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The conventional perspective is that as money supply increases, so does demand for goods and services. But we were suffering acute supply chain shortages that w

The conventional perspective is that as money supply increases, so does demand for goods and services. But we were suffering acute supply chain shortages that would have increased prices even if demand was static. This doesn't seem to be talked about very much.

treeman79 3y ago
Well the government screwing up the supply chain is certainly a big factor. The same level of spending that governments did the same thing as printing huge amount of money. Something that still not really slowing down.
- losteric 3y ago
  I presume you are blaming the American federal government? Why? "The supply chain" is a global emergent phenomena across a variety of capitalist nations. Personally, I would blame corporate greed that took advantage of short-term supply-demand misalignment transitioning through COVID and now persisting high prices/restricted supply to pad their profits. Capitalism and all. Perhaps the US government could do more to limit this profiteering or break monopolies, but we are doing a reasonable job supporting re-shoring key industries.
  - agentgumshoe 3y ago
    There's also the incredibly cheap debt those corporate interests used to make large purchases, to then extract profits for as long as possible while the debt could be forgotten about
drexlspivey 3y ago
This is trivially proven false. The money supply has been rapidly increasing for decades and there was no inflation https://fred.stlouisfed.org/series/M2SL https://fred.stlouisfed.org/series/M2SL
- medvezhenok 3y ago
  Yes, this is because conventional wisdom assumes that monetary velocity stays constant (it has been dropping instead). Basically, it comes down to who actually gets the money generated by an increase in M2. If it's people with a low propensity to consume / buy things (i.e. the rich), then extra M2 is not inflationary (caveat: not inflationary for goods. It's inflationary for stocks/real estate/etc instead, since that is what rich people "consume"). If it's people with a high propensity to consume (i.e. the average citizens), then it is.
  - wombatpm 3y ago
    So, it wasn't until the working class got pay raises that it was a problem. Company after company raised prices during COVID and reported RECORD profits. But the moment worker salaries go up, it's a crisis, interest rates need to be RAISED NOW, and company after company starts doing layoffs - while maintaining RECORD profits.
    - Veliladon 3y ago
      “That's a hell of an act,” the agent says. “What do you call it?” Capitalism!
    - Aunche 3y ago
      You have it backwards. The Fed kept interest rates low while wages outpaced inflation during the recovery of the 2008 recession. They only raised interest rates after inflation started rising faster than wages and companies reported record profits. https://fred.stlouisfed.org/series/LES1252881600Q https://fred.stlouisfed.org/series/LES1252881600Q
    - dchftcs 3y ago
      The only way to meet the demand of the masses without inflation is increasing supply without increasing the marginal cost of the extra supply. These days, that's mostly driven by technological progress and aggressively pursuing efficiency. The primary driver of inflation is the human desire to procreate and improve their living conditions; not to say that's necessarily bad, but it imposes a constraint that can't be resolved by the rhetoric of rich vs poor people. While I agree economists seem to be too obtuse to realise the hypocrisy of increasing unemployment to reduce inflation, a primary issue is that we as a society haven't figured out how to control consumption in a way that makes everyone happy.
IAmGraydon 3y ago
People who make this claim have a poor understanding of the supply/demand dynamic. Just because inflation is caused by supply constraints doesn't mean you can't fix it by reducing demand. Think about it like a container with an input (supply) and an output (demand) for water. You don't want the container to overflow or to dry up. Too much input without enough output will cause it to overflow. Too much output without enough input will cause it to dry up. Let's say that this inflation is caused by supply constraint (not enough input). The container is starting to dry up. So what do you do? You have two options: you can either increase the input (fix the supply constraint) or reduce the output (reduce demand) to match the low input. The second option is the one the Fed has chosen as the first is beyond their purview and likely too complex and poorly understood to be immediately fixed at all.

treeman79 3y ago

Well the government screwing up the supply chain is certainly a big factor. The same level of spending that governments did the same thing as printing huge amount of money. Something that still not really slowing down.

losteric 3y ago
I presume you are blaming the American federal government? Why? "The supply chain" is a global emergent phenomena across a variety of capitalist nations. Personally, I would blame corporate greed that took advantage of short-term supply-demand misalignment transitioning through COVID and now persisting high prices/restricted supply to pad their profits. Capitalism and all. Perhaps the US government could do more to limit this profiteering or break monopolies, but we are doing a reasonable job supporting re-shoring key industries.
- agentgumshoe 3y ago
  There's also the incredibly cheap debt those corporate interests used to make large purchases, to then extract profits for as long as possible while the debt could be forgotten about

drexlspivey 3y ago

This is trivially proven false. The money supply has been rapidly increasing for decades and there was no inflation https://fred.stlouisfed.org/series/M2SL https://fred.stlouisfed.org/series/M2SL

medvezhenok 3y ago
Yes, this is because conventional wisdom assumes that monetary velocity stays constant (it has been dropping instead). Basically, it comes down to who actually gets the money generated by an increase in M2. If it's people with a low propensity to consume / buy things (i.e. the rich), then extra M2 is not inflationary (caveat: not inflationary for goods. It's inflationary for stocks/real estate/etc instead, since that is what rich people "consume"). If it's people with a high propensity to consume (i.e. the average citizens), then it is.
- wombatpm 3y ago
  So, it wasn't until the working class got pay raises that it was a problem. Company after company raised prices during COVID and reported RECORD profits. But the moment worker salaries go up, it's a crisis, interest rates need to be RAISED NOW, and company after company starts doing layoffs - while maintaining RECORD profits.
  - Veliladon 3y ago
    “That's a hell of an act,” the agent says. “What do you call it?” Capitalism!
  - Aunche 3y ago
    You have it backwards. The Fed kept interest rates low while wages outpaced inflation during the recovery of the 2008 recession. They only raised interest rates after inflation started rising faster than wages and companies reported record profits. https://fred.stlouisfed.org/series/LES1252881600Q https://fred.stlouisfed.org/series/LES1252881600Q
  - dchftcs 3y ago
    The only way to meet the demand of the masses without inflation is increasing supply without increasing the marginal cost of the extra supply. These days, that's mostly driven by technological progress and aggressively pursuing efficiency. The primary driver of inflation is the human desire to procreate and improve their living conditions; not to say that's necessarily bad, but it imposes a constraint that can't be resolved by the rhetoric of rich vs poor people. While I agree economists seem to be too obtuse to realise the hypocrisy of increasing unemployment to reduce inflation, a primary issue is that we as a society haven't figured out how to control consumption in a way that makes everyone happy.

IAmGraydon 3y ago

People who make this claim have a poor understanding of the supply/demand dynamic. Just because inflation is caused by supply constraints doesn't mean you can't fix it by reducing demand. Think about it like a container with an input (supply) and an output (demand) for water. You don't want the container to overflow or to dry up. Too much input without enough output will cause it to overflow. Too much output without enough input will cause it to dry up. Let's say that this inflation is caused by supply constraint (not enough input). The container is starting to dry up. So what do you do? You have two options: you can either increase the input (fix the supply constraint) or reduce the output (reduce demand) to match the low input. The second option is the one the Fed has chosen as the first is beyond their purview and likely too complex and poorly understood to be immediately fixed at all.