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Well, there are two types of inflation. The one that you identified is when prices go up because demand goes up -- more money in more people's pockets allow pe

Well, there are two types of inflation. The one that you identified is when prices go up because demand goes up -- more money in more people's pockets allow people to bid more for goods and services. The other type of inflation happens when prices go up because the amount of supply drops -- people and businesses bid up on critical inputs like toilet paper and manufacturing process inputs. So while it's true that an economy can experience inflation when "the government prints money", it's also true that factors that lead to reductions in raw materials and intermediates (like a war between the 1st and 4th grain producers) will tend to cause prices to rise.

WalterBright 4y ago
> The other type of inflation happens when prices go up because the amount of supply drops If you have to spend more on X, that means you have less to spend on Y. Because of the Law of Supply&Demand, the reduced demand for Y results in a corresponding drop in the price of Y. That's why it's not inflation.
- politician 4y ago
  Imagine you're running a factory that consumes Aluminum and produces Aluminum cans. If the half of the sources that supply your raw material inputs go offline, then you'll either pay more for the supply from marginal producers or reduce your output. In either case, you'll be forced with a decision to raise the price of your product to maintain your margin or reduce your output. A downstream consumer of your cans will either see their prices rise for their inputs (your cans) and call it inflation, or they will have to source additional cans from additional marginal suppliers at additional costs because your volume dropped. The average cost of cans will have increased and that's inflation too.
  - WalterBright 4y ago
    They can call it inflation, but it is not.
    - tomrod 4y ago
      Economist here. I think you may be confused in the definition of inflation. I responded to another comment of yours, and will reiterate a good writeup I recommend reviewing for improving your understanding on what inflation is: https://www.investopedia.com/articles/05/012005.asp https://www.investopedia.com/articles/05/012005.asp
      - WalterBright 4y ago
        Cost-push and demand-pull theories of inflation have been discredited by Reisman in "Capitalism". And as Milton Friedman wrote, "Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output." Of course, this is saying the same thing as the Law of Supply & Demand. More money being created wrt the goods and services it represents mean the money gets devalued.
        tomrod 4y ago
        > Reisman in "Capitalism". Be careful with the Austrian School of Economics, because it masquerades as meaningful but under the hood is a religious faith as it rejects the need for measurement and the scientific method. Some ideas pass the logic filter for many people's lived experience without being accurate. Hence, it is incorrect to say "Cost-push and demand-pull theories of inflation have been discredited" -- a more accurate assertion would be "the theories of cost-push and demand-pull inflation are argued against, unconvincingly to most but convincingly to me" since most people, including economists, do not adopt the tenets, rites, and axioms of the Austrian School. Note, your personal Austrian School-driven interpretation for what constituties inflation is likely why you are receiving pushback in this thread.
        politician 4y ago
        (1995) Supply-Side Sources of Inflation: Evidence From OECD Countries https://www.federalreserve.gov/econres/ifdp/supply-side-sources-of-inflation-evidence-from-oecd-countries.htm https://www.federalreserve.gov/econres/ifdp/supply-side-sour... > We evaluate the merits of the "supply-side" view under which inflation results from sectoral shocks, and compare it with the "classical" view in which inflation results from aggregate factors such as variations in money growth. Using a panel VAR methodology applied to data for 13 GECD countries, we find support for a multi-shock view of inflation: supply-side shocks are statistically significant determinants of inflation, even after taking into account aggregate demand factors. While oil prices are the dominant supply-side influence, other measures such as the skewness of relative price changes are important as well. At short horizons, an innovation to skewness leads to an increase in inflation of 0.5 percentage points. As suggested by the classical view, money growth plays an increasingly important role as the time horizon lengthens. The paper identifies energy (oil in 1995) as the main driver of supply-side inflation which seems reasonable to me because all of our economies use energy, and so changes in the supply of energy would cause shocks across the economy that would result in complex downstream ripple effects. We can watch this play out in Germany today, where they lack sufficient energy to fuel their economy due to the loss of Russian nat gas.
- fnordpiglet 4y ago
  If you have excess currency you can translate that excess into demand. If supply can’t fulfill the demand then goods are more scarce than money and suppliers charge more hence inflation. However if inflation is high and interest rates are low growth will happen as people outlay capital towards meeting the supply for the demand and prices will drop as the overall economy expands - more supply, more demand - that’s growth. So “printing money” can spur growth, which is generally what we shoot for - right or wrong. Raising interest rates slows capital investment but also draws money out of the economy. It also causes inflation because the cost of goods and services bought on credit or services that operate on revolving financing see higher fees and rates. We don’t normally see that as inflation but if you measure costs not by sticker costs but by fully loaded costs you see the inflation. It also has the effect of people returning money from investment markets to debt markets for return which locks currency away temporarily. All that makes sense if you don’t believe you can increase supply to simply meet demand and experience growth. It feels like keeping interest rates low, allowing a transient period of inflation, then working on some offsetting deflation later would be a smarter play than making everyone more poor and unemployed than before to ensure they can’t afford to buy food, decreasing the cost of food.

WalterBright 4y ago

> The other type of inflation happens when prices go up because the amount of supply drops If you have to spend more on X, that means you have less to spend on Y. Because of the Law of Supply&Demand, the reduced demand for Y results in a corresponding drop in the price of Y. That's why it's not inflation.

politician 4y ago
Imagine you're running a factory that consumes Aluminum and produces Aluminum cans. If the half of the sources that supply your raw material inputs go offline, then you'll either pay more for the supply from marginal producers or reduce your output. In either case, you'll be forced with a decision to raise the price of your product to maintain your margin or reduce your output. A downstream consumer of your cans will either see their prices rise for their inputs (your cans) and call it inflation, or they will have to source additional cans from additional marginal suppliers at additional costs because your volume dropped. The average cost of cans will have increased and that's inflation too.
- WalterBright 4y ago
  They can call it inflation, but it is not.
  - tomrod 4y ago
    Economist here. I think you may be confused in the definition of inflation. I responded to another comment of yours, and will reiterate a good writeup I recommend reviewing for improving your understanding on what inflation is: https://www.investopedia.com/articles/05/012005.asp https://www.investopedia.com/articles/05/012005.asp
    - WalterBright 4y ago
      Cost-push and demand-pull theories of inflation have been discredited by Reisman in "Capitalism". And as Milton Friedman wrote, "Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output." Of course, this is saying the same thing as the Law of Supply & Demand. More money being created wrt the goods and services it represents mean the money gets devalued.
      - tomrod 4y ago
        > Reisman in "Capitalism". Be careful with the Austrian School of Economics, because it masquerades as meaningful but under the hood is a religious faith as it rejects the need for measurement and the scientific method. Some ideas pass the logic filter for many people's lived experience without being accurate. Hence, it is incorrect to say "Cost-push and demand-pull theories of inflation have been discredited" -- a more accurate assertion would be "the theories of cost-push and demand-pull inflation are argued against, unconvincingly to most but convincingly to me" since most people, including economists, do not adopt the tenets, rites, and axioms of the Austrian School. Note, your personal Austrian School-driven interpretation for what constituties inflation is likely why you are receiving pushback in this thread.
      - politician 4y ago
        (1995) Supply-Side Sources of Inflation: Evidence From OECD Countries https://www.federalreserve.gov/econres/ifdp/supply-side-sources-of-inflation-evidence-from-oecd-countries.htm https://www.federalreserve.gov/econres/ifdp/supply-side-sour... > We evaluate the merits of the "supply-side" view under which inflation results from sectoral shocks, and compare it with the "classical" view in which inflation results from aggregate factors such as variations in money growth. Using a panel VAR methodology applied to data for 13 GECD countries, we find support for a multi-shock view of inflation: supply-side shocks are statistically significant determinants of inflation, even after taking into account aggregate demand factors. While oil prices are the dominant supply-side influence, other measures such as the skewness of relative price changes are important as well. At short horizons, an innovation to skewness leads to an increase in inflation of 0.5 percentage points. As suggested by the classical view, money growth plays an increasingly important role as the time horizon lengthens. The paper identifies energy (oil in 1995) as the main driver of supply-side inflation which seems reasonable to me because all of our economies use energy, and so changes in the supply of energy would cause shocks across the economy that would result in complex downstream ripple effects. We can watch this play out in Germany today, where they lack sufficient energy to fuel their economy due to the loss of Russian nat gas.
fnordpiglet 4y ago
If you have excess currency you can translate that excess into demand. If supply can’t fulfill the demand then goods are more scarce than money and suppliers charge more hence inflation. However if inflation is high and interest rates are low growth will happen as people outlay capital towards meeting the supply for the demand and prices will drop as the overall economy expands - more supply, more demand - that’s growth. So “printing money” can spur growth, which is generally what we shoot for - right or wrong. Raising interest rates slows capital investment but also draws money out of the economy. It also causes inflation because the cost of goods and services bought on credit or services that operate on revolving financing see higher fees and rates. We don’t normally see that as inflation but if you measure costs not by sticker costs but by fully loaded costs you see the inflation. It also has the effect of people returning money from investment markets to debt markets for return which locks currency away temporarily. All that makes sense if you don’t believe you can increase supply to simply meet demand and experience growth. It feels like keeping interest rates low, allowing a transient period of inflation, then working on some offsetting deflation later would be a smarter play than making everyone more poor and unemployed than before to ensure they can’t afford to buy food, decreasing the cost of food.