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Inflation isn't like ice cream that comes in assorted flavors. It's a simple ratio (hard to measure in practice, but still conceptually simple). If one side o
by MarkusQ 9d ago
Inflation isn't like ice cream that comes in assorted flavors. It's a simple ratio (hard to measure in practice, but still conceptually simple).
If one side of a ratio is fluctuating (for whatever reason) the ratio's value can be stabilized by making corresponding adjustments to the other side. Amount of goods drops 10%? Reduce the money supply by 10%, bam!, no inflation.
There may be all sorts of policy or political reasons for not doing this, but that's not the same thing as saying that it's necessarily ineffective because the inflation in question is the wrong "flavor".
- ethbr1 9d agoAgreed. The argument the person you're responding to should be making is 'Tightening monetary policy will bring down inflation but may cause severe negative side effects if the original cause of that inflation isn't monetary.' That's something that's interesting to debate. Especially given recent experience on the opposite side when loosened COVID monetary supply in response to supply limitation boomeranged into inflation by turbocharging demand. Ultimately though, tighter monetary policy will (full stop, no if's) act as a brake on inflation, explicitly because it will reduce aggregate demand. Less money to chase goods => some demanders stop trying => lower prices. That 'demanders stopping' is often also an economic slowdown is a different issue.
- MarkusQ 8d agoExactly!