6 ms·

Entirely the other way around. Price rises beaten by wage increases is actual economic inflation: 'true inflation'. Price rises without wage increases is a red

Entirely the other way around. Price rises beaten by wage increases is actual economic inflation: 'true inflation'. Price rises without wage increases is a redistribution either away from wages towards profit, or more likely towards those workers in demand and away from those that are not. Or 'semi-inflation' as it is known. And playing around with interest rates will affect neither issue, because, as it should be clear after more than a decade, interest rates aren't actually that effective a policy tool. The economic rebalancing has to play out so that the new normal can re-establish.

notsureaboutpg 5y ago
Why would this make sense? If price rises are beaten by wage inflation, or if wage increases beat price inflation, the measure of inflation is that the value of the currency weakens. If both price & wage go up, currency is losing its value either way.
lmilcin 5y ago
No, not really. Inflation refers only to the decrease in value of money, it has nothing to do with wages. "In economics, inflation refers to a general progressive increase in prices of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduction in the purchasing power of money." https://en.wikipedia.org/wiki/Inflation https://en.wikipedia.org/wiki/Inflation It says "reduction in the purchasing power of money", not "people can now buy less stuff for their salary". Inflation means you can buy less for the same amount of money, but how much money people earn is a separate matter.
- neilwilson 5y ago
  That's not an economic inflation. An economic inflation is when wages and prices go up together so nothing much changes other than numbers. If people can buy less stuff with their wages that's a redistribution away from the wage share and towards the profit share. Guess which share pays people to write the definitions on Wikipedia?
  - lmilcin 5y ago
    I actually went to school (which included economics in its curriculum). I have also worked for many financial institutions over past 20 years including banks, brokerage houses and insurance companies. Currently for Citi Group as a tech lead for one of its risk systems. My work requires me to understand what inflation is because it has very deep impact on everything we do. Here you have other reputable source: https://www.investopedia.com/terms/i/inflation.asp https://www.investopedia.com/terms/i/inflation.asp "Inflation is the decline of purchasing power of a given currency over time."
    - neilwilson 5y ago
      "I actually went to school (which included economics in its curriculum). That'll be your problem. Any training in economics or financial institutions leads to a skewed view of how the world actually works. You don't understand what inflation is. You understand what financial institutions want to consider inflation to be because it affects the returns on the debt instruments. For everybody else in the economy that isn't a problem. In fact it is of benefit to them since it redistributes away from financial institutions towards actual people doing stuff. Inflation is more than just a narrow view of price changes. "When a further increase in the quantity of effective demand produces no further increase in output and entirely spends itself on an increase in the cost-unit fully proportionate to the increase in effective demand, we have reached a condition which might be appropriately designated as one of true inflation. Up to this point the effect of monetary expansion is entirely a question of degree, and there is no previous point at which we can draw a definite line and declare that conditions of inflation have set in. Every previous increase in the quantity of money is likely, in so far as it increases effective demand, to spend itself partly in increasing the cost-unit and partly in increasing output." The General Theory of Employment, Interest, and Money; John Maynard Keynes' Ch 21, V
addicted 5y ago
The causes of inflation are fairly straightforward. It's a shortage of labor, international supply chain issues, and an unbalanced labor market due to a demand profile that changed rapidly over the pandemic (essentially a huge shift to goods over services). Since the interest rates work by encouraging investment (usually long term), it doesn't look like interest rate changes will have any impact on inflation at least in the short term, since any investments in the labor market will take years to show results.
- TacticalCoder 5y ago
  > The causes of inflation are fairly straightforward. It's a shortage of labor, international supply chain issues, and an unbalanced labor market due to a demand profile that changed rapidly over the pandemic (essentially a huge shift to goods over services). So the trillions printed out of thin air have nothing to do with the inflation currently experienced?
  - disgruntledphd2 5y ago
    We've been printing like crazy people for at least the last ten years. Why haven't we see inflation before this? I do agree that asset price inflation has been a real thing, but if it's just money printing, then why didn't we see broad based inflation from 2008 onwards? (Serious question).
    - neilwilson 5y ago
      The asset prices aren't inflating. They are returning to their true market determined level. Interest rate setting is an artificial market intervention that suppresses market prices by giving people a 'free money' alternative paid for by taxpayers. As long as you are a bank of course.
    - AlgorithmicTime 5y ago
      The money wasn't moving into the consumer economy, it was going into the stock market and assets.
    - 5y ago
angelzen 5y ago
Whether prices or wages are the true measure of inflation is a class marker. If you are a (0.)1%er making most of your money from stocks, it's wages. If you are working for a living, it's prices. Guess which side dominates the US public discourse.

notsureaboutpg 5y ago

Why would this make sense? If price rises are beaten by wage inflation, or if wage increases beat price inflation, the measure of inflation is that the value of the currency weakens. If both price & wage go up, currency is losing its value either way.

lmilcin 5y ago

No, not really. Inflation refers only to the decrease in value of money, it has nothing to do with wages. "In economics, inflation refers to a general progressive increase in prices of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduction in the purchasing power of money." https://en.wikipedia.org/wiki/Inflation https://en.wikipedia.org/wiki/Inflation It says "reduction in the purchasing power of money", not "people can now buy less stuff for their salary". Inflation means you can buy less for the same amount of money, but how much money people earn is a separate matter.

neilwilson 5y ago
That's not an economic inflation. An economic inflation is when wages and prices go up together so nothing much changes other than numbers. If people can buy less stuff with their wages that's a redistribution away from the wage share and towards the profit share. Guess which share pays people to write the definitions on Wikipedia?
- lmilcin 5y ago
  I actually went to school (which included economics in its curriculum). I have also worked for many financial institutions over past 20 years including banks, brokerage houses and insurance companies. Currently for Citi Group as a tech lead for one of its risk systems. My work requires me to understand what inflation is because it has very deep impact on everything we do. Here you have other reputable source: https://www.investopedia.com/terms/i/inflation.asp https://www.investopedia.com/terms/i/inflation.asp "Inflation is the decline of purchasing power of a given currency over time."
  - neilwilson 5y ago
    "I actually went to school (which included economics in its curriculum). That'll be your problem. Any training in economics or financial institutions leads to a skewed view of how the world actually works. You don't understand what inflation is. You understand what financial institutions want to consider inflation to be because it affects the returns on the debt instruments. For everybody else in the economy that isn't a problem. In fact it is of benefit to them since it redistributes away from financial institutions towards actual people doing stuff. Inflation is more than just a narrow view of price changes. "When a further increase in the quantity of effective demand produces no further increase in output and entirely spends itself on an increase in the cost-unit fully proportionate to the increase in effective demand, we have reached a condition which might be appropriately designated as one of true inflation. Up to this point the effect of monetary expansion is entirely a question of degree, and there is no previous point at which we can draw a definite line and declare that conditions of inflation have set in. Every previous increase in the quantity of money is likely, in so far as it increases effective demand, to spend itself partly in increasing the cost-unit and partly in increasing output." The General Theory of Employment, Interest, and Money; John Maynard Keynes' Ch 21, V

addicted 5y ago

The causes of inflation are fairly straightforward. It's a shortage of labor, international supply chain issues, and an unbalanced labor market due to a demand profile that changed rapidly over the pandemic (essentially a huge shift to goods over services). Since the interest rates work by encouraging investment (usually long term), it doesn't look like interest rate changes will have any impact on inflation at least in the short term, since any investments in the labor market will take years to show results.

TacticalCoder 5y ago
> The causes of inflation are fairly straightforward. It's a shortage of labor, international supply chain issues, and an unbalanced labor market due to a demand profile that changed rapidly over the pandemic (essentially a huge shift to goods over services). So the trillions printed out of thin air have nothing to do with the inflation currently experienced?
- disgruntledphd2 5y ago
  We've been printing like crazy people for at least the last ten years. Why haven't we see inflation before this? I do agree that asset price inflation has been a real thing, but if it's just money printing, then why didn't we see broad based inflation from 2008 onwards? (Serious question).
  - neilwilson 5y ago
    The asset prices aren't inflating. They are returning to their true market determined level. Interest rate setting is an artificial market intervention that suppresses market prices by giving people a 'free money' alternative paid for by taxpayers. As long as you are a bank of course.
  - AlgorithmicTime 5y ago
    The money wasn't moving into the consumer economy, it was going into the stock market and assets.
  - 5y ago

angelzen 5y ago

Whether prices or wages are the true measure of inflation is a class marker. If you are a (0.)1%er making most of your money from stocks, it's wages. If you are working for a living, it's prices. Guess which side dominates the US public discourse.