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Assuming you're expecting inflation to moderate over 10 years. I think people who expect we're going to go back to pre-pandemic supply chains are vastly undere

Assuming you're expecting inflation to moderate over 10 years. I think people who expect we're going to go back to pre-pandemic supply chains are vastly underestimating the difficulty of bringing a complex system like the economy up from a cold start. In my experience with complex systems that are much less complex than the economy (merely a few hundred million lines of code), it can't be done. You have to incrementally build a new system and then cut over parts of old system as their replacements start to function better than the old degraded experience. This'll likely take a decade or two. Expect it to be a good decade for startups as changing relative prices make new business models viable against soaring existing prices. It's going to be very bad for consumers and for incumbents, though.

newaccount2021 4y ago
jqgatsby 4y ago
your point cannot be overstated. my biggest fears around the pandemic shutdowns came from my own experience managing production systems, and I think our policymakers were frighteningly naive as to what it meant to shut down the economy. and here we are.
- fddhjjj 4y ago
  Is your sense that the pandemic shutdowns have left us with supply issues? It seems to me the economy is delivering all it ever did and more. https://fred.stlouisfed.org/series/PCES https://fred.stlouisfed.org/series/PCES https://fred.stlouisfed.org/series/PCEDG https://fred.stlouisfed.org/series/PCEDG https://fred.stlouisfed.org/series/PCEC96 https://fred.stlouisfed.org/series/PCEC96
tenpies 4y ago
I don't think there's even going back to pre-pandemic supply chains solely because how the West's cancel culture effectively ended globalization when Russia invaded Ukraine. There will be no global supply chain any more. Any country with a brain now knows they have to be completely independent of the West in every aspect. Sovereign assets must be within their borders. Currency reserves? Held at domestic banks as much as possible. Even within the West there needs to be some level of distrust because history shows that there are no perpetual alliances. We are going to have several hundred supply chains that often don't interact, even if it would make economic sense for them to do so. This is tremendously inflationary and it's only just begun.
- nradov 4y ago
  There will still be global supply chains outside of the pariah states. But purchasing will be diversified across more sources so as to mitigate the risks of disruption from politics, violence, natural disasters, pandemics, etc. This will be a more stable and resilient system, but it will be less efficient (Ricardo's Law of Comparative Advantage), and the average rate of economic growth will slow down.
  - lupire 4y ago
    Diversification doesn't happen, because even if it's globally optimal, not locally optimal for individual decision makers.
- nostrademons 4y ago
  I'll go even further: de-globalization pits governments (who want to become independent of other nation-states) against their people (who have benefitted from cheap goods, and will have to deal with the inflation). The likely outcome is that at least some of those governments are going to fall, and the nation-state system is likely to collapse. Unfortunately this by itself isn't good for globalization, because it relies upon free trade, stable legal systems, and secure supply lines to work. So even if you get rid of the governments that seek to detach from the world economy, the goods can't get to consumers when they get intercepted by warlords. I think that eventually the world may converge upon city-states as a cultural unit and corporate feudalism as an economic one, but it's likely to be an exceptionally bloody transition.
  - politician 4y ago
    Defense economics will prevent this transition to city-states from happening.
    - nostrademons 4y ago
      I would've agreed with you until about 5 years ago. The reason I disagree with you now is because technology and methods of war-fighting have changed. Emerging defense technologies like drones, lasers, robots, micro-scale manufacturing, and self-driving vehicles - along with the latest generation of existing weaponry like MANPADS and anti-tank missiles - all preference the defender. They allow a group of relatively untrained and loosely organized defenders who know the terrain well to deploy extremely effective resistance against an attacker, as long as it's at short range. A drone swarm can quite literally destroy all hostile forces within an area without risking a single person, but it can't do this beyond say 100 miles out. These technologies are all for defense, not power-projection. This has a similar effect as the development of the musket in the 1500s. The musket allowed relatively untrained militias to enjoy superior firepower over the knights and longbowmen that had trained professionally their whole lives. As a result, smaller city-states and colonies could defend themselves against the large standing armies that kings and emperors could wield, and so the feudal system collapsed. This reversed with rifles (their greater accuracy benefitted from more professional training) and modern armor & explosives (which required an industrial base and supply chain greater than any city could muster), ushering in the era of nation-states. Military technology is changing again, and that's why I believe the nation-state system is again going to revert to smaller decentralized units.
staticman2 4y ago
The 10 year breakeven inflation rate is less than 3 percent. Is it a perfect estimate of inflation? No. But I would trust it more than hot takes from non experts.
- nostrademons 4y ago
  Luckily, this is completely tradable, so if you believe that inflation is going to average 3% over the next 10 years you can buy all those treasuries and I can short all those treasuries and one of us will be rich and the other broke. Events will tell who is who.
  - deleted 4y ago
    [deleted]
  - staticman2 4y ago
    Nobody buys treasuries to get rich.
    - lazide 4y ago
      If you bought some at >10% in the 80’s you did!

newaccount2021 4y ago

jqgatsby 4y ago

your point cannot be overstated. my biggest fears around the pandemic shutdowns came from my own experience managing production systems, and I think our policymakers were frighteningly naive as to what it meant to shut down the economy. and here we are.

fddhjjj 4y ago
Is your sense that the pandemic shutdowns have left us with supply issues? It seems to me the economy is delivering all it ever did and more. https://fred.stlouisfed.org/series/PCES https://fred.stlouisfed.org/series/PCES https://fred.stlouisfed.org/series/PCEDG https://fred.stlouisfed.org/series/PCEDG https://fred.stlouisfed.org/series/PCEC96 https://fred.stlouisfed.org/series/PCEC96

tenpies 4y ago

I don't think there's even going back to pre-pandemic supply chains solely because how the West's cancel culture effectively ended globalization when Russia invaded Ukraine. There will be no global supply chain any more. Any country with a brain now knows they have to be completely independent of the West in every aspect. Sovereign assets must be within their borders. Currency reserves? Held at domestic banks as much as possible. Even within the West there needs to be some level of distrust because history shows that there are no perpetual alliances. We are going to have several hundred supply chains that often don't interact, even if it would make economic sense for them to do so. This is tremendously inflationary and it's only just begun.

nradov 4y ago
There will still be global supply chains outside of the pariah states. But purchasing will be diversified across more sources so as to mitigate the risks of disruption from politics, violence, natural disasters, pandemics, etc. This will be a more stable and resilient system, but it will be less efficient (Ricardo's Law of Comparative Advantage), and the average rate of economic growth will slow down.
- lupire 4y ago
  Diversification doesn't happen, because even if it's globally optimal, not locally optimal for individual decision makers.
nostrademons 4y ago
I'll go even further: de-globalization pits governments (who want to become independent of other nation-states) against their people (who have benefitted from cheap goods, and will have to deal with the inflation). The likely outcome is that at least some of those governments are going to fall, and the nation-state system is likely to collapse. Unfortunately this by itself isn't good for globalization, because it relies upon free trade, stable legal systems, and secure supply lines to work. So even if you get rid of the governments that seek to detach from the world economy, the goods can't get to consumers when they get intercepted by warlords. I think that eventually the world may converge upon city-states as a cultural unit and corporate feudalism as an economic one, but it's likely to be an exceptionally bloody transition.
- politician 4y ago
  Defense economics will prevent this transition to city-states from happening.
  - nostrademons 4y ago
    I would've agreed with you until about 5 years ago. The reason I disagree with you now is because technology and methods of war-fighting have changed. Emerging defense technologies like drones, lasers, robots, micro-scale manufacturing, and self-driving vehicles - along with the latest generation of existing weaponry like MANPADS and anti-tank missiles - all preference the defender. They allow a group of relatively untrained and loosely organized defenders who know the terrain well to deploy extremely effective resistance against an attacker, as long as it's at short range. A drone swarm can quite literally destroy all hostile forces within an area without risking a single person, but it can't do this beyond say 100 miles out. These technologies are all for defense, not power-projection. This has a similar effect as the development of the musket in the 1500s. The musket allowed relatively untrained militias to enjoy superior firepower over the knights and longbowmen that had trained professionally their whole lives. As a result, smaller city-states and colonies could defend themselves against the large standing armies that kings and emperors could wield, and so the feudal system collapsed. This reversed with rifles (their greater accuracy benefitted from more professional training) and modern armor & explosives (which required an industrial base and supply chain greater than any city could muster), ushering in the era of nation-states. Military technology is changing again, and that's why I believe the nation-state system is again going to revert to smaller decentralized units.

staticman2 4y ago

The 10 year breakeven inflation rate is less than 3 percent. Is it a perfect estimate of inflation? No. But I would trust it more than hot takes from non experts.

nostrademons 4y ago
Luckily, this is completely tradable, so if you believe that inflation is going to average 3% over the next 10 years you can buy all those treasuries and I can short all those treasuries and one of us will be rich and the other broke. Events will tell who is who.
- deleted 4y ago
  [deleted]
- staticman2 4y ago
  Nobody buys treasuries to get rich.
  - lazide 4y ago
    If you bought some at >10% in the 80’s you did!