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Inflation is a disease (1978) [video]

97 points by azizsaya 5y ago

flembat 5y ago
Inflation is a stealth tax, imposed via central banks.
- neffy 5y ago
  Not really. It has three different causes: 1) Excessive lending and consequent increases in the money supply by commercial banks. 2) Governments printing money without any regulatory compensation to prevent 1 3) Shortages in goods and supplied measured by the CPI, such as food. Right now we have 2 and 3, and some countries will probably have 1 as well..
  - hitovst 5y ago
    The debasing of fiat currency is a "stealth" redistribution of wealth, regardless of the pretenses for it.
    - howinteresting 5y ago
      Redistribution from creditors to debtors is good. And it's not that stealth given we're talking about it.
    - smt88 5y ago
      By that definition, every price change is a redistribution of wealth (which is technically true). The question is whether it's intentional, and it's impossible to imagine the people in charge of every world government would be enraging their citizens by creating inflation. Simpler: people saved money during the pandemic at the same time as supply chains were disrupted, leading to high prices. Every government in the world has the same problem.
    - davnn 5y ago
      It doesn‘t look like it as it appears that inflation is contributing to wealth inequality. Do you have any sources for your claims?
      - macinjosh 5y ago
        Inflation makes saving money a losing proposition because it literally rots away in your bank account. How is some one supposed to save for college, a house or to start a business if they are constantly losing money? Meanwhile rich people don't care because their immense wealth lets them ride out inflation easily. In fact, in some situations it may be to their advantage because the value of other assets they hold (real estate, metals, art, etc) often increase in value during inflation.
        sokoloff 5y ago
        You save for things that are 5+ years away by investing at least a portion of it in equities. Investments for goals that are 20+ years away should be over 80% in equities, IMO.
        epicureanideal 5y ago
        In other words, the only remaining way to “save money” is to buy assets largely owned by the rich and further drive up the inflated values of those assets.
        sokoloff 5y ago
        Said differently: investing in ways similar to how the rich invest seems like a generally sound strategy, all else being equal. (They don't keep much money in passbook savings accounts.)
        epicureanideal 5y ago
        Sure, but really the reason we should invest like the rich isn’t that it’s sound for rational economic reasons, but that the rich will use their influence on politics to ensure their investments do not decline as much as they would without interventions.
    - HWR_14 5y ago
      How is it redistributing wealth? From who to who?
      - Geee 5y ago
        Simply put, from the poor to the rich. It's a major cause of wealth centralization.
      - kevin_thibedeau 5y ago
        To those controlling interest rates from those who don't have any access to low risk investments.
        JumpCrisscross 5y ago
        > from those who don't have any access to low risk investments Treasuries, the lowest-risk dollar investment, are the first to lose value with inflation. And everyone has access to Series I bonds.
      - cloutchaser 5y ago
        From whoever is furthest to money creation to whoever is closest. Ever wonder why record stock buybacks and record ceo pay are happening right when QE is happening? Why stock markets and PE ratios are at record highs? Why there are record amounts being invested by VCs? Why commodity prices have been rising? It’s not because of evil capitalism. It’s because those people are closest to where money creation happens. The 1% aren’t getting richer because of the exploitative nature of capitalism, but because they have access to new money.
        _0ffh 5y ago
        >From whoever is furthest to money creation to whoever is closest. Precisely! You might also want to mention that there's a name for that, the Cantillon Effect. [Ed. Fixed spelling according to sparkie's correction.]
        5y ago
    - throw0101a 5y ago
      > The debasing of fiat currency is a "stealth" redistribution of wealth, regardless of the pretenses for it. The "debasing of fiat currency" reduces debt burdens, and I would think that middle- and low-income folks are probably more likely to have debt (student loans, mortgages). A low-inflation or even deflationary environment is probably a worse thing for the non-rich.
      - WalterBright 5y ago
        > reduces debt burdens Not really, because inflation causes interest rates to go up correspondingly.
        gizmo686 5y ago
        Which is not relevant to most consumer debt, where the interest rate is set at the start and locked in for the life of the loan.
        WalterBright 5y ago
        Fixed rate debts interest are set to accommodate the current inflation rate plus higher values to accommodate the risk of inflation increasing. Lenders are not fools when it comes to inflation.
        loeg 5y ago
        Quite a lot of consumer debt is variable rate (credit cards, ARMs, ...), or nominally fixed rate, but rolls over somewhat frequently (car loans, mortgages as people move or refinance, pay later spending, etc).
      - gruez 5y ago
        >and low-income folks are probably more likely to have debt (student loans, mortgages). Source? For student loans at least, the amount of debt held is positively correlated with household income, not negatively like you suggest. https://www.urban.org/sites/default/files/styles/optimized_default/public/2019-05/eddebtcolumn_revised.jpg?itok=xqPlrb5W https://www.urban.org/sites/default/files/styles/optimized_d...
- larrydag 5y ago
  "The real tax on the American people is what government spends" -M. Friedman
  - sfe22 5y ago
    And the hurdles it creates. The government may spend $100k on a bureaucrat that causes individuals and companies to spend millions to overcome.
    - xyzzyz 5y ago
      Indeed. The real tax is not just what government spends, but also the deadweight loss of forced reallocation.
- moltke 5y ago
  Right. Inflation makes your rent go up which for most working people is already significantly higher than their taxes.
- kaashif 5y ago
  Stimulating aggregate demand past output with monetary policy is one way inflation can happen, and central banks do have control over that. That can be considered a stealth tax by central banks. But sometimes output actually does decrease and that isn't due to central banks. The price of gas in Europe, for example, increased because there was a cold winter, a lack of wind, a recent issue with the supply due to Russia's attack on Ukraine. Not all increases in demand are due to central banks, and not all inflation is due to changes in demand.
- lamontcg 5y ago
  Inflation is stealth debt relief.
  - int_19h 5y ago
    It is, but that largely benefits the middle class (which has much better access to debt), not people living paycheck-to-paycheck.
    - lamontcg 5y ago
      People living paycheck-to-paycheck get larger paychecks out of an actual wage-price spiral so they're ultimately no worse off or better off. It is almost right there in the name. What doesn't work for them is when there's massive asset bubbles like we've had for 30 years, but their wages are held flat.
- gwmnxnp_516a 5y ago
  The definition of what is inflation depends on the economic school of thought. In the case of the Austrian and Chicago economic school of thought inflation is the increase of money supply caused by the central bank that allegedly results in systematic and non temporary increase of CPI consumer price index and money loss of value. There are school of economics, such as Keynesian that argues that a limited and controlled inflation is a good thing for increasing market liquidity, avoiding deflation and promoting a full employment policy. On the other hand some economists believe that some inflation is also good for weakening the currency, boosting the exports and reducing the imports. Inflation becomes problematic when it is used for financing uncontrolled government spending like in Argentina, Turkey and Lebanon as making money out of thin air is the easiest way to a government to raise money since raising taxes can result in massive opposition; taking loans denominated in foreign currency may requires good credit rating and reasonable credibility; austerity measures, such as cutting government spending, unreasonable subsidies or unreasonable government employees wages may also result in political clashes. The raise of money supply is not be the only cause of CPI and raise of cost of living as supply and demand problems around the world may also increase the CPI. For instance, we also should remember that we have faced several unexpected black swans, such as the pandemic; supply chain shutdown around the world, specially in Asia, that the West has become too dependent on; massive flooding in China what prompted the country to hoard grains; massive droughts in USA (California) and south of Brazil, both countries accounts for great deal of the world's food production; and finally the current war in Europe reduced the amount of natural gas, crude oil supply, fertilizers and wheat in the global market. Both countries involved in the current war accounts for about 1/3 of the world wheat production. Too much foreign dependency can also affect the CPI, since any currency devaluation against the dollar increases the price of everything if the country does not produces enough food to cover its needs like Lebanon.
savant_penguin 5y ago
The overall takeaway is that there is no free lunch. Many countries in Latin America went that way. Namely Venezuela and more recently Argentina. Chile could be the next in the way. When politicians say that 3 trillion dollar bills cost zero they should pay a political cost for this absolutely dangerous lie. Unfortunately they get away with this insanity. The idea that you can take 3 trillion dollars in goods and services without producing anything in return without impact is ridiculous and frankly childish. It's as if these people lost touch with reality and forgot that it takes time, effort and resources to produce anything of value.
- scsilver 5y ago
  You can cancel debts of the past and borrow for the future. If you happen to unlock a new level of productivity by doing so, you could possibly get your lunch for free based on the future productivity catching up to your spending.
  - hurhevdg 5y ago
    It still won’t be free for at least two reasons: 1. By the time you must repay the debt you will need to curb your consumption to less than the future production’s capacity. 2. During the initial borrowing phase you will increase consumption relative to other participants, curtailing their utility.
  - xyzzyz 5y ago
    "Debt" means that someone deferred their consumption in the past, and gave their claim on production to you, so that you will repay them with increased claim on production in future. What you propose here amounts to the following: renege on the past claim to past debtors, and tell them that not only you won't give them extra production, but in fact the claim on production that they voluntarily decided to defer and give to you, is now gone forever. At the same time, since you cannot actually borrow resources from the future, any more than you can irrigate your plants today with next month's rain, what your "borrowing for the future" means is that you'll ask people to voluntarily defer their consumption, and instead pass on their claim on production to you, with you promising them to repay them with an increased claim on production in future. Let's hope that your new debtors don't feel discouraged by you just reneging on that promise to others, and believe that this time it will be different!
systemvoltage 5y ago
Unrelated: I just want to mention the clarity of enunciation of people of this era. They spoke with this wonderful crystalline voice that is so pleasant to hear. Similar can be heard in Bell Labs demonstrations and other 1950-1980 clips. I think part of it is the audio processing and low-pass filtering, but I think the accent and our discipline of the language has changed dramatically. In America, many kids today cannot go longer in a sentence without uttering 'like' and 'um'.
- gadflyinyoureye 5y ago
  - JaimeThompson 5y ago
    That the federal government hasn't taken over education is a bit of a hole in your argument.
- MisterBastahrd 5y ago
  Given that this guy stopped being a serious economist sometime in the early 70s and started being an ideologue who made his fortune giving speeches, it's no wonder that he'd be pretty good at public speaking given that's basically what his career was until his death. I think part of the reason for the clarity is that because these folks grew up without great audio production, they were forced to enunciate as clearly as possible, both on the radio and on stage. It's also why it's hard for me to watch old films and take the characters seriously. Nobody actually talked like that.
- shakezula 5y ago
  This is a phenomenon the world over, not just Americans, and not just young ones. It’s kind of ridiculous actually to suggest that filler words are unique to American kids.
  - systemvoltage 5y ago
    Oh I wasn't speaking as Americans exclusively. I agree with you, just that I am in America so I can speak for what I can see.
lvl102 5y ago
There is natural inflation from productivity and innovations especially in service dominant economy.
- next_xibalba 5y ago
  Productivity is deflationary, not inflationary, by definition.
  - lvl102 5y ago
    What definition is that?
- quadrangle 5y ago
  You're confused here. Price inflation specifically means the same products have a higher price. If you have more money and more productivity so you can buy more with the more money, that's not inflation. Inflation is short for "price inflation" not "money supply inflation" and not a synonym for "economic growth"
  - sparkie 5y ago
    The original meaning of inflation literally referred to an increase in the stock of money (in excess of any new value created). It has been manipulated over the years to refer to 'price increases', which are the effect of the inflation. https://www.clevelandfed.org/newsroom-and-events/publications/economic-commentary/economic-commentary-archives/1997-economic-commentaries/ec-19971015-on-the-origin-and-evolution-of-the-word-inflation.aspx https://www.clevelandfed.org/newsroom-and-events/publication...
    - quadrangle 5y ago
      Your link doesn't contradict the price-inflation view. > its original meaning - a rise in the general price level caused by an imbalance between the quantity of money and trade needs and in the PDF: > an inflating currency has but one origin — the central bank— and one solution— a less expansive money growth rate This is inherently problematic because there's no clear self-contained reason that inflating currency is a problem that needs a solution. If it failed to lead to price inflation or other effects, then it doesn't matter. > A good’s real price, or value, was defined as the effort required to produce it Well, people have and do talk like that, but it's dumb. That definition fits "cost" not "price". But anyway, I don't need to be picky. Sure, I accept that "inflation in money supply" is not only reasonable use of the metaphor of inflation but is indeed historically how it was used. And as the paper accepts, the definition has changed. That's how the world works. I still suspect that even 100-150 years ago, if inflation in the money supply didn't have any affect on prices, people would not have said the same things about it. All the quotes seem to assume that money supply inflation leads to price increase. As to the use today, it's unarguable. See https://www.dol.gov/general/topic/statistics/inflation https://www.dol.gov/general/topic/statistics/inflation > Inflation can be defined as the overall general upward price movement of goods and services in an economy. That simply is the definition today. And I think it was always the implication anyway.
larrydag 5y ago
At 11:00 there is a chart of the U.S. money supply (with CPI). Here is the current money supply (M2) chart produced by the Fed. https://fred.stlouisfed.org/series/M2SL https://fred.stlouisfed.org/series/M2SL
- baxtr 5y ago
  Note, that they changed the definition in May 2020…
- throw0101a 5y ago
  There were technical changes to definitions: * https://fredblog.stlouisfed.org/2021/05/savings-are-now-more-liquid-and-part-of-m1-money/ https://fredblog.stlouisfed.org/2021/05/savings-are-now-more...
  - pgwhalen 5y ago
    Thank you for this. However, this article is talking about moving savings deposits from M2 to M1, and the graph of the commenter you are replying to is one of M2. Therefore, the graph would not look different had the definition change not happened, correct? Because M2 includes M1 by definition.
Jerry2 5y ago
I'm reminded of this article from 2020 [1]: >The United States printed more money in June than in the first two centuries after its founding. Last month the U.S. budget deficit — $864 billion — was larger than the total debt incurred from 1776 through the end of 1979. and this is a good graph of our money supply (M1) [2] The inflation is here to stay. And it will only get worse. Fed's recent 25-basis point rate hike won't do anything to curtail the inflation. [1] https://blog.panteracapital.com/two-centuries-of-debt-in-one-month-pantera-blockchain-letter-july-2020-f876b43448a2?gi=257283f71639 https://blog.panteracapital.com/two-centuries-of-debt-in-one... [2] https://fred.stlouisfed.org/series/M1SL https://fred.stlouisfed.org/series/M1SL
- jdhn 5y ago
  The Fed is 100% stuck, and they know it. The idea that raising rates 25 bps multiple times this year will do anything to inflation is laughable, and the fact that their quantitative tightening is just letting MBS's run off the balance sheet naturally instead of selling them won't do anything towards bringing housing prices down, or even steadying them.
- md_ 5y ago
  In May 2020, the definition of M1 changed to include savings accounts that were previously excluded. If you look at the “old” series it’s _much_ less alarming: https://fredblog.stlouisfed.org/2021/05/savings-are-now-more-liquid-and-part-of-m1-money/ https://fredblog.stlouisfed.org/2021/05/savings-are-now-more.... Federal debt isn’t really directly related to what you are concerned about, since there’s no monetarist argument that issuing more debt itself is inflationary. (If it were, then private debt would also be inflationary, which is nonsensical!) The only reason debt would be inflationary is if it’s bought by the Fed, printing money. But a) we already covered that, with money supply (not as scary as it looks!) and b) the % of debt held by the Fed has only increased slightly (https://fredblog.stlouisfed.org/2017/03/the-depth-and-breadth-of-the-federal-debt/?utm_source=series_page&utm_medium=related_content&utm_term=related_resources&utm_campaign=fredblog https://fredblog.stlouisfed.org/2017/03/the-depth-and-breadt...).
- MiroF 5y ago
  The deficit is not printing money, because the money is borrowed.
shimonabi 5y ago
Inflation is not good, obviously. The cure in the past was to basically destroy some of the jobs so that people won't be in a position to bargain for a higher pay. There is an ongoing argument if the cure is worse than the disease.
stevebmark 5y ago
Required reading: "Shock Doctrine" - the repeated disastrous implementation of Friedman's ideas, and the Chicago school of economics / the "Chicago Boys," often to stop inflation. See also the "Berkeley Mafia."
whatever1 5y ago
7% inflation is orders of magnitute better than 40% unemployment. Specially if you are the US and everyone is begging to buy your freshly printed dollars.
aortega 5y ago
I'm an old Argentinan and lived through many inflation and hyperinflation cycles already. The cause is trivial: Governments are given the 'infinite money' machine and they abuse it. They abuse it like if they were primary school kids, thinking printing money to pay for stuff is a valid solution, its unbelievable but they truly did this for decades. Then you think, if this is true, do they print money to pay themselves and become millionaires? answer is incredible: Yes, they do exactly that, and if you visit the house of any politician in Venezuela or Argentina, you see that they live like Silicon Valley Billionaries, next to the slums they have created. If they need money for anything they just add it in the budget and at the end of they year they just print it! I know it seems crazy but they do exactly this, since 1970. The results are obvious. In our case is a little more sinister because its not enough to print money, they have to make all other money illegal, or else people would just stop using the fake currency. TLDR: They did exactly that, any currency except the one they print is illegal. USA did this in the pandemic, and now you have the consequences. You can't print money from nothing, its that simple.
- xadhominemx 5y ago
  The money supply-driven inflation you saw in Argentina is nothing like what developed nations are seeing now. Prices are spiking because real demand for semiconductors, slots at ports, oil, etc is outstripping supply, causing prices to go up. It’s possible that the situation will devolve into a wage-price stagflationary cycles similar to what Argentina and other emerging markets have experienced over the decades, but that is not what is happening now.
  - aortega 5y ago
    I'm not and economist, but I think its quite obvious that there is a difference between a localized price spike from a particular asset, another is all assets increasing in price uniformly. The second is not all assets becoming scarce at the same time, but the devaluation of the currency used to measure the assets' price.
    - xadhominemx 5y ago
Tarsul 5y ago
the elephant in the room (that is really overlooked in these discussions) is that a lot of the current inflation is not coming from money policies but rather from supply side issues. E.g. gas and oil due to the ukraine war (also wheat, nickel etc.), less microchips from china due to its handling of covid (lockdowns) and the change in consumerism due to covid which resulted in more demand for things like bicycles, office hardware for home office, baking machines etc. etc. So why is this supply side aspect often overlooked? Not so much because it is not known but rather because a lot of crisis handling in the last decades came through to the central banks and thus monetary policy. However, this can only be one aspect. We need more classical invention from governments wrt taxes, subventions etc. So, basically, what nearly every economic problem is about: inequality and reallocation of resources.
- sjmm1989 5y ago
  > is that a lot of the current inflation is not coming from money policies but rather from supply side issues. The caveat to this argument is that supply side issues only affect certain portions of the economy. Printing money affects all of it, no matter what. This is why it's often the sole thing looked at, because while supply side issues do cause problems, they can be avoided entirely by finding a new supplier. You can't however, avoid the money that was already printed. You can try to get the politicians to avoid the printer, but good luck. So in regards to me for instance, supply issues with many of the grains out there just doesn't affect me. Why? I don't use them. I have no need for them anymore for the most part. Anything they might contribute towards my lifestyle is so insignificant that I can literally say I don't need grains. So that means when there is shortages of these grains and the rest of you are clamoring for them; I won't be. And when the prices of these grains go up and you are all having to pay for them; I won't be. Therefore, the inflation to costs of grains, doesn't affectt me. At least, not directly. Indirectly it may affect me, like an employer deciding they don't need that many employees when they have to pay X amount more for the bread that often just gets thrown away due to mold. Yes, that scenario could actually happen in a real world situation. If food stuffs are becoming more expensive, the boss is going to cut costs in other ways, or find new ways to gain more money. Possibly both. So. Supply side isn't false, but it's not the end all and be all like you saying with your complaining about inequality and reallocation of resources. The reality is that up until very recently; there was no need to readjust our supply lines. It has nothing to do with whatever fantastical idea you have cooking up in your head there, because ultimately I am correct in saying that you all don't need to have everything. Not every single thing that exists on this planet, needs to be yours. Or anyone's for that matter. This is part of why I brought up grains. They are an item that lots of people use; but not everyone actually technically needs it. There are ways to get around using those grains, or avoiding them entirely without issue. So a question to you would be this. If I am not getting my 'fair share' of grain, am I being made unequal? How so? I don't use them. Perhaps I could trade them with someone who does, sure. But perhaps they don't have something I want. Trade it for money you say? Okay, sure; but your society is automatically delegitimized on the grounds of equality then; since you can never truly make people equal through money. Someone will always be able to hold onto more of it than others can. Unless you make that illegal... which would make you the problem in the eyes of everyone who holds any sort of money. See. It's not about 'supply lines'. It's simply just about people being people and thinking they need to have everything at every god damn moment in time, and nothing less. Here's the truth of it. NONE OF YOU NEED: 1. Avocadoes. These are supporting Cartels now down south, so you shouldn't be buying them from there anymore anyways, if you are a logical person that is... (I know this one might trigger some people, but that's kinda the point. You don't actually need this food in many countries it doesn't grow naturally in. There are other foods folks.) 2. A wide variety of specialty grains. These are often ridiculously expensive to transport and ship around, because even when processed this stuff gets heavy. Most of the cost attached to these things is all the processing done to them. This is still yet ignoring some main grains like wheat, oats, barley and even rice or corn. (Yes, these last two are technically grains.) Even if we only ever used the mainstays, and avoided all the 'special' ones, we would still be spending far too much money on keeping this supply chain running as it does. Meanwhile, every town and city could have their own local farms churning out the actual amounts of grain and flour that people actually need. With a cap and trade system attached to this, you can effectively keep these items price values normalized. Thus increasing the affordability for anyone who might want these things. 3. Imported foods in general, though not all. This one is tricky, but much like the specialty grains and avocadoes; there are plenty of foods that we don't really actually need to import. We could grow them here instead via interesting methods to replicate the climate they want. (Where ever 'here' is for you, etc.) Basically all the same things apply. The more these things are travelling or being processed to get to your mouth; the more they are going to cost. And notice I haven't even began starting to talk about Meat yet? There is a reason for that. It's the same reason you use for your own comment. Veggies and other non-meat products are often overlooked by people who focus too fiercely on meat. Those same people often don't realize that many of the products we feed these animals, are NOT the same products we feed ourselves. We don't give them the best cobs of corn. We don't give them the nicest grains and greens. We give them sileage instead. (rotted/fermented grains/greens) We give them the cobs of corn that people won't buy. We give them everything we won't use, because it turns what is still food to them but waste to us into more food for us. But they ignore all of that, due to their own biases. And it takes people like me who see both sides of this issue for what they are, and call you all out on it. So, Tarsul. It's not a allocation problem. It's not even an equality problem. Yes we could do better on those things; but they aren't the source of the problem. The fact of the matter is that when you increase the total amount of money flowing through the system, you get a variety of effects that have to do with it. 1. The greedy see a way to get more money. They charge more, since there is more. If supply happens to be lower than demand, then they make even more money through doing this. But they do this regardless. In normal times, we often just call this 'passing on the buck'. That term applies to a few situations really. 2. Governments often give that printed money to all the wrong people in the hopes that it will trickle down through economic activity. And in some regards they are correct. It will trickle down, somewhat. But trickle is definitely the right word in regards to the speed of which it changes hands. It's slow, because as I said earlier about money; those who have it will generally find ways to keep it longer. Longer than they should be, or ever should have been able to since it wasn't properly earned, but given. 3. Since that money isn't free even when printed; it affects the total worth of our dollar to boot. Between the automatic inflationary effects felt, and the interest the government will need to pay back to the banks they printed it through; this just increases the speed of which that inflation occurs. Between lowering the worth of the dollar in general, plus the increase of money supply overall thus lowering the worth of the dollar even further; supply side issues are just not that big a concern when it comes to dealing with inflation. The only time they truly become a concern is when legitimate demand overpowers supply. Note I say legitimate, and not just demand. The key difference here being the point of much of what I have said up til now about supply side issues. We just don't actually need many of those things people want. Like it or not, there are other options. Sometimes better options. In regards to global supply lines, there are other options if governments were willing to make use of them. But they generally aren't. And then there comes the final point to this all... Governments aren't in charge of absolutely everything, and that's probably a good thing; but right now it's not so much. Why? Because the private companies that don't want to change appropriately are being the hold backs in regards to supply lines. And that right there is the only reason your comment has any validity whatsoever. Literally. Businesses of all sorts need to get their act together, or step out of the system entirely. Governments need to get their act together as well, or risk being forced out of the system entirely. The both of them together bungling everything the way they do, is why we are inflating our currencies, but Government has more control over things than businesses usually do; so they get the immediate blame. Always.
Geee 5y ago
Another effect of inflation is that people are forced to invest and take on risk, in order to not lose their savings. I think this has a major effect on workforce productivity and mental health. Everyone has to watch markets and worry about their savings. Active investing is like having an extra job. I don't think that inflation can be 'cured' in the current monetary system. Like he said, there is a cure, but there is no will. It is impossible for a society to resist the temptation of creating more money.
- pid-1 5y ago
  I've lived in Brazil during a few moments of inflation and it's actually the opposite. Our central bank will hike basic interest to control rising prices. That makes treasury bonds very attractive investments, while slowing down the rest of the economy.
Barrera 5y ago
Friedman mentions Germany post-WWI as an example of extreme inflation. The German hyperinflation is often cited as a contributing cause for the rise of Hitler. However, Germany was well into deflation, to the tune of -9%, by the time that Hitler became Chancellor. The German hyperinflation turned out to be... transitory, lasting just 2 years from 1921 to 1923: https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_Republic https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_R... Credit for ending the hyperinflation is usually given to the introduction of the "Rentenmark," a currency "backed" by land. https://en.wikipedia.org/wiki/Rentenmark https://en.wikipedia.org/wiki/Rentenmark Yet this idea has not been challenged to the extent that it should be. How does the introduction of another currency scheme cure inflation? And in such a dramatic manner? Is it possible that inflation, rather than being a monetary phenomenon as Friedman famously asserted, is actually a psychological phenomenon?
- md_ 5y ago
  I'm far from an expert, but my understanding was that Weimar Germany did cause hyperinflation by printing Deutschmarks. But there's a really interesting point here: They printed Marks to buy foreign currency with which to pay off war debt. So, yeah, if you just run the printing presses on the Mark to buy, say, GBP, then the Mark will indeed lose value vs the Pound. Critically, this scenario can't happen if all your debt obligations are denominated in your own currency, as in the US. The scenario where the USD experiences hyperinflation because the Fed has to crank out ever more money to pay off Treasury obligations simply cannot happen, but it's a fairy tale used, as best as I can tell, to scare gullible daytime TV viewers into buying American Liberty Coins.
lamontcg 5y ago
As an actual contrarian, I'm pretty certain the Fed is going to slam on the brakes hard in the next coming few years and we will switch rapidly to deflation/depression. The wage increases are going to cause exactly this kind of panic and the Fed will be forced to act. They're reacting somewhat slowly right now due to the pandemic/war. As soon as we have those kinds of stresses in the rear view window though they're going to start to hammer on the brakes. Be careful what you all wish for. I think its going to eventually be worse than 2008.
rini17 5y ago
No inflation - strictly unchanging amount of money in circulation - means your income would be going up and down depending to economical situation. Would you accept that?
Farfignoggen 5y ago
As far as supply of parts relates to inflationary tendencies and in Intel's case that lack of Chip Making capacity is directly related to Intel's decision to pursue Share Buybacks instead of investing in new Chip Fab Capacity and Chip Fab Process Node R&D. So the entire semiconductor Industry needs to be analyzed for Proper Investment in Chip Fabrication capacity relative to Share Buybacks and how that affected the current Chip Supply-Chain/Inflation rates. So in circa 2014 Intel Mothballed its Fab 42 Chip Fab at the Building Shell stage sans any of the equipment purchases which Intel deferred to pursue a share buyback strategy. So this corporate policy needs to be accounted for as a policy that has exacerbated the inflationary tendencies of many products' supply downstream of Intel/Other semiconductor suppliers. Now the Pure Play Foundries(TSMC, GlobalFounderies, Others) need to be analyzed as well for any similar behavior but TSMC's in Taiwan and less beholden to a strict fiduciary requirement to Increase Shareholder value at the cost of all else(Investment towards the Future). So these industries influence on the overall supply chain of consumer products is rather more leveraged now than it ever was in the past what with the supply of every new device, including Planes, Trains, and Automobiles, so dependent on the supply of Chips(Microprocessors and ancillary Devices). Look to the recent auto industry/other chip supply chain woes and that's more than just money supply related this new high inflation cycle where every product includes some form of microprocessor chip and related components like VRM(Voltage Regulator Modules) and other components without which any microprocessor will not be able to function. The entire economy is rather more beholden to the chip supplies and chip production capacity issue and that of Corporate Policy in the US especially but also the rest of the world. I mentioned Intel because Intel still retains its own chip fabs while AMD has become like others a fabless semiconductor company. But AMD currently has just announced a second round of share buybacks and how will that affect AMD's investments in its future is yet to be seen. But this entire process of share buybacks at the cost of investments in the future needs to be examined and from a perspective of how that's helped exacerbate the current round of inflationary tendencies via the supply of a very vital product in the world's economy the Microprocessor/Ancillary components.

97 points by azizsaya 5y ago

flembat 5y ago

Inflation is a stealth tax, imposed via central banks.

neffy 5y ago
Not really. It has three different causes: 1) Excessive lending and consequent increases in the money supply by commercial banks. 2) Governments printing money without any regulatory compensation to prevent 1 3) Shortages in goods and supplied measured by the CPI, such as food. Right now we have 2 and 3, and some countries will probably have 1 as well..
- hitovst 5y ago
  The debasing of fiat currency is a "stealth" redistribution of wealth, regardless of the pretenses for it.
  - howinteresting 5y ago
    Redistribution from creditors to debtors is good. And it's not that stealth given we're talking about it.
  - smt88 5y ago
    By that definition, every price change is a redistribution of wealth (which is technically true). The question is whether it's intentional, and it's impossible to imagine the people in charge of every world government would be enraging their citizens by creating inflation. Simpler: people saved money during the pandemic at the same time as supply chains were disrupted, leading to high prices. Every government in the world has the same problem.
  - davnn 5y ago
    It doesn‘t look like it as it appears that inflation is contributing to wealth inequality. Do you have any sources for your claims?
    - macinjosh 5y ago
      Inflation makes saving money a losing proposition because it literally rots away in your bank account. How is some one supposed to save for college, a house or to start a business if they are constantly losing money? Meanwhile rich people don't care because their immense wealth lets them ride out inflation easily. In fact, in some situations it may be to their advantage because the value of other assets they hold (real estate, metals, art, etc) often increase in value during inflation.
      - sokoloff 5y ago
        You save for things that are 5+ years away by investing at least a portion of it in equities. Investments for goals that are 20+ years away should be over 80% in equities, IMO.
        epicureanideal 5y ago
        In other words, the only remaining way to “save money” is to buy assets largely owned by the rich and further drive up the inflated values of those assets.
        sokoloff 5y ago
        Said differently: investing in ways similar to how the rich invest seems like a generally sound strategy, all else being equal. (They don't keep much money in passbook savings accounts.)
        epicureanideal 5y ago
        Sure, but really the reason we should invest like the rich isn’t that it’s sound for rational economic reasons, but that the rich will use their influence on politics to ensure their investments do not decline as much as they would without interventions.
  - HWR_14 5y ago
    How is it redistributing wealth? From who to who?
    - Geee 5y ago
      Simply put, from the poor to the rich. It's a major cause of wealth centralization.
    - kevin_thibedeau 5y ago
      To those controlling interest rates from those who don't have any access to low risk investments.
      - JumpCrisscross 5y ago
        > from those who don't have any access to low risk investments Treasuries, the lowest-risk dollar investment, are the first to lose value with inflation. And everyone has access to Series I bonds.
    - cloutchaser 5y ago
      From whoever is furthest to money creation to whoever is closest. Ever wonder why record stock buybacks and record ceo pay are happening right when QE is happening? Why stock markets and PE ratios are at record highs? Why there are record amounts being invested by VCs? Why commodity prices have been rising? It’s not because of evil capitalism. It’s because those people are closest to where money creation happens. The 1% aren’t getting richer because of the exploitative nature of capitalism, but because they have access to new money.
      - _0ffh 5y ago
        >From whoever is furthest to money creation to whoever is closest. Precisely! You might also want to mention that there's a name for that, the Cantillon Effect. [Ed. Fixed spelling according to sparkie's correction.]
        5y ago
  - throw0101a 5y ago
    > The debasing of fiat currency is a "stealth" redistribution of wealth, regardless of the pretenses for it. The "debasing of fiat currency" reduces debt burdens, and I would think that middle- and low-income folks are probably more likely to have debt (student loans, mortgages). A low-inflation or even deflationary environment is probably a worse thing for the non-rich.
    - WalterBright 5y ago
      > reduces debt burdens Not really, because inflation causes interest rates to go up correspondingly.
      - gizmo686 5y ago
        Which is not relevant to most consumer debt, where the interest rate is set at the start and locked in for the life of the loan.
        WalterBright 5y ago
        Fixed rate debts interest are set to accommodate the current inflation rate plus higher values to accommodate the risk of inflation increasing. Lenders are not fools when it comes to inflation.
        loeg 5y ago
        Quite a lot of consumer debt is variable rate (credit cards, ARMs, ...), or nominally fixed rate, but rolls over somewhat frequently (car loans, mortgages as people move or refinance, pay later spending, etc).
    - gruez 5y ago
      >and low-income folks are probably more likely to have debt (student loans, mortgages). Source? For student loans at least, the amount of debt held is positively correlated with household income, not negatively like you suggest. https://www.urban.org/sites/default/files/styles/optimized_default/public/2019-05/eddebtcolumn_revised.jpg?itok=xqPlrb5W https://www.urban.org/sites/default/files/styles/optimized_d...
larrydag 5y ago
"The real tax on the American people is what government spends" -M. Friedman
- sfe22 5y ago
  And the hurdles it creates. The government may spend $100k on a bureaucrat that causes individuals and companies to spend millions to overcome.
  - xyzzyz 5y ago
    Indeed. The real tax is not just what government spends, but also the deadweight loss of forced reallocation.
moltke 5y ago
Right. Inflation makes your rent go up which for most working people is already significantly higher than their taxes.
kaashif 5y ago
Stimulating aggregate demand past output with monetary policy is one way inflation can happen, and central banks do have control over that. That can be considered a stealth tax by central banks. But sometimes output actually does decrease and that isn't due to central banks. The price of gas in Europe, for example, increased because there was a cold winter, a lack of wind, a recent issue with the supply due to Russia's attack on Ukraine. Not all increases in demand are due to central banks, and not all inflation is due to changes in demand.
lamontcg 5y ago
Inflation is stealth debt relief.
- int_19h 5y ago
  It is, but that largely benefits the middle class (which has much better access to debt), not people living paycheck-to-paycheck.
  - lamontcg 5y ago
    People living paycheck-to-paycheck get larger paychecks out of an actual wage-price spiral so they're ultimately no worse off or better off. It is almost right there in the name. What doesn't work for them is when there's massive asset bubbles like we've had for 30 years, but their wages are held flat.
gwmnxnp_516a 5y ago
The definition of what is inflation depends on the economic school of thought. In the case of the Austrian and Chicago economic school of thought inflation is the increase of money supply caused by the central bank that allegedly results in systematic and non temporary increase of CPI consumer price index and money loss of value. There are school of economics, such as Keynesian that argues that a limited and controlled inflation is a good thing for increasing market liquidity, avoiding deflation and promoting a full employment policy. On the other hand some economists believe that some inflation is also good for weakening the currency, boosting the exports and reducing the imports. Inflation becomes problematic when it is used for financing uncontrolled government spending like in Argentina, Turkey and Lebanon as making money out of thin air is the easiest way to a government to raise money since raising taxes can result in massive opposition; taking loans denominated in foreign currency may requires good credit rating and reasonable credibility; austerity measures, such as cutting government spending, unreasonable subsidies or unreasonable government employees wages may also result in political clashes. The raise of money supply is not be the only cause of CPI and raise of cost of living as supply and demand problems around the world may also increase the CPI. For instance, we also should remember that we have faced several unexpected black swans, such as the pandemic; supply chain shutdown around the world, specially in Asia, that the West has become too dependent on; massive flooding in China what prompted the country to hoard grains; massive droughts in USA (California) and south of Brazil, both countries accounts for great deal of the world's food production; and finally the current war in Europe reduced the amount of natural gas, crude oil supply, fertilizers and wheat in the global market. Both countries involved in the current war accounts for about 1/3 of the world wheat production. Too much foreign dependency can also affect the CPI, since any currency devaluation against the dollar increases the price of everything if the country does not produces enough food to cover its needs like Lebanon.

savant_penguin 5y ago

The overall takeaway is that there is no free lunch. Many countries in Latin America went that way. Namely Venezuela and more recently Argentina. Chile could be the next in the way. When politicians say that 3 trillion dollar bills cost zero they should pay a political cost for this absolutely dangerous lie. Unfortunately they get away with this insanity. The idea that you can take 3 trillion dollars in goods and services without producing anything in return without impact is ridiculous and frankly childish. It's as if these people lost touch with reality and forgot that it takes time, effort and resources to produce anything of value.

scsilver 5y ago
You can cancel debts of the past and borrow for the future. If you happen to unlock a new level of productivity by doing so, you could possibly get your lunch for free based on the future productivity catching up to your spending.
- hurhevdg 5y ago
  It still won’t be free for at least two reasons: 1. By the time you must repay the debt you will need to curb your consumption to less than the future production’s capacity. 2. During the initial borrowing phase you will increase consumption relative to other participants, curtailing their utility.
- xyzzyz 5y ago
  "Debt" means that someone deferred their consumption in the past, and gave their claim on production to you, so that you will repay them with increased claim on production in future. What you propose here amounts to the following: renege on the past claim to past debtors, and tell them that not only you won't give them extra production, but in fact the claim on production that they voluntarily decided to defer and give to you, is now gone forever. At the same time, since you cannot actually borrow resources from the future, any more than you can irrigate your plants today with next month's rain, what your "borrowing for the future" means is that you'll ask people to voluntarily defer their consumption, and instead pass on their claim on production to you, with you promising them to repay them with an increased claim on production in future. Let's hope that your new debtors don't feel discouraged by you just reneging on that promise to others, and believe that this time it will be different!

systemvoltage 5y ago

Unrelated: I just want to mention the clarity of enunciation of people of this era. They spoke with this wonderful crystalline voice that is so pleasant to hear. Similar can be heard in Bell Labs demonstrations and other 1950-1980 clips. I think part of it is the audio processing and low-pass filtering, but I think the accent and our discipline of the language has changed dramatically. In America, many kids today cannot go longer in a sentence without uttering 'like' and 'um'.

gadflyinyoureye 5y ago
- JaimeThompson 5y ago
  That the federal government hasn't taken over education is a bit of a hole in your argument.
MisterBastahrd 5y ago
Given that this guy stopped being a serious economist sometime in the early 70s and started being an ideologue who made his fortune giving speeches, it's no wonder that he'd be pretty good at public speaking given that's basically what his career was until his death. I think part of the reason for the clarity is that because these folks grew up without great audio production, they were forced to enunciate as clearly as possible, both on the radio and on stage. It's also why it's hard for me to watch old films and take the characters seriously. Nobody actually talked like that.
shakezula 5y ago
This is a phenomenon the world over, not just Americans, and not just young ones. It’s kind of ridiculous actually to suggest that filler words are unique to American kids.
- systemvoltage 5y ago
  Oh I wasn't speaking as Americans exclusively. I agree with you, just that I am in America so I can speak for what I can see.

lvl102 5y ago

There is natural inflation from productivity and innovations especially in service dominant economy.

next_xibalba 5y ago
Productivity is deflationary, not inflationary, by definition.
- lvl102 5y ago
  What definition is that?
quadrangle 5y ago
You're confused here. Price inflation specifically means the same products have a higher price. If you have more money and more productivity so you can buy more with the more money, that's not inflation. Inflation is short for "price inflation" not "money supply inflation" and not a synonym for "economic growth"
- sparkie 5y ago
  The original meaning of inflation literally referred to an increase in the stock of money (in excess of any new value created). It has been manipulated over the years to refer to 'price increases', which are the effect of the inflation. https://www.clevelandfed.org/newsroom-and-events/publications/economic-commentary/economic-commentary-archives/1997-economic-commentaries/ec-19971015-on-the-origin-and-evolution-of-the-word-inflation.aspx https://www.clevelandfed.org/newsroom-and-events/publication...
  - quadrangle 5y ago
    Your link doesn't contradict the price-inflation view. > its original meaning - a rise in the general price level caused by an imbalance between the quantity of money and trade needs and in the PDF: > an inflating currency has but one origin — the central bank— and one solution— a less expansive money growth rate This is inherently problematic because there's no clear self-contained reason that inflating currency is a problem that needs a solution. If it failed to lead to price inflation or other effects, then it doesn't matter. > A good’s real price, or value, was defined as the effort required to produce it Well, people have and do talk like that, but it's dumb. That definition fits "cost" not "price". But anyway, I don't need to be picky. Sure, I accept that "inflation in money supply" is not only reasonable use of the metaphor of inflation but is indeed historically how it was used. And as the paper accepts, the definition has changed. That's how the world works. I still suspect that even 100-150 years ago, if inflation in the money supply didn't have any affect on prices, people would not have said the same things about it. All the quotes seem to assume that money supply inflation leads to price increase. As to the use today, it's unarguable. See https://www.dol.gov/general/topic/statistics/inflation https://www.dol.gov/general/topic/statistics/inflation > Inflation can be defined as the overall general upward price movement of goods and services in an economy. That simply is the definition today. And I think it was always the implication anyway.

larrydag 5y ago

At 11:00 there is a chart of the U.S. money supply (with CPI). Here is the current money supply (M2) chart produced by the Fed. https://fred.stlouisfed.org/series/M2SL https://fred.stlouisfed.org/series/M2SL

baxtr 5y ago
Note, that they changed the definition in May 2020…
throw0101a 5y ago
There were technical changes to definitions: * https://fredblog.stlouisfed.org/2021/05/savings-are-now-more-liquid-and-part-of-m1-money/ https://fredblog.stlouisfed.org/2021/05/savings-are-now-more...
- pgwhalen 5y ago
  Thank you for this. However, this article is talking about moving savings deposits from M2 to M1, and the graph of the commenter you are replying to is one of M2. Therefore, the graph would not look different had the definition change not happened, correct? Because M2 includes M1 by definition.

Jerry2 5y ago

I'm reminded of this article from 2020 [1]: >The United States printed more money in June than in the first two centuries after its founding. Last month the U.S. budget deficit — $864 billion — was larger than the total debt incurred from 1776 through the end of 1979. and this is a good graph of our money supply (M1) [2] The inflation is here to stay. And it will only get worse. Fed's recent 25-basis point rate hike won't do anything to curtail the inflation. [1] https://blog.panteracapital.com/two-centuries-of-debt-in-one-month-pantera-blockchain-letter-july-2020-f876b43448a2?gi=257283f71639 https://blog.panteracapital.com/two-centuries-of-debt-in-one... [2] https://fred.stlouisfed.org/series/M1SL https://fred.stlouisfed.org/series/M1SL

jdhn 5y ago
The Fed is 100% stuck, and they know it. The idea that raising rates 25 bps multiple times this year will do anything to inflation is laughable, and the fact that their quantitative tightening is just letting MBS's run off the balance sheet naturally instead of selling them won't do anything towards bringing housing prices down, or even steadying them.
md_ 5y ago
In May 2020, the definition of M1 changed to include savings accounts that were previously excluded. If you look at the “old” series it’s _much_ less alarming: https://fredblog.stlouisfed.org/2021/05/savings-are-now-more-liquid-and-part-of-m1-money/ https://fredblog.stlouisfed.org/2021/05/savings-are-now-more.... Federal debt isn’t really directly related to what you are concerned about, since there’s no monetarist argument that issuing more debt itself is inflationary. (If it were, then private debt would also be inflationary, which is nonsensical!) The only reason debt would be inflationary is if it’s bought by the Fed, printing money. But a) we already covered that, with money supply (not as scary as it looks!) and b) the % of debt held by the Fed has only increased slightly (https://fredblog.stlouisfed.org/2017/03/the-depth-and-breadth-of-the-federal-debt/?utm_source=series_page&utm_medium=related_content&utm_term=related_resources&utm_campaign=fredblog https://fredblog.stlouisfed.org/2017/03/the-depth-and-breadt...).
MiroF 5y ago
The deficit is not printing money, because the money is borrowed.

shimonabi 5y ago

Inflation is not good, obviously. The cure in the past was to basically destroy some of the jobs so that people won't be in a position to bargain for a higher pay. There is an ongoing argument if the cure is worse than the disease.

stevebmark 5y ago

Required reading: "Shock Doctrine" - the repeated disastrous implementation of Friedman's ideas, and the Chicago school of economics / the "Chicago Boys," often to stop inflation. See also the "Berkeley Mafia."

whatever1 5y ago

7% inflation is orders of magnitute better than 40% unemployment. Specially if you are the US and everyone is begging to buy your freshly printed dollars.

aortega 5y ago

I'm an old Argentinan and lived through many inflation and hyperinflation cycles already. The cause is trivial: Governments are given the 'infinite money' machine and they abuse it. They abuse it like if they were primary school kids, thinking printing money to pay for stuff is a valid solution, its unbelievable but they truly did this for decades. Then you think, if this is true, do they print money to pay themselves and become millionaires? answer is incredible: Yes, they do exactly that, and if you visit the house of any politician in Venezuela or Argentina, you see that they live like Silicon Valley Billionaries, next to the slums they have created. If they need money for anything they just add it in the budget and at the end of they year they just print it! I know it seems crazy but they do exactly this, since 1970. The results are obvious. In our case is a little more sinister because its not enough to print money, they have to make all other money illegal, or else people would just stop using the fake currency. TLDR: They did exactly that, any currency except the one they print is illegal. USA did this in the pandemic, and now you have the consequences. You can't print money from nothing, its that simple.

xadhominemx 5y ago
The money supply-driven inflation you saw in Argentina is nothing like what developed nations are seeing now. Prices are spiking because real demand for semiconductors, slots at ports, oil, etc is outstripping supply, causing prices to go up. It’s possible that the situation will devolve into a wage-price stagflationary cycles similar to what Argentina and other emerging markets have experienced over the decades, but that is not what is happening now.
- aortega 5y ago
  I'm not and economist, but I think its quite obvious that there is a difference between a localized price spike from a particular asset, another is all assets increasing in price uniformly. The second is not all assets becoming scarce at the same time, but the devaluation of the currency used to measure the assets' price.
  - xadhominemx 5y ago

Tarsul 5y ago

the elephant in the room (that is really overlooked in these discussions) is that a lot of the current inflation is not coming from money policies but rather from supply side issues. E.g. gas and oil due to the ukraine war (also wheat, nickel etc.), less microchips from china due to its handling of covid (lockdowns) and the change in consumerism due to covid which resulted in more demand for things like bicycles, office hardware for home office, baking machines etc. etc. So why is this supply side aspect often overlooked? Not so much because it is not known but rather because a lot of crisis handling in the last decades came through to the central banks and thus monetary policy. However, this can only be one aspect. We need more classical invention from governments wrt taxes, subventions etc. So, basically, what nearly every economic problem is about: inequality and reallocation of resources.

sjmm1989 5y ago
> is that a lot of the current inflation is not coming from money policies but rather from supply side issues. The caveat to this argument is that supply side issues only affect certain portions of the economy. Printing money affects all of it, no matter what. This is why it's often the sole thing looked at, because while supply side issues do cause problems, they can be avoided entirely by finding a new supplier. You can't however, avoid the money that was already printed. You can try to get the politicians to avoid the printer, but good luck. So in regards to me for instance, supply issues with many of the grains out there just doesn't affect me. Why? I don't use them. I have no need for them anymore for the most part. Anything they might contribute towards my lifestyle is so insignificant that I can literally say I don't need grains. So that means when there is shortages of these grains and the rest of you are clamoring for them; I won't be. And when the prices of these grains go up and you are all having to pay for them; I won't be. Therefore, the inflation to costs of grains, doesn't affectt me. At least, not directly. Indirectly it may affect me, like an employer deciding they don't need that many employees when they have to pay X amount more for the bread that often just gets thrown away due to mold. Yes, that scenario could actually happen in a real world situation. If food stuffs are becoming more expensive, the boss is going to cut costs in other ways, or find new ways to gain more money. Possibly both. So. Supply side isn't false, but it's not the end all and be all like you saying with your complaining about inequality and reallocation of resources. The reality is that up until very recently; there was no need to readjust our supply lines. It has nothing to do with whatever fantastical idea you have cooking up in your head there, because ultimately I am correct in saying that you all don't need to have everything. Not every single thing that exists on this planet, needs to be yours. Or anyone's for that matter. This is part of why I brought up grains. They are an item that lots of people use; but not everyone actually technically needs it. There are ways to get around using those grains, or avoiding them entirely without issue. So a question to you would be this. If I am not getting my 'fair share' of grain, am I being made unequal? How so? I don't use them. Perhaps I could trade them with someone who does, sure. But perhaps they don't have something I want. Trade it for money you say? Okay, sure; but your society is automatically delegitimized on the grounds of equality then; since you can never truly make people equal through money. Someone will always be able to hold onto more of it than others can. Unless you make that illegal... which would make you the problem in the eyes of everyone who holds any sort of money. See. It's not about 'supply lines'. It's simply just about people being people and thinking they need to have everything at every god damn moment in time, and nothing less. Here's the truth of it. NONE OF YOU NEED: 1. Avocadoes. These are supporting Cartels now down south, so you shouldn't be buying them from there anymore anyways, if you are a logical person that is... (I know this one might trigger some people, but that's kinda the point. You don't actually need this food in many countries it doesn't grow naturally in. There are other foods folks.) 2. A wide variety of specialty grains. These are often ridiculously expensive to transport and ship around, because even when processed this stuff gets heavy. Most of the cost attached to these things is all the processing done to them. This is still yet ignoring some main grains like wheat, oats, barley and even rice or corn. (Yes, these last two are technically grains.) Even if we only ever used the mainstays, and avoided all the 'special' ones, we would still be spending far too much money on keeping this supply chain running as it does. Meanwhile, every town and city could have their own local farms churning out the actual amounts of grain and flour that people actually need. With a cap and trade system attached to this, you can effectively keep these items price values normalized. Thus increasing the affordability for anyone who might want these things. 3. Imported foods in general, though not all. This one is tricky, but much like the specialty grains and avocadoes; there are plenty of foods that we don't really actually need to import. We could grow them here instead via interesting methods to replicate the climate they want. (Where ever 'here' is for you, etc.) Basically all the same things apply. The more these things are travelling or being processed to get to your mouth; the more they are going to cost. And notice I haven't even began starting to talk about Meat yet? There is a reason for that. It's the same reason you use for your own comment. Veggies and other non-meat products are often overlooked by people who focus too fiercely on meat. Those same people often don't realize that many of the products we feed these animals, are NOT the same products we feed ourselves. We don't give them the best cobs of corn. We don't give them the nicest grains and greens. We give them sileage instead. (rotted/fermented grains/greens) We give them the cobs of corn that people won't buy. We give them everything we won't use, because it turns what is still food to them but waste to us into more food for us. But they ignore all of that, due to their own biases. And it takes people like me who see both sides of this issue for what they are, and call you all out on it. So, Tarsul. It's not a allocation problem. It's not even an equality problem. Yes we could do better on those things; but they aren't the source of the problem. The fact of the matter is that when you increase the total amount of money flowing through the system, you get a variety of effects that have to do with it. 1. The greedy see a way to get more money. They charge more, since there is more. If supply happens to be lower than demand, then they make even more money through doing this. But they do this regardless. In normal times, we often just call this 'passing on the buck'. That term applies to a few situations really. 2. Governments often give that printed money to all the wrong people in the hopes that it will trickle down through economic activity. And in some regards they are correct. It will trickle down, somewhat. But trickle is definitely the right word in regards to the speed of which it changes hands. It's slow, because as I said earlier about money; those who have it will generally find ways to keep it longer. Longer than they should be, or ever should have been able to since it wasn't properly earned, but given. 3. Since that money isn't free even when printed; it affects the total worth of our dollar to boot. Between the automatic inflationary effects felt, and the interest the government will need to pay back to the banks they printed it through; this just increases the speed of which that inflation occurs. Between lowering the worth of the dollar in general, plus the increase of money supply overall thus lowering the worth of the dollar even further; supply side issues are just not that big a concern when it comes to dealing with inflation. The only time they truly become a concern is when legitimate demand overpowers supply. Note I say legitimate, and not just demand. The key difference here being the point of much of what I have said up til now about supply side issues. We just don't actually need many of those things people want. Like it or not, there are other options. Sometimes better options. In regards to global supply lines, there are other options if governments were willing to make use of them. But they generally aren't. And then there comes the final point to this all... Governments aren't in charge of absolutely everything, and that's probably a good thing; but right now it's not so much. Why? Because the private companies that don't want to change appropriately are being the hold backs in regards to supply lines. And that right there is the only reason your comment has any validity whatsoever. Literally. Businesses of all sorts need to get their act together, or step out of the system entirely. Governments need to get their act together as well, or risk being forced out of the system entirely. The both of them together bungling everything the way they do, is why we are inflating our currencies, but Government has more control over things than businesses usually do; so they get the immediate blame. Always.

Geee 5y ago

Another effect of inflation is that people are forced to invest and take on risk, in order to not lose their savings. I think this has a major effect on workforce productivity and mental health. Everyone has to watch markets and worry about their savings. Active investing is like having an extra job. I don't think that inflation can be 'cured' in the current monetary system. Like he said, there is a cure, but there is no will. It is impossible for a society to resist the temptation of creating more money.

pid-1 5y ago
I've lived in Brazil during a few moments of inflation and it's actually the opposite. Our central bank will hike basic interest to control rising prices. That makes treasury bonds very attractive investments, while slowing down the rest of the economy.

Barrera 5y ago

Friedman mentions Germany post-WWI as an example of extreme inflation. The German hyperinflation is often cited as a contributing cause for the rise of Hitler. However, Germany was well into deflation, to the tune of -9%, by the time that Hitler became Chancellor. The German hyperinflation turned out to be... transitory, lasting just 2 years from 1921 to 1923: https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_Republic https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_R... Credit for ending the hyperinflation is usually given to the introduction of the "Rentenmark," a currency "backed" by land. https://en.wikipedia.org/wiki/Rentenmark https://en.wikipedia.org/wiki/Rentenmark Yet this idea has not been challenged to the extent that it should be. How does the introduction of another currency scheme cure inflation? And in such a dramatic manner? Is it possible that inflation, rather than being a monetary phenomenon as Friedman famously asserted, is actually a psychological phenomenon?

md_ 5y ago
I'm far from an expert, but my understanding was that Weimar Germany did cause hyperinflation by printing Deutschmarks. But there's a really interesting point here: They printed Marks to buy foreign currency with which to pay off war debt. So, yeah, if you just run the printing presses on the Mark to buy, say, GBP, then the Mark will indeed lose value vs the Pound. Critically, this scenario can't happen if all your debt obligations are denominated in your own currency, as in the US. The scenario where the USD experiences hyperinflation because the Fed has to crank out ever more money to pay off Treasury obligations simply cannot happen, but it's a fairy tale used, as best as I can tell, to scare gullible daytime TV viewers into buying American Liberty Coins.

lamontcg 5y ago

As an actual contrarian, I'm pretty certain the Fed is going to slam on the brakes hard in the next coming few years and we will switch rapidly to deflation/depression. The wage increases are going to cause exactly this kind of panic and the Fed will be forced to act. They're reacting somewhat slowly right now due to the pandemic/war. As soon as we have those kinds of stresses in the rear view window though they're going to start to hammer on the brakes. Be careful what you all wish for. I think its going to eventually be worse than 2008.

rini17 5y ago

No inflation - strictly unchanging amount of money in circulation - means your income would be going up and down depending to economical situation. Would you accept that?

Farfignoggen 5y ago

As far as supply of parts relates to inflationary tendencies and in Intel's case that lack of Chip Making capacity is directly related to Intel's decision to pursue Share Buybacks instead of investing in new Chip Fab Capacity and Chip Fab Process Node R&D. So the entire semiconductor Industry needs to be analyzed for Proper Investment in Chip Fabrication capacity relative to Share Buybacks and how that affected the current Chip Supply-Chain/Inflation rates. So in circa 2014 Intel Mothballed its Fab 42 Chip Fab at the Building Shell stage sans any of the equipment purchases which Intel deferred to pursue a share buyback strategy. So this corporate policy needs to be accounted for as a policy that has exacerbated the inflationary tendencies of many products' supply downstream of Intel/Other semiconductor suppliers. Now the Pure Play Foundries(TSMC, GlobalFounderies, Others) need to be analyzed as well for any similar behavior but TSMC's in Taiwan and less beholden to a strict fiduciary requirement to Increase Shareholder value at the cost of all else(Investment towards the Future). So these industries influence on the overall supply chain of consumer products is rather more leveraged now than it ever was in the past what with the supply of every new device, including Planes, Trains, and Automobiles, so dependent on the supply of Chips(Microprocessors and ancillary Devices). Look to the recent auto industry/other chip supply chain woes and that's more than just money supply related this new high inflation cycle where every product includes some form of microprocessor chip and related components like VRM(Voltage Regulator Modules) and other components without which any microprocessor will not be able to function. The entire economy is rather more beholden to the chip supplies and chip production capacity issue and that of Corporate Policy in the US especially but also the rest of the world. I mentioned Intel because Intel still retains its own chip fabs while AMD has become like others a fabless semiconductor company. But AMD currently has just announced a second round of share buybacks and how will that affect AMD's investments in its future is yet to be seen. But this entire process of share buybacks at the cost of investments in the future needs to be examined and from a perspective of how that's helped exacerbate the current round of inflationary tendencies via the supply of a very vital product in the world's economy the Microprocessor/Ancillary components.