8 ms·

Do people in the U.S. have a good understanding of the causes of inflation?

OgsyedIE 1y ago
Not even most economists do, by analogy to how opaque the questions of lifting bodies and rayleigh scattering are to physicists.
- Eddy_Viscosity2 1y ago
  Yeah no, economists and a lot of people understand the the causes of inflation. There are economists who are paid very well to not understand it though, and such positions are often high in the government and financial sector hierarchies.
  - OgsyedIE 1y ago
    No really, transonic flow and turbulence are less complicated than what's really going on underneath the quantity theory of money. If it was easy there would be fewer economists.
  - ajross 1y ago
    The only people certain about economics are the kind of folks who run around on HN talking about "printing money". Too lazy to look up your post history to see which camp you belong in. But no, macroeconomics is understood from sound general principles, but it is not a robust predictive theory. The analogy upthread to Navier-Stokes is apt.
    - deleted 1y ago
      [deleted]
  - chrisco255 1y ago
    Are these the same Fed economists that claimed the elevated inflation levels were transitory in 2021? There are multiple schools of thought on causes of inflation, but generally I agree with late Milton Friedman that it is "everywhere and always a monetary phenomenon". Money supply expansion growing faster than GDP expansion causes inflation.
    - ceejayoz 1y ago
      > Are these the same Fed economists that claimed the elevated inflation levels were transitory in 2021? But… that was correct? It went up, then back down, due to a very unusual (almost unique, thus far) external cause. https://www.statista.com/statistics/273418/unadjusted-monthly-inflation-rate-in-the-us/ https://www.statista.com/statistics/273418/unadjusted-monthl...
      - opo 1y ago
        The economist Noah Smith graded the predictions of economists who made public statements once the Biden administration started its large spending programs: >...In 2021, Krugman tweeted: "I like it and plan to steal it. This report does look like what you'd expect if recent inflation was about transitory disruptions, not stagflation redux". As Smith pointed out: >...But in late 2021, inflation spread to become very broad-based. Services inflation was always significant, and took over from goods inflation as the main contributor in 2022. >The notion that this was just some transient supply-chain disruptions that was only affecting specific products was absolutely central to Team Transitory’s claims in the summer of 2021. And that was incorrect. >...Team Transitory also called the end of the inflation at least a year and a half too soon. On October 13, 2021 Krugman tweeted "Three month core inflation. Why isn't everyone calling this a victory for team transitory" >...So they didn’t entirely whiff here. They just greatly overstated their case. And their complacency in 2021 probably fed into the Fed’s decision to delay the start of rate hikes until 2022, which in retrospect looks like a serious mistake. What did get vindicated was mainstream economics as taught in our textbooks. As Smith wrote: >...Mainstream macro’s first victory was in predicting that the inflation would happen in the first place. In February 2021, Olivier Blanchard used a very simple “output gap” model to predict that Biden’s Covid relief bill would raise demand by enough to show up in the inflation numbers. His prediction came true. He didn’t get everything right — he thought wages would rise more than consumer prices, and he neglected the lagged effects of Trump’s Covid relief packages and Fed lending programs. But his standard simple mainstream model got the basic prediction right when most people made the opposite prediction, and this deserves recognition. >More importantly, mainstream macro appears to have gotten policy right. https://www.noahpinion.blog/p/grading-the-economic-schools-of-thought https://www.noahpinion.blog/p/grading-the-economic-schools-o...
- taneq 1y ago
  The money goes faster on the top side of the wing, which means the money underneath the wing is more compressed, lifting up both sides of the wing. This is known as the "trickle-down" theory of lift.
dennis_jeeves2 1y ago
No. To me the answer is very simple, the primary (not sole) driver is govt printing currency indiscriminately.
- throwawaymaths 1y ago
  It's more complicated than that (lending also increases the money supply) though you're right that "printing money" loosely speaking is the primary irreversible driver.
  - dennis_jeeves2 1y ago
    Of course the printed money has to be put into circulation ( either lending or spending by the gov)
    - somewhereoutth 1y ago
      In modern economies, banks create money by originating loans. The government controls this process with various policy levers.
  - orwin 1y ago
    Depends on the default rate, and I'm pretty sure the past year in the US, default created more money than what was printed (even taking QE into account). Basically why everybody decided to go with money printing during COVID btw, people realised in 2008 that a 2B default is the equivalent to printing 2B, so if that's the case, why not print money instead (that's a bad calculation imho, in my opinion in a capitalist market economy you need defaults for the market to work, and I would say, you need defaults that pierce the corporate veil).
    - throwawaymaths 1y ago
      lending increases the money supply and amortizing and default decrease.
kattagarian 1y ago
This is something being debated across the world. I'm not american and in my country economists wages war over the "inflation is the result of monetary expansion". I know nothing about it, the only thing i know is that inflation is getting worse (almost) everywhere.
throw__away7391 1y ago
People in the US believe that if inflation eases, for example from 4% to 3%, that means that prices are going to go back down to what they used to be before inflation started rising. They furthermore believe that if that does not happen it is proof that the media is lying.
- _--__--__ 1y ago
  Politicians love communicating about 2nd and 3rd derivatives of prices and debt in ways that even mathematically literate people have trouble immediately interpreting. There's a famous quote about Nixon doing it but it's honestly the current standard mode from all sides trying to avoid blame for the state of the deficit and monetary supply.
bithive123 1y ago
"Inflation" simply refers to a rise in general price levels. The cause of inflation is known: someone sets a price. There isn't a single reason why someone might raise a price. It could be that they have some ideology about the size of the money supply (i.e. "printing money") or it could be that the costs of their inputs went up ("inflation") due to tariffs, or other supply chain problems. Or it could be a cynical bet that the market would bear a higher price ("using inflation as an excuse"). Blaming inflation on this-or-that cause is most definitely a political rather than theoretical exercise.
- argentinian 1y ago
  Why would it be impossible to research it's cause in a specific context? You are not offering an argument about why can't it be investigated.
esseph 1y ago
Absolutely not, as a rule.

Not even most economists do, by analogy to how opaque the questions of lifting bodies and rayleigh scattering are to physicists.

Eddy_Viscosity2 1y ago
Yeah no, economists and a lot of people understand the the causes of inflation. There are economists who are paid very well to not understand it though, and such positions are often high in the government and financial sector hierarchies.
- OgsyedIE 1y ago
  No really, transonic flow and turbulence are less complicated than what's really going on underneath the quantity theory of money. If it was easy there would be fewer economists.
- ajross 1y ago
  The only people certain about economics are the kind of folks who run around on HN talking about "printing money". Too lazy to look up your post history to see which camp you belong in. But no, macroeconomics is understood from sound general principles, but it is not a robust predictive theory. The analogy upthread to Navier-Stokes is apt.
  - deleted 1y ago
    [deleted]
- chrisco255 1y ago
  Are these the same Fed economists that claimed the elevated inflation levels were transitory in 2021? There are multiple schools of thought on causes of inflation, but generally I agree with late Milton Friedman that it is "everywhere and always a monetary phenomenon". Money supply expansion growing faster than GDP expansion causes inflation.
  - ceejayoz 1y ago
    > Are these the same Fed economists that claimed the elevated inflation levels were transitory in 2021? But… that was correct? It went up, then back down, due to a very unusual (almost unique, thus far) external cause. https://www.statista.com/statistics/273418/unadjusted-monthly-inflation-rate-in-the-us/ https://www.statista.com/statistics/273418/unadjusted-monthl...
    - opo 1y ago
      The economist Noah Smith graded the predictions of economists who made public statements once the Biden administration started its large spending programs: >...In 2021, Krugman tweeted: "I like it and plan to steal it. This report does look like what you'd expect if recent inflation was about transitory disruptions, not stagflation redux". As Smith pointed out: >...But in late 2021, inflation spread to become very broad-based. Services inflation was always significant, and took over from goods inflation as the main contributor in 2022. >The notion that this was just some transient supply-chain disruptions that was only affecting specific products was absolutely central to Team Transitory’s claims in the summer of 2021. And that was incorrect. >...Team Transitory also called the end of the inflation at least a year and a half too soon. On October 13, 2021 Krugman tweeted "Three month core inflation. Why isn't everyone calling this a victory for team transitory" >...So they didn’t entirely whiff here. They just greatly overstated their case. And their complacency in 2021 probably fed into the Fed’s decision to delay the start of rate hikes until 2022, which in retrospect looks like a serious mistake. What did get vindicated was mainstream economics as taught in our textbooks. As Smith wrote: >...Mainstream macro’s first victory was in predicting that the inflation would happen in the first place. In February 2021, Olivier Blanchard used a very simple “output gap” model to predict that Biden’s Covid relief bill would raise demand by enough to show up in the inflation numbers. His prediction came true. He didn’t get everything right — he thought wages would rise more than consumer prices, and he neglected the lagged effects of Trump’s Covid relief packages and Fed lending programs. But his standard simple mainstream model got the basic prediction right when most people made the opposite prediction, and this deserves recognition. >More importantly, mainstream macro appears to have gotten policy right. https://www.noahpinion.blog/p/grading-the-economic-schools-of-thought https://www.noahpinion.blog/p/grading-the-economic-schools-o...
taneq 1y ago
The money goes faster on the top side of the wing, which means the money underneath the wing is more compressed, lifting up both sides of the wing. This is known as the "trickle-down" theory of lift.

dennis_jeeves2 1y ago

No. To me the answer is very simple, the primary (not sole) driver is govt printing currency indiscriminately.

throwawaymaths 1y ago
It's more complicated than that (lending also increases the money supply) though you're right that "printing money" loosely speaking is the primary irreversible driver.
- dennis_jeeves2 1y ago
  Of course the printed money has to be put into circulation ( either lending or spending by the gov)
  - somewhereoutth 1y ago
    In modern economies, banks create money by originating loans. The government controls this process with various policy levers.
- orwin 1y ago
  Depends on the default rate, and I'm pretty sure the past year in the US, default created more money than what was printed (even taking QE into account). Basically why everybody decided to go with money printing during COVID btw, people realised in 2008 that a 2B default is the equivalent to printing 2B, so if that's the case, why not print money instead (that's a bad calculation imho, in my opinion in a capitalist market economy you need defaults for the market to work, and I would say, you need defaults that pierce the corporate veil).
  - throwawaymaths 1y ago
    lending increases the money supply and amortizing and default decrease.

kattagarian 1y ago

This is something being debated across the world. I'm not american and in my country economists wages war over the "inflation is the result of monetary expansion". I know nothing about it, the only thing i know is that inflation is getting worse (almost) everywhere.

throw__away7391 1y ago

People in the US believe that if inflation eases, for example from 4% to 3%, that means that prices are going to go back down to what they used to be before inflation started rising. They furthermore believe that if that does not happen it is proof that the media is lying.

_--__--__ 1y ago
Politicians love communicating about 2nd and 3rd derivatives of prices and debt in ways that even mathematically literate people have trouble immediately interpreting. There's a famous quote about Nixon doing it but it's honestly the current standard mode from all sides trying to avoid blame for the state of the deficit and monetary supply.

bithive123 1y ago

"Inflation" simply refers to a rise in general price levels. The cause of inflation is known: someone sets a price. There isn't a single reason why someone might raise a price. It could be that they have some ideology about the size of the money supply (i.e. "printing money") or it could be that the costs of their inputs went up ("inflation") due to tariffs, or other supply chain problems. Or it could be a cynical bet that the market would bear a higher price ("using inflation as an excuse"). Blaming inflation on this-or-that cause is most definitely a political rather than theoretical exercise.

argentinian 1y ago
Why would it be impossible to research it's cause in a specific context? You are not offering an argument about why can't it be investigated.

esseph 1y ago

Absolutely not, as a rule.