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No, money really is essential. If you destroy your productive capacity but money supply remains the same (which is honestly a bit odd, since real prices are alw
by baryphonic 5y ago
No, money really is essential. If you destroy your productive capacity but money supply remains the same (which is honestly a bit odd, since real prices are always relative), then you get substitution effects that don't affect the general price level, only the price levels in particular segments of the economy. (I would expect the prices of products, capital goods and human capital to increase, and the price of commodities and goods related to distribution to decrease). Put differently, you'll have less exchange and will shift what you spend on, but the price levels will not show much of a sustained general increase.
The tricky part of inflation is that a lot of money exists on paper, and banks and even firms are more constrained by capital than we otherwise might wish to believe. (Though one good casualty of the pandemic has been the realization that banks are almost entirely unconstrained by reserve requirements, only by capital.) So when the money is sitting in some account bearing a small amount of interest at the Fed, that is low velocity and may not cause inflation. However, if that cash enters circulation (via, say, direct payments from the government), then suddenly the velocity is much higher, the money supply goes up and you have "too much money chasing too few goods."
Inflation is really always and everywhere a monetary phenomenon.
- girafffe_i 5y ago> "I would expect the prices of products, capital goods and human capital to increase, and the price of commodities and goods related to distribution to decrease" If wages go up, that comes from the companies; does that mean trickle-down econ worked, starting from low interest rates?
- wbsss4412 5y ago> If you destroy your productive capacity but money supply remains the same (which is honestly a bit odd, since real prices are always relative), then you get substitution effects that don't affect the general price level, only the price levels in particular segments of the economy. Because the destruction of capacity somehow didn’t affect the substitutes? That’s magical thinking. There’s a shortage of new cars => used car prices skyrocket (alone this accounts for roughly ~1.5 points of the cpi increase). And no, it’s not simply because demand is higher for cars, new car sales are still below pre pandemic levels. > Inflation is really always and everywhere a monetary phenomenon. It can be one, and that is certainly a contributing factor here, but if you can see the obvious supply chain/shift in demand due to covid effects, then you’re just blinded by dogma.
- baryphonic 5y ago> > Inflation is really always and everywhere a monetary phenomenon. > It can be one, and that is certainly a contributing factor here, but if you can see the obvious supply chain/shift in demand due to covid effects, then you’re just blinded by dogma. I didn't realize Jerome Powell commented on Hacker News! If you can't see how the change in the money supply over the past two years[0] may be the dominant and, dare I say, only explanation for the inflation we are experiencing, then—well—maybe I'm not the dogmatic one. [0]https://fred.stlouisfed.org/graph/fredgraph.png?g=LYjq https://fred.stlouisfed.org/graph/fredgraph.png?g=LYjq
- wbsss4412 5y agoYes yes, look at big number. Ignore any possible alternate explanation because reasons.