8 ms·

It's yet another example of the gap that always exists between economic theory and economic practice. In this case, what we have is that every player in the fo

by zmmmmm 4y ago

It's yet another example of the gap that always exists between economic theory and economic practice. In this case, what we have is that every player in the food chain has taken advantage of supply shortage to eke out additional margin along the way. And why not? Your products are in demand and there are buyers who are willing to pay more than the theoretical market price. The actual situation is that even if competition does assert itself eventually it is slow to adjust to changes in the environment AND there is very strong hysteresis: those with the opportunity are fast to put up prices and slow to lower them again to the same level even if prior conditions re-establish themselves. Most of it goes to the lie that is the premise that interest rates are really the optimal way to control inflation, regardless of the source. When inflation is actually driven by consumers having too much money, fine, go for it. But when its driven by external factors all you are doing is causing misery and maybe adding fuel to the fire as people already maxed out buying essentials are in fact going to seek (require) higher salaries when you add to their cost of living.

cyanydeez 4y ago
It's also important to note that growing wealth inequality means you need to seduce fewer customers with these higher prices. It's most obvious with America's pharma industry where the cost to produce seriously outstrips the retail value and the market has zero incentive to make costs obvious and a whole insurance industry and it's companies are the buyers, not the individuals.
jpgvm 4y ago
Similarly lowering interest rates into the ground when consumers still had plenty of money but supply was constrained probably wasn't a wise move either. More targeted assistance of just affected industries during the pandemic could have prevented almost all of this.
- stephen_g 4y ago
  True, that was a big part of the problem. This is one of these “Doesn’t anybody see this? I feel like I’m taking crazy pills here” moments - dropping the interest rates didn’t do why we wanted (just pumps up property and equity prices with cheap money but doesn’t actually stimulate the economy), even some countries set them negative which didn’t work either, and raising interest rates has never been really shown to reduce inflation (just that you can raise them high enough to cause a crisis, which causes far more problems, and then hopefully by the time the recovery starts inflation contributors have abated…) Their whole monetary policy seems to be bunk.
  - MrVandemar 4y ago
    > Their whole monetary policy seems to be bunk. It's mostly been under the management of a party who straight-out optimise for company profits and screw the little guy (who spent 10 years continually voting for them because Chairman Rupert said so).
  - imtringued 4y ago
    The problem with monetary policy is that there is no way to actually decrease the money supply, other than repaying debt. If there was literally any other mechanism to get rid of excess money, then you could, for example, do helicopter money when there is a recession and do the inverse of helicopter money when there is a boom and never even touch the interest rate.
    - okr 4y ago
      Does that mean, someone would add or take money from anyones bank account? And you can't do anything about it?
    - kasey_junk 4y ago
      Taxes are one of these mechanisms. It’s just political suicide to vary the tax rate like this.
Spooky23 4y ago
The other factor is that unchecked consolidation of almost all industries eliminated the “animal spirits” of competition to lower prices. You see this with gasoline. Refining production is so limited that it takes weeks or months to recover from a price spike.
deleted 4y ago
[deleted]
gruez 4y ago
>And why not? Your products are in demand and there are buyers who are willing to pay more than the theoretical market price. What do you mean "theoretical market price"? What you're saying makes no sense in the context of standard microeconomic theory. If supply is constrained, then microeconemic theory predicts that the market clearing price will go up. Companies can always price their goods at higher than the market clearing price, but microeconomic theory would predict that doing so would result in less profits. >But when its driven by external factors What do you think the "external factors" are here? Companies suddenly getting more greedy?
- RichEO 4y ago
  He's talking about the supply shocks caused largely by the Ukraine/Russia war.
abigail95 4y ago
If you're going to say there's a gap in theory, could you at least explain which economic theory is showing the opposite result here?
- phkahler 4y ago
  Show me an economist that uses the word hysteresis. Their models are quite primitive IMHO and not because they're powerful like the ones used in thermodynamics, but they act like they are.
  - cuchoi 4y ago
    It is a pretty common concept among economists. IIRC it is even covered in Mankiw's Introduction to Economics textbook.
  - ryan93 4y ago
    https://en.wikipedia.org/wiki/Hysteresis_(economics) https://en.wikipedia.org/wiki/Hysteresis_(economics) lol
  - marcosdumay 4y ago
    Hum... They all seem to say "stickiness" instead, what means the same thing. Modern macroeconomics is all about it, or, well, at least the mainstream macroeconomics is all about it.
    - imtringued 4y ago
      What irritates me so much is that all of these things are bolted on afterthoughts. People point at their "beautiful" perfectly liquid models and then when you tell them the real world is "ugly" and illiquid they get angry and tell you, you are wrong. I mean the most classic example is the theoretical barter economy that doesn't exist because you need money to lower transaction costs for a high degree of the division of labor (which isn't disputed). The reason for that is that economists came up with this theoretical model and the text books want to teach barter first and then money which gives the wrong impression that barter economies actually existed. No, people either managed the economy the way we manage it internally within families and corporations or they straight up used a commodity as their money or some hard to forge symbol like precious metals. There is not much in-between because barter is inconvenient as hell and it causes social difficulties because the fairness of trades has to be evaluated very carefully, opening up the potential for conflict.
JumpCrisscross 4y ago
> the premise that interest rates are really the optimal way to control inflation Economic theory for at least two centuries has recognised the outsized power of fiscal policy relative to monetary.
mdorazio 4y ago
> When inflation is actually driven by consumers having too much money, fine, go for it. But when its driven by external factors And when it's both, as was the case in 2021-2022?
Aunche 4y ago
>Most of it goes to the lie that is the premise that interest rates are really the optimal way to control inflation There are only 3 ways to decrease inflation: - Interest rates - Price controls. This tends to have a lot of harmful side effects, such as the necessity of rationing and discentivizing the production of whatever you're price controlling. You only really do this for a few goods, so this doesn't help overall inflation much, if at all. - Effective policy and investments increasing the quantity or quality of goods and services. This is perhaps the "best" way to decrease inflation, but it takes years, if not decades to materialize. More importantly, it requires the elected members of government to formulate and agree on, which unfortunately is becoming increasingly rare. >all you are doing is causing misery and maybe adding fuel to the fire as people already maxed out buying essentials are in fact going to seek (require) higher salaries when you add to their cost of living. This is moot because when interest rates were 0, inflation was outpacing wage increases. Let's say that wasn't the case and inflation was 10% and wages increase 10%. All evens out right? Not really. The problem is that not the people can take advantage of an inflation-induced wage increase. Younger people, with fewer commitments are able to job hop to a better employer or prepare to negotiate for a pay raise. Meanwhile, other people don't have the bandwidth to do so or are retired and depend of fix income, but they still need to face the costs of inflation, and these are also the people who are the most vulnerable. So in the end, all we can do is raise interest rates. Also, Australia doesn't really have a choice, because the US is set on raising interest rates. Any country that doesn't follow will have their currency severely devalued when investors sell buy American bonds over their own.
- naasking 4y ago
  > Price controls. This tends to have a lot of harmful side effects, such as the necessity of rationing and discentivizing the production of whatever you're price controlling. You only really do this for a few goods, so this doesn't help overall inflation much, if at all. The necessity of rationing assumes that demand is outstripping supply. That's not the case when corporations are price gouging. Egg farms are not selling more eggs than ever before, nor would they if prices were exactly what they were before COVID. Furthermore the harmful side effects of price controls are often exaggerated. Again, egg farmers are not going to suddenly just kill all of their chickens and switch to building datacenters because we only implemented price controls on necessities like food. Nixon's price controls went fine, as but one example. Finally, your solution of raising rates does not decrease the need for basic staples like food, so it's not a solution at all. Who cares if inflation for Tesla's or SUVs are at 8% or higher, that's a rich person problem. What matters is the inflation for necessary goods and services, like food and shelter, and your suggested "solution" doesn't really solve anything. All it does is maybe put people who need the money out of work.
rcme 4y ago
> Your products are in demand and there are buyers who are willing to pay more than the theoretical market price. What does this even mean? How can buyers be willing to pay more than the market price and the sellers still make more money? If such a case were to occur, it wouldn't be correct to call the old price the "theoretical market price." Basically, what you're describing is literally inflation: the purchasing power of money has decreased, so people are willing to spend more of it to buy their goods. Sellers recognize that the demand curve has shifted, and raise their price accordingly.
- deleted 4y ago
  [deleted]
- swatcoder 4y ago
  I think the OP is suggesting that there’s a “natural” market price that was perturbed by an extraordinary and temporary event, but that skewed/irrational customer perceptions and market inefficiencies let current sellers milk that perturbation for longer than the original disruption would theoretically warrant. And that this behavior can become a ratcheting change that drives price inflation entirely through profit-taking. I’m sure there’s developed economic theory around this phenomenon and more sophisticated language than they used, but it felt like they got the point across.
  - skissane 4y ago
    > I’m sure there’s developed economic theory around this phenomenon and more sophisticated language than they used, but it felt like they got the point across. Isn’t this what economists call “elasticity”?
  - rcme 4y ago
    That doesn’t really make sense. Raising prices not supported by demand would result in less profit in theory. For instance, prices may go up in a supply disruption, but the loss in sales means suppliers earn less. So if prices were artificially high, it would actually be more profitable to lower them.
abigail95 4y ago
If I ask you a better tool to use than interest rates (nor deficit reduction either, which is being done) - are you going to MMT me? Is it worth my time to ask? And do you mean to say that mean interest rates should be lower than they are now?
neilwilson 4y ago
"When inflation is actually driven by consumers having too much money, fine, go for it." Except that interest rates don't really affect that either [0] Inflation is always, everywhere, a lack of competition problem. Firms will charge what they can for their output. Inflation is causes by people paying that price because there isn't another alternative in the market, and 'no deal' isn't an option. [0]: https://new-wayland.com/blog/interest-price-spiral/ https://new-wayland.com/blog/interest-price-spiral/
- SamPatt 4y ago
  What is this nonsense? Inflation is always due to a lack of competition? Where on earth is the evidence for such an assertion (I didn't see anything in the linked article)? Inflation is a monetary phenomenon, it's not a mystery at all. Governments print too much money and then it's worth less. History is full of examples.
  - hgomersall 4y ago
    Except that the evidence shows that money supply increase doesn't necessarily lead to inflation. Countries that go through hyperinflation always have a systematic underlying problem that they use money creation to try to fix. "Ah ha!" declare the monetarists, "evidence for our assertion that money supply is the cause of inflation", conveniently ignoring all the counter examples. The point of the GP post is that competition is how prices are reduced. There're buckets of economic theory that's at least as robust at the monetarist assertions that shows that prices drop when competition works properly. Every issue that underpins price rises is effectively a failure of competition. There are always winners from inflation: https://economicsfromthetopdown.com/2021/11/24/the-truth-about-inflation/ https://economicsfromthetopdown.com/2021/11/24/the-truth-abo...
    - refurb 4y ago
      Thats a terrible article. The example of oranges going up in price and apples down is not inflation. Inflation is an overall erosion of buying power. When oil prices rise that’s not inflation, although prices might rise.
brnt 4y ago
What makes economics a weak science, weaker than many other humanities, is the habitual absence of experimental evidence. It's of course hard to have a number of double blind histories of the world economy, yet that is what it takes to be a hard science. If you accept that it never can be (many economists try hard to pretend otherwise!), then you have to accept (again, many don't) that building mathematical models for human behavior (without rigorous validation) is no more scientific then some of the worst stereotypes people have for the social sciences. Yet, economics _is_ a social science, through and through. It studies human behavior. Just because currency lets you quantify and calculate more easily than other kinds of behavior, does not make it fundamentally different.
- barfingclouds 4y ago
  Well can’t you observe past behavior with great detail? How would that be soft?
- uonpopular_th 4y ago
  I used to agree until I saw what has happened to biology in the last few years. Economics is a science as good as any other. It's just that a lot of people with a lot of money want it to say something so it does. No science is insulated from its practitioners being bought out and the few with principles being silenced.
  - sethaurus 4y ago
    > I used to agree until I saw what has happened to biology in the last few years. I'm missing the context here — could you expand on what's happened to biology?
    - uonpopular_th 4y ago
      The bureaucrats who should have been enabling and coordinating scientists instead decided what the policy should be for Covid19 and ruined the lives/careers of anyone who did not fall in line. The worst of these decisions by far was the policy that covid was spread by aerosols and not airborne: https://www.nature.com/articles/d41586-022-00925-7 https://www.nature.com/articles/d41586-022-00925-7 This was nothing short of Lysenkoism in the 21st century.
imtringued 4y ago
I wish central banks followed MMT and instead of interest rates they introduced the concept of minimum annual redemption. If the central bank wants to lower inflation without raising the interest rate it instead increases the minimum redemption rate. What this means is that your loan has to shrink by x% annually. The interest payments you would be paying instead are used to pay back the loan/destroy money faster. Interest doesn't destroy money, it circulates through the economy once so it is neutral on inflation. Higher interest rates mean higher monthly payments which means less demand for loans but the minimum redemption rate does the same thing but also destroys money faster so it eliminates inflation faster.
roenxi 4y ago
> ... even if competition does assert itself eventually it is slow ... This analysis is not accounting for the risk that businesses face in the current environment. Australia has recently put a lot of pressure on small businesses. I still see empty store fronts every day. It is likely competition is slow because all the people who could compete are weighing up the odds of their business being shut down and not liking their chances. In fact, the idea that inflation is being 'driven' by profits is foolish. Profits are a result of market conditions - inflation was caused by mass disruption of the economy combined with money printing. The people who benefited the most from that were big businesses but they weren't in the driver's seat for what was going on.

by zmmmmm 4y ago

cyanydeez 4y ago

It's also important to note that growing wealth inequality means you need to seduce fewer customers with these higher prices. It's most obvious with America's pharma industry where the cost to produce seriously outstrips the retail value and the market has zero incentive to make costs obvious and a whole insurance industry and it's companies are the buyers, not the individuals.

jpgvm 4y ago

Similarly lowering interest rates into the ground when consumers still had plenty of money but supply was constrained probably wasn't a wise move either. More targeted assistance of just affected industries during the pandemic could have prevented almost all of this.

stephen_g 4y ago
True, that was a big part of the problem. This is one of these “Doesn’t anybody see this? I feel like I’m taking crazy pills here” moments - dropping the interest rates didn’t do why we wanted (just pumps up property and equity prices with cheap money but doesn’t actually stimulate the economy), even some countries set them negative which didn’t work either, and raising interest rates has never been really shown to reduce inflation (just that you can raise them high enough to cause a crisis, which causes far more problems, and then hopefully by the time the recovery starts inflation contributors have abated…) Their whole monetary policy seems to be bunk.
- MrVandemar 4y ago
  > Their whole monetary policy seems to be bunk. It's mostly been under the management of a party who straight-out optimise for company profits and screw the little guy (who spent 10 years continually voting for them because Chairman Rupert said so).
- imtringued 4y ago
  The problem with monetary policy is that there is no way to actually decrease the money supply, other than repaying debt. If there was literally any other mechanism to get rid of excess money, then you could, for example, do helicopter money when there is a recession and do the inverse of helicopter money when there is a boom and never even touch the interest rate.
  - okr 4y ago
    Does that mean, someone would add or take money from anyones bank account? And you can't do anything about it?
  - kasey_junk 4y ago
    Taxes are one of these mechanisms. It’s just political suicide to vary the tax rate like this.

Spooky23 4y ago

The other factor is that unchecked consolidation of almost all industries eliminated the “animal spirits” of competition to lower prices. You see this with gasoline. Refining production is so limited that it takes weeks or months to recover from a price spike.

deleted 4y ago

[deleted]

gruez 4y ago

>And why not? Your products are in demand and there are buyers who are willing to pay more than the theoretical market price. What do you mean "theoretical market price"? What you're saying makes no sense in the context of standard microeconomic theory. If supply is constrained, then microeconemic theory predicts that the market clearing price will go up. Companies can always price their goods at higher than the market clearing price, but microeconomic theory would predict that doing so would result in less profits. >But when its driven by external factors What do you think the "external factors" are here? Companies suddenly getting more greedy?

RichEO 4y ago
He's talking about the supply shocks caused largely by the Ukraine/Russia war.

abigail95 4y ago

If you're going to say there's a gap in theory, could you at least explain which economic theory is showing the opposite result here?

phkahler 4y ago
Show me an economist that uses the word hysteresis. Their models are quite primitive IMHO and not because they're powerful like the ones used in thermodynamics, but they act like they are.
- cuchoi 4y ago
  It is a pretty common concept among economists. IIRC it is even covered in Mankiw's Introduction to Economics textbook.
- ryan93 4y ago
  https://en.wikipedia.org/wiki/Hysteresis_(economics) https://en.wikipedia.org/wiki/Hysteresis_(economics) lol
- marcosdumay 4y ago
  Hum... They all seem to say "stickiness" instead, what means the same thing. Modern macroeconomics is all about it, or, well, at least the mainstream macroeconomics is all about it.
  - imtringued 4y ago
    What irritates me so much is that all of these things are bolted on afterthoughts. People point at their "beautiful" perfectly liquid models and then when you tell them the real world is "ugly" and illiquid they get angry and tell you, you are wrong. I mean the most classic example is the theoretical barter economy that doesn't exist because you need money to lower transaction costs for a high degree of the division of labor (which isn't disputed). The reason for that is that economists came up with this theoretical model and the text books want to teach barter first and then money which gives the wrong impression that barter economies actually existed. No, people either managed the economy the way we manage it internally within families and corporations or they straight up used a commodity as their money or some hard to forge symbol like precious metals. There is not much in-between because barter is inconvenient as hell and it causes social difficulties because the fairness of trades has to be evaluated very carefully, opening up the potential for conflict.

JumpCrisscross 4y ago

> the premise that interest rates are really the optimal way to control inflation Economic theory for at least two centuries has recognised the outsized power of fiscal policy relative to monetary.

mdorazio 4y ago

> When inflation is actually driven by consumers having too much money, fine, go for it. But when its driven by external factors And when it's both, as was the case in 2021-2022?

Aunche 4y ago

>Most of it goes to the lie that is the premise that interest rates are really the optimal way to control inflation There are only 3 ways to decrease inflation: - Interest rates - Price controls. This tends to have a lot of harmful side effects, such as the necessity of rationing and discentivizing the production of whatever you're price controlling. You only really do this for a few goods, so this doesn't help overall inflation much, if at all. - Effective policy and investments increasing the quantity or quality of goods and services. This is perhaps the "best" way to decrease inflation, but it takes years, if not decades to materialize. More importantly, it requires the elected members of government to formulate and agree on, which unfortunately is becoming increasingly rare. >all you are doing is causing misery and maybe adding fuel to the fire as people already maxed out buying essentials are in fact going to seek (require) higher salaries when you add to their cost of living. This is moot because when interest rates were 0, inflation was outpacing wage increases. Let's say that wasn't the case and inflation was 10% and wages increase 10%. All evens out right? Not really. The problem is that not the people can take advantage of an inflation-induced wage increase. Younger people, with fewer commitments are able to job hop to a better employer or prepare to negotiate for a pay raise. Meanwhile, other people don't have the bandwidth to do so or are retired and depend of fix income, but they still need to face the costs of inflation, and these are also the people who are the most vulnerable. So in the end, all we can do is raise interest rates. Also, Australia doesn't really have a choice, because the US is set on raising interest rates. Any country that doesn't follow will have their currency severely devalued when investors sell buy American bonds over their own.

naasking 4y ago
> Price controls. This tends to have a lot of harmful side effects, such as the necessity of rationing and discentivizing the production of whatever you're price controlling. You only really do this for a few goods, so this doesn't help overall inflation much, if at all. The necessity of rationing assumes that demand is outstripping supply. That's not the case when corporations are price gouging. Egg farms are not selling more eggs than ever before, nor would they if prices were exactly what they were before COVID. Furthermore the harmful side effects of price controls are often exaggerated. Again, egg farmers are not going to suddenly just kill all of their chickens and switch to building datacenters because we only implemented price controls on necessities like food. Nixon's price controls went fine, as but one example. Finally, your solution of raising rates does not decrease the need for basic staples like food, so it's not a solution at all. Who cares if inflation for Tesla's or SUVs are at 8% or higher, that's a rich person problem. What matters is the inflation for necessary goods and services, like food and shelter, and your suggested "solution" doesn't really solve anything. All it does is maybe put people who need the money out of work.

rcme 4y ago

> Your products are in demand and there are buyers who are willing to pay more than the theoretical market price. What does this even mean? How can buyers be willing to pay more than the market price and the sellers still make more money? If such a case were to occur, it wouldn't be correct to call the old price the "theoretical market price." Basically, what you're describing is literally inflation: the purchasing power of money has decreased, so people are willing to spend more of it to buy their goods. Sellers recognize that the demand curve has shifted, and raise their price accordingly.

deleted 4y ago
[deleted]
swatcoder 4y ago
I think the OP is suggesting that there’s a “natural” market price that was perturbed by an extraordinary and temporary event, but that skewed/irrational customer perceptions and market inefficiencies let current sellers milk that perturbation for longer than the original disruption would theoretically warrant. And that this behavior can become a ratcheting change that drives price inflation entirely through profit-taking. I’m sure there’s developed economic theory around this phenomenon and more sophisticated language than they used, but it felt like they got the point across.
- skissane 4y ago
  > I’m sure there’s developed economic theory around this phenomenon and more sophisticated language than they used, but it felt like they got the point across. Isn’t this what economists call “elasticity”?
- rcme 4y ago
  That doesn’t really make sense. Raising prices not supported by demand would result in less profit in theory. For instance, prices may go up in a supply disruption, but the loss in sales means suppliers earn less. So if prices were artificially high, it would actually be more profitable to lower them.

abigail95 4y ago

If I ask you a better tool to use than interest rates (nor deficit reduction either, which is being done) - are you going to MMT me? Is it worth my time to ask? And do you mean to say that mean interest rates should be lower than they are now?

neilwilson 4y ago

"When inflation is actually driven by consumers having too much money, fine, go for it." Except that interest rates don't really affect that either [0] Inflation is always, everywhere, a lack of competition problem. Firms will charge what they can for their output. Inflation is causes by people paying that price because there isn't another alternative in the market, and 'no deal' isn't an option. [0]: https://new-wayland.com/blog/interest-price-spiral/ https://new-wayland.com/blog/interest-price-spiral/

SamPatt 4y ago
What is this nonsense? Inflation is always due to a lack of competition? Where on earth is the evidence for such an assertion (I didn't see anything in the linked article)? Inflation is a monetary phenomenon, it's not a mystery at all. Governments print too much money and then it's worth less. History is full of examples.
- hgomersall 4y ago
  Except that the evidence shows that money supply increase doesn't necessarily lead to inflation. Countries that go through hyperinflation always have a systematic underlying problem that they use money creation to try to fix. "Ah ha!" declare the monetarists, "evidence for our assertion that money supply is the cause of inflation", conveniently ignoring all the counter examples. The point of the GP post is that competition is how prices are reduced. There're buckets of economic theory that's at least as robust at the monetarist assertions that shows that prices drop when competition works properly. Every issue that underpins price rises is effectively a failure of competition. There are always winners from inflation: https://economicsfromthetopdown.com/2021/11/24/the-truth-about-inflation/ https://economicsfromthetopdown.com/2021/11/24/the-truth-abo...
  - refurb 4y ago
    Thats a terrible article. The example of oranges going up in price and apples down is not inflation. Inflation is an overall erosion of buying power. When oil prices rise that’s not inflation, although prices might rise.

brnt 4y ago

What makes economics a weak science, weaker than many other humanities, is the habitual absence of experimental evidence. It's of course hard to have a number of double blind histories of the world economy, yet that is what it takes to be a hard science. If you accept that it never can be (many economists try hard to pretend otherwise!), then you have to accept (again, many don't) that building mathematical models for human behavior (without rigorous validation) is no more scientific then some of the worst stereotypes people have for the social sciences. Yet, economics _is_ a social science, through and through. It studies human behavior. Just because currency lets you quantify and calculate more easily than other kinds of behavior, does not make it fundamentally different.

barfingclouds 4y ago
Well can’t you observe past behavior with great detail? How would that be soft?
uonpopular_th 4y ago
I used to agree until I saw what has happened to biology in the last few years. Economics is a science as good as any other. It's just that a lot of people with a lot of money want it to say something so it does. No science is insulated from its practitioners being bought out and the few with principles being silenced.
- sethaurus 4y ago
  > I used to agree until I saw what has happened to biology in the last few years. I'm missing the context here — could you expand on what's happened to biology?
  - uonpopular_th 4y ago
    The bureaucrats who should have been enabling and coordinating scientists instead decided what the policy should be for Covid19 and ruined the lives/careers of anyone who did not fall in line. The worst of these decisions by far was the policy that covid was spread by aerosols and not airborne: https://www.nature.com/articles/d41586-022-00925-7 https://www.nature.com/articles/d41586-022-00925-7 This was nothing short of Lysenkoism in the 21st century.

imtringued 4y ago

I wish central banks followed MMT and instead of interest rates they introduced the concept of minimum annual redemption. If the central bank wants to lower inflation without raising the interest rate it instead increases the minimum redemption rate. What this means is that your loan has to shrink by x% annually. The interest payments you would be paying instead are used to pay back the loan/destroy money faster. Interest doesn't destroy money, it circulates through the economy once so it is neutral on inflation. Higher interest rates mean higher monthly payments which means less demand for loans but the minimum redemption rate does the same thing but also destroys money faster so it eliminates inflation faster.

roenxi 4y ago

> ... even if competition does assert itself eventually it is slow ... This analysis is not accounting for the risk that businesses face in the current environment. Australia has recently put a lot of pressure on small businesses. I still see empty store fronts every day. It is likely competition is slow because all the people who could compete are weighing up the odds of their business being shut down and not liking their chances. In fact, the idea that inflation is being 'driven' by profits is foolish. Profits are a result of market conditions - inflation was caused by mass disruption of the economy combined with money printing. The people who benefited the most from that were big businesses but they weren't in the driver's seat for what was going on.