4 ms·

Or anyone buying a home, or working for a company that uses debt to bridge cash flow, or anyone who uses infrastructure like roads. What I’m curious about is w

Or anyone buying a home, or working for a company that uses debt to bridge cash flow, or anyone who uses infrastructure like roads. What I’m curious about is what component of inflation is the fact even with shipping rates dropped a ton they’re still twice what they were pre pandemic and fuel costs, which drives a marginal cost of any physical good, being so high? Maybe it’s a war disrupting energy prices and food? Inflation is caused when demand is higher than supply can meet. Given the worlds ability to produce JIT it feels implausible that supply can’t meet demand if inflation were just left alone. I don’t know that making everyone poorer to reduce demand is the right answer. Maybe just let inflation happen for a while and keep capital cheap so we can invest rapidly in expanding supply?

danuker 4y ago
> Given the worlds ability to produce JIT it feels implausible that supply can’t meet demand if inflation were just left alone. Just as you can not deliver a baby in one month with 9 pregnant women, you can not grow food faster than it takes. Also, there is no "leaving alone". As a central bank, you have to choose an interest rate, and this affects bond yields, stock prices, and financing costs (such as to produce said food).
- fnordpiglet 4y ago
  You can grow more food with more money as long as we have land to grow food on. As food becomes more expensive more food will be grown. If it gets expensive enough vertical farms and other capital intensive growing capacity would be viable (as long as capital is cheap). Your analogy is false because you’re measuring latency and calling it bandwidth. If I want more babies in a shorter amount of time then absolutely 9 pregnant women wins over trying to make one woman pregnant 9 times. With food we want more food and plants grow in parallel. It’s not about the first grain of rice, it’s about the trillionth. Leaving alone in what I said means “don’t mess with the cost of capital and let people borrow to expand supply as fast as we can.” Eventually as we grow capacity to produce and people compete for higher prices we will overshoot supply, a consolidation will occur, and prices will drop. Trying to decrease supply expansion by making it more expensive to borrow to fund expansion will not improve supply. It will indirectly reduce demand by inducing savings and inducing a decrease in economic activity and a recession and unemployment, and therefore suffering.
matwood 4y ago
> Given the worlds ability to produce JIT it feels implausible that supply can’t meet demand if inflation were just left alone. I mostly agree. We see a clear supply problem right now. China's covid lockdowns mean any new iPhone Pro ordered today will not be here until next year.
delusional 4y ago
Leaving inflation alone disproportionally affects the people who don't have a lot to begin with. 10% inflation is much more palatable when that's your coffee budget than when it's your rent.
- fnordpiglet 4y ago
  You’re right. But the feds moves will lead to less spending and increased savings, which will result in economic contraction and the loss of employment. A 10% drop in purchasing power is painful, 100% is catastrophic.
jason-phillips 4y ago
> Maybe just let inflation happen for a while There is no "just a while". Once it starts it's hard to stop. They're trying to save the dollar (and everything with a dependency on it).
- fnordpiglet 4y ago
  If there’s a lot of money to capture I will expand by businesses to capture it if capital is cheap. This causes competition, which causes prices to drop as demand has more options to purchase. There is just a while by the way. Increasing interest rates is a very indirect way to manage inflation. You essentially stimulate savings and increase the cost of growth by making capital more expensive and makes services that depend on warehouse credit more expensive to operate. Stimulating savings decreases spending which decreases economic activity which decreases demand and makes supply exceed demand and prices drop. But it also means less economic activity, which translates into unemployment, lack of wage growth, and other factors. But this process takes time, just like supply expansion through cheap capital (low interest rates). It’s also really hard to reverse a recession while it’s easy to stop a boom. I’d rather stuff become more expensive for a while and keep my job and get raises to account for it while the economy expands to meet demand than lose my job and have absolutely nothing and struggle to make ends meet while we stumble through a recession, especially since inflation will keep going for some time despite the recession.
SpicyLemonZest 4y ago
We've been trying that and it hasn't worked. If you remember the "transitory" arguments from last year, that's what those were about. The people saying inflation was "transitory", who won the argument at the time, meant that they agreed with your diagnosis and wanted to just let it happen for a while.
- fnordpiglet 4y ago
  Maybe capital expansion and supply growth takes longer than a few months? I know recession definitely do, and they’re a heck of a lot easier to stop than periods of growth. I think frenetically switching monetary policy based on a relatively short trend is probably bad no matter what.
snapplebobapple 4y ago
A couple of things: Your assumption of limitless JIT production is wrong but it's better to address this second. Your statement about making everyone poorer to reduce demand is confusing. Do you mean raising interest rates makes everyone poorer and we shouldn't do it? If so, that's not true. It makes people that have borrowed poorer and it makes people who have lent richer. There are second order effects where borrowers can no longer borrow and spend so demand is reduced but that's not really making people poorer, it's limiting their ability to spend money they don't have. If you meant inflation was making everyone poorer, that's true, but your statement doesn't come off that way. Raising prices broadly makes everyone poorer, which is why the central bank should be fighting inflation with whatever tools they have. Back to the limitless JIT production. if that was true (and we had limitless delivery to where goods were needed) then yah, we wouldn't have inflation, I agree. What we have instead is high production capabilities that took a hit from the war and a much larger hit from Covid policies messing up factory production and all this being fed into a severely overloaded transport system with chokepoints at most ports causing backlogs. if you want the high JIT production and delivery to be true then you need to address the causes of it not being true and that is often (but not always) government. Government is standing in the way of breaking the unions and automating the ports, for example. Government is also standing in the way of new fossil fuel infrastructure that is desperately needed via extreme uncertainty in regulatory approval processes.
- fnordpiglet 4y ago
  Raising interest rates discourages capital investment which makes it harder to expand. It also makes businesses that float on warehouse credit less able to operate. Raising the cost of borrowing hurts anyone spending while rewarding those saving. since economic growth happens through increased spending, you can only shrink economic activity by encouraging saving. This makes everyone poorer because there’s simply less money available. Only those with excess capital to save benefit, but they really don’t benefit in an economic sense but in a notional sense. If the issue is supply can’t meet demand, you can either reduce spending or demand and increase savings or you can make capital expansion cheaper and encourage supply meeting demand. The former makes everyone poorer because the economy shrinks. The latter grows the economy, and makes everyone richer. Now I agree inflation is bad for everyone. But inducing a global recession is an ass backwards way to solve it. Expanding supply capacity and ability to deliver while reducing frictional cost of transportation solves it in a positive way. But either way won’t see results over night. It takes time for any of this to happen. But I’ll argue here that inducing a recession and economic downturn by rewarding saving and not spending leaves us at a worse place in 10 years than we would have been had we grown into the demand and rewarded capital expansion in the face of increasing demand. Note, I know there’s a morality in our culture around spending and saving as a concept, but I think these are entirely specious. You should save regardless of the reward structure to provide stability and a buffer against turbulence, and being parsimonious is IMO the actual moral imperative. Saving and spending in the above isn’t necessarily at an individual level but at a societal level. Saving is necessarily contracting economic activity by making capital expensive and removing currency from exchange for goods and services, and creating artificial incentives to save will lead to misery - layoffs, shrinking economic activity, declines in equity markets and the value of real goods relative to savings, etc, all of which is not beneficial to anyone in the long run. Inflation, unless followed on with expansion of currency to try to battle inflation, will resolve itself naturally either way. But letting supply and demand work out the price in the market and making capital cheap means more people and businesses will try to capture more of that extra demand. That’s good isn’t it? Usually markets overshoot so you would ultimately see a period of deflation, especially if a recession pops out, undoing the experienced inflation. But creating a recession to make people spend less and therefore decrease expansion and opportunity for growth is a truly awful strategy.
2devnull 4y ago
Any definition of inflation that ignores everything but supply and demand is too simple. Include velocity of money, interest rates, the fed’s dual mandate and you get close to a useful understanding. Any discussion about inflation that ignores those elements probably just adds to the general public’s woeful ignorance. Inflation is the feds’ job, if you have high inflation, the fed failed. Fluctuating supply and demand should have minimal impact on inflation, unless the fed screws up by, for example, trying to overshoot “full employment” when all the inflation alarm bells are already ringing. Arguably that is what happened, and there’s a general consensus about this in circles that actually have a clue, current and former fed members.
- fnordpiglet 4y ago
  Monetary policy definitely impacts prices. However high prices induces expansion if capital is available. This lowers prices. The rest you outline are fingers you can place on the scales in either direction. But in the end if supply is elastic and demand increases prices might go up for a while but as supply capacity builds prices will drop as competition increases. Monetary policy doesn’t change that equation, it just gives you a lever to induce spending or savings.

danuker 4y ago

> Given the worlds ability to produce JIT it feels implausible that supply can’t meet demand if inflation were just left alone. Just as you can not deliver a baby in one month with 9 pregnant women, you can not grow food faster than it takes. Also, there is no "leaving alone". As a central bank, you have to choose an interest rate, and this affects bond yields, stock prices, and financing costs (such as to produce said food).

fnordpiglet 4y ago
You can grow more food with more money as long as we have land to grow food on. As food becomes more expensive more food will be grown. If it gets expensive enough vertical farms and other capital intensive growing capacity would be viable (as long as capital is cheap). Your analogy is false because you’re measuring latency and calling it bandwidth. If I want more babies in a shorter amount of time then absolutely 9 pregnant women wins over trying to make one woman pregnant 9 times. With food we want more food and plants grow in parallel. It’s not about the first grain of rice, it’s about the trillionth. Leaving alone in what I said means “don’t mess with the cost of capital and let people borrow to expand supply as fast as we can.” Eventually as we grow capacity to produce and people compete for higher prices we will overshoot supply, a consolidation will occur, and prices will drop. Trying to decrease supply expansion by making it more expensive to borrow to fund expansion will not improve supply. It will indirectly reduce demand by inducing savings and inducing a decrease in economic activity and a recession and unemployment, and therefore suffering.

matwood 4y ago

> Given the worlds ability to produce JIT it feels implausible that supply can’t meet demand if inflation were just left alone. I mostly agree. We see a clear supply problem right now. China's covid lockdowns mean any new iPhone Pro ordered today will not be here until next year.

delusional 4y ago

Leaving inflation alone disproportionally affects the people who don't have a lot to begin with. 10% inflation is much more palatable when that's your coffee budget than when it's your rent.

fnordpiglet 4y ago
You’re right. But the feds moves will lead to less spending and increased savings, which will result in economic contraction and the loss of employment. A 10% drop in purchasing power is painful, 100% is catastrophic.

jason-phillips 4y ago

> Maybe just let inflation happen for a while There is no "just a while". Once it starts it's hard to stop. They're trying to save the dollar (and everything with a dependency on it).

fnordpiglet 4y ago
If there’s a lot of money to capture I will expand by businesses to capture it if capital is cheap. This causes competition, which causes prices to drop as demand has more options to purchase. There is just a while by the way. Increasing interest rates is a very indirect way to manage inflation. You essentially stimulate savings and increase the cost of growth by making capital more expensive and makes services that depend on warehouse credit more expensive to operate. Stimulating savings decreases spending which decreases economic activity which decreases demand and makes supply exceed demand and prices drop. But it also means less economic activity, which translates into unemployment, lack of wage growth, and other factors. But this process takes time, just like supply expansion through cheap capital (low interest rates). It’s also really hard to reverse a recession while it’s easy to stop a boom. I’d rather stuff become more expensive for a while and keep my job and get raises to account for it while the economy expands to meet demand than lose my job and have absolutely nothing and struggle to make ends meet while we stumble through a recession, especially since inflation will keep going for some time despite the recession.

SpicyLemonZest 4y ago

We've been trying that and it hasn't worked. If you remember the "transitory" arguments from last year, that's what those were about. The people saying inflation was "transitory", who won the argument at the time, meant that they agreed with your diagnosis and wanted to just let it happen for a while.

fnordpiglet 4y ago
Maybe capital expansion and supply growth takes longer than a few months? I know recession definitely do, and they’re a heck of a lot easier to stop than periods of growth. I think frenetically switching monetary policy based on a relatively short trend is probably bad no matter what.

snapplebobapple 4y ago

A couple of things: Your assumption of limitless JIT production is wrong but it's better to address this second. Your statement about making everyone poorer to reduce demand is confusing. Do you mean raising interest rates makes everyone poorer and we shouldn't do it? If so, that's not true. It makes people that have borrowed poorer and it makes people who have lent richer. There are second order effects where borrowers can no longer borrow and spend so demand is reduced but that's not really making people poorer, it's limiting their ability to spend money they don't have. If you meant inflation was making everyone poorer, that's true, but your statement doesn't come off that way. Raising prices broadly makes everyone poorer, which is why the central bank should be fighting inflation with whatever tools they have. Back to the limitless JIT production. if that was true (and we had limitless delivery to where goods were needed) then yah, we wouldn't have inflation, I agree. What we have instead is high production capabilities that took a hit from the war and a much larger hit from Covid policies messing up factory production and all this being fed into a severely overloaded transport system with chokepoints at most ports causing backlogs. if you want the high JIT production and delivery to be true then you need to address the causes of it not being true and that is often (but not always) government. Government is standing in the way of breaking the unions and automating the ports, for example. Government is also standing in the way of new fossil fuel infrastructure that is desperately needed via extreme uncertainty in regulatory approval processes.

fnordpiglet 4y ago
Raising interest rates discourages capital investment which makes it harder to expand. It also makes businesses that float on warehouse credit less able to operate. Raising the cost of borrowing hurts anyone spending while rewarding those saving. since economic growth happens through increased spending, you can only shrink economic activity by encouraging saving. This makes everyone poorer because there’s simply less money available. Only those with excess capital to save benefit, but they really don’t benefit in an economic sense but in a notional sense. If the issue is supply can’t meet demand, you can either reduce spending or demand and increase savings or you can make capital expansion cheaper and encourage supply meeting demand. The former makes everyone poorer because the economy shrinks. The latter grows the economy, and makes everyone richer. Now I agree inflation is bad for everyone. But inducing a global recession is an ass backwards way to solve it. Expanding supply capacity and ability to deliver while reducing frictional cost of transportation solves it in a positive way. But either way won’t see results over night. It takes time for any of this to happen. But I’ll argue here that inducing a recession and economic downturn by rewarding saving and not spending leaves us at a worse place in 10 years than we would have been had we grown into the demand and rewarded capital expansion in the face of increasing demand. Note, I know there’s a morality in our culture around spending and saving as a concept, but I think these are entirely specious. You should save regardless of the reward structure to provide stability and a buffer against turbulence, and being parsimonious is IMO the actual moral imperative. Saving and spending in the above isn’t necessarily at an individual level but at a societal level. Saving is necessarily contracting economic activity by making capital expensive and removing currency from exchange for goods and services, and creating artificial incentives to save will lead to misery - layoffs, shrinking economic activity, declines in equity markets and the value of real goods relative to savings, etc, all of which is not beneficial to anyone in the long run. Inflation, unless followed on with expansion of currency to try to battle inflation, will resolve itself naturally either way. But letting supply and demand work out the price in the market and making capital cheap means more people and businesses will try to capture more of that extra demand. That’s good isn’t it? Usually markets overshoot so you would ultimately see a period of deflation, especially if a recession pops out, undoing the experienced inflation. But creating a recession to make people spend less and therefore decrease expansion and opportunity for growth is a truly awful strategy.

2devnull 4y ago

Any definition of inflation that ignores everything but supply and demand is too simple. Include velocity of money, interest rates, the fed’s dual mandate and you get close to a useful understanding. Any discussion about inflation that ignores those elements probably just adds to the general public’s woeful ignorance. Inflation is the feds’ job, if you have high inflation, the fed failed. Fluctuating supply and demand should have minimal impact on inflation, unless the fed screws up by, for example, trying to overshoot “full employment” when all the inflation alarm bells are already ringing. Arguably that is what happened, and there’s a general consensus about this in circles that actually have a clue, current and former fed members.

fnordpiglet 4y ago
Monetary policy definitely impacts prices. However high prices induces expansion if capital is available. This lowers prices. The rest you outline are fingers you can place on the scales in either direction. But in the end if supply is elastic and demand increases prices might go up for a while but as supply capacity builds prices will drop as competition increases. Monetary policy doesn’t change that equation, it just gives you a lever to induce spending or savings.