3 ms·

Inflation has been at historic lows over the past several decades. I don't see how that follows, sorry.

by ajross 4y ago

mindslight 4y ago
Yes, price inflation measured by the CPI, which consists of a changing basket of goods from the lower end of the market, has been low. Let's say a given widget costs $10 to produce, and look at what happens over 4 years. Say offshoring, cost optimization, and technological progress would allow it to be produced for $7. The Fed creates enough new money that the new price is $11. The Fed calls this "2.5% inflation", whereas the actual inflation has been 12%. The sticker price reflects the 2.5%, and the remaining 9.5% is reflected in the item being made cheaper, not supporting the local economy, and the gains of technological progress accruing to the central bank rather than being distributed throughout society. At the larger level, this does not happen uniformly to every component of CPI. Instead, prices for things that can be bought with new money increase more. So manufactured goods still have relatively low price inflation, where things that the consumer can finance (housing, education, healthcare, vehicles) shoot through the roof. Bringing this back to the original topic - since the median consumer's expenditure is expected to be ~fixed (slightly rising) for a basket of goods that are decreasing in quality, they're unable to afford the previous baseline quality that is now considered luxury. Rather than seeing a choice between buying what they know and saving money with a lower-quality item, they're given a choice between paying slightly more for the lower quality one or paying much more for the quality that they were used to.
- ajross 4y ago
  Wow, OK. Your point seems to be "If you discount economic growth, then inflation has been high". Well... OK. Granted. But let's game that out: It's true, that if you correct for all the inventions and economies that have made its production possible, the relative "cost" of, say, a nice new five-burner induction range is indeed extremely high in comparison to, say, the bow drill your ancestors would have used. Probably in the billions or so, if not higher. But that's not telling you anything! In point of fact the "cost" measured in hours of labor[1] of collecting fuel and starting fires over the course of a decade or so[2] is VASTLY higher for the paleolithic toolkit. And it's not even remotely close, which is why no one chooses to cook with an open fire and a bow drill except as an amusement. Basically: you're bending yourself around and measuring the wrong thing to try to make a point about inflation in an area that has nothing to do with it. [1] Which is, at the end of the day, all we really care about optimizing. We live one life and we want to live it well doing as little work as possible. Frankly this is sort of "postulate zero" of the whole field of economics. [2] Just assume the range will last for a decade. I don't know what the real average is but it's in that range.
  - mindslight 4y ago
    Its not about discounting growth, but rather correctly accounting for growth. Why should the financial benefit of growth accrue to the central bank rather than remaining distributed throughout society? In these terms, decades of high growth have allowed the centralized government (including Wall Street) to balloon. Now that growth has slowed (the low hanging information technology and offshoring fruit has been picked), the costs of those policies will increasingly show themselves. Furthermore, accounting for optimization via tradeoffs as if it's bona fide growth is doubly wrong. Cost reduction via quality reduction is actually the opposite of growth, but gets counted as increased efficiency for labor rather than reduced quality of life for humans. Focusing on hours of labor and gradually reducing hours worked would have been a different way to keep the benefits of growth distributed throughout society. Instead full time employment has been fixed at 40 hours through a long period of high growth, with the new money feedback loop soaking up the individual's surplus.

Inflation has been at historic lows over the past several decades. I don't see how that follows, sorry.

by ajross 4y ago

Inflation has been at historic lows over the past several decades. I don't see how that follows, sorry.

Yes, price inflation measured by the CPI, which consists of a changing basket of goods from the lower end of the market, has been low. Let's say a given widget costs $10 to produce, and look at what happens over 4 years. Say offshoring, cost optimization, and technological progress would allow it to be produced for $7. The Fed creates enough new money that the new price is $11. The Fed calls this "2.5% inflation", whereas the actual inflation has been 12%. The sticker price reflects the 2.5%, and the remaining 9.5% is reflected in the item being made cheaper, not supporting the local economy, and the gains of technological progress accruing to the central bank rather than being distributed throughout society. At the larger level, this does not happen uniformly to every component of CPI. Instead, prices for things that can be bought with new money increase more. So manufactured goods still have relatively low price inflation, where things that the consumer can finance (housing, education, healthcare, vehicles) shoot through the roof. Bringing this back to the original topic - since the median consumer's expenditure is expected to be ~fixed (slightly rising) for a basket of goods that are decreasing in quality, they're unable to afford the previous baseline quality that is now considered luxury. Rather than seeing a choice between buying what they know and saving money with a lower-quality item, they're given a choice between paying slightly more for the lower quality one or paying much more for the quality that they were used to.

ajross 4y ago
Wow, OK. Your point seems to be "If you discount economic growth, then inflation has been high". Well... OK. Granted. But let's game that out: It's true, that if you correct for all the inventions and economies that have made its production possible, the relative "cost" of, say, a nice new five-burner induction range is indeed extremely high in comparison to, say, the bow drill your ancestors would have used. Probably in the billions or so, if not higher. But that's not telling you anything! In point of fact the "cost" measured in hours of labor[1] of collecting fuel and starting fires over the course of a decade or so[2] is VASTLY higher for the paleolithic toolkit. And it's not even remotely close, which is why no one chooses to cook with an open fire and a bow drill except as an amusement. Basically: you're bending yourself around and measuring the wrong thing to try to make a point about inflation in an area that has nothing to do with it. [1] Which is, at the end of the day, all we really care about optimizing. We live one life and we want to live it well doing as little work as possible. Frankly this is sort of "postulate zero" of the whole field of economics. [2] Just assume the range will last for a decade. I don't know what the real average is but it's in that range.
- mindslight 4y ago
  Its not about discounting growth, but rather correctly accounting for growth. Why should the financial benefit of growth accrue to the central bank rather than remaining distributed throughout society? In these terms, decades of high growth have allowed the centralized government (including Wall Street) to balloon. Now that growth has slowed (the low hanging information technology and offshoring fruit has been picked), the costs of those policies will increasingly show themselves. Furthermore, accounting for optimization via tradeoffs as if it's bona fide growth is doubly wrong. Cost reduction via quality reduction is actually the opposite of growth, but gets counted as increased efficiency for labor rather than reduced quality of life for humans. Focusing on hours of labor and gradually reducing hours worked would have been a different way to keep the benefits of growth distributed throughout society. Instead full time employment has been fixed at 40 hours through a long period of high growth, with the new money feedback loop soaking up the individual's surplus.