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This article lost me at "printing money does not cause inflation." How would that be possible? The only answer would be that money is increasing in value for so

by diego 7y ago

This article lost me at "printing money does not cause inflation." How would that be possible? The only answer would be that money is increasing in value for some reason, and the government must print more to keep prices stable (otherwise they would fall). Even then, it would be a technicality.

donatj 7y ago
Yup, came here to make the same complaint. The article just throws that out there as fact with no justification or citation. Just need to look at what's going on in Venezuela, right now. Increased supply of anything lowers it's value.
- lordnacho 7y ago
  > Increased supply of anything lowers it's value. Network goods? Are telephones more valuable when more people have them? Road networks? Just pointing out that many things in economics are not so obvious. You're right that you need to cite things that go against the orthodoxy. At least to have sane debates. But of course he could have cited the current money printing era, where if you believe the official figures there's not a lot of inflation anywhere in the west. I'm not so confident in the figures, but that's at least some evidence that printing a load of money doesn't cause inflation.
  - beerandt 7y ago
    I know there's an economic element to networks, but in the context of what we're talking about, more people having a telephone is a measure of the products quality, not supply. Capacity of the network would equal supply. Right? Unless I'm grossly missing something.
    - IggleSniggle 7y ago
      The value of a single phone is zero, 2 phones grants each owner the ability to contact one person (2 units of value total), 3 grants 3 owners 2 each (6), 4 -> 3 (12), 5->4 (20). In other words, increasing the size of the network multiplies the value of the entire network by that amount (factorial). In a phone network, there are a few different tipping points where the _ubiquity_ adds additional value. At a certain point, having a phone is worthwhile because everyone you could possibly want to talk to also has one. (this is also why I still have an account on Facebook). The same can be said of a currency network. It becomes more valuable the more people you can exchange it with. People using US dollars outside the US gain value from knowing they have a trusted "stable third party" currency, and at the same time US dollars become more value to citizens of the US because they can now use that currency for purchases in that other country. Having 20 phones with one owner is practically worthless, even though the network capacity is theoretically high. Distributing those phones among twenty people is what generates the real value. But you can't really distribute 20 phones equally among 200 people. You need sufficient saturation of currency for its distribution to be of any real value, because you need enough quantity to be able to use it to do its job as a holder of arbitrary value exchange.
      - beerandt 7y ago
        I appreciate the response. I get that... (I think) I just don't get why that necessarily has anything to do with supply itself. It has to do with the distribution, and as a result, the quality or utility of the network. As you said, one person having 20 phones is off dubious value, but 20 additional people with phones might increase the network's quality. The supply (20) is independent of the resulting quality/saturation/useful node count. On the other hand, increased nodes could be seen as a negative. Like the US-Russia hotline. Or Facebook after it opened up to users without college email accounts. Sometimes supply might affect the quality of a network, and therefore the value of having a node (phone) on that network. But to say supply increases with demand is misleading, to me. Increased quality increases demand, at a rate greater than the rate demand is decreased due to increased supply. If supply happens to increase quality, then yes supply might dominate the equation such that demand increases as supply increases. But that doesn't mean the fundamental relationship between supply and demand has changed, it's just been minimized for particular cases. Or maybe I'm just getting confused by transitive semantics.
        IggleSniggle 7y ago
        I would agree with most of what you said here. To echo your semantics and in the greater context of this thread, I was merely pointing out that increasing the supply (and in the case of money, distribution/saturation) could increase the "quality" at a rate faster than the forces that that push the "quality" down in terms of "quality" per unit of currency. In the specific case of money, there is an additional group psychology at play: if you believe your money won't be worth as much tomorrow as it is today, then you should spend it today if you can. Since the value derived from currency is in its exchange (it's not producing any value sitting under a mattress), it increases the "quality" of the currency for it to be circulating.
        beerandt 7y ago
        Yea, if we're talking about money supply I suspect the phone comparison might be apt in a slightly different way. I haven't seen anyone touch on it in this thread, but I've read opinions where people have blamed companies for hoarding all of the newly available cash, especially for stock buybacks. If there's any truth to that, it would make sense, since companies can usually get better rates and first dibs at market level loans/ bonds/ etc than small business or individuals. In the phone analogy, (if we assume there's some value having multiple phones) this would be like a new dialing prefix being released, and companies buying up the numbers hundreds at a time at bulk rate discount, leaving little or no additional numbers for individuals. So supply was increased, but the businesses hoarding new numbers prevents any quality improvement if the network.
- fzeroracer 7y ago
  If we take the opposite of your logical argument, then lessened supply of anything increases it's value. That's a logical proposition stemming from your original thesis. Now let's try applying that to bus networks. The more busses we have on the road, the less they're worth. If we reduce the supply of busses, then busses will be more valuable. But this ignores the network effects of increasing the supply of something. If we increase the supply of busses, then we also increase the demand for busses and the value of busses through increased ridership. A single bus is worthless, but a fleet of busses is valuable to a community.
  - beerandt 7y ago
    I honestly don't get these network arguments. The market isn't for seats on buses, it's for timely transportation. The quality of the transportation affects the value. Which in the case of buses, more buses equals a better, more frequent and readily available product. The number of seats isn't the limiting factor. It's just a side effect of somewhat standardized bus sizes. Am I missing something?
- pjc50 7y ago
  Venezuela is a great example that hyperinflation, or substantial consumer price inflation, is mostly a forex phenomenon, and in turn a balance of trade problem. Because you can't print other countries' money. Venezuela is a disaster because its export industries collapsed, and it doesn't have the advantage that western countries have of being an inward investment destination. So all sorts of things have to be imported, and the dollars needed to import them become increasingly scarce. Printing money is a symptom. If the presses stopped then all that would happen is that paper money would become increasingly scarce as well as worthless.
- trcarney 7y ago
  I think you conflated value and price. Increased supply of anything lowers it's price not it's value. For example, oxygen is extremely valuable, can't live without it, but it is also very abundant. Therefore, its price is $0 almost everywhere. When you go to a ski resort, where the air is much thinner, there then becomes a market for oxygen and the price goes up[0]. The price changed with supply, not the value. [0] https://www.oxygenplus.com/blogs/articles/why-oxygen-plus-is-the-must-have-ski-and-snowboarding-accessory https://www.oxygenplus.com/blogs/articles/why-oxygen-plus-is...
- littlestymaar 7y ago
  Because it's pretty clear to anyone close to economics. Nobody is monetarist nowadays, because data shows they were simply wrong [1]. The monetarist pitch was sexy because it sounded intuitive and elegant, that's why it spread so broadly. But it's worthless. Too bad for elegance and intuitiveness, if the reality doesn't match your model, you must throw it away. > Increased supply of anything lowers it's value. It doesn't work this way for money. otherwise,how would you explain that Euro isn't getting cheaper in dollar since 2015 when BCE is injecting billions of Euros on the market while the US has stopped QE for a while? [1] https://fredblog.stlouisfed.org/2014/08/m2-velocity-and-inflation/ https://fredblog.stlouisfed.org/2014/08/m2-velocity-and-infl...
aaronbwebber 7y ago
No, that is not the only answer. There is at least one other possibility, which is that the demand for money is increasing.
- diego 7y ago
  Well, if the demand for money is increasing and the supply is stable, then the value increases. Definition of supply and demand.
  - nlfwhulsdhouv 7y ago
    Interestingly, you're doing exactly what the article is criticizing. The orthodoxy of "everything is supply and demand" has failed to predict many recent, important macroeconomic phenomenon. On the hand, the heterodox economists that draw from a variety of traditions and ideologies have had a reasonable success rate with predicting some of these important events; yet they are still treated as crackpots. The reality is orthodox economics is just one theory of politics and the organization of society, which sometimes applies and sometimes doesn't. Treating everything as just "[the] definition of supply and demand" forgoes observing interesting and important phenomenon that seemingly work in opposition to or independent of supply and demand. Ignoring these phenomenon restricts your ability to understand and predict macroeconomic effects, and degrades your legitimacy as a 'science'.
    - throw0101a 7y ago
      > The orthodoxy of "everything is supply and demand" has failed to predict many recent, important macroeconomic phenomenon. Can you give some examples of these many unpredicted phenomenon?
      - nlfwhulsdhouv 7y ago
        Here I found a good article about it: https://www.nybooks.com/articles/2019/12/05/against-economics/ https://www.nybooks.com/articles/2019/12/05/against-economic...
CharlesColeman 7y ago
> "printing money does not cause inflation." How would that be possible? I haven't read this particular article, but I've read elsewhere that traditional tools used by central banks to increase inflation are being observed to empirically no longer work. I understand many of these techniques are analogous to "printing money" in a controlled way. That points to failures in their models of the economy and of inflation. I also think I've read that at least some of the reason for this may be higher than expected levels monopoly-type powers active in the economy that conspire to keep prices and wages, and therefore inflation, down. My recollection is hazier on this part. Edit: this might be the article I was thinking of: Are Superstar Firms and Amazon Effects Reshaping the Economy?: The biggest companies may be influencing things like inflation and wage growth, possibly at the expense of central bankers’ power to do so. https://www.nytimes.com/2018/08/25/upshot/big-corporations-influence-economy-central-bank.html https://www.nytimes.com/2018/08/25/upshot/big-corporations-i... > Two of the most important economic facts of the last few decades are that more industries are being dominated by a handful of extraordinarily successful companies and that wages, inflation and growth have remained stubbornly low. > Many of the world’s most powerful economic policymakers are now taking seriously the possibility that the first of those facts is a cause of the second — and that the growing concentration of corporate power has confounded the efforts of central banks to keep economies healthy. > Mainstream economists are discussing questions like whether “monopsony” — the outsize power of a few consolidated employers — is part of the problem of low wage growth. They are looking at whether the “superstar firms” that dominate many leading industries are responsible for sluggish investment spending. And they’re exploring whether there is an “Amazon Effect” in which fast-changing pricing algorithms by the online retailer and its rivals mean bigger swings in inflation.
- throw0101a 7y ago
  > I haven't read this particular article, but I've read elsewhere that traditional tools used by central banks to increase inflation are being observed to empirically no longer work. I understand many of these techniques are analogous to "printing money" in a controlled way. There are circumstances where printing money does increase inflation.... and circumstances where it does not: > When short-term interest rates reach zero, further monetary easing becomes difficult and may require unconventional monetary policy, such as large-scale asset purchases (quantitative easing). * https://www.brookings.edu/blog/ben-bernanke/2017/04/12/how-big-a-problem-is-the-zero-lower-bound-on-interest-rates/ https://www.brookings.edu/blog/ben-bernanke/2017/04/12/how-b... * https://en.wikipedia.org/wiki/Zero_lower_bound https://en.wikipedia.org/wiki/Zero_lower_bound It should be noted that central banks are not omnipotent: they do have some influence, but they do not have all the influence. When governments enact austerity, which depresses demand and economic activity, thus reducing inflationary tendencies, they are working at cross-purposes to the central banks. After the Great Recession we saw central bankers cut rates, but governments cut spending, thus the two cancelling each other out to a certain extent.
afterburner 7y ago
The US "printed money" after 2008, and it did not cause inflation. Maybe your understanding is wrong.
- throw0101a 7y ago
  The printing-money-will-not-cause-inflation was predicted by Keynesians: > Suddenly it seems as if everyone is talking about inflation. Stern opinion pieces warn that hyperinflation is just around the corner. And markets may be heeding these warnings: Interest rates on long-term government bonds are up, with fear of future inflation one possible reason for the interest-rate spike. > But does the big inflation scare make any sense? Basically, no — with one caveat I’ll get to later. And I suspect that the scare is at least partly about politics rather than economics. * https://www.nytimes.com/2009/05/29/opinion/29krugman.html https://www.nytimes.com/2009/05/29/opinion/29krugman.html The economic models said that the Fed should have decreased interest rates until they reached -6.7% (i.e., well below zero), but this that was impractical, the next-best thing was flood the market with cash equivalent, and that inflation would not appear: * https://krugman.blogs.nytimes.com/2009/11/16/the-madness-of-the-inflation-hawks/ https://krugman.blogs.nytimes.com/2009/11/16/the-madness-of-... > It seemed totally obvious to many people that with the Fed adding to the monetary base at breakneck speed, high inflation just had to be around the corner. That’s what history told us, right? > Except that those who knew their Hicks declared that this time was different, that in a liquidity trap the rise in the monetary base wouldn’t be inflationary at all (and that the relevant history was from Japan since the 1990s and from the 1930s, which seemed to confirm this claim). And so it proved, as shown by the red marker down at the bottom. * https://krugman.blogs.nytimes.com/2015/05/17/money-inflation-and-models/ https://krugman.blogs.nytimes.com/2015/05/17/money-inflation... > According to mainstream theory, among the characteristics of a liquidity trap are interest rates that are close to zero and changes in the money supply that fail to translate into changes in the price level.[2] * https://en.wikipedia.org/wiki/Liquidity_trap https://en.wikipedia.org/wiki/Liquidity_trap The [2] is a 1998 paper by Krugman talking about Japan. So ten years before the Great Recession there were already models on how to think about increasing M2 from other countries' experiences.
  - afterburner 7y ago
djokkataja 7y ago
There are multiple cases where an increase in money supply doesn't lead to inflation; the United States in recent years comes to mind: "A good example is in a recession, the stock of money may rise 5%, however, people will be making fewer transactions and therefore the velocity of circulation will fall. This explains why quantitative easing (increasing the money supply) did not cause inflation between 2009 and 2016." [0] The article I link below contains 3 more examples: [0] https://www.economicshelp.org/blog/111/inflation/money-supply-inflation/ https://www.economicshelp.org/blog/111/inflation/money-suppl...
- marcusverus 7y ago
  You are arguing that this is sometimes true. The author was clearly arguing that it is generally true: "We now live in a different economic universe than we did before the crash. Falling unemployment no longer drives up wages. Printing money no longer causes inflation." He is stating that we are in a different universe, with the clear implication being that the following items, which he does not qualify, are the new reality.
  - deleted 7y ago
    [deleted]
  - rayiner 7y ago
    I cannot stress enough that the author, David Graeber, is a professor of anthropology.
  - corporate_shi11 7y ago
    He is referring to QE not causing inflation. The truth is that it did cause inflation, but in asset prices not consumer goods.
    - bildung 7y ago
      But gains in asset prices are not inflation. Inflation is per definition the rise of prices in consumer goods.
viburnum 7y ago
There’s been a huge increase in the money supply around the world since the GFC and hardly any inflation. This should not be a surprise because monetarism already failed as soon as it was tried 35 years ago. Simple models of the price level do not work. Output, trade, interest rates, investment, consumption, conflict between capital and labor, it all matters.
- hogFeast 7y ago
  The point wasn't to cause inflation but to stop deflation. This is a mistake that people almost always make with economics: failing to understand the decision contemporaneously. By the metrics under which it was conceived, it had the intended effect (although some unfortunate side-effects...as ever).
Turing_Machine 7y ago
> The only answer would be that money is increasing in value for some reason, and the government must print more to keep prices stable (otherwise they would fall). Even then, it would be a technicality. I don't think that's a technicality at all, but rather the norm in an expanding economy. In such a case the supply of money must increase in order to maintain stable prices. More stuff to purchase requires more money to purchase it. Inflation occurs when the supply of money increases faster than the amount of goods and services available for purchase, or if the money supply remains the same, but the goods and services available somehow decrease (for instance, after a lost war or natural disaster). Deflation occurs when the supply of goods and services increases faster than the amount of money, or when the supply of money decreases with the goods and services remaining the same. We've seen a lot of bad inflation in recent history, but it's not often appreciated that deflation can be equally ruinous. The Great Depression is an example of what you get if deflation gets out of hand. The prices for everything from stocks and bonds to apples and wheat plummeted, but it sure didn't lead to a consumer's paradise.
afpx 7y ago
I think he means that printing money doesn’t change supply and demand curves. It only lowers the value of the money that one already has. For example, if one government prints more money, it doesn’t cause Global inflation. It just makes one country’s money worth less.
jmcqk6 7y ago
Are you asking theoretically or empirically? Because using actual events from history, it's true that printing money may not cause inflation. When theory fails to describe reality, the failure is in the theory, not reality.
tuberelay 7y ago
If you print money and then give it all to big banks who use it to ramp up the price of equities, it never really reaches the average person for them to be able to ramp up the price of the basket of things which CPI measures. Inflation here is seen in the stock market tripling, but that isn't included in government measures.
- QuesnayJr 7y ago
  Because it's not inflation. It would be an asset bubble. Except it's not even that -- the P/E ratio on stock is high now because the economic news has been good, but it's nowhere near dotcom bubble levels (https://www.multpl.com/s-p-500-pe-ratio https://www.multpl.com/s-p-500-pe-ratio).
- Zarath 7y ago
  I don't know, I mean, things like rent and healthcare costs seem to be increasing at runaway speeds. I'm sure lots of other things are too, just not TVs or whatever.
deleted 7y ago
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cortesoft 7y ago
I remember hearing about new economic theory that talks about inflation being related to latent productive capacity. If, for example, a factory is only producing at half capacity because there is not enough people with money to buy their product, they can simply increase production if more money is put into the system without raising prices. It is only once a factory is at full capacity that it would raise prices to match the supply/demand curve. Our modern economies have a lot of latent capacity, especially since so much of our economy these days does not have a lot of raw materials involved. More Netflix subscribers don't use much more raw materials to serve them. We are not limited by things like oil and iron anymore, so we don't hit supply issues which cause inflation.
- QuesnayJr 7y ago
  This is basically Keynesianism, which is the leading paradigm in macroeconomics. The challenge is knowing how much excess capacity there is in the economy. Unemployment is 3.6%, so I would guess not a lot, but I could be wrong.
deleted 7y ago
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nullc 7y ago
> This article lost me at "printing money does not cause inflation." How would that be possible? Consider the equation of exchange (https://en.wikipedia.org/wiki/Equation_of_exchange https://en.wikipedia.org/wiki/Equation_of_exchange): MV = PQ. The amount of money (M) can be increased without prices (P) going up so long as either the velocity (V) of money goes down or the economy (Q) becomes larger.
- Zarath 7y ago
  Just off the top of my head, if money supply increases at the same rate as human population growth, it seems like inflation should remain constant?
  - nullc 7y ago
    Yes, to a super vague hand-wavy level (which all this sort of economics is..)-- e.g. ignoring that not all persons are equal in the economy.
littlestymaar 7y ago
Interestingly enough, the Monetarist view, which link between inflation and money creation is mostly a myth that was debunked long ago[1] (if you look at the history of the US since the 60s you'd see that this «hypothesis» doesn't hold, neither in short terms nor in long terms). But it was so obviously intuitive for the layperson that it caught rapidly in the opinion, and now it's considered common sense. [1]: https://fredblog.stlouisfed.org/2014/08/m2-velocity-and-inflation/ https://fredblog.stlouisfed.org/2014/08/m2-velocity-and-infl...
bildung 7y ago
I think the author didn't elaborate further because while this is non-intuitive and tends to rail up the internet armchair economists, it actually is a well researched phenomenon. One pointer would be the term "liquidity trap", e.g. this here as a starter: https://www.investopedia.com/terms/l/liquiditytrap.asp https://www.investopedia.com/terms/l/liquiditytrap.asp Japan in particular had this problem for decades. And I have to point out "printing money does not cause inflation" is exactly what happened in the US and Europe after 2007/8. There was massive QE but no increase in inflation (inflation was actually reduced).

by diego 7y ago

donatj 7y ago

Yup, came here to make the same complaint. The article just throws that out there as fact with no justification or citation. Just need to look at what's going on in Venezuela, right now. Increased supply of anything lowers it's value.

lordnacho 7y ago
> Increased supply of anything lowers it's value. Network goods? Are telephones more valuable when more people have them? Road networks? Just pointing out that many things in economics are not so obvious. You're right that you need to cite things that go against the orthodoxy. At least to have sane debates. But of course he could have cited the current money printing era, where if you believe the official figures there's not a lot of inflation anywhere in the west. I'm not so confident in the figures, but that's at least some evidence that printing a load of money doesn't cause inflation.
- beerandt 7y ago
  I know there's an economic element to networks, but in the context of what we're talking about, more people having a telephone is a measure of the products quality, not supply. Capacity of the network would equal supply. Right? Unless I'm grossly missing something.
  - IggleSniggle 7y ago
    The value of a single phone is zero, 2 phones grants each owner the ability to contact one person (2 units of value total), 3 grants 3 owners 2 each (6), 4 -> 3 (12), 5->4 (20). In other words, increasing the size of the network multiplies the value of the entire network by that amount (factorial). In a phone network, there are a few different tipping points where the _ubiquity_ adds additional value. At a certain point, having a phone is worthwhile because everyone you could possibly want to talk to also has one. (this is also why I still have an account on Facebook). The same can be said of a currency network. It becomes more valuable the more people you can exchange it with. People using US dollars outside the US gain value from knowing they have a trusted "stable third party" currency, and at the same time US dollars become more value to citizens of the US because they can now use that currency for purchases in that other country. Having 20 phones with one owner is practically worthless, even though the network capacity is theoretically high. Distributing those phones among twenty people is what generates the real value. But you can't really distribute 20 phones equally among 200 people. You need sufficient saturation of currency for its distribution to be of any real value, because you need enough quantity to be able to use it to do its job as a holder of arbitrary value exchange.
    - beerandt 7y ago
      I appreciate the response. I get that... (I think) I just don't get why that necessarily has anything to do with supply itself. It has to do with the distribution, and as a result, the quality or utility of the network. As you said, one person having 20 phones is off dubious value, but 20 additional people with phones might increase the network's quality. The supply (20) is independent of the resulting quality/saturation/useful node count. On the other hand, increased nodes could be seen as a negative. Like the US-Russia hotline. Or Facebook after it opened up to users without college email accounts. Sometimes supply might affect the quality of a network, and therefore the value of having a node (phone) on that network. But to say supply increases with demand is misleading, to me. Increased quality increases demand, at a rate greater than the rate demand is decreased due to increased supply. If supply happens to increase quality, then yes supply might dominate the equation such that demand increases as supply increases. But that doesn't mean the fundamental relationship between supply and demand has changed, it's just been minimized for particular cases. Or maybe I'm just getting confused by transitive semantics.
      - IggleSniggle 7y ago
        I would agree with most of what you said here. To echo your semantics and in the greater context of this thread, I was merely pointing out that increasing the supply (and in the case of money, distribution/saturation) could increase the "quality" at a rate faster than the forces that that push the "quality" down in terms of "quality" per unit of currency. In the specific case of money, there is an additional group psychology at play: if you believe your money won't be worth as much tomorrow as it is today, then you should spend it today if you can. Since the value derived from currency is in its exchange (it's not producing any value sitting under a mattress), it increases the "quality" of the currency for it to be circulating.
        beerandt 7y ago
        Yea, if we're talking about money supply I suspect the phone comparison might be apt in a slightly different way. I haven't seen anyone touch on it in this thread, but I've read opinions where people have blamed companies for hoarding all of the newly available cash, especially for stock buybacks. If there's any truth to that, it would make sense, since companies can usually get better rates and first dibs at market level loans/ bonds/ etc than small business or individuals. In the phone analogy, (if we assume there's some value having multiple phones) this would be like a new dialing prefix being released, and companies buying up the numbers hundreds at a time at bulk rate discount, leaving little or no additional numbers for individuals. So supply was increased, but the businesses hoarding new numbers prevents any quality improvement if the network.
fzeroracer 7y ago
If we take the opposite of your logical argument, then lessened supply of anything increases it's value. That's a logical proposition stemming from your original thesis. Now let's try applying that to bus networks. The more busses we have on the road, the less they're worth. If we reduce the supply of busses, then busses will be more valuable. But this ignores the network effects of increasing the supply of something. If we increase the supply of busses, then we also increase the demand for busses and the value of busses through increased ridership. A single bus is worthless, but a fleet of busses is valuable to a community.
- beerandt 7y ago
  I honestly don't get these network arguments. The market isn't for seats on buses, it's for timely transportation. The quality of the transportation affects the value. Which in the case of buses, more buses equals a better, more frequent and readily available product. The number of seats isn't the limiting factor. It's just a side effect of somewhat standardized bus sizes. Am I missing something?
pjc50 7y ago
Venezuela is a great example that hyperinflation, or substantial consumer price inflation, is mostly a forex phenomenon, and in turn a balance of trade problem. Because you can't print other countries' money. Venezuela is a disaster because its export industries collapsed, and it doesn't have the advantage that western countries have of being an inward investment destination. So all sorts of things have to be imported, and the dollars needed to import them become increasingly scarce. Printing money is a symptom. If the presses stopped then all that would happen is that paper money would become increasingly scarce as well as worthless.
trcarney 7y ago
I think you conflated value and price. Increased supply of anything lowers it's price not it's value. For example, oxygen is extremely valuable, can't live without it, but it is also very abundant. Therefore, its price is $0 almost everywhere. When you go to a ski resort, where the air is much thinner, there then becomes a market for oxygen and the price goes up[0]. The price changed with supply, not the value. [0] https://www.oxygenplus.com/blogs/articles/why-oxygen-plus-is-the-must-have-ski-and-snowboarding-accessory https://www.oxygenplus.com/blogs/articles/why-oxygen-plus-is...
littlestymaar 7y ago
Because it's pretty clear to anyone close to economics. Nobody is monetarist nowadays, because data shows they were simply wrong [1]. The monetarist pitch was sexy because it sounded intuitive and elegant, that's why it spread so broadly. But it's worthless. Too bad for elegance and intuitiveness, if the reality doesn't match your model, you must throw it away. > Increased supply of anything lowers it's value. It doesn't work this way for money. otherwise,how would you explain that Euro isn't getting cheaper in dollar since 2015 when BCE is injecting billions of Euros on the market while the US has stopped QE for a while? [1] https://fredblog.stlouisfed.org/2014/08/m2-velocity-and-inflation/ https://fredblog.stlouisfed.org/2014/08/m2-velocity-and-infl...

aaronbwebber 7y ago

No, that is not the only answer. There is at least one other possibility, which is that the demand for money is increasing.

diego 7y ago
Well, if the demand for money is increasing and the supply is stable, then the value increases. Definition of supply and demand.
- nlfwhulsdhouv 7y ago
  Interestingly, you're doing exactly what the article is criticizing. The orthodoxy of "everything is supply and demand" has failed to predict many recent, important macroeconomic phenomenon. On the hand, the heterodox economists that draw from a variety of traditions and ideologies have had a reasonable success rate with predicting some of these important events; yet they are still treated as crackpots. The reality is orthodox economics is just one theory of politics and the organization of society, which sometimes applies and sometimes doesn't. Treating everything as just "[the] definition of supply and demand" forgoes observing interesting and important phenomenon that seemingly work in opposition to or independent of supply and demand. Ignoring these phenomenon restricts your ability to understand and predict macroeconomic effects, and degrades your legitimacy as a 'science'.
  - throw0101a 7y ago
    > The orthodoxy of "everything is supply and demand" has failed to predict many recent, important macroeconomic phenomenon. Can you give some examples of these many unpredicted phenomenon?
    - nlfwhulsdhouv 7y ago
      Here I found a good article about it: https://www.nybooks.com/articles/2019/12/05/against-economics/ https://www.nybooks.com/articles/2019/12/05/against-economic...

CharlesColeman 7y ago

> "printing money does not cause inflation." How would that be possible? I haven't read this particular article, but I've read elsewhere that traditional tools used by central banks to increase inflation are being observed to empirically no longer work. I understand many of these techniques are analogous to "printing money" in a controlled way. That points to failures in their models of the economy and of inflation. I also think I've read that at least some of the reason for this may be higher than expected levels monopoly-type powers active in the economy that conspire to keep prices and wages, and therefore inflation, down. My recollection is hazier on this part. Edit: this might be the article I was thinking of: Are Superstar Firms and Amazon Effects Reshaping the Economy?: The biggest companies may be influencing things like inflation and wage growth, possibly at the expense of central bankers’ power to do so. https://www.nytimes.com/2018/08/25/upshot/big-corporations-influence-economy-central-bank.html https://www.nytimes.com/2018/08/25/upshot/big-corporations-i... > Two of the most important economic facts of the last few decades are that more industries are being dominated by a handful of extraordinarily successful companies and that wages, inflation and growth have remained stubbornly low. > Many of the world’s most powerful economic policymakers are now taking seriously the possibility that the first of those facts is a cause of the second — and that the growing concentration of corporate power has confounded the efforts of central banks to keep economies healthy. > Mainstream economists are discussing questions like whether “monopsony” — the outsize power of a few consolidated employers — is part of the problem of low wage growth. They are looking at whether the “superstar firms” that dominate many leading industries are responsible for sluggish investment spending. And they’re exploring whether there is an “Amazon Effect” in which fast-changing pricing algorithms by the online retailer and its rivals mean bigger swings in inflation.

throw0101a 7y ago
> I haven't read this particular article, but I've read elsewhere that traditional tools used by central banks to increase inflation are being observed to empirically no longer work. I understand many of these techniques are analogous to "printing money" in a controlled way. There are circumstances where printing money does increase inflation.... and circumstances where it does not: > When short-term interest rates reach zero, further monetary easing becomes difficult and may require unconventional monetary policy, such as large-scale asset purchases (quantitative easing). * https://www.brookings.edu/blog/ben-bernanke/2017/04/12/how-big-a-problem-is-the-zero-lower-bound-on-interest-rates/ https://www.brookings.edu/blog/ben-bernanke/2017/04/12/how-b... * https://en.wikipedia.org/wiki/Zero_lower_bound https://en.wikipedia.org/wiki/Zero_lower_bound It should be noted that central banks are not omnipotent: they do have some influence, but they do not have all the influence. When governments enact austerity, which depresses demand and economic activity, thus reducing inflationary tendencies, they are working at cross-purposes to the central banks. After the Great Recession we saw central bankers cut rates, but governments cut spending, thus the two cancelling each other out to a certain extent.

afterburner 7y ago

The US "printed money" after 2008, and it did not cause inflation. Maybe your understanding is wrong.

throw0101a 7y ago
The printing-money-will-not-cause-inflation was predicted by Keynesians: > Suddenly it seems as if everyone is talking about inflation. Stern opinion pieces warn that hyperinflation is just around the corner. And markets may be heeding these warnings: Interest rates on long-term government bonds are up, with fear of future inflation one possible reason for the interest-rate spike. > But does the big inflation scare make any sense? Basically, no — with one caveat I’ll get to later. And I suspect that the scare is at least partly about politics rather than economics. * https://www.nytimes.com/2009/05/29/opinion/29krugman.html https://www.nytimes.com/2009/05/29/opinion/29krugman.html The economic models said that the Fed should have decreased interest rates until they reached -6.7% (i.e., well below zero), but this that was impractical, the next-best thing was flood the market with cash equivalent, and that inflation would not appear: * https://krugman.blogs.nytimes.com/2009/11/16/the-madness-of-the-inflation-hawks/ https://krugman.blogs.nytimes.com/2009/11/16/the-madness-of-... > It seemed totally obvious to many people that with the Fed adding to the monetary base at breakneck speed, high inflation just had to be around the corner. That’s what history told us, right? > Except that those who knew their Hicks declared that this time was different, that in a liquidity trap the rise in the monetary base wouldn’t be inflationary at all (and that the relevant history was from Japan since the 1990s and from the 1930s, which seemed to confirm this claim). And so it proved, as shown by the red marker down at the bottom. * https://krugman.blogs.nytimes.com/2015/05/17/money-inflation-and-models/ https://krugman.blogs.nytimes.com/2015/05/17/money-inflation... > According to mainstream theory, among the characteristics of a liquidity trap are interest rates that are close to zero and changes in the money supply that fail to translate into changes in the price level.[2] * https://en.wikipedia.org/wiki/Liquidity_trap https://en.wikipedia.org/wiki/Liquidity_trap The [2] is a 1998 paper by Krugman talking about Japan. So ten years before the Great Recession there were already models on how to think about increasing M2 from other countries' experiences.
- afterburner 7y ago

djokkataja 7y ago

There are multiple cases where an increase in money supply doesn't lead to inflation; the United States in recent years comes to mind: "A good example is in a recession, the stock of money may rise 5%, however, people will be making fewer transactions and therefore the velocity of circulation will fall. This explains why quantitative easing (increasing the money supply) did not cause inflation between 2009 and 2016." [0] The article I link below contains 3 more examples: [0] https://www.economicshelp.org/blog/111/inflation/money-supply-inflation/ https://www.economicshelp.org/blog/111/inflation/money-suppl...

marcusverus 7y ago
You are arguing that this is sometimes true. The author was clearly arguing that it is generally true: "We now live in a different economic universe than we did before the crash. Falling unemployment no longer drives up wages. Printing money no longer causes inflation." He is stating that we are in a different universe, with the clear implication being that the following items, which he does not qualify, are the new reality.
- deleted 7y ago
  [deleted]
- rayiner 7y ago
  I cannot stress enough that the author, David Graeber, is a professor of anthropology.
- corporate_shi11 7y ago
  He is referring to QE not causing inflation. The truth is that it did cause inflation, but in asset prices not consumer goods.
  - bildung 7y ago
    But gains in asset prices are not inflation. Inflation is per definition the rise of prices in consumer goods.

viburnum 7y ago

There’s been a huge increase in the money supply around the world since the GFC and hardly any inflation. This should not be a surprise because monetarism already failed as soon as it was tried 35 years ago. Simple models of the price level do not work. Output, trade, interest rates, investment, consumption, conflict between capital and labor, it all matters.

hogFeast 7y ago
The point wasn't to cause inflation but to stop deflation. This is a mistake that people almost always make with economics: failing to understand the decision contemporaneously. By the metrics under which it was conceived, it had the intended effect (although some unfortunate side-effects...as ever).

Turing_Machine 7y ago

> The only answer would be that money is increasing in value for some reason, and the government must print more to keep prices stable (otherwise they would fall). Even then, it would be a technicality. I don't think that's a technicality at all, but rather the norm in an expanding economy. In such a case the supply of money must increase in order to maintain stable prices. More stuff to purchase requires more money to purchase it. Inflation occurs when the supply of money increases faster than the amount of goods and services available for purchase, or if the money supply remains the same, but the goods and services available somehow decrease (for instance, after a lost war or natural disaster). Deflation occurs when the supply of goods and services increases faster than the amount of money, or when the supply of money decreases with the goods and services remaining the same. We've seen a lot of bad inflation in recent history, but it's not often appreciated that deflation can be equally ruinous. The Great Depression is an example of what you get if deflation gets out of hand. The prices for everything from stocks and bonds to apples and wheat plummeted, but it sure didn't lead to a consumer's paradise.

afpx 7y ago

I think he means that printing money doesn’t change supply and demand curves. It only lowers the value of the money that one already has. For example, if one government prints more money, it doesn’t cause Global inflation. It just makes one country’s money worth less.

jmcqk6 7y ago

Are you asking theoretically or empirically? Because using actual events from history, it's true that printing money may not cause inflation. When theory fails to describe reality, the failure is in the theory, not reality.

tuberelay 7y ago

If you print money and then give it all to big banks who use it to ramp up the price of equities, it never really reaches the average person for them to be able to ramp up the price of the basket of things which CPI measures. Inflation here is seen in the stock market tripling, but that isn't included in government measures.

QuesnayJr 7y ago
Because it's not inflation. It would be an asset bubble. Except it's not even that -- the P/E ratio on stock is high now because the economic news has been good, but it's nowhere near dotcom bubble levels (https://www.multpl.com/s-p-500-pe-ratio https://www.multpl.com/s-p-500-pe-ratio).
Zarath 7y ago
I don't know, I mean, things like rent and healthcare costs seem to be increasing at runaway speeds. I'm sure lots of other things are too, just not TVs or whatever.

deleted 7y ago

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cortesoft 7y ago

I remember hearing about new economic theory that talks about inflation being related to latent productive capacity. If, for example, a factory is only producing at half capacity because there is not enough people with money to buy their product, they can simply increase production if more money is put into the system without raising prices. It is only once a factory is at full capacity that it would raise prices to match the supply/demand curve. Our modern economies have a lot of latent capacity, especially since so much of our economy these days does not have a lot of raw materials involved. More Netflix subscribers don't use much more raw materials to serve them. We are not limited by things like oil and iron anymore, so we don't hit supply issues which cause inflation.

QuesnayJr 7y ago
This is basically Keynesianism, which is the leading paradigm in macroeconomics. The challenge is knowing how much excess capacity there is in the economy. Unemployment is 3.6%, so I would guess not a lot, but I could be wrong.

deleted 7y ago

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nullc 7y ago

> This article lost me at "printing money does not cause inflation." How would that be possible? Consider the equation of exchange (https://en.wikipedia.org/wiki/Equation_of_exchange https://en.wikipedia.org/wiki/Equation_of_exchange): MV = PQ. The amount of money (M) can be increased without prices (P) going up so long as either the velocity (V) of money goes down or the economy (Q) becomes larger.

Zarath 7y ago
Just off the top of my head, if money supply increases at the same rate as human population growth, it seems like inflation should remain constant?
- nullc 7y ago
  Yes, to a super vague hand-wavy level (which all this sort of economics is..)-- e.g. ignoring that not all persons are equal in the economy.

littlestymaar 7y ago

Interestingly enough, the Monetarist view, which link between inflation and money creation is mostly a myth that was debunked long ago[1] (if you look at the history of the US since the 60s you'd see that this «hypothesis» doesn't hold, neither in short terms nor in long terms). But it was so obviously intuitive for the layperson that it caught rapidly in the opinion, and now it's considered common sense. [1]: https://fredblog.stlouisfed.org/2014/08/m2-velocity-and-inflation/ https://fredblog.stlouisfed.org/2014/08/m2-velocity-and-infl...

bildung 7y ago

I think the author didn't elaborate further because while this is non-intuitive and tends to rail up the internet armchair economists, it actually is a well researched phenomenon. One pointer would be the term "liquidity trap", e.g. this here as a starter: https://www.investopedia.com/terms/l/liquiditytrap.asp https://www.investopedia.com/terms/l/liquiditytrap.asp Japan in particular had this problem for decades. And I have to point out "printing money does not cause inflation" is exactly what happened in the US and Europe after 2007/8. There was massive QE but no increase in inflation (inflation was actually reduced).