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An item that costs $1, costs $2 when you double the amount money for the same amount of assets. This is a common misconception. One big reason it's not true is
by NickM 4y ago
An item that costs $1, costs $2 when you double the amount money for the same amount of assets.
This is a common misconception. One big reason it's not true is because the vast majority of the wealth in the economy is stored in assets other than money (real property, stock, bonds, etc.), so doubling the money supply is very different from doubling the amount of wealth everyone has.
Now I imagine some might still be skeptical, but luckily this has been studied, and there are metrics like M2 that represent money supply. If you look at a graph of M2 vs inflation, they look pretty independent, and indeed studies have failed to find any statistically significant correlation between the two.
- symlinkk 4y agoSo what if the money is stored in assets? I don’t think anyone believes arguments like “your basic intuition is wrong, studies have been done, I can’t explain it to you but trust the experts” anymore since COVID.
- jokethrowaway 4y agoThis is BS to sell you inflation as "not being that bad". Inflation is just a tax, a way to tax the poor. Real Estate, stock, bonds and goods will, in aggregate, go up. Sure, the distribution is going to be uneven but I wouldn't say "prices of goods are not going up" and then complain you can't afford a house.
- UncleEntity 4y agoFirst of all, studies by who? Cui bono is definitely at play here. Secondly, it doesn’t matter where the “wealth” is stored unless it’s sitting in someone’s basement like Scrooge McDuck[0]. The money gets out into the economy through loans and businesses doing business causing prices to rise because there’s more money chasing the same amount of goods. [0] though, apparently, this is a Silicon Valley thing as was seen by SVB.
- vorpalhex 4y agoYou are responding to an off the cuff (and basically correct) remark with a deeply technical disagreement (that isn't incorrect either). Total money supply means that eg doubling the amount of liquidity does not double the price of items, but printing money can cause inflation on goods depending on where that printed money is absorbed. Making free money for building houses is different then sending a check to every American.. but in practice the Gov did the latter and now eggs are more expensive! Where you add the money makes a big difference!
- ROTMetro 4y agoEggs are more expensive because of bird flu. It's funny but all the 'too much money in the system' people use examples that don't have that as a root cause. The guy with the lumber mill has no way of knowing if it was people with free money building additions, or, as in my area, EVERY business required to put in safety measures to stay open during covid most often made quickly with lumber from home depot that they have to buy no matter the price if they want the government to allow them to stay open. People claim it's too much free money when in fact they are getting windfalls from being basically 'rent seekers' while screaming they promote free market.
- vorpalhex 4y agoWe have a pretty good federally produced chart for inflation by sector: https://www.bls.gov/cpi/ https://www.bls.gov/cpi/ Unless you suddenly think "rent seeking" jumped right as the Government happened to start printing more money, it sure looks like inflation tracks quite nicely. Here's a nice investopedia breakdown of how printing money can cause inflation: https://www.investopedia.com/ask/answers/042015/how-does-money-supply-affect-inflation.asp https://www.investopedia.com/ask/answers/042015/how-does-mon...