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I think this gets a lot right, but it's poorly reasoned. For example, the author talks about a "massive labor supply shock", but doesn't really address why thi

• blevo 7y ago
  >implying that moderate consumer inflation somehow helps the rich at the expense of everyone else, when in fact, it's just the opposite. it is? so: Moderate consumer inflation helps 'everyone else' at the expense of 'the rich?' How? I always figured: 1. inflating the money supply[0] has a usual consequence of price inflation[1]. 2. rising prices disproportionately affects the poor who must spend a greater percentage of their income on needed goods. --- to sum: Monetary Stimulus = highly regressive tax --- [0] "monetary stimulus" [1] assets and consumer goods edited: formatting
  • gnode 7y ago
    > rising prices disproportionately affects the poor who must spend a greater percentage of their income on needed goods. Inflation has a cause, and often that cause is beneficial to the working class. For instance, a rise in the minimum wage or increased workers' union power would increase prices, and disproportionately benefit the poor. If assets don't increase in value, inflation erodes the wealth of the investor class.
    • wahern 7y ago
      Indeed. The Great Depression was precipitated by deflation in Europe, with deflation being a side-effect of the gold standard. Deflation leads to labor cuts (why invest if you can get richer sitting on your money?), which Europe struggled with throughout the 1920s. And eventually the Europeans deflated themselves into poverty; they stopped buying American goods and stopped investing in American stocks, and the whole house of cards came crumbling down. We've had modern capitalism for, what, 150-200 years, now? And the one consistent thing we know about capitalism is that money accumulates at the top. Moderate inflation is one way to counter that dynamic, albeit an increasingly ineffective one. Inflation makes people feel insecure, but like with everything else the "security" of a very low inflation or deflationary environment will benefit capitalists far more than labor.
      • blevo 7y ago
        How does moderate inflation counter money clustering at the top? It seems to me that it exacerbates the problem as 'the top' are fixated on assets and inflation tends to inflate those: "The rich get richer." The working class, on the other hand, faces higher consumer prices with a delay in increasing wages and, having less 'disposable' income, is strongly affected. "and the poor get poorer" Also, the lower-to-middle class must somehow navigate stocks or some assets in a 401k/IRA just to protect the purchasing power of whatever nestegg they try to grow (whether it's retirement, or putting kids thru college). Can't just keep that money safe in a savings account (paying 0.1%), it will erode.
        • eli_gottlieb 7y ago
          The lower class are usually net debtors, and the real value of debts is eroded by inflation.
        • wahern 7y ago
          > How does moderate inflation counter money clustering at the top? Because inflation creates a use-it-or-lose-it scenario. With inflation you have to invest your money, otherwise your net wealth will decrease. Returns from investments are also delayed for investors. Inflation can be difficult for everybody, but no matter what the situation is wealthy investors will have an easier time accumulating and holding wealth than others. This is no surprise, so saying that inflation can hurt the poor is not saying anything. What matters is that deflation is even worse for labor, as is the instability from naive attempts to keep things at 0%. The point is that if you want to maximize the redistribution of wealth, you need to coax the investor class to actually invest in things. Moderate inflation is one tool in that toolbox. It's not the only tool, and maybe not even the best tool, but moderate inflation has that function. The problem is that there are many other dynamics at play, too. Showing that wealth inequality has exploded since the 1970s-1980s, overlaying graphs that show a contemporaneous correlation with inflation targets or whatever your boogeyman, and then suggestively wiggling your eyebrows, doesn't prove anything causative. It may suggest that your inflation targets are ineffective, but doesn't tell you why. (Don't forget that the Bretton Woods systems ended because of the pressure increasing global trade was putting on the dollar and the American economy.) A multitude of things have been ongoing since the 1970s and 1980s--explosions in global trade and the global economy, massive tax decreases for the wealthy, dismantling of pension systems, etc. All of these things are known and were expected to put downward pressure on wages. They're more than sufficient to explain the trend, and there's no reason to believe that the trend contradicts what we know about the basics of economics. What we are learning is that there are other systemic forces that were previously unknown or poorly understood and which are more powerful than believed. People keep banging on QE, QE, QE. But global asset wealth is about $300 trillion. QE in both the U.S. and Europe at best injected a few trillion. Why is so much cash just sitting around? Maybe because there's $300 trillion of it! Where is most of it coming from? The industrialization of the so-called third-world. Why is so much of it sitting in the U.S. and European countries? Because of dollar-denominated trade, corruption, risk averseness, and a host of other complex factors. The labor class is intrinsically vulnerable. It doesn't take much of a change in investor behavior to really screw them over, and you don't need wild conspiracy theories or new physics to explain it. The explanations are out in the open.
  • wahern 7y ago
    > 1. inflating the money supply[0] has a usual consequence of price inflation[1]. Except this hasn't been the case for well over a decade in the U.S., and for several decades in Japan. The money doesn't trickle down, it just sits in reserve because nobody wants to invest it in capital goods, labor, etc. And monetary policy doesn't even seem to be the primary culprit of asset inflation. Profits sit in reserve, too, and the past 15+ years of global profits have been enormous. Say what you will about Elon Musk's financial profligacy, but the man plows money into capital goods and labor. And the fact that he's plowing other people's money is what makes it so laudable. We need more salesmen like him who can convince investors to actually invest.
    • blevo 7y ago
      The FED did something different the last recession. The "last 15 years," as you say, have been different because the FED started paying interest on excess reserves. This is the reason for the new money to just sit. It provides incentive NOT to lend, a risk free return for the commercial banks. It has counteracted the loose monetary policy. this has been the reason we haven't seen the usual price inflation from QE This same factor (FED giving interest on excess reserves) can also account for profits sitting in reserve. But I suppose now it seems like I'm arguing both ways... (Inflation! & NOT Inflation!) I'll have to take a step back. +1 on Elon Musk, or at least the sentiment you described
    • MiroF 7y ago
      I don't know what this means - investors are on a constant search for yield especially now and that has taken them into riskier assets. The trend of the last decade is exactly opposite what you are saying. That said, you are correct that rising money supply doesn't automatically translate into rising prices