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> Inflation is almost 100% caused by "too much money" chasing "too few goods". I find it baffling that the "always and everywhere a monetary phenomenon" crowd

> Inflation is almost 100% caused by "too much money" chasing "too few goods". I find it baffling that the "always and everywhere a monetary phenomenon" crowd never inspects velocity.

danielmarkbruce 5y ago
It's a beautiful sounding, simple theory. Print lots of money, get inflation. Humans eat up stories that are beautiful sounding and simple.
hgomersall 5y ago
Worth a read https://new-wayland.com/blog/too-much-money/ https://new-wayland.com/blog/too-much-money/ and also https://economicsfromthetopdown.com/2021/11/24/the-truth-about-inflation/ https://economicsfromthetopdown.com/2021/11/24/the-truth-abo...
deeg 5y ago
I think this group is afraid of hyperinflation, which is almost always caused by governments printing too much money. (And, if we're honest, hyperinflation is a scary situation.) The problem is that they then extrapolate and decide that nominal inflation must be the result of the same problem and that all government action will lead to hyperinflation.
voisin 5y ago
Velocity always seems to be treated as independent. When velocity plummets, Fed increases money supply. When velocity recovers, the money supply never shrinks. It is a one-way ratchet. Why is that?
- babypuncher 5y ago
  People who enjoy the cheap capital afforded by the Fed increasing supply do not want to see their gravy train end, even if it is better for the economy as a whole to temper it while it's hot. See Trump et al gnashing their teeth at the fed for talking about raising rates back in 2018.
nostrademons 5y ago
Because velocity tends to return to historical norms in a functioning economy, and if velocity doesn't return to historical norms - say it goes to infinity, like in Weimar hyperinflation, or it goes to zero, like in Japan-style depression - you have bigger problems. The "velocity is dropping so we need to print more" argument runs into scary problems if you make it without understanding why velocity is dropping. If it's because all the wealth is concentrating within a certain sliver of the population (like 2008-2020 U.S), that's a really big problem that's going to cause mass social instability. If it's because everybody's shutting themselves in their room and not spending money or engaging with society (like Japan), that's also a really big problem. If it reverses and returns to historical norms and beyond (as I suspect will happen), that's also a problem. A big contrarian position in 2008 that I thought was nuts at the time but now think is very likely was that we were going to get "Deflation, then hyperinflation". I didn't understand the hyperinflation part then, but the argument was that deflation would lead the Fed to keep expanding the money supply, which would pool among a small number of people, until some spark triggered that group to spend money. COVID-related supply chain disruptions were that spark, and I think the hyperinflation case is increasingly likely now.

> Inflation is almost 100% caused by "too much money" chasing "too few goods". I find it baffling that the "always and everywhere a monetary phenomenon" crowd never inspects velocity.

danielmarkbruce 5y ago

It's a beautiful sounding, simple theory. Print lots of money, get inflation. Humans eat up stories that are beautiful sounding and simple.

hgomersall 5y ago

Worth a read https://new-wayland.com/blog/too-much-money/ https://new-wayland.com/blog/too-much-money/ and also https://economicsfromthetopdown.com/2021/11/24/the-truth-about-inflation/ https://economicsfromthetopdown.com/2021/11/24/the-truth-abo...

deeg 5y ago

I think this group is afraid of hyperinflation, which is almost always caused by governments printing too much money. (And, if we're honest, hyperinflation is a scary situation.) The problem is that they then extrapolate and decide that nominal inflation must be the result of the same problem and that all government action will lead to hyperinflation.

voisin 5y ago

Velocity always seems to be treated as independent. When velocity plummets, Fed increases money supply. When velocity recovers, the money supply never shrinks. It is a one-way ratchet. Why is that?

babypuncher 5y ago
People who enjoy the cheap capital afforded by the Fed increasing supply do not want to see their gravy train end, even if it is better for the economy as a whole to temper it while it's hot. See Trump et al gnashing their teeth at the fed for talking about raising rates back in 2018.

nostrademons 5y ago

Because velocity tends to return to historical norms in a functioning economy, and if velocity doesn't return to historical norms - say it goes to infinity, like in Weimar hyperinflation, or it goes to zero, like in Japan-style depression - you have bigger problems. The "velocity is dropping so we need to print more" argument runs into scary problems if you make it without understanding why velocity is dropping. If it's because all the wealth is concentrating within a certain sliver of the population (like 2008-2020 U.S), that's a really big problem that's going to cause mass social instability. If it's because everybody's shutting themselves in their room and not spending money or engaging with society (like Japan), that's also a really big problem. If it reverses and returns to historical norms and beyond (as I suspect will happen), that's also a problem. A big contrarian position in 2008 that I thought was nuts at the time but now think is very likely was that we were going to get "Deflation, then hyperinflation". I didn't understand the hyperinflation part then, but the argument was that deflation would lead the Fed to keep expanding the money supply, which would pool among a small number of people, until some spark triggered that group to spend money. COVID-related supply chain disruptions were that spark, and I think the hyperinflation case is increasingly likely now.