5 ms·

I think you could say Friedman is technically right, if you consider wars which decrease output changing the quantity/output equation. His philosophy proven ag

by 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
  - UncleMeat 4y ago
    Is there some sort of phase shift in the direct causal relationship between printing and inflation? That doesn't make any sense given the one sentence approach to how inflation happens.
    - lend000 4y ago
      I would say yes, there's definitely a delay. The price of the beef in your Big Mac was negotiated years ago. Ongoing supply contracts (which are made when companies feel confident about the prospect of inflation in the economy) probably significantly increase the time it takes to manifest economy-wide inflation. At the instant of printing money they have not changed underlying economic production, but they have created more dollars in the economy with which people can use to compete to buy things, thereby pushing prices up. Not sure if you are using the quote in the article as the one sentence definition here.
      - UncleMeat 4y ago
        If there is a many-year delay (to account for the low observed inflation during years of monetary intervention during the 2010s), then why are people blaming today's inflation on printing during the past two years? My point is that people often claim that inflation is tied very tightly to printing and that the government is full of idiots who should have known that printing would cause high inflation. The post that triggered my comment was the following. > 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? Yet it is clearly more complex than this, since simple relationships between printing and inflation do not account for the last decade of observed printing and inflation.
        lend000 4y ago
        > My point is that people often claim that inflation is tied very tightly to printing and that the government is full of idiots who should have known that printing would cause high inflation. Whether the people in government are idiots or not, it almost is always politically expedient to err on the side of printing more money, since politicians and politically appointed bureaucrats typically seem to be more focused on the short term (the next election) until there is uncontrolled inflation. That being said, I don't think we've had a president who had a strong intuition for economics since Eisenhower. > Yet it is clearly more complex than this, since simple relationships between printing and inflation do not account for the last decade of observed printing and inflation. How so? We've had inflation for the last decade, and we've had rising wealth inequality on top of consumer inflation (which I consider to be a different type of inflation), which can largely be attributed to increases in the money supply and broken graduated income tax brackets. The central issue here seems to be that you are not differentiating between the magnitude of money printing last time around (which did indeed affect prices throughout the market over the decade) and the unprecedented magnitude during the pandemic. > If there is a many-year delay (to account for the low observed inflation during years of monetary intervention during the 2010s), then why are people blaming today's inflation on printing during the past two years? 2 years is a long time. While commodities, equities, and real estate started exploding pretty quickly, it took a little over a year for consumer prices to start increasing at an unsettling rate. But just because there is some hysteresis, does not mean it takes 10 years.
- radford-neal 4y ago
  There are technicalities that affect the interpretation of the numbers. In particular, the "base money supply" was normally considered to be physical cash plus deposits of banks in their accounts at central bank, neither of which traditionally paid interest. But the US Federal Reserve started paying interest on these deposits by banks starting in 2008 (see https://www.federalreserve.gov/monetarypolicy/reserve-balances.htm https://www.federalreserve.gov/monetarypolicy/reserve-balanc...), which means such deposits are not that much different from a short-term government treasury bill, depending on the relative interest rates. So the Federal reserve can now change the effective money supply by changing this rate, not just by creating or destroying base money. There are probably further complications - I'm not an expert on this.
- native_samples 4y ago
  It did cause inflation, but governments don't consider every price when calculating it. For instance the headline CPI rate doesn't include financial assets like equities, cryptocurrencies ... because "consumers" don't buy those, right?
  - UncleMeat 4y ago
    If inflation is a property of money itself, why would price increases only be visible in certain areas?
    - native_samples 4y ago
      Because the money is injected into the system at certain points and takes time to spread out. Like pouring water at high speed into a pond, it creates waves at the point of entry and even after you turn the water off it takes time to become stable again. "Classically" CBs inject money into the economy via purchasing financial assets. It gets filtered through banks and financial markets, so it's expected that this is where inflation hits first and hardest. Over time as people cash out of those rising assets the inflation spreads and starts warping the prices of other things like houses, degrees etc. The sort of inflation we're seeing now that also affects the prices of every day items is primarily due to lockdowns. CBs bought government bonds directly, which they'd been doing for a long time but they did so on a massive scale in order to fund support loans and stimulus cheques. But everything was shut down, so people just deposited those loans into their banks and had nothing to do with them except speculate on stuff like NFTs. Now the world is opening up again that money is getting withdrawn and spent on normal, every day items, some of which are also in short supply for lockdowns and war related reasons.
whimsicalism 4y ago
> 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. Yellen's comments are not contrary to what Friedman says and reasoning only from money supply is wrong headed. It's money supply & velocity and velocity dropped off a cliff in 2020.

by dpweb 4y ago

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
- UncleMeat 4y ago
  Is there some sort of phase shift in the direct causal relationship between printing and inflation? That doesn't make any sense given the one sentence approach to how inflation happens.
  - lend000 4y ago
    I would say yes, there's definitely a delay. The price of the beef in your Big Mac was negotiated years ago. Ongoing supply contracts (which are made when companies feel confident about the prospect of inflation in the economy) probably significantly increase the time it takes to manifest economy-wide inflation. At the instant of printing money they have not changed underlying economic production, but they have created more dollars in the economy with which people can use to compete to buy things, thereby pushing prices up. Not sure if you are using the quote in the article as the one sentence definition here.
    - UncleMeat 4y ago
      If there is a many-year delay (to account for the low observed inflation during years of monetary intervention during the 2010s), then why are people blaming today's inflation on printing during the past two years? My point is that people often claim that inflation is tied very tightly to printing and that the government is full of idiots who should have known that printing would cause high inflation. The post that triggered my comment was the following. > 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? Yet it is clearly more complex than this, since simple relationships between printing and inflation do not account for the last decade of observed printing and inflation.
      - lend000 4y ago
        > My point is that people often claim that inflation is tied very tightly to printing and that the government is full of idiots who should have known that printing would cause high inflation. Whether the people in government are idiots or not, it almost is always politically expedient to err on the side of printing more money, since politicians and politically appointed bureaucrats typically seem to be more focused on the short term (the next election) until there is uncontrolled inflation. That being said, I don't think we've had a president who had a strong intuition for economics since Eisenhower. > Yet it is clearly more complex than this, since simple relationships between printing and inflation do not account for the last decade of observed printing and inflation. How so? We've had inflation for the last decade, and we've had rising wealth inequality on top of consumer inflation (which I consider to be a different type of inflation), which can largely be attributed to increases in the money supply and broken graduated income tax brackets. The central issue here seems to be that you are not differentiating between the magnitude of money printing last time around (which did indeed affect prices throughout the market over the decade) and the unprecedented magnitude during the pandemic. > If there is a many-year delay (to account for the low observed inflation during years of monetary intervention during the 2010s), then why are people blaming today's inflation on printing during the past two years? 2 years is a long time. While commodities, equities, and real estate started exploding pretty quickly, it took a little over a year for consumer prices to start increasing at an unsettling rate. But just because there is some hysteresis, does not mean it takes 10 years.
radford-neal 4y ago
There are technicalities that affect the interpretation of the numbers. In particular, the "base money supply" was normally considered to be physical cash plus deposits of banks in their accounts at central bank, neither of which traditionally paid interest. But the US Federal Reserve started paying interest on these deposits by banks starting in 2008 (see https://www.federalreserve.gov/monetarypolicy/reserve-balances.htm https://www.federalreserve.gov/monetarypolicy/reserve-balanc...), which means such deposits are not that much different from a short-term government treasury bill, depending on the relative interest rates. So the Federal reserve can now change the effective money supply by changing this rate, not just by creating or destroying base money. There are probably further complications - I'm not an expert on this.
native_samples 4y ago
It did cause inflation, but governments don't consider every price when calculating it. For instance the headline CPI rate doesn't include financial assets like equities, cryptocurrencies ... because "consumers" don't buy those, right?
- UncleMeat 4y ago
  If inflation is a property of money itself, why would price increases only be visible in certain areas?
  - native_samples 4y ago
    Because the money is injected into the system at certain points and takes time to spread out. Like pouring water at high speed into a pond, it creates waves at the point of entry and even after you turn the water off it takes time to become stable again. "Classically" CBs inject money into the economy via purchasing financial assets. It gets filtered through banks and financial markets, so it's expected that this is where inflation hits first and hardest. Over time as people cash out of those rising assets the inflation spreads and starts warping the prices of other things like houses, degrees etc. The sort of inflation we're seeing now that also affects the prices of every day items is primarily due to lockdowns. CBs bought government bonds directly, which they'd been doing for a long time but they did so on a massive scale in order to fund support loans and stimulus cheques. But everything was shut down, so people just deposited those loans into their banks and had nothing to do with them except speculate on stuff like NFTs. Now the world is opening up again that money is getting withdrawn and spent on normal, every day items, some of which are also in short supply for lockdowns and war related reasons.

whimsicalism 4y ago

> 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. Yellen's comments are not contrary to what Friedman says and reasoning only from money supply is wrong headed. It's money supply & velocity and velocity dropped off a cliff in 2020.