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> Inflation is happening now because oil demand is higher than supply, food demand is higher than supply, electronic chip demand is higher than supply. I'm not

> Inflation is happening now because oil demand is higher than supply, food demand is higher than supply, electronic chip demand is higher than supply. I'm not sure this statement makes that much sense, won't demand always go up when prices drop, and drop off when it goes up? Demand does not exist in abstract, if I could get an iPhone 13 pro for $10 I would take 5, if it costs $2,000 I will take 0. If oil cost $1 a gallon instead of $4, won't the demand increase? And if it is $10 a gallon won't the demand decrease? Maybe to simplify, cite something that backs your claim that demand is higher than supply. And then maybe further, can you clarify: will demand not increase when people are given more money? Won't for example trillions of direct and indirect stimulus drive up demand? And if price stays constant won't the increase in demand not have to result in prices going up in order to avoid supply shortages?

adrianN 4y ago
How sensitive demand is to changes in price depends on a lot of factors. When heating your home suddenly costs four times as much you can't just use a quarter of the gas, or you'll freeze. Given enough time of course, demand will go down as people improve insulation and switch to heat pumps, but on the scale of a year or two or three demand can't be reduced very much.
- wronglyprepaid 4y ago
  > When heating your home suddenly costs four times as much you can't just use a quarter of the gas, or you'll freeze. Maybe this is an aside to you, but would you expect heating cost to increase or decrease if you are using fossil fuels for heating, and the government has promised to end fossil fuels? I guess we can point all fingers to Putin, but decreasing the supply of fossil fuels seems to be an implicit campaign promise of the Biden administration, and he has the most popular administration in history, so I'm not sure why people are upset with paying more for heating and gas.
  - sokoloff 4y ago
    > [Biden] has the most popular administration in history. I see the data quite differently. No President since World War II ended has a lower approval rating on day 523 of their administration. https://projects.fivethirtyeight.com/biden-approval-rating/ https://projects.fivethirtyeight.com/biden-approval-rating/
    - wronglyprepaid 4y ago
      But his low poll numbers is mainly because the media won't give him credit for the good things he did and because of republican rhetoric.
      - djbebs 4y ago
        How is that different from literally any other president?
        wronglyprepaid 4y ago
        It is different because the media has not been as right wing as this before.
        krapp 4y ago
        Why does the media's political bias always seem to be the antithesis of the party in power? To scapegoat the failures of each administration to actually use their power for the public good. I mean, the same media that was apparently run by a vast left-wing conspiracy for years is suddenly right-wing? Did they just change hats? What accomplishment does Biden have that's going to counterbalance how pathetic his administration's response to the repeal of Roe v. Wade appears? It's become a meme among the left that the only thing the Democrats had prepared in response were fundraising letters.
        sokoloff 4y ago
        I think you're being trolled. I admit that I can't be fully sure of it, but I seriously doubt GP believes that Biden has the most popular administration in history; I don't believe Biden has the most popular administration among just the last three, a sentiment that I suspect GP shares.
mjburgess 4y ago
Inflation is just a general rise in prices. That can be caused by supply-side inflation, eg., a sudden general drop in supply. Or demand-side, a sudden general increase in available cash. Central banks increasing money supply is demand-side inflation. The issue with this, as a "final theory", is the last decade+ where it didnt hold; and in japan where inflation and money supply are entirely uncorrelated. The only difference today, with inflation, is the supply-side shock. If central bank policies were causing inflation, they'dve caused it over the last decade; and likewise in japan. Whilst central bank policies have raised asset prices, etc. there's very limited evidence they've raised, eg., the CPI
- wronglyprepaid 4y ago
  > The only difference today, with inflation, is the supply-side shock. If central bank policies were causing inflation, they'dve caused it over the last decade; and likewise in japan. https://fred.stlouisfed.org/series/M1SL https://fred.stlouisfed.org/series/M1SL They money supply (M1SL) increase by 500% since March 2020 - don't tell me that this is purely a supply side shock. Or at the very least cite something that shows supply has dropped. And then explain to my why policies that increase the money supply by 500% is not expected to cause historic inflation while a pandemic is affecting supply?
  - mjburgess 4y ago
    Well I said central bank, the gov. has also given a stimulus during the pandemic -- this is a larger part of the story. However, we should be careful not just to say inflation is caused by the money supply. This is a theory of why inflation could occur, it isnt inflation. Inflation is just the general rise in prices. Given that everything is suddenly more expensive when energy prices rise (since energy is required for everything), etc. And given supply chain crises, etc. We are seeing a case where the supply-side is undergoing huge general shocks. If you want to say that M1 has caused a demand-side inflation, fine... but it seems to me that 1/2ing the price of oil would 1/2inflation; whereas doubling interest rates wont. So if money supply is the cause of inflation, interest rates will entirely solve the problem. If the supply-side is, then it wont. I'd place a large bet on supply side being the major part. I think 1/2ing oil price would take inflation down to (4-6)%, at which interest rates would then be effective.
elpescado 4y ago
> I'm not sure this statement makes that much sense, won't demand always go up when prices drop, and drop off when it goes up? Demand does not exist in abstract, if I could get an iPhone 13 pro for $10 I would take 5, if it costs $2,000 I will take 0. If oil cost $1 a gallon instead of $4, won't the demand increase? And if it is $10 a gallon won't the demand decrease? Does it work like that in real world? If gas price doubles does that mean that folks who commute by car go only half way to work or stay at home every other day? If an iPhone costs $10, why would you buy 5 of them? What would you do with extra four? Browse hn on five screens at once? Supply and demand are not infinitely elastic, as some like to think.
- wronglyprepaid 4y ago
  > If gas price doubles does that mean that folks who commute by car go only half way to work or stay at home every other day? There are a lot of behavior that can be changed, not all of it, but people could skip some trips, maybe only 10% - but it is not 0%. > If an iPhone costs $10, why would you buy 5 of them? I have 5 umbrellas but just one body. I sometimes forget it at some place, or misplace it. Nice to have a spare when I need one. I could then leave an iPhone at work for when my battery runs out for example. > Supply and demand are not infinitely elastic, as some like to think. Fair enough, my examples were a bit contrived and absurd, but my point is more just that neither supply nor demand is fixed. But yes they are not infinitely elastic, but they are somewhat elastic.

adrianN 4y ago

How sensitive demand is to changes in price depends on a lot of factors. When heating your home suddenly costs four times as much you can't just use a quarter of the gas, or you'll freeze. Given enough time of course, demand will go down as people improve insulation and switch to heat pumps, but on the scale of a year or two or three demand can't be reduced very much.

wronglyprepaid 4y ago
> When heating your home suddenly costs four times as much you can't just use a quarter of the gas, or you'll freeze. Maybe this is an aside to you, but would you expect heating cost to increase or decrease if you are using fossil fuels for heating, and the government has promised to end fossil fuels? I guess we can point all fingers to Putin, but decreasing the supply of fossil fuels seems to be an implicit campaign promise of the Biden administration, and he has the most popular administration in history, so I'm not sure why people are upset with paying more for heating and gas.
- sokoloff 4y ago
  > [Biden] has the most popular administration in history. I see the data quite differently. No President since World War II ended has a lower approval rating on day 523 of their administration. https://projects.fivethirtyeight.com/biden-approval-rating/ https://projects.fivethirtyeight.com/biden-approval-rating/
  - wronglyprepaid 4y ago
    But his low poll numbers is mainly because the media won't give him credit for the good things he did and because of republican rhetoric.
    - djbebs 4y ago
      How is that different from literally any other president?
      - wronglyprepaid 4y ago
        It is different because the media has not been as right wing as this before.
        krapp 4y ago
        Why does the media's political bias always seem to be the antithesis of the party in power? To scapegoat the failures of each administration to actually use their power for the public good. I mean, the same media that was apparently run by a vast left-wing conspiracy for years is suddenly right-wing? Did they just change hats? What accomplishment does Biden have that's going to counterbalance how pathetic his administration's response to the repeal of Roe v. Wade appears? It's become a meme among the left that the only thing the Democrats had prepared in response were fundraising letters.
        sokoloff 4y ago
        I think you're being trolled. I admit that I can't be fully sure of it, but I seriously doubt GP believes that Biden has the most popular administration in history; I don't believe Biden has the most popular administration among just the last three, a sentiment that I suspect GP shares.

mjburgess 4y ago

Inflation is just a general rise in prices. That can be caused by supply-side inflation, eg., a sudden general drop in supply. Or demand-side, a sudden general increase in available cash. Central banks increasing money supply is demand-side inflation. The issue with this, as a "final theory", is the last decade+ where it didnt hold; and in japan where inflation and money supply are entirely uncorrelated. The only difference today, with inflation, is the supply-side shock. If central bank policies were causing inflation, they'dve caused it over the last decade; and likewise in japan. Whilst central bank policies have raised asset prices, etc. there's very limited evidence they've raised, eg., the CPI

wronglyprepaid 4y ago
> The only difference today, with inflation, is the supply-side shock. If central bank policies were causing inflation, they'dve caused it over the last decade; and likewise in japan. https://fred.stlouisfed.org/series/M1SL https://fred.stlouisfed.org/series/M1SL They money supply (M1SL) increase by 500% since March 2020 - don't tell me that this is purely a supply side shock. Or at the very least cite something that shows supply has dropped. And then explain to my why policies that increase the money supply by 500% is not expected to cause historic inflation while a pandemic is affecting supply?
- mjburgess 4y ago
  Well I said central bank, the gov. has also given a stimulus during the pandemic -- this is a larger part of the story. However, we should be careful not just to say inflation is caused by the money supply. This is a theory of why inflation could occur, it isnt inflation. Inflation is just the general rise in prices. Given that everything is suddenly more expensive when energy prices rise (since energy is required for everything), etc. And given supply chain crises, etc. We are seeing a case where the supply-side is undergoing huge general shocks. If you want to say that M1 has caused a demand-side inflation, fine... but it seems to me that 1/2ing the price of oil would 1/2inflation; whereas doubling interest rates wont. So if money supply is the cause of inflation, interest rates will entirely solve the problem. If the supply-side is, then it wont. I'd place a large bet on supply side being the major part. I think 1/2ing oil price would take inflation down to (4-6)%, at which interest rates would then be effective.

elpescado 4y ago

> I'm not sure this statement makes that much sense, won't demand always go up when prices drop, and drop off when it goes up? Demand does not exist in abstract, if I could get an iPhone 13 pro for $10 I would take 5, if it costs $2,000 I will take 0. If oil cost $1 a gallon instead of $4, won't the demand increase? And if it is $10 a gallon won't the demand decrease? Does it work like that in real world? If gas price doubles does that mean that folks who commute by car go only half way to work or stay at home every other day? If an iPhone costs $10, why would you buy 5 of them? What would you do with extra four? Browse hn on five screens at once? Supply and demand are not infinitely elastic, as some like to think.

wronglyprepaid 4y ago
> If gas price doubles does that mean that folks who commute by car go only half way to work or stay at home every other day? There are a lot of behavior that can be changed, not all of it, but people could skip some trips, maybe only 10% - but it is not 0%. > If an iPhone costs $10, why would you buy 5 of them? I have 5 umbrellas but just one body. I sometimes forget it at some place, or misplace it. Nice to have a spare when I need one. I could then leave an iPhone at work for when my battery runs out for example. > Supply and demand are not infinitely elastic, as some like to think. Fair enough, my examples were a bit contrived and absurd, but my point is more just that neither supply nor demand is fixed. But yes they are not infinitely elastic, but they are somewhat elastic.