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Why inflation is not a threat

172 points by midasuni 6y ago

FpUser 6y ago
>"The state is what the inflation fetishists really hate. And what they know is that society wants a bigger state right now." The author of course knows perfectly what the "society wants". To me this whole article reads like it's been written in a state of delirium.
mrkeen 6y ago
> Current debate about inflation isn’t really about whether it’s likely: it isn’t See the first chart. Nowhere on the chart is inflation not happening.
- deleted 6y ago
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- nicklecompte 6y ago
  Obviously the author means inflation exceeding the 2% target that various central banks agree is necessary for a healthy economy: > Since the 1990s central banks have been given the target of keeping inflation low. 2% has been the goal. But in practice as this diagram shows, the trend was already strongly downward before central banks were given this goal. If you want to argue that 2% is too high then feel free to do that. But it’s not helpful (to you or other commenters) to take the most facile and ignorant reading of the article possible, and then wonder why the first chart “contradicts” the author.
  - djcjr 6y ago
    You are asserting that he and other commenters to follow are taking "the most facile and ignorant reading of the article possible" on what grounds?
- throw0101a 6y ago
  You are being overly literal. When people colloquially say "inflation is bad" or "will be a problem", they mean "high inflation", for some meaning of 'high', like >4% or some such. US inflation was around 3% during in 1990s, and yet there was an economic boom at that time. See also 1950s. And yet people are freaking out because there's an uptick in US 10 year bonds at the moment… to 1.6%… which is where things were in January 2020 (pre-pandemic). If a massive US spending bill only (only!) gets us to where things were before the economic conflagration, then it shows how much in the economic hole things are, and how much things need to be filled in to get back onto stable economic footing.
- daniel-s 6y ago
  I don't like when people argue someone by looking for a technicality, or anything else that's not addressing the main point of what someone said. We all understand what he meant. His main argument has a lot to criticise, stick to that.
  - mrkeen 6y ago
    It wasn't a technicality, it was the first sentence. And it threw me so wildly that I did not understand the rest of what he said.
iagovar 6y ago
Keep in mind that inflation is most likely to have an "hedonic adjustment" in your country (I presume the US) too. When you look at differences of prices from decades before, in my country you can see that electronics got much cheaper in general, but basic stuff and real state go more expensive, while salaries barely changed. If you speak spanish, Pablo Gil explains it well in his videos.
- iso1210 6y ago
  New Which? research shows that in the UK we actually spend less on food than previous generations did, and many popular foods are cheaper now than they were 30 years ago. In the 1950s we spent a third of our income on food shopping, but in 1974 this had gone down to 24%. By 2016 food shopping accounted for just 10.5% of our income. https://www.which.co.uk/news/2019/11/heres-how-our-food-prices-compare-to-30-years-ago-and-you-might-be-surprised/ https://www.which.co.uk/news/2019/11/heres-how-our-food-pric... So food prices have collapsed, electronics too, what 'basic stuff' is left?
  - frankbreetz 6y ago
    Housing, healthcare, education.
    - danans 6y ago
      And infrastructure
  - selfhoster11 6y ago
    I would argue that food is also much less nutritious these days, and far likelier to lead to health problems down the line. Ready-made/highly processed foods and "empty calories" (fast food, snacks) are, at a guess, far more common these days, and also far cheaper than the healthier alternative to snacks. Natural produce is also missing a lot of its previous taste, texture and smell. I know for a fact that there is a world of a difference, during the season, between a tomato from a random Italian supermarket and a British Tesco "Value" tomato. I will be drawn to eat the former without so much preparation as even washing it; the latter I will have to force down my throat and eat it with ketchup to mask the papery texture of the flesh and add some taste, any taste at all, so that I can sense I'm eating something. Gluten intolerant and/or lactose intolerant parts of the population are also basically screwed. I am both, and most food that has an ingredients list longer than 5 lines is poisonous to me. I am left with either the more expensive "free from" foods that skip one or both of these ingredients (and costs Nx what the usual version does), or buying single ingredients to cook my own food from scratch. If one wants to have an actually nutritious diet, then the cheap "food" being offered today ain't gonna cut it.
HPsquared 6y ago
Conveniently the author excludes house prices from his definition of inflation.
- throw0101a 6y ago
  Because that is not "inflation". There is another economic term for that phenomenon, and conflating the two only creates confusion: * https://en.wikipedia.org/wiki/Economic_bubble https://en.wikipedia.org/wiki/Economic_bubble Inflation/CPI is (roughly) about the cost of living determined via a basket of goods and services that one needs on daily/weekly/monthly basis. Financial assets are not needed to live: the bottom-half of US wage earners have no/little financial assets and yet are effected by inflation when they go shopping. And while shelter is, it is taken into account via rent or rent-equivalent (mortgage carrying costs): * https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-and-rent.pdf https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an... I'm not sure where and when the idea of financial assets being included into the concept of inflation started, but it's a first world 'problem' of the wealthy.
  - deleted 6y ago
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  - HPsquared 6y ago
    Don't average people buy houses? It's a bit of an artificial distinction to exclude them. Inflation is also defined as expansion of the money supply (monetary inflation), and mortgages are a major source of money creation - the rate of this process being closely related to house prices.
    - Majromax 6y ago
      > Don't average people buy houses? It's a bit of an artificial distinction to exclude them. When an average person buys a house and lives in it for a decade, they still have the house. Inflation is defined by consumption expenditures. I buy food, eat it, and no longer have that food to sell. I pay the power bill, having consumed power that cannot be resold. The consumed portion of housing is rent. And that is included in price indices; statistical agencies have to go to the trouble of modelling an owner-equivalent for owner-occupied housing. If you're still concerned about the technical definitions of what goes into a consumer price index, then you have plenty of others to choose from. The GDP deflator (a price index based on everything produced in the economy) shows trends very similar to the consumer price index over the medium-term. > Inflation is also defined as expansion of the money supply (monetary inflation), And those two concepts are not in fact equivalent. Going from an observed change in the money supply to changes in prices requires more intricate assumptions about how the economy works. The same money-supply increase can cause an increase in price levels in one country (say Venezuela) rather than another (the United States) depending on beliefs about permanence and the background state of the economy.
dubeye 6y ago
Probably worth some context... the author very often writes about plan B Scottish independence, which calls for swift escalation of the independence process, including the economics. For example establishing a new currency in months, rather than the years more established economists advise might be less risky. MMT is pretty popular with plan B movement, as it offers a speedy solution to things like deficit, austerity measures. Inflation is the main restricting factor on money printing, so those who want to rush into independence are always quick to downplay inflation risks.
TobyBrull 6y ago
Some would argue, of course, that inflation well above 2% has been with us for at least a decade if you don't measure by the biased CPI. I don't see how it helps the argument to bring politics into this by saying such people are "right-wing [...] inflation fetishists". Didn't read beyond that.
- harryh 6y ago
  Anyone who argues this is a conspiracy theorist making statements not based on actual evidence.
  - fuzzfactor 6y ago
    I don't think there is any conspiracy either. What theory would you use to explain the evidence which shows that lifestyle recovery of many consumers which had come almost within reach, by less than 1 percent, never did actually arrive and has been moving back beyond reach faster than 1 percent for a while? Everyone knows that 1 percent is less than 2 percent so it has to be some other explanantion besides "that's not nearly as bad as 2 percent".
- imtringued 6y ago
  You can complain about wealth inequality and asset appreciation all you want but so far I haven't seen even the tiniest hint of inflation.
1996 6y ago
The statement needs to be quantified: not a threat ONLY IN THE SHORT RUN. Yes you don't see it on your graphs right now. But IIRC 20% more money was printed by the fed for covid. Unless you can refute modern economic theory, we still have PV=MQ, and the only thing saving us from inflation at the moment is the low velocity of money: in lockdown or with most high velocity businesses closed or operating at a fraction of what they did before (ex: bar, restaurants), the velocity will remain low. We won't see anything on the graphs as long as V remains low. However, as soon as they reopen and operate closer to their normal capacity, velocity WILL rise. When that happen, inflation WILL rise. There's no magical way to wish inflation away. We will eventually get 20% inflation. The only question is how soon. Yes, central banks may plan to have 2% per year for 9 years (19.5% inflation) if somehow they think business will not be able to catch up immediately (a closed restaurant will not get as many clients when it reopens) which is plausible. However, I don't buy that, because 1) we are talking about 9 years, while the closed restaurant example will take more like 1 to 2 years max to work at normal capacity again 2) it would require TREMENDOUS discipline: no QE whatsoever for 9 years - which is politically impossible if unemployment rises for whatever reason (say the aftermath of a bubble, or a crisis due to malinvestment fueled by the low rates) 3) it fully ignores the rebound effect: deprived of social contact for too long, more people than usual will want to go to bars and restaurant - at least at first I personally envision 5 to 7% inflation when things return to normal in the US (so schoolyear 2021-2022)
- deleted 6y ago
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- Majromax 6y ago
  > Unless you can refute modern economic theory, we still have PV=MQ, and the only thing saving us from inflation at the moment is the low velocity of money: in lockdown or with most high velocity businesses closed or operating at a fraction of what they did before (ex: bar, restaurants), the velocity will remain low. This theory was put to the test between 2007 and 2019, where the Fed greatly increased the monetary base during and after the financial crisis. As it turns out, the velocity of base money was much more flexible than assumed, and the monetary base remained greatly increased (about 4x its pre-recession level) without excess inflation. In comparison, the covid-related increase to the monetary base has been less than a doubling (see https://fred.stlouisfed.org/series/BOGMBASE https://fred.stlouisfed.org/series/BOGMBASE). > I personally envision 5 to 7% inflation when things return to normal in the US (so schoolyear 2021-2022) If you really think that, then go to a broker, buy TIPS (inflation-protected securities), and go short nominal bonds of equivalent duration. The five-year breakeven inflation rate (US) predicted from these bonds is about 2.5% (https://fred.stlouisfed.org/series/T5YIE https://fred.stlouisfed.org/series/T5YIE), so if your views are correct you would make a mint.
henvic 6y ago
Inflation hits hardest the poorer who doesn't have diversified savings or their wealth in properties, stocks, or anything else that is likely to at least hold value. Inflation basically steals wealth from everyone – especially the poorest that makes the mistake of saving cash – and gives the money to the richest friendly with state powers. It's unethical and a crime against humanity, even more so considering that the fiat currency people are forced to use is legal tender, and you cannot exchange your earnings in other more stable currencies legally in most jurisdiction with this doutrine (almost all). https://wtfhappenedin1971.com/ https://wtfhappenedin1971.com/
- UncleMeat 6y ago
  The poor don't have savings in cash. Inflation loss on a nonexistent savings account is virtually zero. If you are concerned about this, would you be okay with a direct payment to populations without enough money to save in equities? That'd fix the problem.
  - 1996 6y ago
    The poor may have some cash, if only $100 in the bank. They certainly have no bonds, stocks, or real estate. If they have no cash and only draw a salary, it will still hit them badly, as salaries are not inflation adjusted, and any pay increase requires negotiations with the employer - who may decide to increase the wage by only a fraction of the inflation. Said differently: all people who don't have wealth in inflation proof assets (stocks, real estate etc) suffer from inflation.
    - UncleMeat 6y ago
      Great. Let's make minimum wage automatically adjust to inflation, force businesses to provide CoL increases, and provide a tax credit for the poor against savings loss. In my experience, the libertarian community that hates inflation so much uses the poor as a rhetorical cudgel rather than an actual primary concern.
    - carlob 6y ago
      > Said differently: all people who don't have wealth in inflation proof assets (stocks, real estate etc) suffer from inflation. Except those who are in debt
daniel-s 6y ago
A normal household has to pay rent or make mortgage payments. To arbitrarily exclude the biggest expense to consumers from CPI is pretty misleading. When you create new money prices don't rise evenly. At the moment we have new money being created by central banks and given to privileged institutions who get access to free money. They use that to buy investments: real estate, stocks, etc. These are precisely the things getting really expensive. The last things to get more expensive during big cycles of inflation are employee wages. The world used gold/silver for its currency for most of human history until 1970 when we entered this period of worldwide fiat currencies. Our current situation is pretty remarkable. The whole argument for printing money being OK is dumb. If it's OK to print money to pay for some things why are you not doing it more? Why not make everyone a millionaire? I think that another deception is that we should ordinarily be experiencing price deflation. Every day our society is getting more efficient at making things. If prices for goods are staying the same then it may not be that their value has not changed, they may be less valuable goods, but they cost the same because you're also buying them with less valuable currency. If you have gone through years of moving everything to China to make it cheaper to manufacture, improved technology to make processes more efficient, etc. and I'm still paying the same amount for all of the stuff in my life, then again, maybe all these things are cheaper, but I'm also buying them with currency that's less valuable. Ultimately, printing money doesn't make anyone more productive or produce anything. All it does is redistribute wealth from those that were first to get the new free money away from those that were last to contact it.
- goatinaboat 6y ago
  At the moment we have new money being created by central banks and given to privileged institutions who get access to free money. They use that to buy investments: real estate, stocks, etc. These are precisely the things getting really expensive. The last things to get more expensive during big cycles of inflation are employee wages. Indeed. If a government is dead set on printing money then it should give that money directly to people - many of whom will use it to pay down mortgages so the banks will get it anyway, but it will also do some good on the way.
  - sheeshkebab 6y ago
bko 6y ago
> Remember that the inflation that we are talking about is that with regard to consumer prices, which is often related to wages. It does not relate to asset inflation on things like shares, or house prices, which can behave quite differently, as the last decade’s shown. I like how the article waves off asset inflation. The federal reserve creates trillions of dollars in new money, shares and house prices go up considerably, and we have no inflation. It's a win-win. In a wealthy society like outs, assets are exactly where you would see the inflation. Demand for staple goods isn't going to go up. This is just a transfer of wealth to asset holders.
- 542458 6y ago
  I don’t disagree that house prices are too high, but... House prices are up, but most people don’t pay the price of a house - they pay the mortgage on it. Because interest rates are rock bottom the inflation of the price of a 25 year mortgage is just about in-line with most other goods. If house prices increase by 100% while interest goes from 6% to 2%, cost of a mortgage only increases by about 25%. (One complication here is that the down payment is not affected by interest rates, as so is much larger today in real dollars.)
  - dwiel 6y ago
    That is true and means current prices may not be much higher, but it makes homeownership much more risky. If interest rates ever go back up, the price would go down and you could wind up owning a house where your principal is much higher than it's current value. This is ok if you don't want to move. If you ever want to move though, even to a house with an equal price, you may end up owing the bank a lot of money.
    - 7_my_mind 6y ago
      But what are the chances of the housing demand evaporating? In most cities where the housing bubble exists, it exists for a reason. The city is growing because all jobs are relocating to cities and universities located within these cities have growing student populations. The demand is considered very stable so the risk of that happening is quite low. And before anyone says it, I don't think we are going to experience a remote work revolution any time soon.
dls2016 6y ago
Who exactly thinks that inflation is going to happen? The nytimes had a crazy article the other day (well they have one everyday about inflation it seems), where the “inflation fears” are attributed to wall street and political commentary. Yet the article ends with Jamie Dimon (quoted throughout the article) saying, “I dont really think we should worry about it.” Also there’s a perfunctory mention of gas prices but nothing about production. I could go on about how bad the article is. Give tax breaks to the rich and we hear nothing. Give working class and poor people a few thousand dollars and we get to hear about all their moral failings: the money will be spent on GME! Some people just saved their stimulus (NPR)! Inflation! The source of all this hubbub seems to be, checks notes: Larry “women cant do math” Summers. https://www.nytimes.com/2021/03/10/business/economy/inflation-markets-federal-reserve.html https://www.nytimes.com/2021/03/10/business/economy/inflatio...
- deleted 6y ago
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- jtdev 6y ago
  Jerome Powell last week: “But I do think it’s more likely that what happens in the next year or so is going to amount to prices moving up but not staying up and certainly not staying up to the point where they would move inflation expectations materially above 2%.” I find this incredibly hard to believe personally... I think the 2% projection is bogus, and find it unlikely that prices will magically just come down following this anticipated inflationary event?? Have we ever experienced that outside of very subsidized markets? https://www.axios.com/federal-reserve-powell-inflation-3061f484-bb96-44de-8690-a01300aa4e4b.html https://www.axios.com/federal-reserve-powell-inflation-3061f...
  - dls2016 6y ago
    Bogus in which direction? The Fed has had a 2% target rate for the last 15 years, I think, and has only exceeded it for a handful of quarters. Under what theory would giving people a few thousand dollars push it over 2% for any extended period of time? So Powell is saying there are no inflation fears! Edit: I've never heard of "breakeven" rates, sounds like a betting market. Forgive if I don't believe that rich investors can actually predict this stuff. Again, what track record do they have?
300bps 6y ago
I was not impressed with the article despite his status as a professor. For one example, he either seemed to have a very basic understanding of price elasticity of supply or he dumbed the article down to the point of being not possible to understand what his argument is. He also seems to not truly understand the scope of quantitative easing that has gone on. The $1.9 trillion in stimulus just passed in the US is a drop in the bucket compared to the Federal Reserve’s unprecedented $7 trillion balance sheet: https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren... And setting the bank reserve rate to 0% from its normal 10%. There are literally tens of trillions of dollars of stimulus that have been created. This money is finding its way into everything except ironically the items that are tracked by CPI. When a crypto currency created as a joke reaches a market cap > $7.5 billion you may have an inflationary bubble on your hands. https://coinmarketcap.com/currencies/dogecoin/ https://coinmarketcap.com/currencies/dogecoin/
- Majromax 6y ago
  > The $1.9 trillion in stimulus just passed in the US is a drop in the bucket compared to the Federal Reserve’s unprecedented $7 trillion balance sheet: Not at all. The Fed's balance sheet expansion is widely believed to be ultimately temporary, to be wound down over time once conditions normalize. Moreover, its expansion has all taken the form of collateralized loans, which is why the linked graph is of the asset side of a balance sheet. Fiscal policy, however, does not create any such assets owned by the Treasury. The required deficit spending is fundamentally unsecured, uncollateralized credit, even though the US federal government has an excellent credit rating. > This money is finding its way into everything except ironically the items that are tracked by CPI. You could also look at the GDP price deflator (https://fred.stlouisfed.org/series/A191RI1Q225SBEA https://fred.stlouisfed.org/series/A191RI1Q225SBEA), which doesn't have a basket-of-goods problem, and see similar trends. > When a crypto currency created as a joke reaches a market cap > $7.5 billion you may have an inflationary bubble on your hands. No, it's a speculative bubble. Very different.
- moralsupply 6y ago
  Dogecoin was created as a joke, but as money Doge is a lot more sound than any fiat currencies out there. It's not that Doge is a bubble. The bubble is the US Dollar. (insert Doge meme image here)
Klwohu 6y ago
If inflation’s not a threat then moving away from inflationary assets isn’t a threat either. And that’s precisely what lots of people are trying to do right now.
hartator 6y ago
> Remember that the inflation that we are talking about is that with regard to consumer prices, which is often related to wages. Or we can use the traditional definition for inflation, the increase in monetary supply not an increase in price. Monetary inflation is very real in 2020 and 2021. A global increase in prices is a potential consequence of monetary inflation but it’s not mandatory. Monetary inflation is always bad from an economics perpective and always ends badly. We always try to forgo lessons from the past but this is very economy 101.
- harryh 6y ago
  The traditional definition? What? "In economics, inflation (or less frequently, price inflation) is a general rise in the price level in an economy over a period of time." https://en.wikipedia.org/wiki/Inflation https://en.wikipedia.org/wiki/Inflation
  - hartator 6y ago
    Webster 1983 definition of inflation: “An increase in the amount of currency in circulation, resulting in a relatively sharp and sudden fall in its value and rise in prices: it may be caused by an increase in the volume of paper money issued or of gold mined, or a relative increase in expenditures as when the supply of goods fails to meet the demand.” Hence the use of “traditional definition” wording. Which matters for example in classic readings of economics books. One can argue that the switch in definitions is more a political view to excuse printing money and not backed by any economics reasonings. Ref: https://inflationdata.com/articles/2010/07/21/real-definition-inflation/ https://inflationdata.com/articles/2010/07/21/real-definitio...
jackcosgrove 6y ago
If you say inflation of consumer staples matters, while inflation of assets does not matter, you are accepting a two tier economy between consumers and asset holders. Stock ownership has become more available recently because of technology, but the more important asset class to most people is housing. That's because housing is also shelter, and by inflating part of the market for shelter - owner-occupied dwellings - beyond the reach of many you increase demand for rentable shelter. I don't think this distinction between two kinds of inflation is helpful, especially when one is considered bad and the other benign.
- harryh 6y ago
  CPI takes into account the cost of shelter. https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-and-rent.pdf https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an...
- lottin 6y ago
  Shelter is a "service" whose consumption we call rent. Rent therefore qualifies as consumption expenditure and is included in the CPI. Owning a home doesn't make any difference, you still pay rent to the owner (which in this case is yourself). The distinction between inflation and asset price "inflation" is important because they are not the same thing. Inflation is an increase in the price level, whereas an increase in the price of some assets is that.
davidhbolton 6y ago
If you want to see an economist repeatedly criticise Richard Murphy on a regular ongoing basis, I recommend https://www.timworstall.com/category/ragging-on-ritchie/ https://www.timworstall.com/category/ragging-on-ritchie/
lmilcin 6y ago
Inflation is only an issue for you if you have cash (or equivalent) that will devalue or plan to take mortgage that will be expensive if subsequently the inflation falls. The way the economy progresses these are going to be less and less problems for normal people.
moralsupply 6y ago
The article should be renamed to: "Why measuring inflation using the CPI is misleading" The CPI is designed by the government in order to give it plenty of slack to keep printing money.
- imtringued 6y ago
  No, it is the opposite. Low CPI is a curse, something that has to be combated by creating more money. It's not an excuse, you really don't want your economy to suffer deflation. You are free to criticize ineffective central bank policies that drive inequality though.
  - moralsupply 6y ago
    With "low CPI" the government doesn't have to update government workers' salaries to compensate for real inflation. In the US, 1/6 of the workforce is paid directly by the government, which indirectly generate something in the range of 30-50% of all economic activity in the country. Hence why it's in the best interest of the government to state there's "low inflation": it doesn't have to spend too much with its payroll, while it can "profit" more from the money it prints.
evrydayhustling 6y ago
The data analysis and argumentation in this article is pretty broken. - The decade by decade plot, which is highly influenced by alignment of periods, actually shows a 50% drop in inflation from the 80s to the 90s. Then says that 90s policy mandates made no difference. - Fitting a linear trend to 100s of years of economic data with diverse data and economic regimes is meaningless wrt shorter-term policy. I guess we should expect -5% interest rate in 2100, because it dropped that fast between 1450 to 1550? - Similarly, the arguments that COVID or Brexit should simply be blips seems like an outright denial that economic change happens. Wars, epidemics, and trade agreements shape history by reordering which economies are competitive. I feel the need to say that I'm extremely in favor of spending on COVID relief etc, and I get the frustration that folks use FUD to complicate policy around social support spending until it fails. But the same thing happens around the spending itself. Late in the article the author discusses the way QE has been regressive, disproportionately impacting the rich. What makes anyone so confident that other forms of injecting money into the economy won't get siphoned the same way? We're getting to a dumb moment in this debate where people are accepting flimsier and flimsier arguments that we should be able to "Just Do It" regarding spending, without consequences. If we're going to do some economically radical things, let's do so with eyes open that we will be headed to uncharted territory.
- carlosf 6y ago
  > let's do so with eyes open that we will be headed to uncharted territory. That's how I think. In economics, society and very complex systems in general, one can rarely predict the consequences of most actions. The best we can do is brace ourselves (hedge) while those with power play their cards.
  - blonde_ocean 6y ago
    So how are you hedging?
- dundarious 6y ago
  I agree it's somewhat weak on the historical trend argument, and in explaining the relevance of the interest rate to inflation argument. > - Similarly, the arguments that COVID or Brexit should simply be blips seems like an outright denial that economic change happens. Wars, epidemics, and trade agreements shape history by reordering which economies are competitive. He doesn't make a general case for such a denial. Only that COVID and Brexit are going to be blips specifically with respect to inflation. From the article: > If either Brexit of coronavirus cause an inflation blip it will not last, and we need not worry about it in that case. So neither is the ‘something else’ that must be motivating inflation fears. I found the arguments about the net money supply to be somewhat persuasive. And as for alternative QE money being siphoned and being similarly regressive, I'm inclined to agree with the redistribution part of daniel-s's comment, and to infer that direct cash payments to individuals resist being siphoned so easily: > Ultimately, printing money doesn't make anyone more productive or produce anything. All it does is redistribute wealth from those that were first to get the new free money away from those that were last to contact it. Edit: I assumed this meant it redistributes to the first to contact it, but on second reading, I’m not sure the intended meaning.
eecc 6y ago
Well, I’m only worried that interests go up because “governments have to fund themselves on the market”. This would mean sabotaging the post-COVID (and post Austerity) stimuli by preventing the middle class from accessing sane mortgage financing. I understand the QE excess needs to be somehow removed from the market, but the proper way should be through increasing upper-percentile taxation. This way competition dynamics are maintained without making the weakest pay for all the admission price
gregwebs 6y ago
I would recommend this article for less diatribe and more facts. [1] The summary of either though is that although the government is printing money, that printed money is not chasing goods and services. Even government checks direct to taxpayers are largely ending up in financial instruments: paying off debt or rent/mortgage. The article I linked differs in believing that there are short-term inflationary forces as the world adjusts to COVID due to changed consumer patterns and disrupted supply chains. This is mentioned in the submitted article as well but is dismissed in a one-sided way. Note that many on HN are confused or offended by the title of the submitted article because asset inflation is happening now. But the submitted article defines inflation as consumer inflation. I am just as concerned about the consequences of money printing as anyone on this forum, but it does seem to have a much more minimal effect on consumer inflation then our intuition would lead us to believe (depending on how it is implemented). Japan would be a good example where a lot of money has been printed but never put into circulation: it may be causing problems, but consumer inflation is not one of them [2]. I am now more concerned about how our monetary policy appears to ensure large trade deficits and thus be the cause of the decrease in manufacturing in the US and perhaps a much bigger cause of wealth inequality than the normal money printing. This is explained in this very long article that is well worth understanding [3]. [1] https://www.epbmacroresearch.com/blog/the-money-supply-mystery https://www.epbmacroresearch.com/blog/the-money-supply-myste... [2] https://www.lynalden.com/economic-japanification/ https://www.lynalden.com/economic-japanification/ [3] https://www.lynalden.com/fraying-petrodollar-system/ https://www.lynalden.com/fraying-petrodollar-system/
- dls2016 6y ago
  So the NAFTA whiners of the 90s were right? https://m.sevendaysvt.com/vermont/sanders-why-i-oppose-nafta/Content?oid=2435080 https://m.sevendaysvt.com/vermont/sanders-why-i-oppose-nafta...
  - gregwebs 6y ago
    Unfortunately it has little to do with NAFTA. The naive American view of trade is that goods are cheaper to produce in other countries so all production inevitably moves there. What is supposed to happen in a global economy is that currencies strengthen and weaken to exert a balancing effect on trade. Because the dollar is the global reserve currency there is an artificial demand for dollars so the balancing never occurs. We have a monetary policy that is the invisible hand shaping the entire US economy. The massive trade deficits it caused are now leading to populism and civil unrest. And yet there is no discussion of this root cause and almost no awareness of it.
jokethrowaway 6y ago
I'm a bit surprised to see this piece, I haven't heard worries about inflation (and I follow free-market capitalists). What people are worried about is that all this extra money is propping up a market bubble and a non-sensical economy. Good luck when that's going to burst. Also, it's debatable whether lockdowns actually saved the NHS or just wrecked our small businesses, but I guess we will never know for sure.
RichardHeart 6y ago
Money printing makes the rich richer and the poor poorer. The world consists of stuff. Money is used represent it. Make more stuff, prices go down. Print more money, prices go up. If you already own stuff, it's worth more money. If you don't, you may never be able to afford it. If you're lucky enough to ever get a raise, your income tax may rise, whereas, the capital class has their gains tax deferred, only paying at sale, and at a lower rate! Join the capital class as soon as you can, because it's the best way to get rich and stay rich. By the way, the concept that inflation benefits most those that receive it first is called the Cantillon effect. Pull yourself up by your bootstraps? The good news is, saving and investing is how the rich stay rich, and they don't have any better access to the best assets in the world than you do. Thanks to cryptocurrency. Bitcoin, Ethereum and even one I founded have all given thousands of % returns. If you're tired of people printing out of thin air, that which you have worked so hard for, we've got p2p open source solutions for that which do even more than just raw accounting.
- samvher 6y ago
  Where are these thousands of % returns coming out of, if not out of thin air?
  - RichardHeart 6y ago
    People switching their value storage from a crappier system to a superior system. It's all just an analog for the stuff that actually matters, which is goods and services.
- imtringued 6y ago
  Thank you for bringing up the Cantillon effect it is a concise way of describing how QE drives inequality by giving money to the wrong people first. The problem is that now everyone is focusing on the free money to be had from the stock market. When you think about it the primary way monetary policy helps economies get out of a recession is by giving everyone employment. QE causes massive asset appreciation. In other words it is keynesian gold digging except you are not compensated by how much work you are doing, no, you are compensated based on how many financial assets you already own. That's incredibly backwards because the entire reasoning behind hacks like keynesian gold digging is to give the poorest parts of society money so that they can spend it and revitalize the economy. Poor people don't own lots of Bitcoin or Tesla stocks or whatever else is exploding in price so they never benefit in the first place. However, those who are on the margin with barely enough savings to put into assets will see 3x or even 10x gains and might even decide that this is a better way to spend their time instead of doing productive work. I have seen people yolo their student loans into GME with this exact reasoning. They do it because they believe they won't have to finish college if they make it.
ilaksh 6y ago
I doubt anyone will read this but my take is that in the current system they actually do need to print money to solve the liquidity problems but that creates other problems. It's like everyone is thirsty, but people (and large companies) keep hoarding water. They have some giant taps that they can turn on. So they do. But the issues start with the fact that money is debt, and only a few well-connected countries are able to print money and get away with not having to pay it back. That is a great injustice, and it leads to a type of domination and poverty. I feel like the solution is for money to be more sophisticated. It needs to be tied to distributed resource tracking and regulated in a more sophisticated way. This was totally impossible before but with new decentralization technologies it is. One crazy idea might be to have very good public food production data based on ubiquitous data collection protocols that can be analyzed by many people. Then have a type of money that is specifically for ensuring food security. And another for housing security. All of these types of things are only really feasible if you have a functioning government that you can trust. That is probably the hardest part.
- jedharris 6y ago
  In effect we somewhat have this kind of system with Food Stamps and housing vouchers -- "currencies" that are restricted to certain types of expenditures. Also of course there are advocates for education vouchers. Etc. Unfortunately these targeted systems have been studied and results seem to be better if we just give people unrestricted grants. Slicing and dicing the money ahead of time seems less effective than letting the recipients decide.
  - ilaksh 6y ago
    Vouchers and food stamps are similar to what I was proposing, but not the same thing. One aspect is that they are not digital currency. Another aspect is that there are particular constraints on reception and difficulty applying for them. Another one is that there is no comprehensive resource tracking such as housing availability. Additionally the amounts are very minimal. They are a very low-tech nod in that direction, but have not in any way disproven the concept. I'm all for things like universal basic income also. But again, the old-fashioned monetary system we have now and poor resource tracking do not permit universal basic income. Because for one thing it doesn't work properly unless its truly universal and there is not sufficient government revenue to support it.
oramit 6y ago
I didn't get too far into this article because the writing was so stilted. Then I realized it was just a series of tweets merged together without much of an attempt to clean it up. Not a good way to explain something as complex (and polarizing) as inflation.
TheButlerian 6y ago
Hah, the working class will get utterly crushed and they will applaud from the windows lol.
cryptica 6y ago
The financial system is a fraud. It doesn't make sense that you can keep borrowing money to pump up the value of a speculative asset and then use this growing collateral to borrow even more money to pump up the price of that asset even more and repeat ad infinitum. It's extremely frustrating to have to participate in a system which is run by a mix of rich crooks and rich idiots. It's obvious that it will all end in a disaster but in the meantime, massive talent and decades of people's lives are being wasted away to cater to a bunch of manipulative crooks.
cryptica 6y ago
I think the biggest problem we face right now as a society is that many people think "I'm getting everything I need right now so I'm not going to complain" but they don't realize how fragile the economy is becoming and that they're basically signing away all of their freedoms. Allowing their salaries and negotiating power to silently inflate away into the hands of asset holders. It's not just their own freedoms that they're giving up, but also that of others who are currently struggling. Don't be surprised if society is divided and becomes increasingly divided. Sooner or later, it's going to get ugly.
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the_giraffe 6y ago
The author covered the arguments for why QE is not inflationary well. However, they failed to address how government spending and fiscal stimulus (which is vastly different from QE) is not inflationary. I agree that QE causes asset price inflation but normally does not cause much consumer price inflation. However, I believe government spending and fiscal stimulus most certainly will. Massive amounts of government fiscal stimulus is used to combat deflation, which it seems to do well, at least initially. The threat of deflation is usually caused by a slow in monetary velocity. But when monetary velocity returns inflation is likely to increase at a rate greater than we would see without any stimulus. The whole idea of it seems to be to combat deflation with inflation. So if that is not inflationary then why are governments around the world doing it? And why are we to assume them to be infallible and that they know exactly what the proper medicine is for a broken economy? I think it's wreckless to dismiss the possibility of inflation when we have already been seeing it in the dramatic decline in the purchasing power of consumer goods by fiat currencies for decades.
kangaroozach 6y ago
Totally wrong definition of inflation. Inflation of money supply is a driver of higher prices. But inflation is not higher prices themselves. Inflation is same as debasing currency and stealing purchasing power from the people. It’s a stealth tax and a trick. Can’t work forever.
- imtringued 6y ago
  The problem with deflation is that it literally can last forever.
perryizgr8 6y ago
It's all fine guys. We can print as much money as we want. Inflation is not a threat. No biggie. Don't worry!
- imtringued 6y ago
  This is the wrong mindset. If inflation is low the central bank is failing at its core competence.
ldbooth 6y ago
In Fareed Zakaria's book The Post American World Order, he makes a great point that India (services) and China (goods) have been deflationary for certain goods/services in expensive economies. If you think of CPI as an average of deflationary and (local, expensive) inflationary products, the trend we are seeing in the US of large local assets (with local cost basis) versus a cellphone (Chinese cost basis), the stagnant measure of CPI versus the increases we see in local costs of living is better explained. All these metrics are faulted and manipulated. The underlying desire of capitalist institutions making a markup on every possible local market ("rents") in is inflationary to local costs and when the external markets costs go up, that's when total inflation will go 'shazam'.
plank_time 6y ago
Asset inflation is the cause of income inequality. That’s why it has been a huge problem especially during Obama’s time until now. It’s 100% the fault of the Federal Reserve but they refuse to take blame. Lower income households cannot accumulate assets. But the Feds policies have created asset inflation and not CPI inflation. So the lower income families can’t complain they can’t buy food, but they can’t buy anything else like a house. They can’t compete against anyone unless they start investing in assets but they can’t. Meanwhile in Silicon Valley there is so much wealth it’s reached critical mass. House prices are a joke because anyone who has stock compensation has made a ridiculous amount of money. The difference between asset accumulators and those that don’t is stark. My wife and I have become multi millionaires in the last 5 years because our house and stock have gone through the roof. My friends without stock don’t have as much luck and are in the same position as before but no ability to buy anything. I mean for Christ’s sake my comic book collection value has quintupled for no good reason except people chasing assets. So of course you won’t see inflation in assets because the Fed is burying their heads in the sand over it.
krupan 6y ago
Downplays inflation risks of governments printing money, but does point out this aspect: “...many households are deeper in debt now than a year ago. Many more just got by. But the best off just got richer. That’s what QE does. This bias to the already wealthy within QE was not by chance...”
dfilppi 6y ago
That's why people should be permitted to print their own. Legalizing counterfeiting would solve all our ills.
betwixthewires 6y ago
>Current debate about inflation isn’t really about whether it’s likely: it isn’t. No, inflation is guaranteed, in fact, a 3% yearly inflation rate is deliberately targeted. I'm sure the writer meant "hyperinflation", still, say what you mean, and beyond that, having read the rest of it, it is full of weasel words and uncited or unexplained premises. Further, it does not actually address any of the ideas that the title implies it is countering. I'm just going to say it: this is a shit tier article.
- jedharris 6y ago
  I'm sure the last few Fed chairs would like to know that they are guaranteed success in raising inflation! Now you just have to explain why they weren't even able to get it up to 2% even with a guarantee.
megiddo 6y ago
"I am not saying that inflation or interest rate rises are impossible in the future but I am suggesting that those who suggesting these are anything but very temporary phenomenon have to explain why the trends of many decades are going to reversed now and for what reason. Only two reasons are being given. One is that there is going to be excess demand after coronavirus. The other is that there will be a shortage of supply of goods and services in the economy to meet that demand. My argument in this thread is that neither is likely." I like how neither of these addresses really shit monetary policy, like over-production of currency. This entire analysis assumes the Fed doesn't end up forced to monetize several trillion in debt over a couple years.
xiphias2 6y ago
Of course CPI is declining if the definition is this (and probably similar in every other country): https://en.wikipedia.org/wiki/United_States_Chained_Consumer_Price_Index https://en.wikipedia.org/wiki/United_States_Chained_Consumer...
JProthero 6y ago
From the article: > The first of these ideas says that if demand for a product rises and the supply does not then its price is going to increase. Economists would say this is so basic that no one could really argue with it. So let me do so. First, this assumes that there are no alternative products available. The reality is that there usually are. Few things are so essential now that this is not the case. Secondly, this assumes we will not wait for what we want. We often will, and that smooths demand. That buyers may choose alternative products, and that purchases may be deferred, both seem to be valid observations to me, but neither amounts to an argument against the proposition that the price of a product will increase if demand for that product rises and its supply does not. If buyers purchase alternative products, or defer their purchases, then they are not buying the product in question, and demand for that product therefore does not in fact rise. The author appears to be trying to criticise an orthodox prediction in economics about what will happen under certain conditions not by — as he suggests he is doing — arguing with the logic of the prediction, but instead by asserting that the conditions the prediction applies to do not arise. Regardless of whether his conclusions about price inflation make sense, he does not actually make the argument that he purports to.
dnautics 6y ago
A simple thought experiment: - Suppose you are spending 90% of your income on day-to-day expenses. Your margin of survival is 10%. Then there is 2% inflation. Now your margin of survival is ~8% which is a ~20% decrease. - Suppose you are spending 20% of your income on day-to-day expenses. Your margin of survival is 80%. Then there is 2% inflation. Your margin of survival is still ~80% which is a negligible decrease. For those who will say "wages catch up". They don't catch up for people on fixed income (welfare, retirement), and not catching up for the labor class is a policy feature: https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-higher-inflation/ https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-hi... > Yet when you have very low inflation, getting relative wages right would require that a significant number of workers take wage cuts. So having a somewhat higher inflation rate would lead to lower unemployment...
- iso1210 6y ago
  > For those who will say "wages catch up". They don't catch up for people on fixed income (welfare, retirement), In the UK the state pension is pegged to increase by at least CPI or wages, there's no economic reason not to peg welfare or retirement to CPI, just a political one.
  - dnautics 6y ago
    how do you peg retirement to CPI? Where is that money coming from?
    - iso1210 6y ago
      State retirement the government simply increases it (as in the UK) For private retirement you buy an inflation linked annuity
      - dnautics 6y ago
        "government simply increases it" print more money, cause pain for everyone who isn't privileged to work for the government. "inflation linked annuity" socialize the risk for big businesses/municipal debt (inflation linked annuities are often bundles of investments that can produce a yield that matches inflations, you can't magically create these things)
nobrains 6y ago
I don't understand, if any country HAS to print money, why not via direct payments to the public?
- imtringued 6y ago
  The usual argument for supply side stimulus is that everyone spends most of their money. So if you give businesses money they will produce more things and grow the economy. The problems start when people are too poor to afford those additional products and companies simply stop investing into growth because they can't sell their products. Once you reach this point, giving them more money does nothing.
RazTeve 6y ago
The author nails it in that inflation alarmists really hate the state. Inflation is really the cost of MMT and our modern state power. Central banks, whether intended to be separate or not, are the backbone that every state is built and funded on. They also have issues with taxation. Taxes are largely used today to take money out of the economy and control the purchasing power of currency. Most people having any awareness of the underpinnings and reason that our money is the way it is. Like the fish asking, "what is water?" Money is still evolving. If these central bankers and tax collectors push people too hard, something else may emerge as money.
sgt101 6y ago
>The government is forecasting that businesses already overburdened with debt because of Covid are going to borrow at near record amounts to fund investment and I can say with near certainty that they won’t be, because banks will not be lending, and that ends that suggestion then. Banks will be lending, they will have to because they need to get the cash (printed by the central banks) off their balance sheets. They will do this by lending left right and centre. Wages will probably lift as well because there are several structural skills shortages in the economy at the moment - due to Brexit and some other factors.
Cypher 6y ago
It's only a threat to savings, pensions and those that have no inflation adjusting assets.
mchusma 6y ago
The opening pretty much sums up that this isn't a research piece, it's a political opinion piece: "Current debate about inflation isn’t really about whether it’s likely: it isn’t. Instead it’s about whose vision of the future is going to win. Is it going to be the right-wing demand for small government that the inflation fetishists promote, or the one we need" I think inflation concerns are not the realm of "right-wing inflation fetishists", it's in fact the standard theory about what will happen when large amounts of money is printed. You can make reasonable arguments about why this time is different, but this strategy will make me tune out real fast.
pjdemers 6y ago
Inflation won't be a problem for a long time. There is allot of slack in the labor market. The article states there are about 10 million people in the UK who would like a new job. That is a small fraction of the hundreds of millions in the rest of world who are looking for work. Until a nearly all of them have a good job, wages will stay low. Eventually there will be more jobs than people who want them, in 50 years or so. Our current monetary system won't work in that world, but I will be too old to care.
MotherSuperior 6y ago
>I am not saying that inflation or interest rate rises are impossible in the future but I am suggesting that those who suggesting these are anything but very temporary phenomenon have to explain why the trends of many decades are going to reversed now and for what reason. Because the neoliberal economic model that includes a stratified scarcity principle (keeping wages as low as possible so consumer demand keeps prices down) isn't built for a sustained global economic downturn. The very fact that the Biden administration harpooned the very minimum wage increase that they advocated for in the campaign should indicate to everyone just how seriously they are taking inflation.
jiriknesl 6y ago
As Bastiat once said, there's a thing that can be seen and the thing that cannot be seen. Maybe parking ticket will be the same 1 pound as it is now. The UK's bill out of this will be ± half trillion pounds over coming (3 ?) years. Rishi Sunak is already rising taxes, they will raise them even more. So even if "optically" the prices will not grow, you will do the same amount of work, create the same amount of value, but after HMRC taking their cut, you will end up with less quid in your wallet. You will be able to buy less. And paying of all this will take decades. If it is a whole career, whole life, it's equivalent of permanent inflation. Or did anyone think they can just print money without raising taxes? Come on!
known 6y ago
And countries like South Africa, India, Brazil deliberately keep people poor/starving https://en.wikipedia.org/wiki/Currency_in_circulation#Total_currency_in_circulation https://en.wikipedia.org/wiki/Currency_in_circulation#Total_...
bawana 6y ago
The way monetary policy is implemented dates from the 1930s when banks' main business was lending money to businesses and people to build stuff. That money went directly to the hands of people who used it to buy tangible goods and real services. Since the repeal of Glass-Steagall in in the '80s, banks and financial institutions have started using money creatively to invest in other financial products. They realized that the best return on investment is actually, investing. So now whenever the Fed loosens monetary policy, we have more money chasing the same financial instruments. As a result, we see inflating stock prices (bubbles) but no inflation in the real world. Furthermore, if this pattern existed when Jimmy Stewart played his role in 'It's a Wonderful Life', we would still be in the same depression with poverty, disease and scarcity ravaging the nation. In fact, we are headed that way as our infrastructure ages and fails and we continue to outsource jobs that could be done by the unemployed here in the US. The solution is to make a law that requires money from financial gains(capital gain, interest income, etc)only spendable on real goods and services. In other words, we need two kinds of money. Real money that comes from profits of operations invoilving tangible goods and services, and 'another kind of money' that comes from financial gains. This other kind of money could be tax free (no capital gains, no income tax, etc) but would be restricted to the purchase of real goods and the employment of people in non-financial service sectors.
fbn79 6y ago
I think we can see a parallelism in the modern "money creation" with the ancient Roman Empire "currency debasement". Found this nice infographic https://www.visualcapitalist.com/wp-content/uploads/2016/02/the-collapse-of-roman-empire.jpg https://www.visualcapitalist.com/wp-content/uploads/2016/02/...
michaelbrave 6y ago
Some of the most interesting research on inflation has been done in MMORPG's lately. Since all the currency is digital there is a strong inflation problem and the solution has been largely to have a technique called "Gold Sinks" where they create very expensive items to use the currency for thus taking a large chunk of it out of circulation. For some who believe that since we've shifted to mostly digital currencies now (since banks just shift numbers in a database to increase or decrease what's in an account most of the time) they could argue that the mechanics of paying taxes is to actually act as a gold sink instead of actually shifting money to government (since they just give themselves whatever unlimited money anyway). I'm not sure what to believe about this, but the deeper I look the more true it's becoming I think. Especially since money isn't so much being printed as just created in a database somewhere.
Cypher 6y ago
I spent all my savings on magic the gathering cards that ended up going up 1000% thanks to all the money printing keep it up and I'll be able to retire before I'm 40!

172 points by midasuni 6y ago

>"The state is what the inflation fetishists really hate. And what they know is that society wants a bigger state right now." The author of course knows perfectly what the "society wants". To me this whole article reads like it's been written in a state of delirium.

mrkeen 6y ago

> Current debate about inflation isn’t really about whether it’s likely: it isn’t See the first chart. Nowhere on the chart is inflation not happening.

deleted 6y ago
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nicklecompte 6y ago
Obviously the author means inflation exceeding the 2% target that various central banks agree is necessary for a healthy economy: > Since the 1990s central banks have been given the target of keeping inflation low. 2% has been the goal. But in practice as this diagram shows, the trend was already strongly downward before central banks were given this goal. If you want to argue that 2% is too high then feel free to do that. But it’s not helpful (to you or other commenters) to take the most facile and ignorant reading of the article possible, and then wonder why the first chart “contradicts” the author.
- djcjr 6y ago
  You are asserting that he and other commenters to follow are taking "the most facile and ignorant reading of the article possible" on what grounds?
throw0101a 6y ago
You are being overly literal. When people colloquially say "inflation is bad" or "will be a problem", they mean "high inflation", for some meaning of 'high', like >4% or some such. US inflation was around 3% during in 1990s, and yet there was an economic boom at that time. See also 1950s. And yet people are freaking out because there's an uptick in US 10 year bonds at the moment… to 1.6%… which is where things were in January 2020 (pre-pandemic). If a massive US spending bill only (only!) gets us to where things were before the economic conflagration, then it shows how much in the economic hole things are, and how much things need to be filled in to get back onto stable economic footing.
daniel-s 6y ago
I don't like when people argue someone by looking for a technicality, or anything else that's not addressing the main point of what someone said. We all understand what he meant. His main argument has a lot to criticise, stick to that.
- mrkeen 6y ago
  It wasn't a technicality, it was the first sentence. And it threw me so wildly that I did not understand the rest of what he said.

iagovar 6y ago

Keep in mind that inflation is most likely to have an "hedonic adjustment" in your country (I presume the US) too. When you look at differences of prices from decades before, in my country you can see that electronics got much cheaper in general, but basic stuff and real state go more expensive, while salaries barely changed. If you speak spanish, Pablo Gil explains it well in his videos.

iso1210 6y ago
New Which? research shows that in the UK we actually spend less on food than previous generations did, and many popular foods are cheaper now than they were 30 years ago. In the 1950s we spent a third of our income on food shopping, but in 1974 this had gone down to 24%. By 2016 food shopping accounted for just 10.5% of our income. https://www.which.co.uk/news/2019/11/heres-how-our-food-prices-compare-to-30-years-ago-and-you-might-be-surprised/ https://www.which.co.uk/news/2019/11/heres-how-our-food-pric... So food prices have collapsed, electronics too, what 'basic stuff' is left?
- frankbreetz 6y ago
  Housing, healthcare, education.
  - danans 6y ago
    And infrastructure
- selfhoster11 6y ago
  I would argue that food is also much less nutritious these days, and far likelier to lead to health problems down the line. Ready-made/highly processed foods and "empty calories" (fast food, snacks) are, at a guess, far more common these days, and also far cheaper than the healthier alternative to snacks. Natural produce is also missing a lot of its previous taste, texture and smell. I know for a fact that there is a world of a difference, during the season, between a tomato from a random Italian supermarket and a British Tesco "Value" tomato. I will be drawn to eat the former without so much preparation as even washing it; the latter I will have to force down my throat and eat it with ketchup to mask the papery texture of the flesh and add some taste, any taste at all, so that I can sense I'm eating something. Gluten intolerant and/or lactose intolerant parts of the population are also basically screwed. I am both, and most food that has an ingredients list longer than 5 lines is poisonous to me. I am left with either the more expensive "free from" foods that skip one or both of these ingredients (and costs Nx what the usual version does), or buying single ingredients to cook my own food from scratch. If one wants to have an actually nutritious diet, then the cheap "food" being offered today ain't gonna cut it.

HPsquared 6y ago

Conveniently the author excludes house prices from his definition of inflation.

throw0101a 6y ago
Because that is not "inflation". There is another economic term for that phenomenon, and conflating the two only creates confusion: * https://en.wikipedia.org/wiki/Economic_bubble https://en.wikipedia.org/wiki/Economic_bubble Inflation/CPI is (roughly) about the cost of living determined via a basket of goods and services that one needs on daily/weekly/monthly basis. Financial assets are not needed to live: the bottom-half of US wage earners have no/little financial assets and yet are effected by inflation when they go shopping. And while shelter is, it is taken into account via rent or rent-equivalent (mortgage carrying costs): * https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-and-rent.pdf https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an... I'm not sure where and when the idea of financial assets being included into the concept of inflation started, but it's a first world 'problem' of the wealthy.
- deleted 6y ago
  [deleted]
- HPsquared 6y ago
  Don't average people buy houses? It's a bit of an artificial distinction to exclude them. Inflation is also defined as expansion of the money supply (monetary inflation), and mortgages are a major source of money creation - the rate of this process being closely related to house prices.
  - Majromax 6y ago
    > Don't average people buy houses? It's a bit of an artificial distinction to exclude them. When an average person buys a house and lives in it for a decade, they still have the house. Inflation is defined by consumption expenditures. I buy food, eat it, and no longer have that food to sell. I pay the power bill, having consumed power that cannot be resold. The consumed portion of housing is rent. And that is included in price indices; statistical agencies have to go to the trouble of modelling an owner-equivalent for owner-occupied housing. If you're still concerned about the technical definitions of what goes into a consumer price index, then you have plenty of others to choose from. The GDP deflator (a price index based on everything produced in the economy) shows trends very similar to the consumer price index over the medium-term. > Inflation is also defined as expansion of the money supply (monetary inflation), And those two concepts are not in fact equivalent. Going from an observed change in the money supply to changes in prices requires more intricate assumptions about how the economy works. The same money-supply increase can cause an increase in price levels in one country (say Venezuela) rather than another (the United States) depending on beliefs about permanence and the background state of the economy.

dubeye 6y ago

Probably worth some context... the author very often writes about plan B Scottish independence, which calls for swift escalation of the independence process, including the economics. For example establishing a new currency in months, rather than the years more established economists advise might be less risky. MMT is pretty popular with plan B movement, as it offers a speedy solution to things like deficit, austerity measures. Inflation is the main restricting factor on money printing, so those who want to rush into independence are always quick to downplay inflation risks.

TobyBrull 6y ago

Some would argue, of course, that inflation well above 2% has been with us for at least a decade if you don't measure by the biased CPI. I don't see how it helps the argument to bring politics into this by saying such people are "right-wing [...] inflation fetishists". Didn't read beyond that.

harryh 6y ago
Anyone who argues this is a conspiracy theorist making statements not based on actual evidence.
- fuzzfactor 6y ago
  I don't think there is any conspiracy either. What theory would you use to explain the evidence which shows that lifestyle recovery of many consumers which had come almost within reach, by less than 1 percent, never did actually arrive and has been moving back beyond reach faster than 1 percent for a while? Everyone knows that 1 percent is less than 2 percent so it has to be some other explanantion besides "that's not nearly as bad as 2 percent".
imtringued 6y ago
You can complain about wealth inequality and asset appreciation all you want but so far I haven't seen even the tiniest hint of inflation.

1996 6y ago

The statement needs to be quantified: not a threat ONLY IN THE SHORT RUN. Yes you don't see it on your graphs right now. But IIRC 20% more money was printed by the fed for covid. Unless you can refute modern economic theory, we still have PV=MQ, and the only thing saving us from inflation at the moment is the low velocity of money: in lockdown or with most high velocity businesses closed or operating at a fraction of what they did before (ex: bar, restaurants), the velocity will remain low. We won't see anything on the graphs as long as V remains low. However, as soon as they reopen and operate closer to their normal capacity, velocity WILL rise. When that happen, inflation WILL rise. There's no magical way to wish inflation away. We will eventually get 20% inflation. The only question is how soon. Yes, central banks may plan to have 2% per year for 9 years (19.5% inflation) if somehow they think business will not be able to catch up immediately (a closed restaurant will not get as many clients when it reopens) which is plausible. However, I don't buy that, because 1) we are talking about 9 years, while the closed restaurant example will take more like 1 to 2 years max to work at normal capacity again 2) it would require TREMENDOUS discipline: no QE whatsoever for 9 years - which is politically impossible if unemployment rises for whatever reason (say the aftermath of a bubble, or a crisis due to malinvestment fueled by the low rates) 3) it fully ignores the rebound effect: deprived of social contact for too long, more people than usual will want to go to bars and restaurant - at least at first I personally envision 5 to 7% inflation when things return to normal in the US (so schoolyear 2021-2022)

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Majromax 6y ago
> Unless you can refute modern economic theory, we still have PV=MQ, and the only thing saving us from inflation at the moment is the low velocity of money: in lockdown or with most high velocity businesses closed or operating at a fraction of what they did before (ex: bar, restaurants), the velocity will remain low. This theory was put to the test between 2007 and 2019, where the Fed greatly increased the monetary base during and after the financial crisis. As it turns out, the velocity of base money was much more flexible than assumed, and the monetary base remained greatly increased (about 4x its pre-recession level) without excess inflation. In comparison, the covid-related increase to the monetary base has been less than a doubling (see https://fred.stlouisfed.org/series/BOGMBASE https://fred.stlouisfed.org/series/BOGMBASE). > I personally envision 5 to 7% inflation when things return to normal in the US (so schoolyear 2021-2022) If you really think that, then go to a broker, buy TIPS (inflation-protected securities), and go short nominal bonds of equivalent duration. The five-year breakeven inflation rate (US) predicted from these bonds is about 2.5% (https://fred.stlouisfed.org/series/T5YIE https://fred.stlouisfed.org/series/T5YIE), so if your views are correct you would make a mint.

henvic 6y ago

Inflation hits hardest the poorer who doesn't have diversified savings or their wealth in properties, stocks, or anything else that is likely to at least hold value. Inflation basically steals wealth from everyone – especially the poorest that makes the mistake of saving cash – and gives the money to the richest friendly with state powers. It's unethical and a crime against humanity, even more so considering that the fiat currency people are forced to use is legal tender, and you cannot exchange your earnings in other more stable currencies legally in most jurisdiction with this doutrine (almost all). https://wtfhappenedin1971.com/ https://wtfhappenedin1971.com/

UncleMeat 6y ago
The poor don't have savings in cash. Inflation loss on a nonexistent savings account is virtually zero. If you are concerned about this, would you be okay with a direct payment to populations without enough money to save in equities? That'd fix the problem.
- 1996 6y ago
  The poor may have some cash, if only $100 in the bank. They certainly have no bonds, stocks, or real estate. If they have no cash and only draw a salary, it will still hit them badly, as salaries are not inflation adjusted, and any pay increase requires negotiations with the employer - who may decide to increase the wage by only a fraction of the inflation. Said differently: all people who don't have wealth in inflation proof assets (stocks, real estate etc) suffer from inflation.
  - UncleMeat 6y ago
    Great. Let's make minimum wage automatically adjust to inflation, force businesses to provide CoL increases, and provide a tax credit for the poor against savings loss. In my experience, the libertarian community that hates inflation so much uses the poor as a rhetorical cudgel rather than an actual primary concern.
  - carlob 6y ago
    > Said differently: all people who don't have wealth in inflation proof assets (stocks, real estate etc) suffer from inflation. Except those who are in debt

daniel-s 6y ago

A normal household has to pay rent or make mortgage payments. To arbitrarily exclude the biggest expense to consumers from CPI is pretty misleading. When you create new money prices don't rise evenly. At the moment we have new money being created by central banks and given to privileged institutions who get access to free money. They use that to buy investments: real estate, stocks, etc. These are precisely the things getting really expensive. The last things to get more expensive during big cycles of inflation are employee wages. The world used gold/silver for its currency for most of human history until 1970 when we entered this period of worldwide fiat currencies. Our current situation is pretty remarkable. The whole argument for printing money being OK is dumb. If it's OK to print money to pay for some things why are you not doing it more? Why not make everyone a millionaire? I think that another deception is that we should ordinarily be experiencing price deflation. Every day our society is getting more efficient at making things. If prices for goods are staying the same then it may not be that their value has not changed, they may be less valuable goods, but they cost the same because you're also buying them with less valuable currency. If you have gone through years of moving everything to China to make it cheaper to manufacture, improved technology to make processes more efficient, etc. and I'm still paying the same amount for all of the stuff in my life, then again, maybe all these things are cheaper, but I'm also buying them with currency that's less valuable. Ultimately, printing money doesn't make anyone more productive or produce anything. All it does is redistribute wealth from those that were first to get the new free money away from those that were last to contact it.

goatinaboat 6y ago
At the moment we have new money being created by central banks and given to privileged institutions who get access to free money. They use that to buy investments: real estate, stocks, etc. These are precisely the things getting really expensive. The last things to get more expensive during big cycles of inflation are employee wages. Indeed. If a government is dead set on printing money then it should give that money directly to people - many of whom will use it to pay down mortgages so the banks will get it anyway, but it will also do some good on the way.
- sheeshkebab 6y ago

bko 6y ago

> Remember that the inflation that we are talking about is that with regard to consumer prices, which is often related to wages. It does not relate to asset inflation on things like shares, or house prices, which can behave quite differently, as the last decade’s shown. I like how the article waves off asset inflation. The federal reserve creates trillions of dollars in new money, shares and house prices go up considerably, and we have no inflation. It's a win-win. In a wealthy society like outs, assets are exactly where you would see the inflation. Demand for staple goods isn't going to go up. This is just a transfer of wealth to asset holders.

542458 6y ago
I don’t disagree that house prices are too high, but... House prices are up, but most people don’t pay the price of a house - they pay the mortgage on it. Because interest rates are rock bottom the inflation of the price of a 25 year mortgage is just about in-line with most other goods. If house prices increase by 100% while interest goes from 6% to 2%, cost of a mortgage only increases by about 25%. (One complication here is that the down payment is not affected by interest rates, as so is much larger today in real dollars.)
- dwiel 6y ago
  That is true and means current prices may not be much higher, but it makes homeownership much more risky. If interest rates ever go back up, the price would go down and you could wind up owning a house where your principal is much higher than it's current value. This is ok if you don't want to move. If you ever want to move though, even to a house with an equal price, you may end up owing the bank a lot of money.
  - 7_my_mind 6y ago
    But what are the chances of the housing demand evaporating? In most cities where the housing bubble exists, it exists for a reason. The city is growing because all jobs are relocating to cities and universities located within these cities have growing student populations. The demand is considered very stable so the risk of that happening is quite low. And before anyone says it, I don't think we are going to experience a remote work revolution any time soon.

dls2016 6y ago

Who exactly thinks that inflation is going to happen? The nytimes had a crazy article the other day (well they have one everyday about inflation it seems), where the “inflation fears” are attributed to wall street and political commentary. Yet the article ends with Jamie Dimon (quoted throughout the article) saying, “I dont really think we should worry about it.” Also there’s a perfunctory mention of gas prices but nothing about production. I could go on about how bad the article is. Give tax breaks to the rich and we hear nothing. Give working class and poor people a few thousand dollars and we get to hear about all their moral failings: the money will be spent on GME! Some people just saved their stimulus (NPR)! Inflation! The source of all this hubbub seems to be, checks notes: Larry “women cant do math” Summers. https://www.nytimes.com/2021/03/10/business/economy/inflation-markets-federal-reserve.html https://www.nytimes.com/2021/03/10/business/economy/inflatio...

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jtdev 6y ago
Jerome Powell last week: “But I do think it’s more likely that what happens in the next year or so is going to amount to prices moving up but not staying up and certainly not staying up to the point where they would move inflation expectations materially above 2%.” I find this incredibly hard to believe personally... I think the 2% projection is bogus, and find it unlikely that prices will magically just come down following this anticipated inflationary event?? Have we ever experienced that outside of very subsidized markets? https://www.axios.com/federal-reserve-powell-inflation-3061f484-bb96-44de-8690-a01300aa4e4b.html https://www.axios.com/federal-reserve-powell-inflation-3061f...
- dls2016 6y ago
  Bogus in which direction? The Fed has had a 2% target rate for the last 15 years, I think, and has only exceeded it for a handful of quarters. Under what theory would giving people a few thousand dollars push it over 2% for any extended period of time? So Powell is saying there are no inflation fears! Edit: I've never heard of "breakeven" rates, sounds like a betting market. Forgive if I don't believe that rich investors can actually predict this stuff. Again, what track record do they have?

300bps 6y ago

I was not impressed with the article despite his status as a professor. For one example, he either seemed to have a very basic understanding of price elasticity of supply or he dumbed the article down to the point of being not possible to understand what his argument is. He also seems to not truly understand the scope of quantitative easing that has gone on. The $1.9 trillion in stimulus just passed in the US is a drop in the bucket compared to the Federal Reserve’s unprecedented $7 trillion balance sheet: https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren... And setting the bank reserve rate to 0% from its normal 10%. There are literally tens of trillions of dollars of stimulus that have been created. This money is finding its way into everything except ironically the items that are tracked by CPI. When a crypto currency created as a joke reaches a market cap > $7.5 billion you may have an inflationary bubble on your hands. https://coinmarketcap.com/currencies/dogecoin/ https://coinmarketcap.com/currencies/dogecoin/

Majromax 6y ago
> The $1.9 trillion in stimulus just passed in the US is a drop in the bucket compared to the Federal Reserve’s unprecedented $7 trillion balance sheet: Not at all. The Fed's balance sheet expansion is widely believed to be ultimately temporary, to be wound down over time once conditions normalize. Moreover, its expansion has all taken the form of collateralized loans, which is why the linked graph is of the asset side of a balance sheet. Fiscal policy, however, does not create any such assets owned by the Treasury. The required deficit spending is fundamentally unsecured, uncollateralized credit, even though the US federal government has an excellent credit rating. > This money is finding its way into everything except ironically the items that are tracked by CPI. You could also look at the GDP price deflator (https://fred.stlouisfed.org/series/A191RI1Q225SBEA https://fred.stlouisfed.org/series/A191RI1Q225SBEA), which doesn't have a basket-of-goods problem, and see similar trends. > When a crypto currency created as a joke reaches a market cap > $7.5 billion you may have an inflationary bubble on your hands. No, it's a speculative bubble. Very different.
moralsupply 6y ago
Dogecoin was created as a joke, but as money Doge is a lot more sound than any fiat currencies out there. It's not that Doge is a bubble. The bubble is the US Dollar. (insert Doge meme image here)

Klwohu 6y ago

If inflation’s not a threat then moving away from inflationary assets isn’t a threat either. And that’s precisely what lots of people are trying to do right now.

hartator 6y ago

> Remember that the inflation that we are talking about is that with regard to consumer prices, which is often related to wages. Or we can use the traditional definition for inflation, the increase in monetary supply not an increase in price. Monetary inflation is very real in 2020 and 2021. A global increase in prices is a potential consequence of monetary inflation but it’s not mandatory. Monetary inflation is always bad from an economics perpective and always ends badly. We always try to forgo lessons from the past but this is very economy 101.

harryh 6y ago
The traditional definition? What? "In economics, inflation (or less frequently, price inflation) is a general rise in the price level in an economy over a period of time." https://en.wikipedia.org/wiki/Inflation https://en.wikipedia.org/wiki/Inflation
- hartator 6y ago
  Webster 1983 definition of inflation: “An increase in the amount of currency in circulation, resulting in a relatively sharp and sudden fall in its value and rise in prices: it may be caused by an increase in the volume of paper money issued or of gold mined, or a relative increase in expenditures as when the supply of goods fails to meet the demand.” Hence the use of “traditional definition” wording. Which matters for example in classic readings of economics books. One can argue that the switch in definitions is more a political view to excuse printing money and not backed by any economics reasonings. Ref: https://inflationdata.com/articles/2010/07/21/real-definition-inflation/ https://inflationdata.com/articles/2010/07/21/real-definitio...

jackcosgrove 6y ago

If you say inflation of consumer staples matters, while inflation of assets does not matter, you are accepting a two tier economy between consumers and asset holders. Stock ownership has become more available recently because of technology, but the more important asset class to most people is housing. That's because housing is also shelter, and by inflating part of the market for shelter - owner-occupied dwellings - beyond the reach of many you increase demand for rentable shelter. I don't think this distinction between two kinds of inflation is helpful, especially when one is considered bad and the other benign.

harryh 6y ago
CPI takes into account the cost of shelter. https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-and-rent.pdf https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an...
lottin 6y ago
Shelter is a "service" whose consumption we call rent. Rent therefore qualifies as consumption expenditure and is included in the CPI. Owning a home doesn't make any difference, you still pay rent to the owner (which in this case is yourself). The distinction between inflation and asset price "inflation" is important because they are not the same thing. Inflation is an increase in the price level, whereas an increase in the price of some assets is that.

davidhbolton 6y ago

If you want to see an economist repeatedly criticise Richard Murphy on a regular ongoing basis, I recommend https://www.timworstall.com/category/ragging-on-ritchie/ https://www.timworstall.com/category/ragging-on-ritchie/

lmilcin 6y ago

Inflation is only an issue for you if you have cash (or equivalent) that will devalue or plan to take mortgage that will be expensive if subsequently the inflation falls. The way the economy progresses these are going to be less and less problems for normal people.

moralsupply 6y ago

The article should be renamed to: "Why measuring inflation using the CPI is misleading" The CPI is designed by the government in order to give it plenty of slack to keep printing money.

imtringued 6y ago
No, it is the opposite. Low CPI is a curse, something that has to be combated by creating more money. It's not an excuse, you really don't want your economy to suffer deflation. You are free to criticize ineffective central bank policies that drive inequality though.
- moralsupply 6y ago
  With "low CPI" the government doesn't have to update government workers' salaries to compensate for real inflation. In the US, 1/6 of the workforce is paid directly by the government, which indirectly generate something in the range of 30-50% of all economic activity in the country. Hence why it's in the best interest of the government to state there's "low inflation": it doesn't have to spend too much with its payroll, while it can "profit" more from the money it prints.

evrydayhustling 6y ago

The data analysis and argumentation in this article is pretty broken. - The decade by decade plot, which is highly influenced by alignment of periods, actually shows a 50% drop in inflation from the 80s to the 90s. Then says that 90s policy mandates made no difference. - Fitting a linear trend to 100s of years of economic data with diverse data and economic regimes is meaningless wrt shorter-term policy. I guess we should expect -5% interest rate in 2100, because it dropped that fast between 1450 to 1550? - Similarly, the arguments that COVID or Brexit should simply be blips seems like an outright denial that economic change happens. Wars, epidemics, and trade agreements shape history by reordering which economies are competitive. I feel the need to say that I'm extremely in favor of spending on COVID relief etc, and I get the frustration that folks use FUD to complicate policy around social support spending until it fails. But the same thing happens around the spending itself. Late in the article the author discusses the way QE has been regressive, disproportionately impacting the rich. What makes anyone so confident that other forms of injecting money into the economy won't get siphoned the same way? We're getting to a dumb moment in this debate where people are accepting flimsier and flimsier arguments that we should be able to "Just Do It" regarding spending, without consequences. If we're going to do some economically radical things, let's do so with eyes open that we will be headed to uncharted territory.

carlosf 6y ago
> let's do so with eyes open that we will be headed to uncharted territory. That's how I think. In economics, society and very complex systems in general, one can rarely predict the consequences of most actions. The best we can do is brace ourselves (hedge) while those with power play their cards.
- blonde_ocean 6y ago
  So how are you hedging?
dundarious 6y ago
I agree it's somewhat weak on the historical trend argument, and in explaining the relevance of the interest rate to inflation argument. > - Similarly, the arguments that COVID or Brexit should simply be blips seems like an outright denial that economic change happens. Wars, epidemics, and trade agreements shape history by reordering which economies are competitive. He doesn't make a general case for such a denial. Only that COVID and Brexit are going to be blips specifically with respect to inflation. From the article: > If either Brexit of coronavirus cause an inflation blip it will not last, and we need not worry about it in that case. So neither is the ‘something else’ that must be motivating inflation fears. I found the arguments about the net money supply to be somewhat persuasive. And as for alternative QE money being siphoned and being similarly regressive, I'm inclined to agree with the redistribution part of daniel-s's comment, and to infer that direct cash payments to individuals resist being siphoned so easily: > Ultimately, printing money doesn't make anyone more productive or produce anything. All it does is redistribute wealth from those that were first to get the new free money away from those that were last to contact it. Edit: I assumed this meant it redistributes to the first to contact it, but on second reading, I’m not sure the intended meaning.

eecc 6y ago

Well, I’m only worried that interests go up because “governments have to fund themselves on the market”. This would mean sabotaging the post-COVID (and post Austerity) stimuli by preventing the middle class from accessing sane mortgage financing. I understand the QE excess needs to be somehow removed from the market, but the proper way should be through increasing upper-percentile taxation. This way competition dynamics are maintained without making the weakest pay for all the admission price

gregwebs 6y ago

I would recommend this article for less diatribe and more facts. [1] The summary of either though is that although the government is printing money, that printed money is not chasing goods and services. Even government checks direct to taxpayers are largely ending up in financial instruments: paying off debt or rent/mortgage. The article I linked differs in believing that there are short-term inflationary forces as the world adjusts to COVID due to changed consumer patterns and disrupted supply chains. This is mentioned in the submitted article as well but is dismissed in a one-sided way. Note that many on HN are confused or offended by the title of the submitted article because asset inflation is happening now. But the submitted article defines inflation as consumer inflation. I am just as concerned about the consequences of money printing as anyone on this forum, but it does seem to have a much more minimal effect on consumer inflation then our intuition would lead us to believe (depending on how it is implemented). Japan would be a good example where a lot of money has been printed but never put into circulation: it may be causing problems, but consumer inflation is not one of them [2]. I am now more concerned about how our monetary policy appears to ensure large trade deficits and thus be the cause of the decrease in manufacturing in the US and perhaps a much bigger cause of wealth inequality than the normal money printing. This is explained in this very long article that is well worth understanding [3]. [1] https://www.epbmacroresearch.com/blog/the-money-supply-mystery https://www.epbmacroresearch.com/blog/the-money-supply-myste... [2] https://www.lynalden.com/economic-japanification/ https://www.lynalden.com/economic-japanification/ [3] https://www.lynalden.com/fraying-petrodollar-system/ https://www.lynalden.com/fraying-petrodollar-system/

dls2016 6y ago
So the NAFTA whiners of the 90s were right? https://m.sevendaysvt.com/vermont/sanders-why-i-oppose-nafta/Content?oid=2435080 https://m.sevendaysvt.com/vermont/sanders-why-i-oppose-nafta...
- gregwebs 6y ago
  Unfortunately it has little to do with NAFTA. The naive American view of trade is that goods are cheaper to produce in other countries so all production inevitably moves there. What is supposed to happen in a global economy is that currencies strengthen and weaken to exert a balancing effect on trade. Because the dollar is the global reserve currency there is an artificial demand for dollars so the balancing never occurs. We have a monetary policy that is the invisible hand shaping the entire US economy. The massive trade deficits it caused are now leading to populism and civil unrest. And yet there is no discussion of this root cause and almost no awareness of it.

jokethrowaway 6y ago

I'm a bit surprised to see this piece, I haven't heard worries about inflation (and I follow free-market capitalists). What people are worried about is that all this extra money is propping up a market bubble and a non-sensical economy. Good luck when that's going to burst. Also, it's debatable whether lockdowns actually saved the NHS or just wrecked our small businesses, but I guess we will never know for sure.

RichardHeart 6y ago

Money printing makes the rich richer and the poor poorer. The world consists of stuff. Money is used represent it. Make more stuff, prices go down. Print more money, prices go up. If you already own stuff, it's worth more money. If you don't, you may never be able to afford it. If you're lucky enough to ever get a raise, your income tax may rise, whereas, the capital class has their gains tax deferred, only paying at sale, and at a lower rate! Join the capital class as soon as you can, because it's the best way to get rich and stay rich. By the way, the concept that inflation benefits most those that receive it first is called the Cantillon effect. Pull yourself up by your bootstraps? The good news is, saving and investing is how the rich stay rich, and they don't have any better access to the best assets in the world than you do. Thanks to cryptocurrency. Bitcoin, Ethereum and even one I founded have all given thousands of % returns. If you're tired of people printing out of thin air, that which you have worked so hard for, we've got p2p open source solutions for that which do even more than just raw accounting.

samvher 6y ago
Where are these thousands of % returns coming out of, if not out of thin air?
- RichardHeart 6y ago
  People switching their value storage from a crappier system to a superior system. It's all just an analog for the stuff that actually matters, which is goods and services.
imtringued 6y ago
Thank you for bringing up the Cantillon effect it is a concise way of describing how QE drives inequality by giving money to the wrong people first. The problem is that now everyone is focusing on the free money to be had from the stock market. When you think about it the primary way monetary policy helps economies get out of a recession is by giving everyone employment. QE causes massive asset appreciation. In other words it is keynesian gold digging except you are not compensated by how much work you are doing, no, you are compensated based on how many financial assets you already own. That's incredibly backwards because the entire reasoning behind hacks like keynesian gold digging is to give the poorest parts of society money so that they can spend it and revitalize the economy. Poor people don't own lots of Bitcoin or Tesla stocks or whatever else is exploding in price so they never benefit in the first place. However, those who are on the margin with barely enough savings to put into assets will see 3x or even 10x gains and might even decide that this is a better way to spend their time instead of doing productive work. I have seen people yolo their student loans into GME with this exact reasoning. They do it because they believe they won't have to finish college if they make it.

ilaksh 6y ago

I doubt anyone will read this but my take is that in the current system they actually do need to print money to solve the liquidity problems but that creates other problems. It's like everyone is thirsty, but people (and large companies) keep hoarding water. They have some giant taps that they can turn on. So they do. But the issues start with the fact that money is debt, and only a few well-connected countries are able to print money and get away with not having to pay it back. That is a great injustice, and it leads to a type of domination and poverty. I feel like the solution is for money to be more sophisticated. It needs to be tied to distributed resource tracking and regulated in a more sophisticated way. This was totally impossible before but with new decentralization technologies it is. One crazy idea might be to have very good public food production data based on ubiquitous data collection protocols that can be analyzed by many people. Then have a type of money that is specifically for ensuring food security. And another for housing security. All of these types of things are only really feasible if you have a functioning government that you can trust. That is probably the hardest part.

jedharris 6y ago
In effect we somewhat have this kind of system with Food Stamps and housing vouchers -- "currencies" that are restricted to certain types of expenditures. Also of course there are advocates for education vouchers. Etc. Unfortunately these targeted systems have been studied and results seem to be better if we just give people unrestricted grants. Slicing and dicing the money ahead of time seems less effective than letting the recipients decide.
- ilaksh 6y ago
  Vouchers and food stamps are similar to what I was proposing, but not the same thing. One aspect is that they are not digital currency. Another aspect is that there are particular constraints on reception and difficulty applying for them. Another one is that there is no comprehensive resource tracking such as housing availability. Additionally the amounts are very minimal. They are a very low-tech nod in that direction, but have not in any way disproven the concept. I'm all for things like universal basic income also. But again, the old-fashioned monetary system we have now and poor resource tracking do not permit universal basic income. Because for one thing it doesn't work properly unless its truly universal and there is not sufficient government revenue to support it.

oramit 6y ago

I didn't get too far into this article because the writing was so stilted. Then I realized it was just a series of tweets merged together without much of an attempt to clean it up. Not a good way to explain something as complex (and polarizing) as inflation.

TheButlerian 6y ago

Hah, the working class will get utterly crushed and they will applaud from the windows lol.

cryptica 6y ago

The financial system is a fraud. It doesn't make sense that you can keep borrowing money to pump up the value of a speculative asset and then use this growing collateral to borrow even more money to pump up the price of that asset even more and repeat ad infinitum. It's extremely frustrating to have to participate in a system which is run by a mix of rich crooks and rich idiots. It's obvious that it will all end in a disaster but in the meantime, massive talent and decades of people's lives are being wasted away to cater to a bunch of manipulative crooks.

cryptica 6y ago

I think the biggest problem we face right now as a society is that many people think "I'm getting everything I need right now so I'm not going to complain" but they don't realize how fragile the economy is becoming and that they're basically signing away all of their freedoms. Allowing their salaries and negotiating power to silently inflate away into the hands of asset holders. It's not just their own freedoms that they're giving up, but also that of others who are currently struggling. Don't be surprised if society is divided and becomes increasingly divided. Sooner or later, it's going to get ugly.

deleted 6y ago

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the_giraffe 6y ago

The author covered the arguments for why QE is not inflationary well. However, they failed to address how government spending and fiscal stimulus (which is vastly different from QE) is not inflationary. I agree that QE causes asset price inflation but normally does not cause much consumer price inflation. However, I believe government spending and fiscal stimulus most certainly will. Massive amounts of government fiscal stimulus is used to combat deflation, which it seems to do well, at least initially. The threat of deflation is usually caused by a slow in monetary velocity. But when monetary velocity returns inflation is likely to increase at a rate greater than we would see without any stimulus. The whole idea of it seems to be to combat deflation with inflation. So if that is not inflationary then why are governments around the world doing it? And why are we to assume them to be infallible and that they know exactly what the proper medicine is for a broken economy? I think it's wreckless to dismiss the possibility of inflation when we have already been seeing it in the dramatic decline in the purchasing power of consumer goods by fiat currencies for decades.

kangaroozach 6y ago

Totally wrong definition of inflation. Inflation of money supply is a driver of higher prices. But inflation is not higher prices themselves. Inflation is same as debasing currency and stealing purchasing power from the people. It’s a stealth tax and a trick. Can’t work forever.

imtringued 6y ago
The problem with deflation is that it literally can last forever.

perryizgr8 6y ago

It's all fine guys. We can print as much money as we want. Inflation is not a threat. No biggie. Don't worry!

imtringued 6y ago
This is the wrong mindset. If inflation is low the central bank is failing at its core competence.

ldbooth 6y ago

In Fareed Zakaria's book The Post American World Order, he makes a great point that India (services) and China (goods) have been deflationary for certain goods/services in expensive economies. If you think of CPI as an average of deflationary and (local, expensive) inflationary products, the trend we are seeing in the US of large local assets (with local cost basis) versus a cellphone (Chinese cost basis), the stagnant measure of CPI versus the increases we see in local costs of living is better explained. All these metrics are faulted and manipulated. The underlying desire of capitalist institutions making a markup on every possible local market ("rents") in is inflationary to local costs and when the external markets costs go up, that's when total inflation will go 'shazam'.

plank_time 6y ago

Asset inflation is the cause of income inequality. That’s why it has been a huge problem especially during Obama’s time until now. It’s 100% the fault of the Federal Reserve but they refuse to take blame. Lower income households cannot accumulate assets. But the Feds policies have created asset inflation and not CPI inflation. So the lower income families can’t complain they can’t buy food, but they can’t buy anything else like a house. They can’t compete against anyone unless they start investing in assets but they can’t. Meanwhile in Silicon Valley there is so much wealth it’s reached critical mass. House prices are a joke because anyone who has stock compensation has made a ridiculous amount of money. The difference between asset accumulators and those that don’t is stark. My wife and I have become multi millionaires in the last 5 years because our house and stock have gone through the roof. My friends without stock don’t have as much luck and are in the same position as before but no ability to buy anything. I mean for Christ’s sake my comic book collection value has quintupled for no good reason except people chasing assets. So of course you won’t see inflation in assets because the Fed is burying their heads in the sand over it.

krupan 6y ago

Downplays inflation risks of governments printing money, but does point out this aspect: “...many households are deeper in debt now than a year ago. Many more just got by. But the best off just got richer. That’s what QE does. This bias to the already wealthy within QE was not by chance...”

dfilppi 6y ago

That's why people should be permitted to print their own. Legalizing counterfeiting would solve all our ills.

betwixthewires 6y ago

>Current debate about inflation isn’t really about whether it’s likely: it isn’t. No, inflation is guaranteed, in fact, a 3% yearly inflation rate is deliberately targeted. I'm sure the writer meant "hyperinflation", still, say what you mean, and beyond that, having read the rest of it, it is full of weasel words and uncited or unexplained premises. Further, it does not actually address any of the ideas that the title implies it is countering. I'm just going to say it: this is a shit tier article.

jedharris 6y ago
I'm sure the last few Fed chairs would like to know that they are guaranteed success in raising inflation! Now you just have to explain why they weren't even able to get it up to 2% even with a guarantee.

megiddo 6y ago

"I am not saying that inflation or interest rate rises are impossible in the future but I am suggesting that those who suggesting these are anything but very temporary phenomenon have to explain why the trends of many decades are going to reversed now and for what reason. Only two reasons are being given. One is that there is going to be excess demand after coronavirus. The other is that there will be a shortage of supply of goods and services in the economy to meet that demand. My argument in this thread is that neither is likely." I like how neither of these addresses really shit monetary policy, like over-production of currency. This entire analysis assumes the Fed doesn't end up forced to monetize several trillion in debt over a couple years.

xiphias2 6y ago

Of course CPI is declining if the definition is this (and probably similar in every other country): https://en.wikipedia.org/wiki/United_States_Chained_Consumer_Price_Index https://en.wikipedia.org/wiki/United_States_Chained_Consumer...

JProthero 6y ago

From the article: > The first of these ideas says that if demand for a product rises and the supply does not then its price is going to increase. Economists would say this is so basic that no one could really argue with it. So let me do so. First, this assumes that there are no alternative products available. The reality is that there usually are. Few things are so essential now that this is not the case. Secondly, this assumes we will not wait for what we want. We often will, and that smooths demand. That buyers may choose alternative products, and that purchases may be deferred, both seem to be valid observations to me, but neither amounts to an argument against the proposition that the price of a product will increase if demand for that product rises and its supply does not. If buyers purchase alternative products, or defer their purchases, then they are not buying the product in question, and demand for that product therefore does not in fact rise. The author appears to be trying to criticise an orthodox prediction in economics about what will happen under certain conditions not by — as he suggests he is doing — arguing with the logic of the prediction, but instead by asserting that the conditions the prediction applies to do not arise. Regardless of whether his conclusions about price inflation make sense, he does not actually make the argument that he purports to.

dnautics 6y ago

A simple thought experiment: - Suppose you are spending 90% of your income on day-to-day expenses. Your margin of survival is 10%. Then there is 2% inflation. Now your margin of survival is ~8% which is a ~20% decrease. - Suppose you are spending 20% of your income on day-to-day expenses. Your margin of survival is 80%. Then there is 2% inflation. Your margin of survival is still ~80% which is a negligible decrease. For those who will say "wages catch up". They don't catch up for people on fixed income (welfare, retirement), and not catching up for the labor class is a policy feature: https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-higher-inflation/ https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-hi... > Yet when you have very low inflation, getting relative wages right would require that a significant number of workers take wage cuts. So having a somewhat higher inflation rate would lead to lower unemployment...

iso1210 6y ago
> For those who will say "wages catch up". They don't catch up for people on fixed income (welfare, retirement), In the UK the state pension is pegged to increase by at least CPI or wages, there's no economic reason not to peg welfare or retirement to CPI, just a political one.
- dnautics 6y ago
  how do you peg retirement to CPI? Where is that money coming from?
  - iso1210 6y ago
    State retirement the government simply increases it (as in the UK) For private retirement you buy an inflation linked annuity
    - dnautics 6y ago
      "government simply increases it" print more money, cause pain for everyone who isn't privileged to work for the government. "inflation linked annuity" socialize the risk for big businesses/municipal debt (inflation linked annuities are often bundles of investments that can produce a yield that matches inflations, you can't magically create these things)

nobrains 6y ago

I don't understand, if any country HAS to print money, why not via direct payments to the public?

imtringued 6y ago
The usual argument for supply side stimulus is that everyone spends most of their money. So if you give businesses money they will produce more things and grow the economy. The problems start when people are too poor to afford those additional products and companies simply stop investing into growth because they can't sell their products. Once you reach this point, giving them more money does nothing.

RazTeve 6y ago

The author nails it in that inflation alarmists really hate the state. Inflation is really the cost of MMT and our modern state power. Central banks, whether intended to be separate or not, are the backbone that every state is built and funded on. They also have issues with taxation. Taxes are largely used today to take money out of the economy and control the purchasing power of currency. Most people having any awareness of the underpinnings and reason that our money is the way it is. Like the fish asking, "what is water?" Money is still evolving. If these central bankers and tax collectors push people too hard, something else may emerge as money.

sgt101 6y ago

>The government is forecasting that businesses already overburdened with debt because of Covid are going to borrow at near record amounts to fund investment and I can say with near certainty that they won’t be, because banks will not be lending, and that ends that suggestion then. Banks will be lending, they will have to because they need to get the cash (printed by the central banks) off their balance sheets. They will do this by lending left right and centre. Wages will probably lift as well because there are several structural skills shortages in the economy at the moment - due to Brexit and some other factors.

Cypher 6y ago

It's only a threat to savings, pensions and those that have no inflation adjusting assets.

mchusma 6y ago

The opening pretty much sums up that this isn't a research piece, it's a political opinion piece: "Current debate about inflation isn’t really about whether it’s likely: it isn’t. Instead it’s about whose vision of the future is going to win. Is it going to be the right-wing demand for small government that the inflation fetishists promote, or the one we need" I think inflation concerns are not the realm of "right-wing inflation fetishists", it's in fact the standard theory about what will happen when large amounts of money is printed. You can make reasonable arguments about why this time is different, but this strategy will make me tune out real fast.

pjdemers 6y ago

Inflation won't be a problem for a long time. There is allot of slack in the labor market. The article states there are about 10 million people in the UK who would like a new job. That is a small fraction of the hundreds of millions in the rest of world who are looking for work. Until a nearly all of them have a good job, wages will stay low. Eventually there will be more jobs than people who want them, in 50 years or so. Our current monetary system won't work in that world, but I will be too old to care.

MotherSuperior 6y ago

>I am not saying that inflation or interest rate rises are impossible in the future but I am suggesting that those who suggesting these are anything but very temporary phenomenon have to explain why the trends of many decades are going to reversed now and for what reason. Because the neoliberal economic model that includes a stratified scarcity principle (keeping wages as low as possible so consumer demand keeps prices down) isn't built for a sustained global economic downturn. The very fact that the Biden administration harpooned the very minimum wage increase that they advocated for in the campaign should indicate to everyone just how seriously they are taking inflation.

jiriknesl 6y ago

As Bastiat once said, there's a thing that can be seen and the thing that cannot be seen. Maybe parking ticket will be the same 1 pound as it is now. The UK's bill out of this will be ± half trillion pounds over coming (3 ?) years. Rishi Sunak is already rising taxes, they will raise them even more. So even if "optically" the prices will not grow, you will do the same amount of work, create the same amount of value, but after HMRC taking their cut, you will end up with less quid in your wallet. You will be able to buy less. And paying of all this will take decades. If it is a whole career, whole life, it's equivalent of permanent inflation. Or did anyone think they can just print money without raising taxes? Come on!

known 6y ago

And countries like South Africa, India, Brazil deliberately keep people poor/starving https://en.wikipedia.org/wiki/Currency_in_circulation#Total_currency_in_circulation https://en.wikipedia.org/wiki/Currency_in_circulation#Total_...

bawana 6y ago

The way monetary policy is implemented dates from the 1930s when banks' main business was lending money to businesses and people to build stuff. That money went directly to the hands of people who used it to buy tangible goods and real services. Since the repeal of Glass-Steagall in in the '80s, banks and financial institutions have started using money creatively to invest in other financial products. They realized that the best return on investment is actually, investing. So now whenever the Fed loosens monetary policy, we have more money chasing the same financial instruments. As a result, we see inflating stock prices (bubbles) but no inflation in the real world. Furthermore, if this pattern existed when Jimmy Stewart played his role in 'It's a Wonderful Life', we would still be in the same depression with poverty, disease and scarcity ravaging the nation. In fact, we are headed that way as our infrastructure ages and fails and we continue to outsource jobs that could be done by the unemployed here in the US. The solution is to make a law that requires money from financial gains(capital gain, interest income, etc)only spendable on real goods and services. In other words, we need two kinds of money. Real money that comes from profits of operations invoilving tangible goods and services, and 'another kind of money' that comes from financial gains. This other kind of money could be tax free (no capital gains, no income tax, etc) but would be restricted to the purchase of real goods and the employment of people in non-financial service sectors.

fbn79 6y ago

I think we can see a parallelism in the modern "money creation" with the ancient Roman Empire "currency debasement". Found this nice infographic https://www.visualcapitalist.com/wp-content/uploads/2016/02/the-collapse-of-roman-empire.jpg https://www.visualcapitalist.com/wp-content/uploads/2016/02/...

michaelbrave 6y ago

Some of the most interesting research on inflation has been done in MMORPG's lately. Since all the currency is digital there is a strong inflation problem and the solution has been largely to have a technique called "Gold Sinks" where they create very expensive items to use the currency for thus taking a large chunk of it out of circulation. For some who believe that since we've shifted to mostly digital currencies now (since banks just shift numbers in a database to increase or decrease what's in an account most of the time) they could argue that the mechanics of paying taxes is to actually act as a gold sink instead of actually shifting money to government (since they just give themselves whatever unlimited money anyway). I'm not sure what to believe about this, but the deeper I look the more true it's becoming I think. Especially since money isn't so much being printed as just created in a database somewhere.

Cypher 6y ago

I spent all my savings on magic the gathering cards that ended up going up 1000% thanks to all the money printing keep it up and I'll be able to retire before I'm 40!