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I agree with you broadly. I think it's important to consider though that what we have right now isn't a demand crisis but a supply shortage. There are, thanks

I agree with you broadly. I think it's important to consider though that what we have right now isn't a demand crisis but a supply shortage. There are, thanks to all sorts of reasons (the fallout of COVID lockdowns from 2020-2021, supply chains, war in Ukraine between an oil exporter and a grain exporter, COVID zero in China) not enough things available for everyone to buy. The amount of money folks have and are being paid - and are demanding at new jobs - cannot turn into the same quantity of goods now as it would have two years ago. Hence rising prices. One of two things can happen: - We can increase supply of goods, fix supply chains, infrastructure, bring in more labor, etc. - We can decrease demand by reducing the amount of money in the system (increase interest rates, reduce wages). But like, one or both of these things have to continue to happen until the demand for goods and services matches the available supply of goods and services. Yes, this may lead to worsening conditions but that's because we don't have enough stuff for everyone to get what they want right now.

ItsMonkk 4y ago
It's mostly a demand shock, not a supply shock[0]. The supply chains are busted mostly because of unprecedented demands. But considering that most normal people spend just about all of their money each month, and with personal savings rates below where they were before CO-VID and credit levels rising, either inflation ends by itself or the demand as it turns out, is coming from the wealthy looking to shelter their cash in safe commodities during the recession and away from bubbled assets. [0]: https://www.bridgewater.com/its-mostly-a-demand-shock-not-a-supply-shock-and-its-everywhere https://www.bridgewater.com/its-mostly-a-demand-shock-not-a-...
7speter 4y ago
We arguably have a demand crisis as well, because we’re at full employment. At full employment, as more people get income, they are willing to pay more for goods. We see this in the housing market and the car market right now. This is textbook economics, and sure, there are new variables taking part in the game (wall street speculators buying homes as investments), but everything else is pretty by the books (low interest rates, rising inflation). The big question is if the fed can tighten monetary policy without crashing the economy.
lamontcg 4y ago
People aren't getting paid more because everything else is more expensive. People are getting paid more because there's a glut of jobs / shortage of workers. To achieve its policy goals at containing inflation and avoiding a wage-price spiral the Fed needs to break the back of the wage market, which means it needs to destroy jobs.

ItsMonkk 4y ago

It's mostly a demand shock, not a supply shock[0]. The supply chains are busted mostly because of unprecedented demands. But considering that most normal people spend just about all of their money each month, and with personal savings rates below where they were before CO-VID and credit levels rising, either inflation ends by itself or the demand as it turns out, is coming from the wealthy looking to shelter their cash in safe commodities during the recession and away from bubbled assets. [0]: https://www.bridgewater.com/its-mostly-a-demand-shock-not-a-supply-shock-and-its-everywhere https://www.bridgewater.com/its-mostly-a-demand-shock-not-a-...

7speter 4y ago

We arguably have a demand crisis as well, because we’re at full employment. At full employment, as more people get income, they are willing to pay more for goods. We see this in the housing market and the car market right now. This is textbook economics, and sure, there are new variables taking part in the game (wall street speculators buying homes as investments), but everything else is pretty by the books (low interest rates, rising inflation). The big question is if the fed can tighten monetary policy without crashing the economy.

lamontcg 4y ago

People aren't getting paid more because everything else is more expensive. People are getting paid more because there's a glut of jobs / shortage of workers. To achieve its policy goals at containing inflation and avoiding a wage-price spiral the Fed needs to break the back of the wage market, which means it needs to destroy jobs.