or less of that utilized on average. That's a lot of money that companies can draw on before consumers pockets are truly empty.
Record breaking profits are caused by, not the cause of, inflation as goods and services get more expensive while the cost of labour takes time to catch up. This is well known economic theory.
Did corporations suddenly become greedy in 2021? No, they were always so.
Agreed. I keep hearing about these record corporate profits, and I always ask "are they record profits after being adjusted for inflation?" I would bet that some of them are, but these companies want to claim record profits (willfully ignoring inflation), so their stocks go up.
I'm not sure about the exact numbers on this one, but cutting the corporate tax rate in half is certainly a big stimulus that goes straight into the bottom line.
Inflation makes numbers go up, which tends to drive 'record' nominal (pre-inflation) profits. Even your video demonstrates this. Look at the first example he shows, at exactly 2:30. Procter and Gamble's operating margin started plummeting in the face of inflation and even after they raised prices, their margin remained well below what it was before inflation. This is because their costs not only increased, but increased more than their own relative increase in prices.
You can see the details of P&G's financial specs here [1]. Everything has been relatively flat to declining and those are in nominal terms, or in other words - before inflation is factored in. After inflation, they're taking a pretty serious beating.
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Inflation is most easily understood by considering that money, in our current system, doesn't really have any meaning or intrinsic value. It's just numbers, and so the price of everything is simply set relative to the amount of money in circulation, and more precisely by the monetary velocity [2] or how often money is changing hands. If everybody was given a trillion dollars, it doesn't mean everybody's suddenly rich - it just means suddenly a Big Mac's going to cost tens of millions of dollars, and a new TV's going to set you back billions. You end up with the exact same relative values for things, but the values are bigger - because there's more money in circulation.
Inflation is happening because corporations are realizing that they can just keep raising prices and people will just... keep buying things. Rinse and repeat.
Record corporate profits are the key indicator here.
Not at all. Credit availability is a function of creditworthiness of borrowers, which is largely a function of available collateral. All the Fed does is change the price.
If I get charged more interest, I simply charge more in wages/profit to cover it. Which I can do because there is a tight labour market/product market.
Rent, house prices, healthcare have skyrocketed way above inflation last few decades, people can't not buy these things. College prices too, if you're middle class you can't not buy this either.
American economy has been putting the squeeze on these things for decades. Now we're going even lower on Maslow's hierarchy to food. Americans will keep paying though, there is no political energy or power in the population anymore.
Its because politician's have allowed the methods for receiving signals from the people they're supposed to be representating to be jammed.
Look at social media, if there's a narrative that's unflattering someone will create a large number of bots and shout it down in a way that distorts reflected appraisal signals. You see the same on here with anything that mentions certain keywords like China, central planning, socialism, etc.
Representatives already spend most of their time beholden to their donors after passing through the money filter, they may have sworn an oath but the most common form of incompetency is doing nothing, and worse if they're hopelessly corrupt.
To make more money, of course. Increasing your sales from 12% of the market to 20% of the market by offering a burger (or whatever) for $4 of pure profit instead of competitor's $6 doesn't stop the gravy train.
Only in idealized markets and even there where consumer demand is elastic. For inelastic products industries raising their prices in unison can all see greater profits because the changes in demand are outweighed by the increase in profits. So much of what we learn of markets are idealized games to make sense of extremely complex emergent systems made of people.
Within the span of a few dollars for many items people will often eat the difference for familiarity and out of habit. I don't know about you but I rarely sit and comparison shop between similar options at the store I grab the thing I'm used to and expect to get because that's the habit and lowest friction.
> Within the span of a few dollars for many items people will often eat the difference for familiarity and out of habit.
Which is exactly my point: either a rival corporation would be able to get market share via undercutting, or price increases are not actually that sensitive to consumer to begin with.
I actually think it’s the opposite—if you notice your usual purchase suddenly goes up 20% it’s very noticeable because you are always buying it. It may cause you to buy an alternative.
In large part because we've been sitting on our hands with regard to real antitrust action for the better part of the last 40 years.
This lack of real choice is hidden behind a plethora of brands all owned by the same large corporations.
And it turns out when there are like 4 large corporations that are responsible for almost everything produced in a market it's really easy to do de facto price fixing (in the sense that they [usually] aren't officially talking to each other but have unspoken ongoing gentleman's agreements) allowing all parties to get a nice share of the price gouging with no party triggering a race to the bottom.
Can you bring up a specific example of such a consolidated market for a particular commodity where more than 50% are dominated by the same conglomerate, please?
Which orifice did you pull the 50% strawman out of?
If you're going to ignore the obvious problems with massive consolidation in areas like supermarket chains and virtually everything sold in those chains or the massive problems with consolidated telecomm/ISP companies and the de facto regional monopolies they carve up then I don't think you are arguing in good faith.
Kimberly-Clark, Proctor & Gamble, Edgewell, and Energizer comprise like 90% of the pads and tampons you'll find on the shelves in an American grocery or discount store.
The largest shareholders of all of the above are the same: Vanguard, BlackRock, and State Street. Combined, they make up ~25% ownership of all of them.
Alternatively: firearms
For a while, Cerberus Capital Management owned approximately a majority of US firearms companies by production, including: Remington, Barnes Bullets, Bushmaster, DPMS, Advanced Armament, Marlin Firearms, H & R Firearms, Para USA, The Parker Gun, Dakota Arms, Tapco, and Storm Lake Barrels. All of the above were acquired by Cerberus from 2006-2009.
All of the above were folded into "Freedom Group". That was later rebranded as "Remington Outdoor Company", then sold piecemeal three years later (in 2020).
> The largest shareholders of all of the above are the same: Vanguard, BlackRock, and State Street. Combined, they make up ~25% ownership of all of them.
As a CEO, why would sharing 25% of shareholders with another corporation stop you from exploiting their weakness, increasing your market share, increasing your stock price and in the end, increasing your bonus? You're a publicly traded corporation, your contract is public, your bonus mechanic is public, these 25% don't have any other means of control over you.
Did you mean lower prices to increase their market share?
It's a great question. Usually that competition is what I would expect, but I wonder if there are really the proper incentives in place for competing corporations to compete. I've speculated about this a few times in the past, but corporations ultimately are accountable to their shareholders. And it's increasingly common for their shareholders to also own shares of all their competitors, which is the whole idea of buying an index.
It ends up being a fallacy of composition in a system that is supply constrained.
What keeps prices under control in any market is that somebody with supply capacity loses out and doesn't use that supply capacity - because the price achievable doesn't make it worth using that supply capacity.
That's the issue we have at present. There is insufficient spare supply capacity available to be brought online if prices go up. The solution is shifting consumption to investment, but at present the short term view is seen as more lucrative than the long term one.
>Record corporate profits are the key indicator here.
We have record GDP. We also have record amounts of M2. If there were NOT record amounts of profit i'd be considered. Looking at absolute profit not charted against other metrics is embarrassingly stupid. Maybe profits are driving inflation to some degree, but saying 'record corporate profits are a key indicator' is just wrong.
It's even possible for inflation to occur when people don't keep buying things, because inflation is measured in terms of price alone, not transaction volume, and not revenue (price x volume).
It’s like a triggered phase change from a super heated or cooled state. Something triggers the start and the state shifts very quickly. In this case the Covid supply shock was the seed.
Things were in steady state. The actual momentary supply and demand shock caused prices to naturally inflate. And when the supply returned they noted that prices didn't go down. Now they were free to test more increases.
Corporations are people, they wait for either the leading or trailing edge and then pivot. Before we had demand-pull inflation due to constrained supply chains, we are now seeing cost-push inflation, and its not about the pandemic spending as much as the Fed left the money printer on for the past 10 years under QE.
Chicken's come home to roost, and the pandemic happened after the Velocity of Money for the M2 had already dropped to nothing. Giving money to people and paying for their education was a last ditch effort after bank lending stopped in Oct/Nov 2019. The charts are all there for those that watch them.
To be fair, although definitely some corporations are doing this, others are adapting to market circumstances caused by a few actors.
For example, if you're a retailer selling pretty much anything now, your costs are up significantly across various different streams: your rent is up, your utilities bills are up, your logistics costs are up, the wholesale price of the products you stock is up... you have no choice but to increase your prices to stay afloat. That drives a spiral because now not only are your prices higher, you also have to raise your staff's wages because they can no longer afford to buy the products you sell, pushing you to increase your prices, and so on.
Now, you are a contributor to inflation through no fault of your own, despite the key increases in cost coming from, ultimately, rising fuel costs impacting across the whole supply chain.
I agree that record corporate profits are a key indicator (although probably this should be considered in context of inflation also, rather than just the raw dollar amounts).
(Just the first useful hit I found. There are many, many such analyses. The worsening financialization of household debt has continued almost uninterrupted.)
Between PPP 'loans', 0% interest rates giving way to slumlords..er..'investors', and other stimuli, I feel like I'm the only sucker who didn't get rich.
Perhaps one of these days I'll ignore personal morals and join the party, since there doesn't really seem to be a visible downside :(.
Watch the Anna Delvey documentary when you're bored sometime and tell me you don't low-key respect that hustle. Tell me you wouldn't have strongly considered nullifying that jury if you were on it.
Then compare that to what Elizabeth Holmes did, and tell me you don't wish she got a much harsher sentence.
There's a lesson there. To join the party, don't ignore your personal morals. Just bend them to grift the right people.
Is she? No widespread price controls have been implemented in the U.S., yet inflation is slowing due to the effect of contractionary monetary policy. Price floors on grains have been implemented in some Easter European countries, but that's mainly a populist measure to protect against cheap Ukrainian imports.
1) She didn’t argue contracting monetary policy was ineffective.
2) You’re going to talk about the European grain market (not in the article) but skip the European natural gas market (which was in the article)?
That you can leverage price controls without descending the entire system into chaos and that this approach can be as effective as, and less destructive to the economy than, raising interest rates
During the long period of unusually low rates and consumer-price inflation, we had massive asset inflation. We also had unusually low unemployment and rather sticky wages. The populism was driven (at least partly) by this state; assets going up while prices and wages staying flat leads to a "rich get richer" which pisses off everybody else.
For one thing, if wages increased as fast as prices, it would actually be a good thing. It would make it easier to make your fixed-rate mortgage payment. It would allow increased construction to bring down real housing prices without bringing down nominal housing prices and causing millions to go underwater. It would devalue your debts, and the national debt.
But a lot of influential people don't want those things. Banks would make less money in real terms because people would have less real debt. Housing speculators wouldn't get their returns. And wages are sticky, so once they go up, it's hard to get people to take a pay cut even after the supply chain issues that were contributing to higher prices abate.
So now the policy is to suppress "inflation" -- which is to say, nominal wage growth.
It would be political suicide to pass an "inflation reduction act" with like 500 billion in new taxes and increased enforcement? I guess we'll see next year in November...
It's less clear than that - because this is a supply side issue.
Inflation is prices going up. Prices go up when somebody selling something realises there are insufficient competitors and they can mark up pretty much as they please and still clear their inventory.
The solution is more competitors, which requires fiscal policy to move people from producing for consumption to producing for investment. Because the market won't do it on its own. It's too busy making a killing.
The problem the West has, that the Chinese don't have, is we have developed a visceral dislike of politically selected investment. Those extracting rents from supply constrained markets love that of course.
The price of the belief that investment can only be private is that the Chinese will ultimately win out.
Plus consolidation/monopolies/duopolies/etc means the initial investment has to be significantly higher to be competitive in the market. Or it's just impossible to enter the market in the first place for the same reason.
Inflation is the artificial increase of the money supply; The government spends the new money with corporations, *at the original value*, using up resources. Those resources are now missing and will need to be replaced in the market; This demand now increases the price of those resources, and everyone else who doesn't get freshly printed digital money shoved up their butt by the government, now has to pay those *raised prices* to overcome the unnatural draw on the economy you get from using an inflationary fiat currency system.
> The solution is more competitors, which requires fiscal policy to move people from producing for consumption to producing for investment.
This generally sounds reasonable.
It implies, that there are some (unnecessary) bottlenecks somewhere in the production chain of highly requested goods that can be alleviated by shifting workforce and capital from somewhere else, where there's overproduction or superfluous capacity to where the bottlenecks are. The allocation of resources isn't optimal. Right?
So which are these obvious misallocations of resources/workforce that ought to be corrected by suitable fiscal policy in your opinion?
Inflation is the epitome of the Dunning-Kruger effect. You let a young Republican into one Econ 101 class and suddenly he thinks he knows more than actual economists. All of whom will tell you no one fully understands inflation. You don't know what you don't know. Economics is more of an ideology than a science anyway.
Who's to say inflation is even a bad thing, anyway? Argentina's had "hyperinflation" over and over again, and it's not exactly Weimar Germany. All the debt in the economy can never be repaid. Debt vastly exceeds the money supply. What is money, anyway? It's just another form of debt. Dollars and treasury bills are completely interchangeable. In a world that runs on debt, devaluing debt (aka inflation) is a good thing for everyone except the nested-yacht rich (up to a point).
These paltry stimulus programs largely went to pad oligarchs' bank accounts through PPP fraud. This doesn't contribute to prices at the grocery store, at all. It did jack up the price of crypto ponzi schemes, and made a bird app worth a meme number for a brief moment in time. That's about it. Giving money to the rich does not stimulate the economy whatsoever. They just hoard it and blow it on nonsense until it vanishes into thin air, from whence it came. They can't spend all that money on goods and services in ten lifetimes.
Supply shocks, trade wars, excess corporate profits, and a staggering lack of antitrust enforcement are playing far more of a role with inflation than those $1200 checks.
Lastly, raising taxes on oligarchs is pretty much the most popular position in the country, according to polling. Raising taxes is not political suicide at all, provided they're the right kind of taxes. Polls also repeatedly find that Bernie Sanders is the most popular politician in the country. Unfortunately, public opinion has been scientifically proven to have no effect on policy in the USA. This is not a democracy. It's a fascist police state.
This perspective is naive. We need to look back to the seventies, at minimum, to really grok what’s happening in American economies today. I’d say WW1 is a better starting point but getting people to read a few dozen books is hard enough, a few hundred nigh impossible. Fiscal policy is useless without a legislature that legislates. To be clear, the inability of Congress to legislate is akin to pouring powdered magnesium on the fires in America’s interconnected economies. From rampant monopolization, ignored externalities, irrational tax policies, regulatory capture, unpunished white collar criminals roaming free in polite society, war on drugs, systemic racism, to more benign things like the breakdown of separation between church and state. These deeply rooted and unaddressed issues affect inflation in insidious ways that are impossible for the fed to address. So if the fed can’t and Congress won’t, why are we still talking about inflation like anyone with power actually wants to solve it? Simple truth of the matter is everyone empowered is actually welcoming the inflation. We can bicker about why but honestly thinking that congress is interested in controlling it is laughable. We have a functional playbook for inflation but it’s too extreme for the current right of center administration and power centers in congress to even consider or mention.
> Weber particularly admires the enforcement mechanism: any ships that purchase Russian oil above the G-7-mandated price will not be eligible for insurance. “That’s exactly the right principle,” she told me. “You don’t create some global board of price regulation, which will be guaranteed to fail. You work with the existing market infrastructure.”
We needed this yesterday for Housing and healthcare. In fact all necessities should have strict price controls. For healthcare that would be for any established medicines, (i.e. insulin) and not apply to brand new treatments.
1. As mentioned, I'm saying no price controls for new treatments. 2. The fact that insulin pricing spiked in US proves our version of capitalism is broken, especially for inelastic products.
we are , but in the other direction. inflation has been far worse , even when CPI claims were at 3% / year. Now they are claiming 7% , when in reality we are in double digits.
If you look at holistically at the number of working hours a middle class family required to run a household: own a house, car, pay utilities, food and have a quality of life : those hours are far higher . You now have two full time workers with lower quality of life.
Some technology and conveniences have concealed that but it's easy if you look at major expenses like housing, food, quality apparel, child care, education, healthcare.
If you don't believe me, look at census records from 50s-70s and see what professions lived in high class neighborhoods like Palo Alto, Berkeley , West Los Angeles, SF etc. You will see plumbers, carpenters, factory workers living in neighborhoods that are now occupied by 90th percentile incomes.
True inflation is # of hours working vs quality of life and assets earned. That figure is far higher than claimed CPI
Housing, childcare, and healthcare dominate the increased costs for families with children. Education comes into play as well, but is not as clearly dominant.
Food and apparel (of any quality) are cheaper in real-terms on the time-scales you are talking about. This is an important distinction because while you can substitute beans & rice for meat and patch-up your old clothing, you can't just not have a roof over your head.
It seems to me that part of the argument is people will charge what they can get away with rather than what they actually need to cover costs and a reasonable profit. Key bottlenecks become an opportunity for price gouging, causing ripple effects.
Money is impacted by human choice and human psychology. You can't neatly separate it from human behavior and impulses like greed.
It's grounded in history and historic success and the details make more sense to me than the less nuanced usual explanations that seem rooted in a damned if you do, damned if you don't mentality.
All this creative thinking is nice, but what has the US done in the past decade that is a full foot forward in terms of progress and increasing any quality of life? Everything is at a stalemate or deep freeze whether by politics, greed or just sheer ignorance.
This is a nice article, and the comparisons to a war economy are rather valid. The idea that something as complicated as inflation can be controlled just through a single lever, the central bank interest rates, always seemed somewhat ridiculous.
There's certainly a lot of peril this way if market based price control mechanisms get overused, but there's also a lot of peril in trying to cool inflation by just decimating the economy and curtailing investment.
I'm intrigued enough by this article that I'm going to dig deeper into the economics behind it. This article seems to highlight the cultural and political impact of the policy more than anything. As someone mostly naive to this way of thinking, let me highlight some thoughts on the subject.
* Price control only works so far. It's possible to price control an industry into ruin. There is a real risk when using these policies.
* How does employing this tool differ compared to other levers we have. Raising corporate taxes. Enhancing price gouging policies. Nationalizing critical industries.
* Who controls the price control lever, what is there mission, and how are they held politically accountable. This seems like the type of thing that needs more separation from the election cycle like the Fed or Supreme Court than the average law or executive order.
* Do we trust the controller of the price control lever? What does success look like? What does failure look like?
* Are we concerned that reducing private profits will reduce private investment? As bad as the chip shortage was, look at all the investments into fabrication that followed.
I read this article, and Weber's original article that had so many people riled up. I don't see a strong case being made for how price controls would solve the current situation. I'm not against it, but the devil is in the details, so I would like to see some more details.
On a broader topic, a lot of economic theories amount to wishful thinking. You can make an impressive case for almost any crazy idea, and even come up with a model that works, and which you say matches current conditions. Economists portray what they do as very rigorous and scientific, but the reality is that a lot of the time they're mounting an argument for what they believe, not doing science. It's hard for a lay person to tell the difference a lot of the time.
> The pandemic had upended global supply chains, making it harder for corporations to acquire the stuff they needed to make their products. This should have squeezed their profit margins. Instead, as the economy began opening up, corporate profits were wildly outpacing growth in consumer spending power.
It depends on the price elasticity of the good. In the example given, that of chips and the cars that depend on them, people were demonstrably willing to pay the premium. In this instance price hikes are a useful mechanism for allocating limited supply to the areas where it's most valued. That this mechanism happens to drive high margins is uncomfortable, but vindictiveness isn't a good basis for policy.
My problem with this article as a whole is that it presents this toolkit as a novel approach to fighting inflation as such, when, if it's applicable at all, it's only been shown to be so in the unusual case of inflation driven mostly by massive supply shocks, e.g. Covid and WWII.
I think a price control scheme could be a useful component of an anti-inflation program if designed well. For example, in housing, you could cap the capital gains when an owner sells a property (e.g., in California, cap the sales price to the Proposition 13 basis), but have an exception if the owner has built new square footage or units. This would prevent a windfall when there is housing inflation unless the owner actively works to reduce the shortage. However, this solution would be very unpopular among homevoters and could have tricky edge cases.
You clearly don't understand the impact of your proposed change.
The laws for building new homes haven't changed much in a few decades. The houses being built are a result of equilibrium with profit and secured funding. Every single action you have proposed creates no new homes.
Your proposed change is to devalue all existing homes further, incentivizing people to not own and leave the state, while allowing the state to price people out of their existing assets by forcing an increase in higher property taxes every single year that is based upon the entire amount of the loan, rather than any equity they might have.
This is no less than state mandated stealing from who you perceive to be rich (homeowners), while creating no new homes; because homeowners aside from developers do not build homes.
Do you know what happened in San Fran areas where they created and enforced the rental boards? Property values dropped, rentals dropped, everyone with options didn't invest in the area, business left, no jobs available, police couldn't be funded, and people regularly get killed as crime increases.
Do you even know how much the price of real estate fluctuates over longer periods of time? Some years it increases, other years it stays the same or decreases. That additional property tax is based upon appraisals that don't happen regularly, and the percentage increases every single year.
For a regular home, it already increases each year by at least 7,000 dollars in property taxes. If you have a well paying job of say 50,0000, roughly 32,000 goes to food right now, more if you are not single; and if they got the funding for a house they wouldn't be able to pay property taxes in less than 3 years at existing rates, regardless of the equity they had since its about appraised asset value. Increasing that further and the economics say the asset class is no longer an investment but a negative cash-flow cost.
Honestly I don't get where you people seem to come up with these things being a good idea. Did you do any research before you actually proposed something to see if it was viable?
> This is no less than state mandated stealing from who you perceive to be rich (homeowners), while creating no new homes; because homeowners aside from developers do not build homes.
That is a norm that can and should change. In a housing shortage, everyone and their mom should be figuring out how to add square footage to their house. All departments of the government should be oriented toward encouraging small homeowners to accommodate more residents.
> Do you know what happened in San Fran areas where they created and enforced the rental boards? Property values dropped, rentals dropped, everyone with options didn't invest in the area, business left, no jobs available, police couldn't be funded, and people regularly get killed as crime increases.
Huh? That sounds nothing like the present day. Property values are still near all time highs, particularly on single-family houses. Violent crime rates are near all time lows (although they could be better).
> For a regular home, it already increases each year by at least 7,000 dollars in property taxes
No, Proposition 13 (which I oppose) caps the tax rate to 1% and caps increases to min(CPI, 2%) per year. For the property tax to increase by $7000 in one year, your property would have to be worth at least 7000 / 0.02 * 100 = $35 million. Your numbers make no sense.
In a national demographic sure, in the areas where these things were being tested locally, look at Oakland or Richmond and compare those property gains over the last housing cycle. They are at an all time high, but what was the percentage of gain compared to other areas that didn't suffer from those rental boards where if you do a remodel you have to first offer it back to the previous tenant at the same rent (with no allowance for CPI increases or improvements)?
Tax Caps guarantee the collector must charge the maximum increase allowed every year regardless.
People are being priced out of their homes because they are being taxed on the property value, not their equity.
Your math is way off. I know people who live there who pay almost 20,000 in property taxes on their properties, and these certainly are not million dollar homes.
Inflation is typically (anecdotally?) impacted by: interest rates, QE, supply chain/shipping issues, port capacity, labour availability, material availability, globalisation, large regional disruption (the war on Ukraine), shifting climate, etc, and throw on top of this government policies in various directions in various countries.
All I know is while I can appreciate it, I'm so woefully inadequate to conceive a solution or even mitigation it's hilarious.
These kind of OP pieces really jeopardize any credibility she may have had as an authority on the subject (as an economist) because they show a profound misunderstanding about how the economy actually works.
Price controls are inflexible, they inevitably lead to shortages, and shortages have a short leap to causing death when its strategic goods like food. There is no way around this, its as fundamental as rational pricing is to the economic calculation problem.
Worse, its top down thinking which focuses on central planning, without even touching on all the failures that occur in such systems and ignores who actually sets prices in a distributed economy, ignoring how the more accurate calculation for inflation says its much worse than 10%, and tries to sprinkle faerie dust to make it seem like you've had it all wrong and these aren't the droids your looking for. Magical thinking at its best, and completely lacks basis because it rests on flawed assumptions.
Producers set the prices they sell their physical goods for, if they cannot do that they stop producing. It is that simple.
The first level of producers pays attention to the balance sheets between the fed and the large banks that are and have been being ballooned for the past few years now because that inflation that accumulates eventually is dropped on the economy without warning and they cannot take a loss and continue to produce. As those goes up so to does the prices to accommodate the difference in value of the underlying currency.
These are simple simple things, it amazes me how so uneducated the so called experts who have degrees in that field actually are.
You fail to take into account the main argument of the article. Which is that research shows that corporate profits increase has been responsible for more than half of the current inflation. With this in mind it's clear that there is a wide margin for unorthodox policies to succeed without the conventional issues they usually bring in a tight economic environment.
No it doesn't, every single study recently done which I have seen has been cherry picking its data with an intention to make it look like its not inflation doing this but corporate greed. This unfortunately is par for the course with any economics; its a how can we both be right, while me being right in a way that I can justify what I want to do if I'm the economist without actually being right and damn the world. Its not inflation its greedy corporations, nevermind that they've printed significantly more money than we have and buying their own bonds control yield.
Here's a shocker, this happens every single time in history where the government doesn't want people to know its inflation or where it allowed debasing the currency. By how much, you obviously don't know.
Additionally, and I'm going to say this slowly. Inflation is a lagging indicator, and the metrics you are using were changed to make it look like it was better than it actually is and the Fed didn't hike rates as high as they should have when they could; also Basel III makes banks less responsive to changes in interest rates so you get a magnificent perfect storm, you've already seen some bank failures. Next will effectively be nationalization but under another name because all the other banks went out of business that could absorb the losses.
You say look at corporate profits, in inflation of course profits are going to go up, just like taxes will go up, initially. Inflation doesn't hit the entire economy all at once. It starts at the first level producers, and then makes its way up in cascading price changes. Companies who's impacts aren't as reliant on physical goods are the last to increase and those who want to stay in business must raise the prices accordingly its simple mechanics, and companies who offer products with narrow proft margins must do this pre-emptively. Initially it shows profits, and then it levels out as inflation slows, or increases as inflation increases. Its out of your hands because the fed has the money printer and has been printing ever increasing amounts of money since 2010 to give the illusion our economy was doing well (under the name Quantitative Easing).
This is all very very basic. Ray Dalio wrote a series called Big Debt Crises, I suggest you look at the case studies for hyper-inflation events. We are on-track except the Fed made a monetary policy f'up and didn't pull a Volcker while also creating new problems with Basel.
Initially after the pandemic we had demand pull because our supply chains broke down, and now we are starting to see cost-push inflation, and the bubble on the ledger waiting to unwind is several trillion. We haven't seen nothing yet, and you are supporting actions that will lead to shortages, which leads to food insecurity which leads to unrest and death from starvation.
Absolutely amazing, and that' not even touching on the problems with central planning of which there are many.
At first I assumed that she's just one of those out-of-touch MMT dreamers, but then I noticed that Paul Krugman thinks she's truly stupid. Krugman is so consistently wrong about everything that now I think she might be onto something.
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[ 4.4 ms ] story [ 190 ms ] threadHardly surprising when it's from a smug rag like the New Yorker. Those writers/editors live in a bubble.
I'm not for or against either side, but I was put off by your comment.
https://www.stlouisfed.org/on-the-economy/2016/november/neo-...
It appears that the relationship between interest rates and inflation is still an open question in economics, which is kind of fascinating, because it's like trying to drive a moving car when the relationship between the speedometer and the brake pedal is still being debated by experts.
There are similar debates when it comes to employment. Is a high level of employment inflationary? The established wisdom of the Phillips curve is that it is, because low unemployment leads to high labour bargaining power which leads to wages rising faster than productivity, which results in inflation. But there are many economists wondering if it's not the other way around, because people are employed to produce in-demand goods, while unemployed people don't produce goods but still need to eat. These unresolved questions create questions around the inflationary impacts of eg. a jobs guarantee (https://en.wikipedia.org/wiki/Job_guarantee) relative to a universal basic income (https://en.wikipedia.org/wiki/Universal_basic_income) have some economists arguing for and others against. There is no widespread consensus about the outcomes of such policies.
Thanks. I have never understood why a zero sum interest would lower inflation. Or why fewer employed poatoe farmers would make potaties cheaper. And people talk about it like it was obvious but can never explain.
Many of the things mentioned in the article, specifically causes of inflation, are talked about by other economists. This tells me your idea that “anyone with some background in basic economics” are all in agreement (with you) is wrong.
Feel free to share a proper criticism, there is a decent amount you could discuss from the causes of inflation to her potential solutions. That would make for a more interesting discussion than hand-waving the entire article as “pure trash”, which I don't think is a fair description of the article even if you disagree with Weber.
Huge stimulus programs over the past five years absolutely overcooked the economy and fueled high inflation. Fiscal policy, hands bound by the rise of populism, is doing nothing to help, while central banks, free from the constraints of worrying about electability, are using the only tool they have to try stop the bleeding.
The solution, of course, is to tighten fiscal policy in the way of reducing spending or increasing taxes. But that's political suicide.
It costs 13% of all federal spending just to keep the plates spinning. I don't know if there's a way to dig out of those kinds of figures.
The primary driver of inflation is record-breaking corporate profits, not stimulii or wages.
https://www.youtube.com/watch?v=Zi4KMCQuQYE
Where are you getting this information? Raises are not keeping up with inflation. A few thousand in stimulus dollars years ago is not driving anything. PPP money didn't increase wages.
A few thousand dollars 2-3 years ago?
> Businesses
Payments that, at most, kept wages the same?
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People need to stop using "people are getting free money and that's raising inflation" excuse. Prices are rising and people are going into their savings or credit to keep spending. That's it.
More plausible to me is the idea that stimulus — printing new money by fiat — resulted in more cash in circulation. Corporations are like organisms that have evolved to capture and eat cash. They fed on the surplus cash, and their waistlines show it afterwards.
Meanwhile those of us with savings accounts pay the price when inflation reduces the buying power of the cash we had diligently set aside for future use.
Or you could just change your spending habits.
I guess you can blame me for not micromanaging every dollar I spend? But if I'm sitting in a drive thru grabbing a burger and fries and notice it's $5 more than it used to be, I'm probably still gonna buy the burger and fries. And I probably will still go grab one occasionally when I want it. Because saving $5 every so often isn't gonna really affect an activity that makes up a microscopic amount of my expenses (I've got fast food including coffee at 2.5% last I reviewed my data.)
But regardless I think what I'm describing is a real bit of human behavior at scale - and isn't that just economics at the end of the day?
$5 is $5... every penny counts.
Generally the way I suspect it goes is
1. Draw from savings to buy essential goods.
2. Slowly load whatever you can't afford on your credit cards.
3. Get new credit cards before you start missing payments.
4. Load more on your cards.
5. Have nowhere else to go so start taking payday loans.
6. Run out of money.
Which is in stark contrast to pre-2000s recessions where access to credit was far more limited.
As it is currently, if you've had a credit card, it is incredibly easy to get more and you can get an incredibly large amount of accessible credit. The average american has around 30k USD in available credit (10k for 18-22 and 20k for 23-38 but 30k overall) with only around 5k or less of that utilized on average. That's a lot of money that companies can draw on before consumers pockets are truly empty.
https://www.bankrate.com/finance/credit-cards/what-is-the-av...
Did corporations suddenly become greedy in 2021? No, they were always so.
You can see the details of P&G's financial specs here [1]. Everything has been relatively flat to declining and those are in nominal terms, or in other words - before inflation is factored in. After inflation, they're taking a pretty serious beating.
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Inflation is most easily understood by considering that money, in our current system, doesn't really have any meaning or intrinsic value. It's just numbers, and so the price of everything is simply set relative to the amount of money in circulation, and more precisely by the monetary velocity [2] or how often money is changing hands. If everybody was given a trillion dollars, it doesn't mean everybody's suddenly rich - it just means suddenly a Big Mac's going to cost tens of millions of dollars, and a new TV's going to set you back billions. You end up with the exact same relative values for things, but the values are bigger - because there's more money in circulation.
[1] - https://www.macrotrends.net/stocks/charts/PG/procter-gamble/...
[2] - https://en.wikipedia.org/wiki/Velocity_of_money
Record corporate profits are the key indicator here.
https://www.lendingtree.com/credit-cards/credit-card-debt-st...
If I get charged more interest, I simply charge more in wages/profit to cover it. Which I can do because there is a tight labour market/product market.
Some things, people just have to buy. Can't stop buying food, paying rent, paying for your car, etc.
American economy has been putting the squeeze on these things for decades. Now we're going even lower on Maslow's hierarchy to food. Americans will keep paying though, there is no political energy or power in the population anymore.
Look at social media, if there's a narrative that's unflattering someone will create a large number of bots and shout it down in a way that distorts reflected appraisal signals. You see the same on here with anything that mentions certain keywords like China, central planning, socialism, etc.
Representatives already spend most of their time beholden to their donors after passing through the money filter, they may have sworn an oath but the most common form of incompetency is doing nothing, and worse if they're hopelessly corrupt.
https://www.ons.gov.uk/businessindustryandtrade/retailindust...
So, what is on one hand necessary and inelastic can also be a luxury.
Even things called 'staples' are flexible, you won't die of malnutrition if you don't eat eggs.
Which is exactly my point: either a rival corporation would be able to get market share via undercutting, or price increases are not actually that sensitive to consumer to begin with.
This lack of real choice is hidden behind a plethora of brands all owned by the same large corporations.
And it turns out when there are like 4 large corporations that are responsible for almost everything produced in a market it's really easy to do de facto price fixing (in the sense that they [usually] aren't officially talking to each other but have unspoken ongoing gentleman's agreements) allowing all parties to get a nice share of the price gouging with no party triggering a race to the bottom.
If you're going to ignore the obvious problems with massive consolidation in areas like supermarket chains and virtually everything sold in those chains or the massive problems with consolidated telecomm/ISP companies and the de facto regional monopolies they carve up then I don't think you are arguing in good faith.
Kimberly-Clark, Proctor & Gamble, Edgewell, and Energizer comprise like 90% of the pads and tampons you'll find on the shelves in an American grocery or discount store.
The largest shareholders of all of the above are the same: Vanguard, BlackRock, and State Street. Combined, they make up ~25% ownership of all of them.
Alternatively: firearms
For a while, Cerberus Capital Management owned approximately a majority of US firearms companies by production, including: Remington, Barnes Bullets, Bushmaster, DPMS, Advanced Armament, Marlin Firearms, H & R Firearms, Para USA, The Parker Gun, Dakota Arms, Tapco, and Storm Lake Barrels. All of the above were acquired by Cerberus from 2006-2009.
All of the above were folded into "Freedom Group". That was later rebranded as "Remington Outdoor Company", then sold piecemeal three years later (in 2020).
As a CEO, why would sharing 25% of shareholders with another corporation stop you from exploiting their weakness, increasing your market share, increasing your stock price and in the end, increasing your bonus? You're a publicly traded corporation, your contract is public, your bonus mechanic is public, these 25% don't have any other means of control over you.
Having them as a shareholder in common just means they are in the same index and has no impact on potential collusion.
It's a great question. Usually that competition is what I would expect, but I wonder if there are really the proper incentives in place for competing corporations to compete. I've speculated about this a few times in the past, but corporations ultimately are accountable to their shareholders. And it's increasingly common for their shareholders to also own shares of all their competitors, which is the whole idea of buying an index.
What keeps prices under control in any market is that somebody with supply capacity loses out and doesn't use that supply capacity - because the price achievable doesn't make it worth using that supply capacity.
That's the issue we have at present. There is insufficient spare supply capacity available to be brought online if prices go up. The solution is shifting consumption to investment, but at present the short term view is seen as more lucrative than the long term one.
We have record GDP. We also have record amounts of M2. If there were NOT record amounts of profit i'd be considered. Looking at absolute profit not charted against other metrics is embarrassingly stupid. Maybe profits are driving inflation to some degree, but saying 'record corporate profits are a key indicator' is just wrong.
I am open minded to the notion that corporate profits indicate the direction of "pain flows" in this economy dominated by inflation concerns.
The first question I would ask is: are current corporate profits breaking records in real terms, or just nominal terms ?
I don't know the answer to that.
It would be disappointing, intellectually, to learn that corporate profits are simply up in absolute, nominal dollars ...
... but I've been disappointed before.
Chicken's come home to roost, and the pandemic happened after the Velocity of Money for the M2 had already dropped to nothing. Giving money to people and paying for their education was a last ditch effort after bank lending stopped in Oct/Nov 2019. The charts are all there for those that watch them.
For example, if you're a retailer selling pretty much anything now, your costs are up significantly across various different streams: your rent is up, your utilities bills are up, your logistics costs are up, the wholesale price of the products you stock is up... you have no choice but to increase your prices to stay afloat. That drives a spiral because now not only are your prices higher, you also have to raise your staff's wages because they can no longer afford to buy the products you sell, pushing you to increase your prices, and so on.
Now, you are a contributor to inflation through no fault of your own, despite the key increases in cost coming from, ultimately, rising fuel costs impacting across the whole supply chain.
I agree that record corporate profits are a key indicator (although probably this should be considered in context of inflation also, rather than just the raw dollar amounts).
What I think is novel now is that there’s a lot more cash available to pay these higher prices.
Record profits are the result, not the cause.
> What I think is novel now...
Not novel. Just the return and normalization of usury.
Here's a brief recap, beginning with South Dakota's Gov. Bill Janklow dismantling of consumer protections from financial predators in the late '70s:
A Short History of Financial Deregulation in the United States [2009] https://www.cepr.net/documents/publications/dereg-timeline-2...
(Just the first useful hit I found. There are many, many such analyses. The worsening financialization of household debt has continued almost uninterrupted.)
Elsethread, u/Red_Leaves_Flyy notes some of the additional current co-factors. https://news.ycombinator.com/item?id=36237547
Perhaps one of these days I'll ignore personal morals and join the party, since there doesn't really seem to be a visible downside :(.
Then compare that to what Elizabeth Holmes did, and tell me you don't wish she got a much harsher sentence.
There's a lesson there. To join the party, don't ignore your personal morals. Just bend them to grift the right people.
For one thing, if wages increased as fast as prices, it would actually be a good thing. It would make it easier to make your fixed-rate mortgage payment. It would allow increased construction to bring down real housing prices without bringing down nominal housing prices and causing millions to go underwater. It would devalue your debts, and the national debt.
But a lot of influential people don't want those things. Banks would make less money in real terms because people would have less real debt. Housing speculators wouldn't get their returns. And wages are sticky, so once they go up, it's hard to get people to take a pay cut even after the supply chain issues that were contributing to higher prices abate.
So now the policy is to suppress "inflation" -- which is to say, nominal wage growth.
Inflation is prices going up. Prices go up when somebody selling something realises there are insufficient competitors and they can mark up pretty much as they please and still clear their inventory.
The solution is more competitors, which requires fiscal policy to move people from producing for consumption to producing for investment. Because the market won't do it on its own. It's too busy making a killing.
The problem the West has, that the Chinese don't have, is we have developed a visceral dislike of politically selected investment. Those extracting rents from supply constrained markets love that of course.
The price of the belief that investment can only be private is that the Chinese will ultimately win out.
This generally sounds reasonable.
It implies, that there are some (unnecessary) bottlenecks somewhere in the production chain of highly requested goods that can be alleviated by shifting workforce and capital from somewhere else, where there's overproduction or superfluous capacity to where the bottlenecks are. The allocation of resources isn't optimal. Right?
So which are these obvious misallocations of resources/workforce that ought to be corrected by suitable fiscal policy in your opinion?
Who's to say inflation is even a bad thing, anyway? Argentina's had "hyperinflation" over and over again, and it's not exactly Weimar Germany. All the debt in the economy can never be repaid. Debt vastly exceeds the money supply. What is money, anyway? It's just another form of debt. Dollars and treasury bills are completely interchangeable. In a world that runs on debt, devaluing debt (aka inflation) is a good thing for everyone except the nested-yacht rich (up to a point).
These paltry stimulus programs largely went to pad oligarchs' bank accounts through PPP fraud. This doesn't contribute to prices at the grocery store, at all. It did jack up the price of crypto ponzi schemes, and made a bird app worth a meme number for a brief moment in time. That's about it. Giving money to the rich does not stimulate the economy whatsoever. They just hoard it and blow it on nonsense until it vanishes into thin air, from whence it came. They can't spend all that money on goods and services in ten lifetimes.
Supply shocks, trade wars, excess corporate profits, and a staggering lack of antitrust enforcement are playing far more of a role with inflation than those $1200 checks.
Lastly, raising taxes on oligarchs is pretty much the most popular position in the country, according to polling. Raising taxes is not political suicide at all, provided they're the right kind of taxes. Polls also repeatedly find that Bernie Sanders is the most popular politician in the country. Unfortunately, public opinion has been scientifically proven to have no effect on policy in the USA. This is not a democracy. It's a fascist police state.
Some of us actually do read and educate ourselves despite increasingly hostile literature that strays from facts into non-credible opinion.
Credibility has never been more important, and books that have stood the test of time are often more credible than 90% of the garbage out there.
Is there a worse indictment for a person?
At least there’s room to improve from the legacy left by the previous decision makers…
I think the question is whether you can actually still do anything that would make it worse, seems like a tough challenge.
> Weber particularly admires the enforcement mechanism: any ships that purchase Russian oil above the G-7-mandated price will not be eligible for insurance. “That’s exactly the right principle,” she told me. “You don’t create some global board of price regulation, which will be guaranteed to fail. You work with the existing market infrastructure.”
It's worth a listen, I found it interesting.
If you look at holistically at the number of working hours a middle class family required to run a household: own a house, car, pay utilities, food and have a quality of life : those hours are far higher . You now have two full time workers with lower quality of life.
Some technology and conveniences have concealed that but it's easy if you look at major expenses like housing, food, quality apparel, child care, education, healthcare.
If you don't believe me, look at census records from 50s-70s and see what professions lived in high class neighborhoods like Palo Alto, Berkeley , West Los Angeles, SF etc. You will see plumbers, carpenters, factory workers living in neighborhoods that are now occupied by 90th percentile incomes.
True inflation is # of hours working vs quality of life and assets earned. That figure is far higher than claimed CPI
- inflation is not informative about X
- X is what matters
- therefore we shall call X "inflation"
Food and apparel (of any quality) are cheaper in real-terms on the time-scales you are talking about. This is an important distinction because while you can substitute beans & rice for meat and patch-up your old clothing, you can't just not have a roof over your head.
Money is impacted by human choice and human psychology. You can't neatly separate it from human behavior and impulses like greed.
It's grounded in history and historic success and the details make more sense to me than the less nuanced usual explanations that seem rooted in a damned if you do, damned if you don't mentality.
/not an economist
There's certainly a lot of peril this way if market based price control mechanisms get overused, but there's also a lot of peril in trying to cool inflation by just decimating the economy and curtailing investment.
* Price control only works so far. It's possible to price control an industry into ruin. There is a real risk when using these policies.
* How does employing this tool differ compared to other levers we have. Raising corporate taxes. Enhancing price gouging policies. Nationalizing critical industries.
* Who controls the price control lever, what is there mission, and how are they held politically accountable. This seems like the type of thing that needs more separation from the election cycle like the Fed or Supreme Court than the average law or executive order.
* Do we trust the controller of the price control lever? What does success look like? What does failure look like?
* Are we concerned that reducing private profits will reduce private investment? As bad as the chip shortage was, look at all the investments into fabrication that followed.
On a broader topic, a lot of economic theories amount to wishful thinking. You can make an impressive case for almost any crazy idea, and even come up with a model that works, and which you say matches current conditions. Economists portray what they do as very rigorous and scientific, but the reality is that a lot of the time they're mounting an argument for what they believe, not doing science. It's hard for a lay person to tell the difference a lot of the time.
It depends on the price elasticity of the good. In the example given, that of chips and the cars that depend on them, people were demonstrably willing to pay the premium. In this instance price hikes are a useful mechanism for allocating limited supply to the areas where it's most valued. That this mechanism happens to drive high margins is uncomfortable, but vindictiveness isn't a good basis for policy.
My problem with this article as a whole is that it presents this toolkit as a novel approach to fighting inflation as such, when, if it's applicable at all, it's only been shown to be so in the unusual case of inflation driven mostly by massive supply shocks, e.g. Covid and WWII.
The laws for building new homes haven't changed much in a few decades. The houses being built are a result of equilibrium with profit and secured funding. Every single action you have proposed creates no new homes.
Your proposed change is to devalue all existing homes further, incentivizing people to not own and leave the state, while allowing the state to price people out of their existing assets by forcing an increase in higher property taxes every single year that is based upon the entire amount of the loan, rather than any equity they might have.
This is no less than state mandated stealing from who you perceive to be rich (homeowners), while creating no new homes; because homeowners aside from developers do not build homes.
Do you know what happened in San Fran areas where they created and enforced the rental boards? Property values dropped, rentals dropped, everyone with options didn't invest in the area, business left, no jobs available, police couldn't be funded, and people regularly get killed as crime increases.
Do you even know how much the price of real estate fluctuates over longer periods of time? Some years it increases, other years it stays the same or decreases. That additional property tax is based upon appraisals that don't happen regularly, and the percentage increases every single year.
For a regular home, it already increases each year by at least 7,000 dollars in property taxes. If you have a well paying job of say 50,0000, roughly 32,000 goes to food right now, more if you are not single; and if they got the funding for a house they wouldn't be able to pay property taxes in less than 3 years at existing rates, regardless of the equity they had since its about appraised asset value. Increasing that further and the economics say the asset class is no longer an investment but a negative cash-flow cost.
Honestly I don't get where you people seem to come up with these things being a good idea. Did you do any research before you actually proposed something to see if it was viable?
Or is this just mindless indoctrination speaking?
Not exactly true; the local ADU ordinance was added 2015-2017 (207(c)(4) https://codelibrary.amlegal.com/codes/san_francisco/latest/s...), and the state added an ADU law in 2016 (https://leginfo.legislature.ca.gov/faces/codes_displaySectio....). And San Francisco has just passed the state-mandated Housing Element which promises to upzone more in the next 3 years (https://sfplanning.s3.amazonaws.com/archives/sfhousingelemen...). Moreover, I would support a virtuous cycle of incentivizing development and further upzoning.
> This is no less than state mandated stealing from who you perceive to be rich (homeowners), while creating no new homes; because homeowners aside from developers do not build homes.
That is a norm that can and should change. In a housing shortage, everyone and their mom should be figuring out how to add square footage to their house. All departments of the government should be oriented toward encouraging small homeowners to accommodate more residents.
> Do you know what happened in San Fran areas where they created and enforced the rental boards? Property values dropped, rentals dropped, everyone with options didn't invest in the area, business left, no jobs available, police couldn't be funded, and people regularly get killed as crime increases.
Huh? That sounds nothing like the present day. Property values are still near all time highs, particularly on single-family houses. Violent crime rates are near all time lows (although they could be better).
> For a regular home, it already increases each year by at least 7,000 dollars in property taxes
No, Proposition 13 (which I oppose) caps the tax rate to 1% and caps increases to min(CPI, 2%) per year. For the property tax to increase by $7000 in one year, your property would have to be worth at least 7000 / 0.02 * 100 = $35 million. Your numbers make no sense.
> roughly 32,000 goes to food right now
Again you’re off by about an order of magnitude.
In a national demographic sure, in the areas where these things were being tested locally, look at Oakland or Richmond and compare those property gains over the last housing cycle. They are at an all time high, but what was the percentage of gain compared to other areas that didn't suffer from those rental boards where if you do a remodel you have to first offer it back to the previous tenant at the same rent (with no allowance for CPI increases or improvements)?
Tax Caps guarantee the collector must charge the maximum increase allowed every year regardless.
People are being priced out of their homes because they are being taxed on the property value, not their equity.
Your math is way off. I know people who live there who pay almost 20,000 in property taxes on their properties, and these certainly are not million dollar homes.
All I know is while I can appreciate it, I'm so woefully inadequate to conceive a solution or even mitigation it's hilarious.
Price controls are inflexible, they inevitably lead to shortages, and shortages have a short leap to causing death when its strategic goods like food. There is no way around this, its as fundamental as rational pricing is to the economic calculation problem.
Worse, its top down thinking which focuses on central planning, without even touching on all the failures that occur in such systems and ignores who actually sets prices in a distributed economy, ignoring how the more accurate calculation for inflation says its much worse than 10%, and tries to sprinkle faerie dust to make it seem like you've had it all wrong and these aren't the droids your looking for. Magical thinking at its best, and completely lacks basis because it rests on flawed assumptions.
Producers set the prices they sell their physical goods for, if they cannot do that they stop producing. It is that simple.
The first level of producers pays attention to the balance sheets between the fed and the large banks that are and have been being ballooned for the past few years now because that inflation that accumulates eventually is dropped on the economy without warning and they cannot take a loss and continue to produce. As those goes up so to does the prices to accommodate the difference in value of the underlying currency.
These are simple simple things, it amazes me how so uneducated the so called experts who have degrees in that field actually are.
Here's a shocker, this happens every single time in history where the government doesn't want people to know its inflation or where it allowed debasing the currency. By how much, you obviously don't know.
Additionally, and I'm going to say this slowly. Inflation is a lagging indicator, and the metrics you are using were changed to make it look like it was better than it actually is and the Fed didn't hike rates as high as they should have when they could; also Basel III makes banks less responsive to changes in interest rates so you get a magnificent perfect storm, you've already seen some bank failures. Next will effectively be nationalization but under another name because all the other banks went out of business that could absorb the losses.
You say look at corporate profits, in inflation of course profits are going to go up, just like taxes will go up, initially. Inflation doesn't hit the entire economy all at once. It starts at the first level producers, and then makes its way up in cascading price changes. Companies who's impacts aren't as reliant on physical goods are the last to increase and those who want to stay in business must raise the prices accordingly its simple mechanics, and companies who offer products with narrow proft margins must do this pre-emptively. Initially it shows profits, and then it levels out as inflation slows, or increases as inflation increases. Its out of your hands because the fed has the money printer and has been printing ever increasing amounts of money since 2010 to give the illusion our economy was doing well (under the name Quantitative Easing).
This is all very very basic. Ray Dalio wrote a series called Big Debt Crises, I suggest you look at the case studies for hyper-inflation events. We are on-track except the Fed made a monetary policy f'up and didn't pull a Volcker while also creating new problems with Basel.
Initially after the pandemic we had demand pull because our supply chains broke down, and now we are starting to see cost-push inflation, and the bubble on the ledger waiting to unwind is several trillion. We haven't seen nothing yet, and you are supporting actions that will lead to shortages, which leads to food insecurity which leads to unrest and death from starvation.
Absolutely amazing, and that' not even touching on the problems with central planning of which there are many.