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There are 2 issues that I was attempting to demonstrate, but perhaps I conflated them a bit. Here is second attempt: Inflation requires a persistent and durab
by qqqwerty 7y ago
There are 2 issues that I was attempting to demonstrate, but perhaps I conflated them a bit. Here is second attempt:
Inflation requires a persistent and durable increase in the price of a good. The first issue is that a large proportion of individuals in modern economies are barely making enough money to make ends meet. They are very sensitive to price. An increase in the price of milk would likely cause them to switch to alternatives, thus lowering demand for milk which would then bring the price back down. In effect, the constraint on the wages of the lower classes acts as a constraint on prices of goods. And the second factor, is that in these modern global economies, we have plenty of replacements for almost all types of goods. So if a drought in the mid-west causes soy prices to spike, people will just east less soy based products and switch to something cheaper for a while.
COVID-19 could disrupt that of course. But my hunch is that within a few months after the lockdowns are over, most supply chains will be back up and running. At that point we will be back to being demand constrained (perhaps significantly so if the economic impact is severe enough).
- jariel 7y ago1) Real inflationary problems are always about money supply, not regular changes in supply/demand. When Chavez goes nutty, people don't want his currency, it starts to crash, he prints to pay his bills, it really crashes. This is where all the inflation crisis comes. 2) The 'milk substitute' thing I think illustrates the opposite point you're trying to make. Having to give up Milk to drink water is a severely negative consequence! Projected across all of one's lifestyle and habits, it would be comparable to giving up a car to ride only the bus. Giving up Netflix for 'library books'. This implies a serious degradation in the quality of life. If anything though, we've been concerned about deflation for a very long time, not inflation.
- christophilus 7y ago> Giving up Netflix for 'library books'. This implies a serious degradation in the quality of life. If everyone gave up Netflix for library books, I think that’d be a massive societal win. Other than that, I agree with your point.
- jariel 7y agoAh yes, shouldn't we all? But we can choose books anytime, and we don't. So when you and I think about 'win' it must be different than what 'everyone else wants' at least in terms of how they actively chose to spend their time.