6 ms·

They quote Milton Friedman, "Inflation is always and everywhere a monetary phenomenon, resulting from and accompanied by a rise in the quantity of money relativ

They quote Milton Friedman, "Inflation is always and everywhere a monetary phenomenon, resulting from and accompanied by a rise in the quantity of money relative to output", but they then ignore this while spouting much nonsense like "wage-price spirals", until finally mentioning monetary policy again at the bottom, in confused fashion (eg, contrary to their claim, mortgages are not money, either from the point of view of the borrow or of the lender). Now, Milton Friedman may have slightly exaggerated (or at least it's easy to interpret what he said in an exaggerated way). It is possible for the general level of prices to increase due to events such as wars that interfere with production, rather than because the money supply was increased, and that may be a current contributor to inflation. But mostly it's the government creating money. Deliberately. Inflation isn't something that "just happens". It's a deliberate policy choice by government.

ouid 4y ago
Dont listen to any economist that is also popular enough to qualify as a politician. Entire generations on political discourse have centered around one hacks poor simplification.
- cjbgkagh 4y ago
  “Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back” - JMK Edit: I always thought this was a cool quote, though in this case and many others I tend to agree with Milton Freedman. Perhaps it’s the voices in the air.
- AzzieElbab 4y ago
  Paul Krugman is keeping awfully quiet nowadays
  - cjbgkagh 4y ago
    His fax machine must have broke.
    - throw0101a 4y ago
      > His fax machine must have broke. This is really getting old. Literally so. It's been over twenty years already. So my first response would be: perhaps get over it? > I must have tossed it off quickly (at the time I was mainly focused on the Asian financial crisis!), then later conflated it in my memory with the NYT piece. Anyway, I was clearly trying to be provocative, and got it wrong, which happens to all of us sometimes. * https://www.snopes.com/fact-check/paul-krugman-internets-effect-economy/ https://www.snopes.com/fact-check/paul-krugman-internets-eff... My second response would be that he's not as wrong as your probably think he is/was: > So the first part of Krugman’s prediction was obviously, completely, unequivocally wrong. It turns out that people have a lot to say to each other. More than we ever thought. A total zero on that one. Points to the dunkers. > The more interesting half of the quote though — and the one that the critics mostly remember — is the second part about the impact on the economy being no greater than the fax machine. This one is completely defensible. > As Skanda Amarnath, head of research at Employ America, wrote to me, what people see as a major economic impact is really the social impact. From a true data impact, Krugman wasn’t wrong. “Productivity growth has been substantially weaker during the age of the internet,” Amarnath wrote. “The same deceleration is visible in terms of both nominal and real investment in software and even the broadest definition of hardware (information processing equipment). There has been some shifting and cannibalization of activity as a result of retail moving to e-commerce channels, and new media dominating advertising services at the expense of old media, but if we’re talking about macro impact beyond substitution, the burden of proof is with those eager to mock Krugman on this point.” * https://www.bloomberg.com/news/articles/2021-05-24/paul-krugman-got-something-very-right-about-the-internet-the-fax-machine-and-the-economy https://www.bloomberg.com/news/articles/2021-05-24/paul-krug... * https://archive.ph/FD6GR https://archive.ph/FD6GR
      - cjbgkagh 4y ago
        I am unconvinced. It is still funny.
  - throw0101a 4y ago
    By "quiet" do you mean publishes twice a week: * https://www.nytimes.com/column/paul-krugman https://www.nytimes.com/column/paul-krugman and tweets regularly: * https://twitter.com/paulkrugman/ https://twitter.com/paulkrugman/ ?
    - AzzieElbab 4y ago
      You are right. He is not quiet, he is rationed
- sicp-enjoyer 4y ago
  Got any particular criticism of the idea being discussed?
dpweb 4y ago
I think you could say Friedman is technically right, if you consider wars which decrease output changing the quantity/output equation. His philosophy proven again correct in my view. I found Yellen's comments staggering - having to apologize for not seeing inflation coming - after the US increased money supply 40% from 2020-2022. What other pretty basic economic realities are not being considered by our leaders?
- bko 4y ago
  > I found Yellen's comments staggering - having to apologize for not seeing inflation coming - after the US increased money supply 40% from 2020-2022. The problem with central bankers is that they don't have any consequences for their mistakes. No one will lose their job or any detrimental effect on their career. In fact, the system will select for people that have a orthodox view on economics that allows politicians to increase spending, cut people a few thousand dollar checks and give huge handouts to the largest corporations all while obfuscating the actual effects of their policies and robbing future generations of wealth
  - throwoutway 4y ago
    I think the person you’re responding to is pointing out the intellectual dishonesty (or complete ignorance) of Hellen’s comments about the cause of inflation. Not necessarily the consequences, but yes— the ignorance leads to consequences for all of us
- UncleMeat 4y ago
  But what of the massive increase in money supply during the 2010s, which didn't cause the same inflation? If "duh, of course there was inflation because you printed money" was the end of it then why this time and not other times?
  - lend000 4y ago
    It was nowhere near the same magnitude. 20% in a few weeks [0], with even lower rates than post-2008 and the Fed's balance sheet at all-time highs. [0] https://fred.stlouisfed.org/series/WM2NS https://fred.stlouisfed.org/series/WM2NS
deleted 4y ago
[deleted]
andsoitis 4y ago
Friedman believed the Federal Reserve System should ultimately be replaced with a computer program. EPSTEIN With respect to your saying you would not want to see a central bank, you long ago proposed that we simply pursue a policy of steady growth in a particular monetary aggregate. But wouldn’t that require a central bank to implement? FRIEDMAN Yes, but I would substitute a computer for it, not a central bank. All you would have to do is have it buy or sell X dollars of securities. It is purely a technical matter. https://web.archive.org/web/20180923005629/https://www.hoover.org/research/mr-market https://web.archive.org/web/20180923005629/https://www.hoove...
- Mertax 4y ago
  How is this different from decentralized currency with a fixed/limited quantity? I wonder what Friedman’s opinion would have been in todays Bitcoin/crypto environment.
  - csdvrx 4y ago
    It may be what he'd have wanted: something fully automated. As for the fixed quantity, it's just a property of some coins: other don't have this restriction/feature (depending on how you like it!) If you think it's a desirable feature, it could also be fully automatized, and not just by a time trend (ex: grow by k% if the number of transactions grow by x%)
  - UncleMeat 4y ago
    A major difference is that the algorithms would be designed by economists rather than software engineers.
  - native_samples 4y ago
    It's not much different. The primary reason why cryptocurrency aims for a limited supply is to eventually remove the politics around who gets newly created money. Friedman couldn't have imagined cryptocurrency, so had to settle for the next best thing of market interventions that were at least mostly automated, most of the time. This isn't that great because of course someone still controls and programs the computer. There's a couple of technical reasons Friedman thought the money supply had to keep increasing: 1. he was a subscriber to the deflationary spiral theory, which doesn't make much sense as a concept but has a lot of subscribers in economics 2. dollars and similar currencies have very limited resolution because most payment methods can't handle fractional cents, so if one cent becomes too valuable you start to destroy products and services for which the best price is less than that. Bitcoin doesn't have that problem to anywhere near the same extent because the resolution of the currency is much higher, and the software can all handle very small values.
bryanlarsen 4y ago
The countries that did not engage in significant QE are also experiencing significant and similar inflation.
- Mertax 4y ago
  Source? Is this because QE isn’t entirely to blame and there were legitimate supply problems because of the pandemic. Similar to how Friedman explains wars can have an effect on prices that are perceived as temporary inflation?
- whatever1 4y ago
  Of course since every country imports a ton of goods. Even if I had stable wages and production in my country, if suddenly every trade partner was charging me more for my imports (for example due to supply chain constraints), then my inflation would go up. It is very stupid to just speak for inflation by looking at one country.
  - UncleMeat 4y ago
    This feels like a cop out. If this were just a property of imports and US monetary policy, then should foreign inflation be in proportion to US imports?
    - whatever1 4y ago
      Even for US production, if we assemble let’s say motherboards with imported microchips, suddenly our prices went up. It is not because wages were up. Crushing the wages and sending people to unemployment will not solve the problem of imported inflation. Unless you are the sole importer of goods for every exporting economy.
  - radford-neal 4y ago
    It should be quite possible for one country to have no inflation while other countries do have inflation, if the inflation is caused by monetary policy, not real, global production difficulties. The exchange rates should just shift continually so that the country that isn't expanding its money supply doesn't experience inflation.
bko 4y ago
My problem with how inflation is calculated and spoken about is that there really are two types of inflation. One is an objective price level for the same goods and methods. This one is mostly affected by monetary policy, like Milton Friedman said. If you drop thousands of dollars from the sky, people have more money and are bid up the prices of their purchases. The other is the "actual" price level people are paying. For instance, if the price of beef goes up 100%, naturally many people would opt to buy less beef and substitute it with pork or chicken. It also takes into account improvements in productivity. For instance, beef produced today requires a lot fewer inputs and a lot less uncertainty than beef produced 10, 20, or 50 years ago. So naturally the real price tends to go down over time. Politicians prefer the second type of inflation because that's the important kind since its what people are actually spending. Who cares if beef goes up in price, people will just consume more substitutes. The other benefit is that a lot of government expenditures are tied to inflation. So if you can get the reported inflation down means saving trillions of dollars over the next decade. The problem is that central bankers use the idea of substitutes and improvements in productivity to allow them to print money. This is the same as increasing tax receipts but it goes unnoticed, doesn't have to be voted on and can be blamed on "the market". I question the whole premise that inflation is good. Why shouldn't things get cheaper over time? Every year we're better at producing beef, so why do we applaud when beef prices go up a little bit? If you want more tax revenue, do it the proper way by increasing tax rates. What would falling prices look like? Modern economists claim that it would lead to all sorts of problems like people consuming less, opting to wait for prices to come down. But if you look at the most productive sectors and hottest products of our economy, you'll see that they have falling nominal prices. For instance the same iPhone or car will drop in price dramatically if you just wait a year or two. But people still buy new iPhones and cars knowing its a rapidly depreciating asset. They also take out loans to finance these products, knowing full well they'll be paying off a $1000 loan for something that'll be worth $900 in just one year. And if prices for all goods went down over time, that would amount to every worker on a fixed salary essentially getting a raise every year as a dividend for living in a productive prosperous society. Overall it's all just too convenient for economists and central bankers to claim that slightly rising prices are good for an economy. It allows a backdoor to increased taxation through money printing. It covers up what monetary policy is actually doing. I wrote more about it in a blog post [0]. I'm just not convinced that falling prices are bad. And obviously we know what happens when inflation gets out of control. It means millions fall into poverty, preventable deaths go up and every few years we're arguing about raising the minimum wage or other such distortive measures https://mleverything.substack.com/p/what-if-prices-went-down-over-time https://mleverything.substack.com/p/what-if-prices-went-down...
t_mann 4y ago
You are right that they seem confused about monetary economics and also don't seem to have heard about monetary policy transmission channels. But fyi, mortgages are indeed money - the new money shows up as a balance on an account of the borrower at first, and then as a balance on the account of the house seller. From the perspective of the seller it makes no difference whether that money came from a mortgage or from the buyer's equity.
- radford-neal 4y ago
  Maybe it's just a terminological matter. When counting how much money there is, you count the money that the seller now has in their account. You don't also count the amount of the mortgage, which is what I interpreted the statement to mean. Note that the person (or institution) that issued the mortgage now has less money in their account. Counting the mortgage itself would make sense if the holder of the mortgage regarded it as "just as good as cash", but of course holding a mortgage is not at all equivalent to holding cash. Holding a mortgage is a long-term investment with uncertain return, and limited liquidity, not a money equivalent.
  - native_samples 4y ago
    When banks issue mortgages, they don't decrease a number in their own accounts to balance it. The act of creating the mortgage itself creates new money out of thin air, the act of repaying it destroys the money again. This is fractional reserve banking and is how most money is created. It's also why there's a relationship between interest rates and inflation: raise interest rates and borrowing becomes more expensive, so it happens less, so less money is created.
    - radford-neal 4y ago
      Yes, when banks issue mortgages, they create money. When a non-bank (you, for instance) issues a mortgage, new money isn't created. When counting how much money there is, you count the bank balances, not the mortgages.
Mertax 4y ago
I watched this video from Friedman just a couple of days ago and found it insightful on the topic of inflation: https://youtu.be/B_nGEj8wIP0 https://youtu.be/B_nGEj8wIP0
dahfizz 4y ago
> resulting from and accompanied by a rise in the quantity of money relative to output. > It is possible for the general level of prices to increase due to events such as wars that interfere with production In that case, output shrunk relative to the money supply (or, the money supply grew relative to output). Milton Friedman's definition is axiomatically correct. Nominal prices rise either because money is worth less (money supply increases) or things have become more expensive to produce (output has fallen).

ouid 4y ago

Dont listen to any economist that is also popular enough to qualify as a politician. Entire generations on political discourse have centered around one hacks poor simplification.

cjbgkagh 4y ago
“Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back” - JMK Edit: I always thought this was a cool quote, though in this case and many others I tend to agree with Milton Freedman. Perhaps it’s the voices in the air.
AzzieElbab 4y ago
Paul Krugman is keeping awfully quiet nowadays
- cjbgkagh 4y ago
  His fax machine must have broke.
  - throw0101a 4y ago
    > His fax machine must have broke. This is really getting old. Literally so. It's been over twenty years already. So my first response would be: perhaps get over it? > I must have tossed it off quickly (at the time I was mainly focused on the Asian financial crisis!), then later conflated it in my memory with the NYT piece. Anyway, I was clearly trying to be provocative, and got it wrong, which happens to all of us sometimes. * https://www.snopes.com/fact-check/paul-krugman-internets-effect-economy/ https://www.snopes.com/fact-check/paul-krugman-internets-eff... My second response would be that he's not as wrong as your probably think he is/was: > So the first part of Krugman’s prediction was obviously, completely, unequivocally wrong. It turns out that people have a lot to say to each other. More than we ever thought. A total zero on that one. Points to the dunkers. > The more interesting half of the quote though — and the one that the critics mostly remember — is the second part about the impact on the economy being no greater than the fax machine. This one is completely defensible. > As Skanda Amarnath, head of research at Employ America, wrote to me, what people see as a major economic impact is really the social impact. From a true data impact, Krugman wasn’t wrong. “Productivity growth has been substantially weaker during the age of the internet,” Amarnath wrote. “The same deceleration is visible in terms of both nominal and real investment in software and even the broadest definition of hardware (information processing equipment). There has been some shifting and cannibalization of activity as a result of retail moving to e-commerce channels, and new media dominating advertising services at the expense of old media, but if we’re talking about macro impact beyond substitution, the burden of proof is with those eager to mock Krugman on this point.” * https://www.bloomberg.com/news/articles/2021-05-24/paul-krugman-got-something-very-right-about-the-internet-the-fax-machine-and-the-economy https://www.bloomberg.com/news/articles/2021-05-24/paul-krug... * https://archive.ph/FD6GR https://archive.ph/FD6GR
    - cjbgkagh 4y ago
      I am unconvinced. It is still funny.
- throw0101a 4y ago
  By "quiet" do you mean publishes twice a week: * https://www.nytimes.com/column/paul-krugman https://www.nytimes.com/column/paul-krugman and tweets regularly: * https://twitter.com/paulkrugman/ https://twitter.com/paulkrugman/ ?
  - AzzieElbab 4y ago
    You are right. He is not quiet, he is rationed
sicp-enjoyer 4y ago
Got any particular criticism of the idea being discussed?

dpweb 4y ago

I think you could say Friedman is technically right, if you consider wars which decrease output changing the quantity/output equation. His philosophy proven again correct in my view. I found Yellen's comments staggering - having to apologize for not seeing inflation coming - after the US increased money supply 40% from 2020-2022. What other pretty basic economic realities are not being considered by our leaders?

bko 4y ago
> I found Yellen's comments staggering - having to apologize for not seeing inflation coming - after the US increased money supply 40% from 2020-2022. The problem with central bankers is that they don't have any consequences for their mistakes. No one will lose their job or any detrimental effect on their career. In fact, the system will select for people that have a orthodox view on economics that allows politicians to increase spending, cut people a few thousand dollar checks and give huge handouts to the largest corporations all while obfuscating the actual effects of their policies and robbing future generations of wealth
- throwoutway 4y ago
  I think the person you’re responding to is pointing out the intellectual dishonesty (or complete ignorance) of Hellen’s comments about the cause of inflation. Not necessarily the consequences, but yes— the ignorance leads to consequences for all of us
UncleMeat 4y ago
But what of the massive increase in money supply during the 2010s, which didn't cause the same inflation? If "duh, of course there was inflation because you printed money" was the end of it then why this time and not other times?
- lend000 4y ago
  It was nowhere near the same magnitude. 20% in a few weeks [0], with even lower rates than post-2008 and the Fed's balance sheet at all-time highs. [0] https://fred.stlouisfed.org/series/WM2NS https://fred.stlouisfed.org/series/WM2NS

deleted 4y ago

[deleted]

andsoitis 4y ago

Friedman believed the Federal Reserve System should ultimately be replaced with a computer program. EPSTEIN With respect to your saying you would not want to see a central bank, you long ago proposed that we simply pursue a policy of steady growth in a particular monetary aggregate. But wouldn’t that require a central bank to implement? FRIEDMAN Yes, but I would substitute a computer for it, not a central bank. All you would have to do is have it buy or sell X dollars of securities. It is purely a technical matter. https://web.archive.org/web/20180923005629/https://www.hoover.org/research/mr-market https://web.archive.org/web/20180923005629/https://www.hoove...

Mertax 4y ago
How is this different from decentralized currency with a fixed/limited quantity? I wonder what Friedman’s opinion would have been in todays Bitcoin/crypto environment.
- csdvrx 4y ago
  It may be what he'd have wanted: something fully automated. As for the fixed quantity, it's just a property of some coins: other don't have this restriction/feature (depending on how you like it!) If you think it's a desirable feature, it could also be fully automatized, and not just by a time trend (ex: grow by k% if the number of transactions grow by x%)
- UncleMeat 4y ago
  A major difference is that the algorithms would be designed by economists rather than software engineers.
- native_samples 4y ago
  It's not much different. The primary reason why cryptocurrency aims for a limited supply is to eventually remove the politics around who gets newly created money. Friedman couldn't have imagined cryptocurrency, so had to settle for the next best thing of market interventions that were at least mostly automated, most of the time. This isn't that great because of course someone still controls and programs the computer. There's a couple of technical reasons Friedman thought the money supply had to keep increasing: 1. he was a subscriber to the deflationary spiral theory, which doesn't make much sense as a concept but has a lot of subscribers in economics 2. dollars and similar currencies have very limited resolution because most payment methods can't handle fractional cents, so if one cent becomes too valuable you start to destroy products and services for which the best price is less than that. Bitcoin doesn't have that problem to anywhere near the same extent because the resolution of the currency is much higher, and the software can all handle very small values.

bryanlarsen 4y ago

The countries that did not engage in significant QE are also experiencing significant and similar inflation.

Mertax 4y ago
Source? Is this because QE isn’t entirely to blame and there were legitimate supply problems because of the pandemic. Similar to how Friedman explains wars can have an effect on prices that are perceived as temporary inflation?
whatever1 4y ago
Of course since every country imports a ton of goods. Even if I had stable wages and production in my country, if suddenly every trade partner was charging me more for my imports (for example due to supply chain constraints), then my inflation would go up. It is very stupid to just speak for inflation by looking at one country.
- UncleMeat 4y ago
  This feels like a cop out. If this were just a property of imports and US monetary policy, then should foreign inflation be in proportion to US imports?
  - whatever1 4y ago
    Even for US production, if we assemble let’s say motherboards with imported microchips, suddenly our prices went up. It is not because wages were up. Crushing the wages and sending people to unemployment will not solve the problem of imported inflation. Unless you are the sole importer of goods for every exporting economy.
- radford-neal 4y ago
  It should be quite possible for one country to have no inflation while other countries do have inflation, if the inflation is caused by monetary policy, not real, global production difficulties. The exchange rates should just shift continually so that the country that isn't expanding its money supply doesn't experience inflation.

bko 4y ago

My problem with how inflation is calculated and spoken about is that there really are two types of inflation. One is an objective price level for the same goods and methods. This one is mostly affected by monetary policy, like Milton Friedman said. If you drop thousands of dollars from the sky, people have more money and are bid up the prices of their purchases. The other is the "actual" price level people are paying. For instance, if the price of beef goes up 100%, naturally many people would opt to buy less beef and substitute it with pork or chicken. It also takes into account improvements in productivity. For instance, beef produced today requires a lot fewer inputs and a lot less uncertainty than beef produced 10, 20, or 50 years ago. So naturally the real price tends to go down over time. Politicians prefer the second type of inflation because that's the important kind since its what people are actually spending. Who cares if beef goes up in price, people will just consume more substitutes. The other benefit is that a lot of government expenditures are tied to inflation. So if you can get the reported inflation down means saving trillions of dollars over the next decade. The problem is that central bankers use the idea of substitutes and improvements in productivity to allow them to print money. This is the same as increasing tax receipts but it goes unnoticed, doesn't have to be voted on and can be blamed on "the market". I question the whole premise that inflation is good. Why shouldn't things get cheaper over time? Every year we're better at producing beef, so why do we applaud when beef prices go up a little bit? If you want more tax revenue, do it the proper way by increasing tax rates. What would falling prices look like? Modern economists claim that it would lead to all sorts of problems like people consuming less, opting to wait for prices to come down. But if you look at the most productive sectors and hottest products of our economy, you'll see that they have falling nominal prices. For instance the same iPhone or car will drop in price dramatically if you just wait a year or two. But people still buy new iPhones and cars knowing its a rapidly depreciating asset. They also take out loans to finance these products, knowing full well they'll be paying off a $1000 loan for something that'll be worth $900 in just one year. And if prices for all goods went down over time, that would amount to every worker on a fixed salary essentially getting a raise every year as a dividend for living in a productive prosperous society. Overall it's all just too convenient for economists and central bankers to claim that slightly rising prices are good for an economy. It allows a backdoor to increased taxation through money printing. It covers up what monetary policy is actually doing. I wrote more about it in a blog post [0]. I'm just not convinced that falling prices are bad. And obviously we know what happens when inflation gets out of control. It means millions fall into poverty, preventable deaths go up and every few years we're arguing about raising the minimum wage or other such distortive measures https://mleverything.substack.com/p/what-if-prices-went-down-over-time https://mleverything.substack.com/p/what-if-prices-went-down...

t_mann 4y ago

You are right that they seem confused about monetary economics and also don't seem to have heard about monetary policy transmission channels. But fyi, mortgages are indeed money - the new money shows up as a balance on an account of the borrower at first, and then as a balance on the account of the house seller. From the perspective of the seller it makes no difference whether that money came from a mortgage or from the buyer's equity.

radford-neal 4y ago
Maybe it's just a terminological matter. When counting how much money there is, you count the money that the seller now has in their account. You don't also count the amount of the mortgage, which is what I interpreted the statement to mean. Note that the person (or institution) that issued the mortgage now has less money in their account. Counting the mortgage itself would make sense if the holder of the mortgage regarded it as "just as good as cash", but of course holding a mortgage is not at all equivalent to holding cash. Holding a mortgage is a long-term investment with uncertain return, and limited liquidity, not a money equivalent.
- native_samples 4y ago
  When banks issue mortgages, they don't decrease a number in their own accounts to balance it. The act of creating the mortgage itself creates new money out of thin air, the act of repaying it destroys the money again. This is fractional reserve banking and is how most money is created. It's also why there's a relationship between interest rates and inflation: raise interest rates and borrowing becomes more expensive, so it happens less, so less money is created.
  - radford-neal 4y ago
    Yes, when banks issue mortgages, they create money. When a non-bank (you, for instance) issues a mortgage, new money isn't created. When counting how much money there is, you count the bank balances, not the mortgages.

Mertax 4y ago

I watched this video from Friedman just a couple of days ago and found it insightful on the topic of inflation: https://youtu.be/B_nGEj8wIP0 https://youtu.be/B_nGEj8wIP0

dahfizz 4y ago

> resulting from and accompanied by a rise in the quantity of money relative to output. > It is possible for the general level of prices to increase due to events such as wars that interfere with production In that case, output shrunk relative to the money supply (or, the money supply grew relative to output). Milton Friedman's definition is axiomatically correct. Nominal prices rise either because money is worth less (money supply increases) or things have become more expensive to produce (output has fallen).