5 ms·

>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

by 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.
- Aunche 4y ago
  > 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. Funny you say that... > Ranchers stopped shipping their cattle to the market, farmers drowned their chickens, and consumers emptied the shelves of supermarkets. https://www.pbs.org/wgbh/commandingheights/shared/minitextlo/ess_nixongold.html https://www.pbs.org/wgbh/commandingheights/shared/minitextlo...
  - naasking 4y ago
    Notice how the first round of price controls went just fine though. Like interest rates, price controls are not a hammer to apply indiscriminately. You have to apply them judiciously and for short periods. Unlike interest rates, at least they don't depress the whole economy, lead to recessions and disproportionately harm the poor.
- pas 4y ago
  Hungary tried price controls when this inflation cycle started. It still has some in effect. Hungary has more than two times the inflation of the EU average. The highest in the EU. Price controls on flour and gas/petrol led to people buying a lot more compared to supply. This led to gas stations closing. People started baking more, but price of bread exploded because folks bought flour and bakeries were in a tight spot (I don't remember the exact chain of events). Of course grocery shops increased the price of everything else relatively to make up for the loss on the controlled items. Clearly, tackling inflation should be independent from providing basic necessities like food and shelter and healthcare.
- epups 4y ago
  Nixon price controls did not work, they led to stagflation and a bunch of other issues. In fact it is hard to find any example of price controls working, and a lot of evidence of the opposite.
jackvalentine 4y ago
Could allow the reserve bank to change the mandatory rate of retirement savings in Australia - currently 10.5% of their wages. It'd have the same effect as interest rate rises in removing consumer demand without the kinda icky feeling of just sending that money to the income statement of a bank as mortgage payment increases. Obviously not a silver bullet, but perhaps another tool to make available.
- thriftwy 4y ago
  When a person has an open mortgage, pressuring them into making "voluntary but mandatory" retirement plan is financially devastating. Let's rip the young off so that we can prop the securities up and help the banks!
  - jackvalentine 4y ago
    It’d be done in lieu of interest rate rises that hit the pocketbook of people anyway. Most mortgages in Australia aren’t fixed rate.
js8 4y ago
Not true, you can also (selectively) increase taxes to take out excessive money supply. In the case of profit-driven inflation, you could tax excess profits.
- drekipus 4y ago
  That doesn't take money out from supply
  - wizofaus 4y ago
    Presumably it effectively does if the extra cash raised isn't spent.
    - makomk 4y ago
      The general goal of all the windfall taxes I've seen proposed is precisely that the money used goes back to ordinary people so it can be spent instead of supposedly being wasted sitting around in the bank accounts of the super-rich. This does not, of course, actually help with the underlying problem that there is too much money chasing too few goods and services - it has the opposite effect by increasing the amount of money whilst disincentivizing companies from trying to expand production. In order to use tax to take out excessive money supply, that tax needs to come out of the pockets of ordinary workers and consumers who'd otherwise spend the money buying stuff, either through an increase in income tax or sales tax/VAT. Usually I think income tax would be used. This is incredibly politically unpopular and an election-loser since people see that the government is taking their money whilst they can't afford stuff and some corporations are making big profits.
      - js8 4y ago
        Why would giving ordinary people disincentivize companies from expanding production? Quite the opposite, people now have extra money to spent, so they should get the loans going for investment expansion! The last sentence is exactly why you need to tax the big owners and corporations and not the workers, because they control most of the additional money supply in the profit-driven inflation. (That being said, and as was noted, of course government can also run a surplus with the windfall tax, and that takes the money out of circulation entirely. However, as I explain above, inflation can be more complex, it might be money oversupply in only parts of the network, not the whole network.)
Too 4y ago
Loans being secured with assumption of ever increasing property value is one big contributor to the current inflation. Especially once everybody started using their inflated house value as downpayment for their second house ad infinitum. I’m sure someone smart can come up with many better ways to tame this, other than just turning the inflation knob.
megablast 4y ago
> ot really. The problem is that not the people can take advantage of an inflation-induced wage increase Sure, but inflation doesn't affect everyone equally. Rent increases or mortgages increases are part of inflation, but do not affect everyone. Nor is the price of many goods if you don't buy them.
landswipe 4y ago
Some people are also suggesting progressively decreasing the capital gains discount on property, to force the housing prices down over time and address supply issues.
rightbyte 4y ago
> There are only 3 ways to decrease inflation: ... - Interest rates ... Why is this taken as a fact? You hand out money to people with money. It is a zero sum game. The reason you need to increase rates with inflation is to make it viable to sit on the currency. Otherwise you need to sell it as fast as possible to avoid inflation.
CraigJPerry 4y ago
>> There are only 3 ways to decrease inflation No expression of confidence intervals, no need for error bars on this statement? As repeatable as gravity? If we were to honestly restate the above with reference to uncertainty, we’d struggle just to get past the idea that inflation is measurable in any accurate way, never mind that it can be deliberately influenced so easily.
naveen99 4y ago
Could balance the budget. If you accidentally run a surplus just refund as tax credit.

by Aunche 4y ago

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.

Aunche 4y ago
> 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. Funny you say that... > Ranchers stopped shipping their cattle to the market, farmers drowned their chickens, and consumers emptied the shelves of supermarkets. https://www.pbs.org/wgbh/commandingheights/shared/minitextlo/ess_nixongold.html https://www.pbs.org/wgbh/commandingheights/shared/minitextlo...
- naasking 4y ago
  Notice how the first round of price controls went just fine though. Like interest rates, price controls are not a hammer to apply indiscriminately. You have to apply them judiciously and for short periods. Unlike interest rates, at least they don't depress the whole economy, lead to recessions and disproportionately harm the poor.
pas 4y ago
Hungary tried price controls when this inflation cycle started. It still has some in effect. Hungary has more than two times the inflation of the EU average. The highest in the EU. Price controls on flour and gas/petrol led to people buying a lot more compared to supply. This led to gas stations closing. People started baking more, but price of bread exploded because folks bought flour and bakeries were in a tight spot (I don't remember the exact chain of events). Of course grocery shops increased the price of everything else relatively to make up for the loss on the controlled items. Clearly, tackling inflation should be independent from providing basic necessities like food and shelter and healthcare.
epups 4y ago
Nixon price controls did not work, they led to stagflation and a bunch of other issues. In fact it is hard to find any example of price controls working, and a lot of evidence of the opposite.

jackvalentine 4y ago

Could allow the reserve bank to change the mandatory rate of retirement savings in Australia - currently 10.5% of their wages. It'd have the same effect as interest rate rises in removing consumer demand without the kinda icky feeling of just sending that money to the income statement of a bank as mortgage payment increases. Obviously not a silver bullet, but perhaps another tool to make available.

thriftwy 4y ago
When a person has an open mortgage, pressuring them into making "voluntary but mandatory" retirement plan is financially devastating. Let's rip the young off so that we can prop the securities up and help the banks!
- jackvalentine 4y ago
  It’d be done in lieu of interest rate rises that hit the pocketbook of people anyway. Most mortgages in Australia aren’t fixed rate.

js8 4y ago

Not true, you can also (selectively) increase taxes to take out excessive money supply. In the case of profit-driven inflation, you could tax excess profits.

drekipus 4y ago
That doesn't take money out from supply
- wizofaus 4y ago
  Presumably it effectively does if the extra cash raised isn't spent.
  - makomk 4y ago
    The general goal of all the windfall taxes I've seen proposed is precisely that the money used goes back to ordinary people so it can be spent instead of supposedly being wasted sitting around in the bank accounts of the super-rich. This does not, of course, actually help with the underlying problem that there is too much money chasing too few goods and services - it has the opposite effect by increasing the amount of money whilst disincentivizing companies from trying to expand production. In order to use tax to take out excessive money supply, that tax needs to come out of the pockets of ordinary workers and consumers who'd otherwise spend the money buying stuff, either through an increase in income tax or sales tax/VAT. Usually I think income tax would be used. This is incredibly politically unpopular and an election-loser since people see that the government is taking their money whilst they can't afford stuff and some corporations are making big profits.
    - js8 4y ago
      Why would giving ordinary people disincentivize companies from expanding production? Quite the opposite, people now have extra money to spent, so they should get the loans going for investment expansion! The last sentence is exactly why you need to tax the big owners and corporations and not the workers, because they control most of the additional money supply in the profit-driven inflation. (That being said, and as was noted, of course government can also run a surplus with the windfall tax, and that takes the money out of circulation entirely. However, as I explain above, inflation can be more complex, it might be money oversupply in only parts of the network, not the whole network.)

Too 4y ago

Loans being secured with assumption of ever increasing property value is one big contributor to the current inflation. Especially once everybody started using their inflated house value as downpayment for their second house ad infinitum. I’m sure someone smart can come up with many better ways to tame this, other than just turning the inflation knob.

megablast 4y ago

> ot really. The problem is that not the people can take advantage of an inflation-induced wage increase Sure, but inflation doesn't affect everyone equally. Rent increases or mortgages increases are part of inflation, but do not affect everyone. Nor is the price of many goods if you don't buy them.

landswipe 4y ago

Some people are also suggesting progressively decreasing the capital gains discount on property, to force the housing prices down over time and address supply issues.

rightbyte 4y ago

> There are only 3 ways to decrease inflation: ... - Interest rates ... Why is this taken as a fact? You hand out money to people with money. It is a zero sum game. The reason you need to increase rates with inflation is to make it viable to sit on the currency. Otherwise you need to sell it as fast as possible to avoid inflation.

CraigJPerry 4y ago

>> There are only 3 ways to decrease inflation No expression of confidence intervals, no need for error bars on this statement? As repeatable as gravity? If we were to honestly restate the above with reference to uncertainty, we’d struggle just to get past the idea that inflation is measurable in any accurate way, never mind that it can be deliberately influenced so easily.

naveen99 4y ago

Could balance the budget. If you accidentally run a surplus just refund as tax credit.