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Thanks for the reply. I didn't know what 'core inflation' meant so had to look at the wikipedia page. Assuming that wikipedia is correct, it looks like the fed

by afpx 9y ago

Thanks for the reply. I didn't know what 'core inflation' meant so had to look at the wikipedia page. Assuming that wikipedia is correct, it looks like the fed has used PCE since 2000. Apparently, CPI is mainly used for social security benefits. CPI weighs 'shelter' costs as 40% of total whereas PCE weighs it at 18%. To test out their values, I viewed the 2016 value for DC (where I have a home and mortgage), and it looked relatively accurate. However, my mortgage for that property is less than 18% of my total expenses. I'm kind of ignorant about monetary policy, so had to google some things. But, I don't follow your statement about the relationship between M2 and inflation. Are you saying that M2 should be directly related to inflation? I would expect that M2 would only have a moderate influence over inflation because prices are based on supply and demand, not how much money there is. For instance, let's say this year there are 200 coins distributed evenly to 10 people. You produce 10 widgets, and each of the 10 people are willing to pay 10. You make the exchange and get 100 coins, and they're left with 10 each. The next year someone new shows up and has 20 coins making the total money supply 220. You produce another 10 widgets, but only the new guy wants a widget (the others already have one). He is not willing to pay 10 coins, but you and him agree that he can pay 1 coin. Money supply went up, but prices went down. Then the following year, all 11 people want widgets, but you're way more efficient and are now producing 20. I'd expect prices to stay less than 10 but probably higher than 1 even though the money supply didn't change. I'm probably wrong about all of this stuff, of course. But, either way, it seems complex and data intensive enough to require a specialist.

roenxi 9y ago
Bah, you're very convincing, I'm going to have to go away and reformulate what I'm upset about. I can see that I've been using the wrong terms for everything. I save a lot of money, and I can't construct a big-picture argument that satisfies me of how 5% increases in the money base aren't really bad for someone and I want to know who (I still think it is savers, but no longer have an argument for that). That being said, I now see that any issues I come up with fall completely outside GDP and inflation. However, your 200 coins scenario is not very agreeable to me: 1) Minor point, there is an assumption of over capacity where the widget producer could presumably produce 9 spare widgets most years. 2) More subtle point, widgets require raw resources to produce. Ignoring the machine to make the widget, the actual widget is presumably made of stuff or in the case of a service, the cost is the stuff required to maintain the servicer's lifestyle. Your scenario has quietly assumed that there are sufficient resources for our purposes. I see the question on monetary policy as being ‘does this assist in the efficient allocation of resources’. I do accept that as correct, I don’t accept it as fundamentally relevant to what I think is important, because it hasn’t made reference to the resources used to produce the widgets (ie, what was the opportunity cost) and hence begs my question. The mechanics of the situation aren’t just the feelings of how much people want to pay, they are linked to resource availability vs willingness of market participants to work for what they want. It has made me understand why I thought inflation was irrelevant to my circumstances. 4) If a rational actor appears with excess currency and doesn't want to compete with other consumers for presently available resources, then they aren’t going to sit there cheerfully with 19 currency in their pocket. If they aren’t going to buy current resources, they will buy control of future resources. Otherwise it raises the question of to what end did they accept the new currency and why is it being created? I'm going to have to stop there because my complaints need rebuilding, but I think I'll end up finding out what the name for asset-price inflation and properly learn about the velocity of money, but is since it isn't expressed in inflation then it must be competing for future resources which I expect to turn up in asset prices. If that formulation survives scrutiny, then something really interesting must be afoot to do with how future claims on resources will be settled. Thanks again for your interest, this has been a very illuminating conversation for me that has reduced my ignorance of economics substantially and will improve my arguments in the future.
- afpx 9y ago
  All very good points. I actually thought about your #2 and #4 after I posted. But, at that point I was already in route to the airport. Also, to be honest, I really wasn’t sure how to analyze it any further - pointing to my lack of knowledge. It seemed like a bit of rabbit hole and beyond me.

by afpx 9y ago

roenxi 9y ago

Bah, you're very convincing, I'm going to have to go away and reformulate what I'm upset about. I can see that I've been using the wrong terms for everything. I save a lot of money, and I can't construct a big-picture argument that satisfies me of how 5% increases in the money base aren't really bad for someone and I want to know who (I still think it is savers, but no longer have an argument for that). That being said, I now see that any issues I come up with fall completely outside GDP and inflation. However, your 200 coins scenario is not very agreeable to me: 1) Minor point, there is an assumption of over capacity where the widget producer could presumably produce 9 spare widgets most years. 2) More subtle point, widgets require raw resources to produce. Ignoring the machine to make the widget, the actual widget is presumably made of stuff or in the case of a service, the cost is the stuff required to maintain the servicer's lifestyle. Your scenario has quietly assumed that there are sufficient resources for our purposes. I see the question on monetary policy as being ‘does this assist in the efficient allocation of resources’. I do accept that as correct, I don’t accept it as fundamentally relevant to what I think is important, because it hasn’t made reference to the resources used to produce the widgets (ie, what was the opportunity cost) and hence begs my question. The mechanics of the situation aren’t just the feelings of how much people want to pay, they are linked to resource availability vs willingness of market participants to work for what they want. It has made me understand why I thought inflation was irrelevant to my circumstances. 4) If a rational actor appears with excess currency and doesn't want to compete with other consumers for presently available resources, then they aren’t going to sit there cheerfully with 19 currency in their pocket. If they aren’t going to buy current resources, they will buy control of future resources. Otherwise it raises the question of to what end did they accept the new currency and why is it being created? I'm going to have to stop there because my complaints need rebuilding, but I think I'll end up finding out what the name for asset-price inflation and properly learn about the velocity of money, but is since it isn't expressed in inflation then it must be competing for future resources which I expect to turn up in asset prices. If that formulation survives scrutiny, then something really interesting must be afoot to do with how future claims on resources will be settled. Thanks again for your interest, this has been a very illuminating conversation for me that has reduced my ignorance of economics substantially and will improve my arguments in the future.

afpx 9y ago
All very good points. I actually thought about your #2 and #4 after I posted. But, at that point I was already in route to the airport. Also, to be honest, I really wasn’t sure how to analyze it any further - pointing to my lack of knowledge. It seemed like a bit of rabbit hole and beyond me.