7 ms·

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 http

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.
    - RhodesianHunter 3y ago
      Nor will we. That's okay though, tax the rich. They have other reasons to be happy.
    - mucle6 3y ago
      I thought the marginal cost for most goods goes down as the scale goes up
      - dchftcs 3y ago
        That's not a physical law. It only happens sometimes in some parts of the supply chain in the form of economies of scale. But if you run out of easily drilled oil sources, the unit cost of produce more oil increases. If you want to build more cars, you would increase demand for parts, and would in turn be willing to pay more for the scarcer parts, and your BOM increases. It only makes sense to refer to what you described as a phenomenon you want to pursue if you want to run a successful business, but can never be used to describe the economy as a whole.
      - Enginerrrd 3y ago
        Yes and no. If you own a factory operating at design capacity, and a supply shock bumps prices up enough to incentivize you to increase supply, your marginal cost is probably going to go up to get from %100 to 120%. (Overtime, more expensive downtime, increased duty cycles on equipment, more expensive rush repair, etc.
aeternum 3y ago
Not necessarily. Demand for goods + services and supply of goods + services can both expand in parallel, this is generally expected in a healthy economy.
deleted 3y ago
[deleted]
throw0101b 3y ago
> The money supply has been rapidly increasing for decades and there was no inflation See also Japan: * https://fred.stlouisfed.org/graph/?g=1680i https://fred.stlouisfed.org/graph/?g=1680i
- zeroonetwothree 3y ago
  This chart is poor because one of the series is cumulative and the other is not
zeroonetwothree 3y ago
Of course there was inflation. It's true that it didn't exactly match the rapid growth of M2 but it's still consistent with it. Obviously the other big factor is velocity.
csomar 3y ago
There was no CPI inflation. Someone who wanted to buy a house will certainly talk about inflation...

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.
  - RhodesianHunter 3y ago
    Nor will we. That's okay though, tax the rich. They have other reasons to be happy.
  - mucle6 3y ago
    I thought the marginal cost for most goods goes down as the scale goes up
    - dchftcs 3y ago
      That's not a physical law. It only happens sometimes in some parts of the supply chain in the form of economies of scale. But if you run out of easily drilled oil sources, the unit cost of produce more oil increases. If you want to build more cars, you would increase demand for parts, and would in turn be willing to pay more for the scarcer parts, and your BOM increases. It only makes sense to refer to what you described as a phenomenon you want to pursue if you want to run a successful business, but can never be used to describe the economy as a whole.
    - Enginerrrd 3y ago
      Yes and no. If you own a factory operating at design capacity, and a supply shock bumps prices up enough to incentivize you to increase supply, your marginal cost is probably going to go up to get from %100 to 120%. (Overtime, more expensive downtime, increased duty cycles on equipment, more expensive rush repair, etc.

aeternum 3y ago

Not necessarily. Demand for goods + services and supply of goods + services can both expand in parallel, this is generally expected in a healthy economy.

deleted 3y ago

[deleted]

throw0101b 3y ago

> The money supply has been rapidly increasing for decades and there was no inflation See also Japan: * https://fred.stlouisfed.org/graph/?g=1680i https://fred.stlouisfed.org/graph/?g=1680i

zeroonetwothree 3y ago
This chart is poor because one of the series is cumulative and the other is not

zeroonetwothree 3y ago

Of course there was inflation. It's true that it didn't exactly match the rapid growth of M2 but it's still consistent with it. Obviously the other big factor is velocity.

csomar 3y ago

There was no CPI inflation. Someone who wanted to buy a house will certainly talk about inflation...