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> In simplistic terms, my understanding is that cash assistance to the poor generally does not drive inflation in any meaningful way, because the cash used is e

> In simplistic terms, my understanding is that cash assistance to the poor generally does not drive inflation in any meaningful way, because the cash used is extracted via taxation in the first place, its, quite literally, shifting money around. Although this would be true to a certain extent wouldn't this drive inflation as it would cause an increase in demand without a corresponding increase in supply? Since suddenly a lot more people can purchase things that they couldn't before. E.g. Cars at the beginning of COVID, consumer electronics, etc.

mitthrowaway2 3y ago
If it's coming from tax dollars, it's increasing the amount some people can spend on consumer electronics and used cars while also decreasing the amount that other people can spend on houses, vacations, and new cars. So the net impact should be roughly zero, assuming that the taxes don't meaningfully affect supply. However, with pandemic rate cuts, much of it came from newly-created loan money (either borrowed by the government, or by businesses and individuals), meaning cheap loans for cars and houses drove those prices up at the same time that consumer goods were also in high demand.
no_wizard 3y ago
To pose a question to think about: what inflation are we talking about exactly? Short term inflation (usually horizon of less than 18 months) can significantly increase due to demand outstripping supply, absolutely. Market efficiency though, should cause rapid normalization and eventually prices will fall due to competition, at least in a healthy functioning market economy (that's another debate). That said, I'm considering what drives long term inflation, which extends beyond an 18 month horizon. We're approaching year 3 of dramatically increasing inflation across the board, and one of the only mechanisms we have at that point is driving up the cost of new money and allowing that to ripple across the economy. So much of our economic system is centrally based around borrowing, whether its cars, homes, business expansion etc. These decisions are in part, driven by cost. When the cost of borrowing is lower, its easier to spend higher sums and drive long term inflation. It also lends people to seek greater and greater returns with "cheap money", driving these boom bust cycles. My general argument is long term inflation is driven by cheap money, and short term inflation that may be caused by government assistance is just that - short term, and measurable, and should, in a functioning market, normalize itself away. tl;dr, demand side inflation naturally curbs since high demand outstripping supply will natural raise prices to an equilibrium, and bring them back down as it cools off, supply side inflation is more opaque in reality, esp. when it comes to controlling borrowing costs (IE, creating new money)

mitthrowaway2 3y ago

If it's coming from tax dollars, it's increasing the amount some people can spend on consumer electronics and used cars while also decreasing the amount that other people can spend on houses, vacations, and new cars. So the net impact should be roughly zero, assuming that the taxes don't meaningfully affect supply. However, with pandemic rate cuts, much of it came from newly-created loan money (either borrowed by the government, or by businesses and individuals), meaning cheap loans for cars and houses drove those prices up at the same time that consumer goods were also in high demand.

no_wizard 3y ago

To pose a question to think about: what inflation are we talking about exactly? Short term inflation (usually horizon of less than 18 months) can significantly increase due to demand outstripping supply, absolutely. Market efficiency though, should cause rapid normalization and eventually prices will fall due to competition, at least in a healthy functioning market economy (that's another debate). That said, I'm considering what drives long term inflation, which extends beyond an 18 month horizon. We're approaching year 3 of dramatically increasing inflation across the board, and one of the only mechanisms we have at that point is driving up the cost of new money and allowing that to ripple across the economy. So much of our economic system is centrally based around borrowing, whether its cars, homes, business expansion etc. These decisions are in part, driven by cost. When the cost of borrowing is lower, its easier to spend higher sums and drive long term inflation. It also lends people to seek greater and greater returns with "cheap money", driving these boom bust cycles. My general argument is long term inflation is driven by cheap money, and short term inflation that may be caused by government assistance is just that - short term, and measurable, and should, in a functioning market, normalize itself away. tl;dr, demand side inflation naturally curbs since high demand outstripping supply will natural raise prices to an equilibrium, and bring them back down as it cools off, supply side inflation is more opaque in reality, esp. when it comes to controlling borrowing costs (IE, creating new money)