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It never occurred to me but inflation is not necessarily a political problem, and perhaps even might be considered a good thing. Who doesn’t love the stock mark

It never occurred to me but inflation is not necessarily a political problem, and perhaps even might be considered a good thing. Who doesn’t love the stock market going up? However inflation in consumer staples, energy, and gasoline is an enormous political problem. So what to do? The “solution”: expansive monetary policy is completely okay so long as most people don’t get any of it. Inequality is a substantially smaller political problem than the price of gasoline being too high.

s1artibartfast 4y ago
The problem with expansive monetary policy is it trickles down, but not much gets to the bottom. Stock goes up, but workers not invested in the stock market don't like it going up. Everyone who already has stock gets richer, and buys real goods and assets. When those goods are produced overseas or by automation, not much makes it to wage workers. Eg the last 2 years where people saw their 401k double, and cost of goods and housing went up.
syntheweave 4y ago
Ultimately, every asset class, including money, is something people can choose to migrate to or away from according to their ability to trade it for another asset. And with a money, the promise is that you can exchange it for anything else; so if everyone has more money they have more agency to trade for goods and services of all types. The problem is twofold: 1. Without an intervention you get the sharp shock of exuberance and crash; this behavior defined 19th century economies and eventually the 1930's depression and its following war that motivated adoption of Keynesian interventionist policy. Economic theory in the academy today is routinely defined in "post-war" terms, as if the preceding centuries did not exist, outside of researchers who make it their speciality. 2. With interventions, you introduce some form of market distortion no matter which way you frame it. The original Keynesian experiment approached a crisis in the late 1960's, because it pushed for fiscal interventions(government spending) which soaked up demand that would have gone to other sectors; when you do this, the other sectors experience rising prices, resulting in the stagflation that defined the 1970's. The transition into the Reagan era(a gradual series of shifts that mostly occurred in the 70's, marked finally with Paul Volker's new Fed policy) marked the shift towards a "lean and mean" neoliberalist approach with rising inequality, as you note: instead of trying to expand the economy through fiscal policy, we began the monetary-focused regime that has lasted up until now, of tuning inflation rates through fiat policy with a focus on allowing capital to redeploy itself wherever it saw fit. This era created a pretty harsh recession, but it did motivate growth again. But inequality eventually drags down an economy by a similar mechanism of "borrowing demand" from consumers and giving it over to capital, and since the strategy is to stimulate with low interest rates as necessary, and regulatory capture has favored keeping the good times a-flowing, we've used it more and more since 2008, until we've ended up in another stagflation crisis marked by our successively larger and larger asset bubbles. Eventually the chickens come home to roost and the resulting asset speculation carries over into consumer prices. And that's the kind of crisis that existentially threatens the dollar, because if even consumer staples are holding their value better, there is no reason to hold a dollar position, and therefore to trade and be taxed in it. The bet we are making by holding dollars is not really that this can be fixed in any permanent way, but that it can at least hold out for another cycle of growth. And that leads to the headline: pushing up unemployment is one way to suppress dollar demand. It's more palatable than having a war to reallocate assets, at least.
systemvoltage 4y ago
Inflation is necessary to a certain degree to decrease savings rate in the economy and promote capital flow.
- nine_k 4y ago
  So it's basically a tax which is really hard to evade, and which sort of "happens" instead of being voted for.
  - s1artibartfast 4y ago
    Inflation is mostly a regressive tax because it is pretty easy to evade if you have your value parked in non dollar assets. Housing or stocks for example should appreciate with the inflation rate, if all else is equal. Wages are usually more sticky, so consumers have less to spend.
  - systemvoltage 4y ago
    That's an interesting perspective. I'd say that it propels society forward in many ways. If you only think of capital is something that needs to be saved, then ideally you'd prefer to live in a deflationary society where capital is scarce, it's value is increasing (deflation) and the only winner is the one who saves it. In a well oiled society, capital is merely an instrument to multiply the labor value (think capital needed to buy automation machinery or paying AWS bills), and thus leading to GDP growth – here, inflation promotes liquidity. You'd rather invest than to save. Taxes are the opposite of optionality, since you can't really do anything about the coercion from the government besides pray to god that your tax contributions are being efficienty allocated.

s1artibartfast 4y ago

The problem with expansive monetary policy is it trickles down, but not much gets to the bottom. Stock goes up, but workers not invested in the stock market don't like it going up. Everyone who already has stock gets richer, and buys real goods and assets. When those goods are produced overseas or by automation, not much makes it to wage workers. Eg the last 2 years where people saw their 401k double, and cost of goods and housing went up.

syntheweave 4y ago

Ultimately, every asset class, including money, is something people can choose to migrate to or away from according to their ability to trade it for another asset. And with a money, the promise is that you can exchange it for anything else; so if everyone has more money they have more agency to trade for goods and services of all types. The problem is twofold: 1. Without an intervention you get the sharp shock of exuberance and crash; this behavior defined 19th century economies and eventually the 1930's depression and its following war that motivated adoption of Keynesian interventionist policy. Economic theory in the academy today is routinely defined in "post-war" terms, as if the preceding centuries did not exist, outside of researchers who make it their speciality. 2. With interventions, you introduce some form of market distortion no matter which way you frame it. The original Keynesian experiment approached a crisis in the late 1960's, because it pushed for fiscal interventions(government spending) which soaked up demand that would have gone to other sectors; when you do this, the other sectors experience rising prices, resulting in the stagflation that defined the 1970's. The transition into the Reagan era(a gradual series of shifts that mostly occurred in the 70's, marked finally with Paul Volker's new Fed policy) marked the shift towards a "lean and mean" neoliberalist approach with rising inequality, as you note: instead of trying to expand the economy through fiscal policy, we began the monetary-focused regime that has lasted up until now, of tuning inflation rates through fiat policy with a focus on allowing capital to redeploy itself wherever it saw fit. This era created a pretty harsh recession, but it did motivate growth again. But inequality eventually drags down an economy by a similar mechanism of "borrowing demand" from consumers and giving it over to capital, and since the strategy is to stimulate with low interest rates as necessary, and regulatory capture has favored keeping the good times a-flowing, we've used it more and more since 2008, until we've ended up in another stagflation crisis marked by our successively larger and larger asset bubbles. Eventually the chickens come home to roost and the resulting asset speculation carries over into consumer prices. And that's the kind of crisis that existentially threatens the dollar, because if even consumer staples are holding their value better, there is no reason to hold a dollar position, and therefore to trade and be taxed in it. The bet we are making by holding dollars is not really that this can be fixed in any permanent way, but that it can at least hold out for another cycle of growth. And that leads to the headline: pushing up unemployment is one way to suppress dollar demand. It's more palatable than having a war to reallocate assets, at least.

systemvoltage 4y ago

Inflation is necessary to a certain degree to decrease savings rate in the economy and promote capital flow.

nine_k 4y ago
So it's basically a tax which is really hard to evade, and which sort of "happens" instead of being voted for.
- s1artibartfast 4y ago
  Inflation is mostly a regressive tax because it is pretty easy to evade if you have your value parked in non dollar assets. Housing or stocks for example should appreciate with the inflation rate, if all else is equal. Wages are usually more sticky, so consumers have less to spend.
- systemvoltage 4y ago
  That's an interesting perspective. I'd say that it propels society forward in many ways. If you only think of capital is something that needs to be saved, then ideally you'd prefer to live in a deflationary society where capital is scarce, it's value is increasing (deflation) and the only winner is the one who saves it. In a well oiled society, capital is merely an instrument to multiply the labor value (think capital needed to buy automation machinery or paying AWS bills), and thus leading to GDP growth – here, inflation promotes liquidity. You'd rather invest than to save. Taxes are the opposite of optionality, since you can't really do anything about the coercion from the government besides pray to god that your tax contributions are being efficienty allocated.