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The most obvious reason why it happened this time is we had massive global supply shocks. The essay states "hmm all these things happened before and didn't cau

The most obvious reason why it happened this time is we had massive global supply shocks. The essay states "hmm all these things happened before and didn't cause inflation. It's so odd that we got inflation now". How about the thing that hasn't happened before: sudden drop on the supply side across the board. Suppy of labor, which led to supply of goods and global lack of supply. Then increased demand from all companies simultaneously moving from a Just-in-Time model to having large stocks on hand. The only other item that has the same global impact is energy. Cheap money yes messed up any assets (houses, startups, crypto) but that isn't want caused day to day inflation. Shortage of goods did.

neilwilson 4y ago
There's a desperate desire amongst some people to believe that money needs to be scarce, much as there is a desire that jobs have to be scarce so that the unemployed are 'disciplined'. Currently the market is reallocating scarce resources from those without pricing power to those with pricing power. There has been a shift in the terms of trade, but it will settle down because wages simply aren't keeping up with price rises - which means eventually people won't be able to confirm the higher requested prices. Changing short term interest rates can't address terms of trade shifts - which are productivity losses. "Cheap money yes messed up any assets (houses, startups, crypto) but that isn't want caused day to day inflation." Did it? Remember that 'expensive money' is an artificial market intervention - some wonk is artificially setting a base interest rate. Since liquidity is free to produce yet limited by available collateral 'full liquidity' is a stablish state, and the 'natural' base rate of that liquidity is zero. The market then sets the base to retail markup based upon the collateral risk. If the price of assets goes up due to that, then that is a market signal to produce more of those assets. Build more houses, create more crypto startups, etc. It's never been clear to me why we don't just let the market move to full liquidity and then just brake that with taxes if need be.
- imtringued 4y ago
  The problem is rent seeking. There are some industries that get stuck at a positive return on capital because they are based around a monopoly. Real estate sits on land and land is the original monopoly. So everyone starts buying up the monopoly and blames the interest rate for the increase in price even though it should be obvious that a monopoly that fulfills a basic human need has almost infinite pricing power and therefore can always demand everything you have plus some. Raising the interest rate means you can afford less but they are still going to take everything you have. Singapore solved the problem with public land ownership. There are more examples of rent seeking but housing is the worst one I am aware of.
Proven 4y ago
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neilwilson 4y ago

There's a desperate desire amongst some people to believe that money needs to be scarce, much as there is a desire that jobs have to be scarce so that the unemployed are 'disciplined'. Currently the market is reallocating scarce resources from those without pricing power to those with pricing power. There has been a shift in the terms of trade, but it will settle down because wages simply aren't keeping up with price rises - which means eventually people won't be able to confirm the higher requested prices. Changing short term interest rates can't address terms of trade shifts - which are productivity losses. "Cheap money yes messed up any assets (houses, startups, crypto) but that isn't want caused day to day inflation." Did it? Remember that 'expensive money' is an artificial market intervention - some wonk is artificially setting a base interest rate. Since liquidity is free to produce yet limited by available collateral 'full liquidity' is a stablish state, and the 'natural' base rate of that liquidity is zero. The market then sets the base to retail markup based upon the collateral risk. If the price of assets goes up due to that, then that is a market signal to produce more of those assets. Build more houses, create more crypto startups, etc. It's never been clear to me why we don't just let the market move to full liquidity and then just brake that with taxes if need be.

imtringued 4y ago
The problem is rent seeking. There are some industries that get stuck at a positive return on capital because they are based around a monopoly. Real estate sits on land and land is the original monopoly. So everyone starts buying up the monopoly and blames the interest rate for the increase in price even though it should be obvious that a monopoly that fulfills a basic human need has almost infinite pricing power and therefore can always demand everything you have plus some. Raising the interest rate means you can afford less but they are still going to take everything you have. Singapore solved the problem with public land ownership. There are more examples of rent seeking but housing is the worst one I am aware of.

Proven 4y ago

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