5 ms·

just a small nitpick in the overall correct train of thought - is that it this reduction in output still does drive up the inflation - as fewer cars are made, t

just a small nitpick in the overall correct train of thought - is that it this reduction in output still does drive up the inflation - as fewer cars are made, their price increases (and it has knock on effects of increasing prices to anything affected by cars - delivery, logistics, you name it)

WalterBright 5y ago
Inflation is a general rise in prices, not a rise in the price of one or a few goods. In order for prices to rise generally, there has to be an increase in the money supply relative to the goods and services it represents.
- landemva 5y ago
  If inflation is reduction in broad (not one single item) purchasing power of the monetary unit, then inflation will be felt when people lose confidence in the money or the organization backing the money. USA will feel significant inflation when the public loses confidence in the federal government. EU is much further down that path.
  - WalterBright 5y ago
    People never lost confidence in gold, and yet the 1849 gold rush caused inflation. Gold's buying power declined significantly.
    - landemva 5y ago
      That is a good example of a commodity money that experienced supply volatility and subsequent price volatility. It was inflation - more supply of the money. Money is tricky to do in all times for all use cases. Bitcoin is making a run for store of value money, and unlike gold it is truly scarce.
- zarzavat 5y ago
  Inflation is whatever you want to to be. Usually inflation is defined using the prices of a basket of goods. This does not capture the inflation that people feel - most people are far more interested in the price of a home than the price of spaghetti, but spaghetti is the definition. One reason why spaghetti is used rather than house prices is that it is less subject to speculatory swings, or local variation - to be used as a basis for adjusting other prices inflation has to be defined in terms of something stable and uniformly priced. This may seem circular, and it is. What we see is that increases in the money supply generally don't go into the prices of basic goods tracked by inflation. Instead they go into the prices of assets that are not tracked by inflation. Nobody is using spaghetti as an investment vehicle.
- fsckboy 5y ago
  what you're both saying is true, so where you think you are correcting him, you're not. the inflation of the 70's was caused by the increase in the price of a single good, oil, due to the Arab oil embargo. Oil being a factor in the cost of many other products, there was a knock on effect causing a broad increase in prices across the board, general inflation. There were also 2nd order macroeconomic effects caused by the govt's attempts to deal with the inflation and economic slowdown, but at the root, price inflation was necessary to reflect the realities of factor prices in the economy. reducing the money supply would not have worked to curb that inflation (nor btw did it work in the Great Depression, though it did bring about some deflation. Deflation is why bitcoin is not going to ever work.)
  - WalterBright 5y ago
    > the inflation of the 70's was caused by the increase in the price of a single good, oil, due to the Arab oil embargo. If the price of a single item goes up, and you buy it, you have less money to spend on other items, and so the prices of those other items goes down. Supply & demand. In order for a general price increase, the supply of money must increase.
    - dragonwriter 5y ago
      > If the price of a single item goes up, and you buy it, you have less money to spend on other items, and so the prices of those other items goes down. Almost no one buys crude oil directly. But it is a production input for a lot of things, so a shift in its supply curve shifts the supply curve of lots of other goods (including most consumer goods) in the same direction. > In order for a general price increase, the supply of money must increase. For demand pull inflation, supply × velocity × average propensity to consume needs to increase; for supply push inflation, though, nothing is required on the money (which is demand) side, you just need on average decrease in supply of consumer goods and services.
      - WalterBright 5y ago
        Again, if you have $10, and the price of X goes from $5 to $7, now you only have $3 to spend on other things, which reduces the price of those other things. But if someone gives you $20, now you have $7 to spend on X and $13 to bid up the prices on other things. Demand push and supply pull explanations do not account for this, and are inadequate (though still popular) theories.
- simiones 5y ago
  > In order for prices to rise generally, there has to be an increase in the money supply relative to the goods and services it represents. That's not true, even with simplistic models like supply and demand curves. Prices can rise across the board with a fixed money supply, and you'll have a corresponding reduction in amount of goods traded. Yesterday 1000 people each bought 2kg of potatoes at $1/kg, and 1 kg of meat at $10/kg. Today, potatoes cost $2/kg, and meat costs $15/kg. So, 800 people buy 3kg of potatoes and 0kg of meat, and only 200 people keep buying both potatoes and meat. Meat producers adjust their production down to account for the new conditions, firing extra staff and sending the spiral ever downward.
tibbetts 5y ago
Except if the increase in car prices is known to be temporary than it doesn’t really drive overall inflation. I for one just fixed a car I would otherwise have replaced, due to the used cars I would replace it with being in short supply.

WalterBright 5y ago

Inflation is a general rise in prices, not a rise in the price of one or a few goods. In order for prices to rise generally, there has to be an increase in the money supply relative to the goods and services it represents.

landemva 5y ago
If inflation is reduction in broad (not one single item) purchasing power of the monetary unit, then inflation will be felt when people lose confidence in the money or the organization backing the money. USA will feel significant inflation when the public loses confidence in the federal government. EU is much further down that path.
- WalterBright 5y ago
  People never lost confidence in gold, and yet the 1849 gold rush caused inflation. Gold's buying power declined significantly.
  - landemva 5y ago
    That is a good example of a commodity money that experienced supply volatility and subsequent price volatility. It was inflation - more supply of the money. Money is tricky to do in all times for all use cases. Bitcoin is making a run for store of value money, and unlike gold it is truly scarce.
zarzavat 5y ago
Inflation is whatever you want to to be. Usually inflation is defined using the prices of a basket of goods. This does not capture the inflation that people feel - most people are far more interested in the price of a home than the price of spaghetti, but spaghetti is the definition. One reason why spaghetti is used rather than house prices is that it is less subject to speculatory swings, or local variation - to be used as a basis for adjusting other prices inflation has to be defined in terms of something stable and uniformly priced. This may seem circular, and it is. What we see is that increases in the money supply generally don't go into the prices of basic goods tracked by inflation. Instead they go into the prices of assets that are not tracked by inflation. Nobody is using spaghetti as an investment vehicle.
fsckboy 5y ago
what you're both saying is true, so where you think you are correcting him, you're not. the inflation of the 70's was caused by the increase in the price of a single good, oil, due to the Arab oil embargo. Oil being a factor in the cost of many other products, there was a knock on effect causing a broad increase in prices across the board, general inflation. There were also 2nd order macroeconomic effects caused by the govt's attempts to deal with the inflation and economic slowdown, but at the root, price inflation was necessary to reflect the realities of factor prices in the economy. reducing the money supply would not have worked to curb that inflation (nor btw did it work in the Great Depression, though it did bring about some deflation. Deflation is why bitcoin is not going to ever work.)
- WalterBright 5y ago
  > the inflation of the 70's was caused by the increase in the price of a single good, oil, due to the Arab oil embargo. If the price of a single item goes up, and you buy it, you have less money to spend on other items, and so the prices of those other items goes down. Supply & demand. In order for a general price increase, the supply of money must increase.
  - dragonwriter 5y ago
    > If the price of a single item goes up, and you buy it, you have less money to spend on other items, and so the prices of those other items goes down. Almost no one buys crude oil directly. But it is a production input for a lot of things, so a shift in its supply curve shifts the supply curve of lots of other goods (including most consumer goods) in the same direction. > In order for a general price increase, the supply of money must increase. For demand pull inflation, supply × velocity × average propensity to consume needs to increase; for supply push inflation, though, nothing is required on the money (which is demand) side, you just need on average decrease in supply of consumer goods and services.
    - WalterBright 5y ago
      Again, if you have $10, and the price of X goes from $5 to $7, now you only have $3 to spend on other things, which reduces the price of those other things. But if someone gives you $20, now you have $7 to spend on X and $13 to bid up the prices on other things. Demand push and supply pull explanations do not account for this, and are inadequate (though still popular) theories.
simiones 5y ago
> In order for prices to rise generally, there has to be an increase in the money supply relative to the goods and services it represents. That's not true, even with simplistic models like supply and demand curves. Prices can rise across the board with a fixed money supply, and you'll have a corresponding reduction in amount of goods traded. Yesterday 1000 people each bought 2kg of potatoes at $1/kg, and 1 kg of meat at $10/kg. Today, potatoes cost $2/kg, and meat costs $15/kg. So, 800 people buy 3kg of potatoes and 0kg of meat, and only 200 people keep buying both potatoes and meat. Meat producers adjust their production down to account for the new conditions, firing extra staff and sending the spiral ever downward.

tibbetts 5y ago

Except if the increase in car prices is known to be temporary than it doesn’t really drive overall inflation. I for one just fixed a car I would otherwise have replaced, due to the used cars I would replace it with being in short supply.