3 ms·

I wish we'd just get to the core of the problem, big big inflation via the Fed destroying the purchasing power of the dollar and various other central banks fol

I wish we'd just get to the core of the problem, big big inflation via the Fed destroying the purchasing power of the dollar and various other central banks following suit in their own currencies. If you get new dollars first when they're more valuable, life is TOTALLY RAD. You get to spend the new money before it works its way through the system. So you're spending post-inflation money but getting pre-inflation prices. Yum. If you don't get the new dollars first then what tends to happen is that your costs go up before your income does. This is not a good situation for a business to be in and it's not good for an individual either. Imagine that you are trying to make a startup work and every month your COGS goes up 10% but you can only increase the prices you charge on a 6-18 month lag. You might run out of cash covering your increased costs long before you can raise your prices and make up the difference. This is roughly how household finances have been playing out for quite a few years now. At least ~40 or so years since Nixon closed the gold window, but maybe up to ~100 years since the founding of the Fed. EDIT: If you want to downvote me could you at least tell me why? I'd like to be a good citizen on HN and downvotes without comment don't explain anything.

lolcraft 13y ago
Because this is a common misconception about economics that drives me nut. On second thought, I'm definitely too trigger happy. Let me explain: Inflation has never been a problem since Paul Volcker in 1982. In fact, the moniker Great Moderation should be more properly called Great Moderation of Inflation -- since not much was moderate apart from that, as exemplified by the crashes of 1987 and 2008, and the bubbles; but I digress. We had about 10, 20 years of the lowest level of inflation in history across the board, maybe 2% per annum or so. Everyone nowadays is obsessed with Zimbabwe, or the ex-Soviet Unions, or the Diocletian Roman Empire, but those are red herrings, minor blips in a sea of (excessive) financial restraint. Inflation is not a problem today. In fact, deflation is a problem today. Large part of the German restructuring, so lauded everywhere, was helped by inflation in Spain and Italy. (Granted, it wasn't much, maybe 4% per year, but even so.) Now the ECB refuses to return the favor: the ECB won't let inflation go above 2%, twisting the knife in Southern Europe's rib-cage and pissing everyone off. Meanwhile, the US, as most of the West and Japan, remains eyeballs deep in a liquidity trap: you could print the equivalent of the Michigan Lake in one dollar bills, and the Consumer Price Index wouldn't register a blip. If your start-up were a big bank, you could tomorrow borrow money from the government at a real negative rate. You could borrow a billion dollars, store it in a bank account, pay in 10 years the principal and profit handsomely with the interest. For nothing. That's how low inflation is, today. The Fed is (used to be) desperately trying to increase it, as we speak, with not much effect. In economic terms, a moderate (actually very low, in historical terms) 4% rate across the board would in fact benefit the system. If you can profit decently by storing money, nobody wants to get their lazy asses from the couch and invest. And the guys who have money don't want to spend it, either -- they're winning money, why spend? Thus a crisis. You have to whip their asses with the printing press, so that they don't get cozy.
- msandford 13y ago
  Okay, we have really different views on economics. I would tend to disagree philosophically with the idea that "you have to whip their asses with the printing press" and as a result you and I probably won't agree on anything. That's OK, we don't have to. I take the position that economic output driven my market manipulation (money printing, fixing the interest rate, driving inflation, etc) is undesirable because it sends signals to people about profits or losses or the amount of real resources available via the interest rate that aren't necessarily representative of reality. An example: In magic-land there is no Fed and the interest rate is a number that clears the market between lenders and borrowers. As people save money they increase the amount of cash that banks have on hand. While they're saving money, they're not spending it and thus some amount of resources are piling up in the real world too, in unison with the amount of savings in the bank. As the banks' cash on hand goes up and nobody is borrowing, they will tend to reduce the rate of interest charged to induce more people to borrow, and reduce the rate of interest paid to reduce people's predilection to save. This causes the money to go to work, and at the same time, those resources which were piled up unused in the real world (in parallel with the money) were also put to work. To me this is a good thing, that stockpiles of money in the bank mirror stockpiles of raw materials in the real world as a result of people's reduced consumption and increased savings. Now introduce the Fed which by virtue of it's ability to print money can cause bank deposits to increase while the raw materials don't pile up similarly. This causes all kinds of incorrect signals to propagate through socioeconomic life and induces people to make "bad" decisions. In my view this is unfortunate to have people making decisions thinking that the world is one way when in fact it is not, and perhaps going bankrupt as a result. I imagine there might be disagreement about the relative importance of signalling vs. just making sure that money circulates, no matter what to keep the economy going. But would you disagree that the interest rate -- in the absence of a body which fixes the interest rate -- could tend to serve as a signal for the amount of under/over consumption that's happening in society? If so, why? And if you agree that it could, why is it not harmful to change that signal artificially? EDIT: Even though I don't think we'll agree, thanks for explaining. Much appreciated.
panarky 13y ago
Because on HN we prefer rational arguments based on evidence. We can debate the evidence, we can debate the logic, but let's start with a credible foundation. Here are a few sources of evidence. Feel free to suggest your own. Inflation in the US is at depths not seen in 50 years [0]. Just this week, the monthly US inflation number was actually negative [1]. If you don't trust government numbers, try the billion prices project from MIT. It's an independent series with a different methodology, and it coincides (roughly) with BLS numbers [2]. [0] http://research.stlouisfed.org/fredgraph.png?g=oMN http://research.stlouisfed.org/fredgraph.png?g=oMN [1] http://www.bls.gov/news.release/cpi.nr0.htm http://www.bls.gov/news.release/cpi.nr0.htm [2] http://bpp.mit.edu/usa/ http://bpp.mit.edu/usa/
- msandford 13y ago
  A few things. 1. Are the smaller package sizes reflected in any of the inflation numbers you cite? I am asking an honest question here. http://finance.yahoo.com/news/looking-for-inflation--it%E2%80%99s-hiding-in-smaller-package-sizes.html http://finance.yahoo.com/news/looking-for-inflation--it%E2%8... 2. What do you think about this website? Is he a crank? If so, why? It's common knowledge that the CPI definitions change regularly. http://www.shadowstats.org/ http://www.shadowstats.org/ 3. How do you feel about geometric weighting? It tends to underestimate inflation. I've done some math here: https://news.ycombinator.com/item?id=4781794 https://news.ycombinator.com/item?id=4781794 4. Economics is the study of human action, because without humans making decisions and acting there would be no money, no industry, no nothing. People tend to estimate inflation at a higher rate than economists calculate it. Who is more likely to be wrong? https://news.ycombinator.com/item?id=4777899 https://news.ycombinator.com/item?id=4777899 5. What do you think about the "hedonic" adjustments in the CPI? If you look at the BLS' website they try and say "this stuff is all perfectly legitimate" but inadvertently acknowledge that the definition of inflation is changing. If there were no hedonic adjustments in the 60s and inflation was 0-5% range let's say that was "baseline" inflation. Now there are hedonic adjustments and inflation is in the same range. If those adjustments can reduce inflation then we might be experiencing more price increases now than they did in the 60's but it's simply under-reported. http://www.bls.gov/cpi/cpiqa.htm http://www.bls.gov/cpi/cpiqa.htm Ultimately I believe strongly in some of what Nassim Nicholas Taleb talks about in his writings when it comes to what can be known and not-known. If a coin toss comes up heads 99 times in a row any person capable of exercising some thought would realize that there's something wrong. I can't put my finger on the exact problem with CPI calculations but I can tell you that where my dad was able to support a family on a single income, and his dad was able to do so as well, I can say with confidence that it would be very difficult for me to do that today. We all had/have engineering degrees and in fact I'm the most educated; I've got a masters degree and they only had bachelors. And I'm in electrical and computer engineering; arguably quite a good business to be in. Why is there such disparity there? How can the official numbers not reflect the difference?

lolcraft 13y ago

Because this is a common misconception about economics that drives me nut. On second thought, I'm definitely too trigger happy. Let me explain: Inflation has never been a problem since Paul Volcker in 1982. In fact, the moniker Great Moderation should be more properly called Great Moderation of Inflation -- since not much was moderate apart from that, as exemplified by the crashes of 1987 and 2008, and the bubbles; but I digress. We had about 10, 20 years of the lowest level of inflation in history across the board, maybe 2% per annum or so. Everyone nowadays is obsessed with Zimbabwe, or the ex-Soviet Unions, or the Diocletian Roman Empire, but those are red herrings, minor blips in a sea of (excessive) financial restraint. Inflation is not a problem today. In fact, deflation is a problem today. Large part of the German restructuring, so lauded everywhere, was helped by inflation in Spain and Italy. (Granted, it wasn't much, maybe 4% per year, but even so.) Now the ECB refuses to return the favor: the ECB won't let inflation go above 2%, twisting the knife in Southern Europe's rib-cage and pissing everyone off. Meanwhile, the US, as most of the West and Japan, remains eyeballs deep in a liquidity trap: you could print the equivalent of the Michigan Lake in one dollar bills, and the Consumer Price Index wouldn't register a blip. If your start-up were a big bank, you could tomorrow borrow money from the government at a real negative rate. You could borrow a billion dollars, store it in a bank account, pay in 10 years the principal and profit handsomely with the interest. For nothing. That's how low inflation is, today. The Fed is (used to be) desperately trying to increase it, as we speak, with not much effect. In economic terms, a moderate (actually very low, in historical terms) 4% rate across the board would in fact benefit the system. If you can profit decently by storing money, nobody wants to get their lazy asses from the couch and invest. And the guys who have money don't want to spend it, either -- they're winning money, why spend? Thus a crisis. You have to whip their asses with the printing press, so that they don't get cozy.

msandford 13y ago
Okay, we have really different views on economics. I would tend to disagree philosophically with the idea that "you have to whip their asses with the printing press" and as a result you and I probably won't agree on anything. That's OK, we don't have to. I take the position that economic output driven my market manipulation (money printing, fixing the interest rate, driving inflation, etc) is undesirable because it sends signals to people about profits or losses or the amount of real resources available via the interest rate that aren't necessarily representative of reality. An example: In magic-land there is no Fed and the interest rate is a number that clears the market between lenders and borrowers. As people save money they increase the amount of cash that banks have on hand. While they're saving money, they're not spending it and thus some amount of resources are piling up in the real world too, in unison with the amount of savings in the bank. As the banks' cash on hand goes up and nobody is borrowing, they will tend to reduce the rate of interest charged to induce more people to borrow, and reduce the rate of interest paid to reduce people's predilection to save. This causes the money to go to work, and at the same time, those resources which were piled up unused in the real world (in parallel with the money) were also put to work. To me this is a good thing, that stockpiles of money in the bank mirror stockpiles of raw materials in the real world as a result of people's reduced consumption and increased savings. Now introduce the Fed which by virtue of it's ability to print money can cause bank deposits to increase while the raw materials don't pile up similarly. This causes all kinds of incorrect signals to propagate through socioeconomic life and induces people to make "bad" decisions. In my view this is unfortunate to have people making decisions thinking that the world is one way when in fact it is not, and perhaps going bankrupt as a result. I imagine there might be disagreement about the relative importance of signalling vs. just making sure that money circulates, no matter what to keep the economy going. But would you disagree that the interest rate -- in the absence of a body which fixes the interest rate -- could tend to serve as a signal for the amount of under/over consumption that's happening in society? If so, why? And if you agree that it could, why is it not harmful to change that signal artificially? EDIT: Even though I don't think we'll agree, thanks for explaining. Much appreciated.

panarky 13y ago

Because on HN we prefer rational arguments based on evidence. We can debate the evidence, we can debate the logic, but let's start with a credible foundation. Here are a few sources of evidence. Feel free to suggest your own. Inflation in the US is at depths not seen in 50 years [0]. Just this week, the monthly US inflation number was actually negative [1]. If you don't trust government numbers, try the billion prices project from MIT. It's an independent series with a different methodology, and it coincides (roughly) with BLS numbers [2]. [0] http://research.stlouisfed.org/fredgraph.png?g=oMN http://research.stlouisfed.org/fredgraph.png?g=oMN [1] http://www.bls.gov/news.release/cpi.nr0.htm http://www.bls.gov/news.release/cpi.nr0.htm [2] http://bpp.mit.edu/usa/ http://bpp.mit.edu/usa/

msandford 13y ago
A few things. 1. Are the smaller package sizes reflected in any of the inflation numbers you cite? I am asking an honest question here. http://finance.yahoo.com/news/looking-for-inflation--it%E2%80%99s-hiding-in-smaller-package-sizes.html http://finance.yahoo.com/news/looking-for-inflation--it%E2%8... 2. What do you think about this website? Is he a crank? If so, why? It's common knowledge that the CPI definitions change regularly. http://www.shadowstats.org/ http://www.shadowstats.org/ 3. How do you feel about geometric weighting? It tends to underestimate inflation. I've done some math here: https://news.ycombinator.com/item?id=4781794 https://news.ycombinator.com/item?id=4781794 4. Economics is the study of human action, because without humans making decisions and acting there would be no money, no industry, no nothing. People tend to estimate inflation at a higher rate than economists calculate it. Who is more likely to be wrong? https://news.ycombinator.com/item?id=4777899 https://news.ycombinator.com/item?id=4777899 5. What do you think about the "hedonic" adjustments in the CPI? If you look at the BLS' website they try and say "this stuff is all perfectly legitimate" but inadvertently acknowledge that the definition of inflation is changing. If there were no hedonic adjustments in the 60s and inflation was 0-5% range let's say that was "baseline" inflation. Now there are hedonic adjustments and inflation is in the same range. If those adjustments can reduce inflation then we might be experiencing more price increases now than they did in the 60's but it's simply under-reported. http://www.bls.gov/cpi/cpiqa.htm http://www.bls.gov/cpi/cpiqa.htm Ultimately I believe strongly in some of what Nassim Nicholas Taleb talks about in his writings when it comes to what can be known and not-known. If a coin toss comes up heads 99 times in a row any person capable of exercising some thought would realize that there's something wrong. I can't put my finger on the exact problem with CPI calculations but I can tell you that where my dad was able to support a family on a single income, and his dad was able to do so as well, I can say with confidence that it would be very difficult for me to do that today. We all had/have engineering degrees and in fact I'm the most educated; I've got a masters degree and they only had bachelors. And I'm in electrical and computer engineering; arguably quite a good business to be in. Why is there such disparity there? How can the official numbers not reflect the difference?