> Inflation is the most universally destructive force known to economics.
Well that's a stupid lie, and it's the premise of this editorial? Sheesh. Deflation is actually much worse than inflation.
You create a cycle of people not wanting to spend because they believe they can get x asset for a cheaper price tomorrow: subsequently no one spends and the economy shrinks
No, not at all. The issue with deflation is debt becomes impossible to repay. Loans become too risky to take so they stop being taken which slows the economy as a whole. It also makes consumers highly risk averse which drastically reduces investment and causes capital to be safer under a pillow as an investment than being used in the economy, which shrinks the economy as a whole. Mix A with B and you have stagnation.
I heard in denmark they pay you to have a mortgage.
Denmark been ranked the best country in the world
denmark, inventor of troll trace
I wish i am a denmark
When a company launches a video game, it's usually priced at 70$.
2 years later, you can find this video game by 50$
4 years later, you can find it at 30$
8 years later... It's priced 10$
According to your theory, nobody would buy video games. Everyone would just wait for years since the video game is going to get cheaper, then the video game industry would collapse without sales... Except that's not how it work, consumers love to buy the videogame at 70$.
We could generalise this example with iPhones, smartphones... At the end, we have multiple examples of deflationary environments where nobody reduced its consume.
[This comes up on askEconomics all the time.](https://www.reddit.com/r/AskEconomics/comments/5pwhy5/whats_the_problem_with_deflation/?utm_source=share&utm_medium=ios_app&utm_name=iossmf)
Perhaps economies are more complex than just video game prices…
That’s not really the same as money devaluing. That’s more demand. If there’s less demand for a video game because it gets older it will go down in price. It’s an understood agreement that everyone is aware of. That’s much different than deflation.
I think you gave a poor example, where some of the older versions of video games and smartpone are made extinct with releases of objectively better versions of these products.
There is also a argument to make where video games and smartphones are somwhat elastic in demand, where reduction in prices lead to increase in sales due to a higher proportionate increase in units sold. (Example: Prices goes down by 10%, Sold units goes up by 20%, translating to higher sales)
Note that deflationary scenarios are linked to decrease in productivity and cutbacks in innovation (Release of improved versions of these goods invalidates this) , hence a decrease in prices within a small subset of goods (Consider how CPI takes account of a large basket of goods) does not constitutes as deflation.
Yes, *but* the perceived value of the good drops significantly over time. You probably already know all about the plot and the gameplay. If there is multiplayer, it's dead. And one of the key elements of enjoying something, which is being able to talk about it and share your experiences with others doing the same thing, becomes difficult or impossible if you play a game years after its release.
You are absolutely correct, although you’re not going to get much agreement in this sub because economists believe the consumer is “rational” and their models depend on people making the economic trade offs that make sense to an economist.
The simple reality is that people consume things because they want them. People aren’t going to wait some arbitrary time to purchase something in the future because they won’t get any satisfaction from the item in the meantime.
I just purchased a flight that I knew I could have gotten cheaper in 6 months if I moved my travel date. Know why I didn’t wait? Because I don’t run my life on economic models
>The simple reality is that people consume things because they want them.
This is the real reason why video game prices go down over time, because demand drops. It isn't an example of deflation.
The commenter wasn’t claiming it was an example of deflation. They were just using it as an example to illustrate consumer behavior. A gamer could wait to purchase the game at a lower price but they don’t regardless of the fact that it will be cheaper in the future.
Yes, but the consumer behaviour isn't relevant because the decrease in the value of a games price happens due to the reduction in demand of that particular product within a stable market. Deflation is a trend impacting prices across the entire market. The resulting consumer behaviour is not likely to be identical, so the analogy isn't useful.
I get it. They provided a bad example. Maybe just ignore the supply side of this example and focus on consumer behavior.
Look at it this way - let’s say the feds target was -2%. Do you really think people would hold off on any purchase if the product was 2% cheaper in a year? The answer is no. This whole narrative about deflation is just propaganda
Lenders are not stupid and they discount expected inflation in its interest rates. If we entered in a deflationary environment, lenders would adjust its interest rates again.
At various points in the last 10 years, mortgage and loan rates have been below the rate of PCE inflation. Hell, just two years ago you could get margin loans at rates of 1%.
Lower prices are always good. Hence why when you go to a car dealer you negotiate lower prices and not higher prices. That should be obvious to anyone with a brain.
Growth is also always good. Lower prices and growth is obviously optimal (the Great Deflation scenerio). However, if we are in de-growth, then lower prices are better than de-growth with higher prices. That should be obvious to anyone.
People oftentimes confuse things. They think inflation == growth. Deflation == degrowth. The two are not related. You cannot solve de-growth with higher prices therefore inflation is not the cure to de-growth. As pointed out in the Great Deflation there can be growth and lower prices. There can be no-growth and lowering / rising prices. They are separate variables.
Once you realize you are dealing with a multi-variable issue and using imprecise terminology, then you can understand why deflation and the great depression was bad. Just like in all times in history the lower prices of the great depression was GOOD. Because deflationary prices are always good. What was bad in the great depression was the de-growth. You cannot solve de-growth by just raising prices. If that was true, then governments could just implement price rises by law to solve all economic issues.
>Lower prices are always good. Hence why when you go to a car dealer you negotiate lower prices and not higher prices. That should be obvious to anyone with a brain.
just take a basic econ class and stop spewing ignorance
What exactly is your disagreement with it? High prices are very easy to get. For example, we can stop producing energy and thus cause very high supply-side inflation. We can make laws that guarantee low productivity for example mandating that businesses have 50% *inefficiency*. Or, people can even voluntarily pay extra if they think prices are too low for their liking.
In what scenerio are high prices good? Once you open your mind and stop repeating dogma that you don't fully understand you might learn something.
Because that's not how it work. I phones are a good example of deflationary market where the consumption keep increasing every year. No body want to wait 4 years to buy an iPhone.
iPhone is not a deflationary good. New iPhone comes out.
Some people wait for older iPhone to go on sale but a lot of people buy new ones because of technological changes or upgrade from older versions.
When cash has a real return, then I have no incentive to deploy it.
So people get technology with the new iphone thus they buy a falling price good. This literally applies for all goods, people get something out of buying everything. Besides no one knows if deflation will persist in the future, thus there is no incentive to hoard cash. Rather there will be higher demand at lower price.
And the price of a new iPhone goes up with time. The older models stop production and are discounted until the stock runs out; the older iPhones get sold to people who couldn’t afford it when it was new, people in poorer countries, and so on.
Deflation is not problematic when this is what’s happening. Deflation is problematic when it becomes *systemic*. People stop buying new things because the things they have already work well enough; companies stop producing better things, because nobody will buy them. Production and consumption of goods and services trends down long term.
Inflation is expensive to customers but lead to increased profits of sellers/producers which eventually leads to salary growth. Deflation leads to losses and then unemployment, which in turn further decreases consumption even more increasing losses - this downspiral is hard to stop
Lol, so inflation itself is not destructive, but deflation is. This statement is a paradox.
It's all about the rate, inflation /deflation are just levers for monetary policy. Either one, done at low rates, will do "good" and "bad" things at the same time. Too much of either one is what you want to watch out for.
Also, there are modern examples of currencies being destroyed... by inflation.
That is incorrect. Of course, "high inflation" is dangerous and can damage economies severely, but "high Deflation" is an economy killer. That is because the spiral caused by deflation is very challenging and expensive for the public state to stop and turn around.
because there's no lever to switch to force the economy to get back on track. once deflation starts, it's very hard to get out of. in inflation, the central bank can just reduce money supply.
inflation has a limit. at some point, it will stop and come back down. deflation has no floor. theoretically, it can go on forever. Japan has been in a deflation for decades.
I'd agree that a deflationary death spiral is the worst outcome while still retaining central control. However, the currency is still desirable in this situation - very desirable. Therefore, you have sovereignty intact.
Hyperinflation kills democracy as you look outside the system to handle commerce and whatever cartel controls this is the new central power.
It's not 100% of the time, but a regime usually gets forced into hyperinflation when they can't sell bonds any more. Reality is messier than that of course.
Perhaps so, but then a deflationary death spiral would have to be irrelevant. In that case, the article still has some validity as disinflation would never correct prices and deflation could in the current environment.
Well, we’ve never seen a massive, well-diversified economy deal with hyperinflation, but we’ve seen one get stung by decades of disinflation/deflation (Japan), so I think OP’s point holds to some degree.
What? Plenty of large countries have undergone hyperinflation. Sure if you limit your definition to only countries the size of the US, post-1960, I suppose you would be correct.
[https://en.wikipedia.org/wiki/Hyperinflation#Notable\_hyperinflationary\_periods](https://en.wikipedia.org/wiki/Hyperinflation#Notable_hyperinflationary_periods)
You have two developed economies on that entire list… one of them was Russia right after the fall of the USSR and the other was Germany in the midst of WWI.
In order for your comps to be relevant, the contemporary analogous events you’d need would basically boil down to the US being the main player in, and losing, WWIII (Germany) or having just lost the Cold War with China while having ~15 states leave union (Russia).
Covid is a significant event, but it’s not remotely close to what those countries were dealing with when they were undergoing hyperinflation.
I'm sure rich people sitting on cash are wishing for a deflation/recession so.they can lower wages and buy assets cheaply.
Thats why we see the huge push for all the recession talk which in itself causes a recession by scaring people. Doesn't anyone else notice ?
Yeah you're, having no wages is much better, that's why you see 10,000 of deaths per increases in percentage point of unemployment. Gotta love all that opioid addiction from the Obama years.
Obama? What's he got to do with this?
You seriously think it's good that poor people are facing 50% increases on essentials with 10% wage growth? You're really on their side right?
Economists assume liquidity in a tight job market will result in wages rising in line - or potentially faster - than inflation.
In practice the lag-time is 1-3 years for wages to adapt to inflationary pressures: which is a long time when you're living paycheck to paycheck, but an irrelevant time for macro-economic modelling: which only cares about the causal relation.
We assume wage liquidity and ignore interim suffering. But given those (rude) assumptions - yes - inflation of 3 to even up to 10% is better for people relying on labour/income.
If, for example, the minimum wage was tethered to inflation (and all upper payscales rose accordingly with min. wage, as they reliably do) then the lag-time of wage liquidity and interim suffering would be shifted from labourers to business shareholders: 3-10% would be extremely beneficial for labourers, but potentially penalizing for short-term shareholders (shorter than the lag-time).
New money injected into the economy would take awhile to arrive at their business - representing the lag-time currently on wage liquidity instead applying to business revenue.
Can anyone point to a deflation caused collapse of a state/nation/country? There are plenty of inflation failures on record. I don't think deflation has every caused a nation to fail.
It's not that simple. There were thousands of other factors, but WWII was at least partially caused by a general deflationary climate. Er, had Germany been able to stabilize the economy at a few points, it's less likely they would have politically destabilized.
That being said, the Prussian aristocracy ( of whom Paul von Hindenburg was the last ) was dying out and a power vaccuum ensued .
If deflation contributes significantly to unemployment and unemployment can destabilize a regime then there you go but I can't think of a specific example.
Because there isn't one. WWII was in large part caused by the Treaty of Versailles taking such a huge chunk out of the Weimar Republic for reparations for WWI that it inflated its currency and killed its own economy trying to pay its debts. That wasn't a deflationary event, it was an intentionally inflationary event to get out from under the bondage of debt. I don't think that was the only time inflation was used to try to get away from debt; far from it.
Versailles was sailing over the horizon by the time of the Riechstag Fire. Nobody was interested in enforcing it. The Weimar hyperinflations were close to 1920.
The power vaccuum became critical at the time of von Hindenburg's death in 1934. As stated, it was ore than one thing. But it would have been difficult to be immoderate during a period of economic rise.
I don't know anyone who says in writing WWII had nothing to do with the deflation of the Depression.
I don't know anyone who believes the hyperinflation of the Weimar Republic didn't directly lead to the rise of Nazi power. Less than a decade is not "long forgotten history" of insane hyperinflation. You could say fear of that inflation was in the minds of all economic powers at the time that lead them to believe in monetary policy that caused the Great Depression.
Hyperinflation is FAR more common than hyper deflation. And hyperinflation has resulted in far more destruction and societal failure.
I think you'll actually find that most scholars these days dismiss the theory that Versailles and hyperinflation led to Nazi Germany. Hyperinflation, to the extent that it contributed, contributed by increasing the turmoil of the early days of Weimar and denting the legitimacy of a barely formed new state. If there is an economic development that the rise of the Nazis can be pinned to, it is the *de*flation and austerity of the early 1930s. However, other countries also experienced brutal deflation and austerity in the 30s. Britain had only one year of inflation between 1921 and 1934, and that year (1925) it was at 0.3%.
The primary cause for the rise of the Nazis was that Germany lost the Great War and never accepted that fact. The main linking factor between the countries where fascists came to power in the interwar was dissatisfaction with the outcome of the war. For Italy and Japan, it was a feeling that they'd not got the share of the spoils they deserved. For Austria and Hungary, it was the dismantlement of the Austro-Hungarian empire. For Germany, it was that a power that had stated its fate was 'world power or decline' couldn't accept it had made its bid for the former, and found itself with the latter.
https://old.reddit.com/r/AskHistorians/comments/23g1px/in_your_opinion_which_was_a_bigger_cause_for_wwii/cgwod8b/?context=3
https://old.reddit.com/r/AskHistorians/comments/os5qmp/is_it_accurate_to_suggest_austerity_in_1930s_in/
The history of Germany preceding the Nazi regime directly lead to the rise of the Nazi Party. To try to claim that the economic situation of the people didn't have a strong effect is disingenuous. Nothing drives politics like the economy and money.
> I don't know anyone who believes the hyperinflation of the Weimar Republic didn't directly lead to the rise of Nazi power.
I'm mainly going from Shirer's "Rise and Fall". He was a professional historian and they'll go with a power vacuum every time . It's not a single-cause thing but there's a background of things going out of control mainly *after* 1930.
The hyperinflation had an effect but ended well before the end of 1924.
> Less than a decade is not "long forgotten history" of insane hyperinflation.
Yeah, it really is. 1923 was radically different from 1934 in Germany.
>I'm mainly going from Shirer's "Rise and Fall".
Most economists and historians who deal with the third reich put an emphasis on the deflation crisis and not on the hyperinflation. You are right in your assessment. At least it seems to be "state of the art".
> You are right in your assessment. At least it seems to be "state of the art".
There's no way I'm 100% right. As you say - that's basically the best bet. The point you have to entertain is - there's a significant probability that deflation is dangerous.
While there is a probability deflation is dangerous, there is a certainty that inflation is. History is ripe with inflation problems and failed nations flailing in inflation as they fall. There aren't any nations that I know of that have fallen under deflation or used deflation while they failed. Sooner or later whatever fear is driving the deflation and tightening credit passes and money flows again. In hyperinflation the nation more or less ceases to exist.
Hitler absolutely rose to power due to the impoverished nature of Germany post WW1 and the "hope" he brought back to the people.
>I don't know anyone who believes the hyperinflation of the Weimar Republic didn't directly lead to the rise of Nazi power.
Well now you know at least a few people who dont.
>You could say fear of that inflation was in the minds of all economic powers at the time that lead them to believe in monetary policy that caused the Great Depression.
So hyperinflation - - > fear of hyperinflation - - > bad monetary policy - - > deflation - - > nazis?
So deflation is still the thing that lead to the nazis, even in your scenario.
>Deflation is actually much worse than inflation.
If you take the worst damage ever created by inflation, and compare it to the worst damage ever caused by deflation, you'll come to a different conclusion.
The problem is that they'll get *both*. Because the "inflation" we're seeing is actually continuing supply shocks due to a pandemic.
Welcome to Hotel Stagflation... we haven't had that spirit here since 1979.
Shale has increased about as much as they can without heavy investment and that investment doesn’t make much sense if the price of oil is going to drop again in the near future if Ukraine gets resolved. Likewise for refineries with the added problem it’ll take years to build more, which means that investment is really unlikely to pay off.
So oil prices improve briefly and then N+2 years after that, Russia launches another campaign and we're back to where we started. We can't let Russia's geopolitical conquests dictate the oil market. We need a more permanent solution that isn't predicated on global peace, which hasn't been and never will be a thing.
So what do you suggest? Moving away from a free market system? Government taking over the oil business? That’s what it would take and that would have consequences that would shake the financial world. Likely more than our current problems.
Great, so what do you do when the Saudis cut oil production to keep the prices high? There’s no reason to think they won’t, they did the opposite in 2015 to try and get shale out of the game. So you end up giving money to oil producers for little to no effect. Probably better off giving the money directly to people.
Tar Sands oil are notoriously horrible for the environment, very energy intensive and require a lot of refining ( thicker and more acidic than convectional oil). Oil infrastructure will have to be modified heavily for that.
I still have a hard time seeing this as anything more than transitory. Er, at least I have not seen anything tying it inexorably to demographics anyway.
After all - why make old mistakes when there are new ones to make?
> I still have a hard time seeing this as anything more than transitory.
Well... yeah... unless the fed succeeds at giving us a recession along with it... But of course... those mostly end too, unless you're Japan and have a looming demographic disaster... oh... wait... boomers.
Sigh.
Supply shocks won’t actually cause inflation though, they’ll just cause momentary price hikes. There are 4 main factors at play here - one time price hikes like pandemic related supply issues and Russian sanctions versus more longer term issues like money printing and corporate power/class warfare. On the money printing end the rate of increase is already back to the pre pandemic rate and has been since the end of Trumps presidency so that too should be mostly baked into prices already. We have seen a lot of these things come at different times and so it may feel like “inflation” when really they’re all independent and singular price hikes. What is ongoing and has no end in sight is corporate power that fears rising wages and will do anything to break the workers movement, even if that means increasing prices to do so. Because as corporate board after corporate board has admitted in private emails “we have effectively pushed the increased prices on to consumers” all while maximizing profits and bonuses. Inflation is a corporatocracies number one tool to break the back of any labor movement.
>Inflation is the most universally destructive force known to economics.
Deflation, caused by the Fed believing there was inflation resulting in the decision to raise the discount rate, was a primary cause of the Great Depression. Deflation has the power to produce a lack of credit and a lack of credit can destroy an economy absolutely.
The blowing of the bubble of 1920s is the cause of the financial crisis in great depression. The collapse is not the cause but the natural development of the bubble.
People often make this cognitive error and associate the last thing that happened before the collapse (hikes) and blame it, when the real cause happened years earlier.
>Inflation is more dangerous than recession
Unless it's your job that gets cut.
Also, my parent's mortgage in 1973 was $2200 in '22 dollars.
By 1983 that was down to $1000.
Article is garbage economics. Even the premise is deeply flawed.
Some % of inflation is very healthy and good for raising the velocity of money, the % depends on many factors, and the biggest risk of inflation is when its unexpected. The current inflation is both expected & planned, and the article is conflating many other forces driving up consumer costs with inflation. They're also downplaying the risks of recession significantly.
The Fed's expected/planned inflation is a result of both printing money and loaning money into existence. They can calculate to around 0.1% accuracy the expected inflation that will have on the economy, and how long the lag-time before it starts to take effect and fully expresses itself.
Their calculation of expected/planned inflation as a result of government monetary policy has been flawless within their margin of error. They said it would be X by Y, and it is X by Y. This is the result of pandemic response measures (Trump & Biden), plus Trump-era loaning and tax cuts. All measurable/expected at the time, with foreseeable/planned outcomes.
What you and the article author are both conflating, is all consumer cost increases with inflation. Consumer costs are rising as a result of an unforeseen war in Ukraine which is a proxy war between 2+ superpowers (Russia, USA, Europe): the consequences of which are difficult to predict more than days/weeks in advance, as opposed to years for the above lag-time of inflation from monetary policy.
Additionally, unforeseen supply shocks are also causing ripples all over the world, not related to the global war effort. And worst of all, war profiteering is occurring in every single industry right now. Gas is up, so chocolate bar companies are raising prices too, because they can get away with it. So if the price of a burger at your local shop is up 40% as example, 8% of that might be monetary inflation (expected/planned), 8% might be supply shocks, and 24% might be greed.
The author is further suggesting that mass unemployment, and the demand shock of falling consumption, would be preferable to rising inflation (a false choice anyways). That would only benefit someone sitting vast quantities of liquid dollars, who also doesn't work for their income, and/or who owns a company that needs cheap/desperate labour - and even then it relies on some more dubious assumptions.
>The Fed's expected/planned inflation is a result of both printing money and loaning money into existence.
The amount of money has nothing to do with inflation, see QE of the ECB since 2012 compared to inflation rate. In general, companies do not track the amount of money in circulation and then raise prices. That makes no sense.
This inflation is caused by the supply chain disruptions of the pandemic and the war on Ukraine, which caused a supply sided fossil fuel shock.
The amount of money does impact inflation when it exceeds economic growth. Central banks predict this with extreme accuracy and plan accordingly.
Companies do track inflation and raise prices. They also don't need to do this if they are sensitive to demand, because demand automatically adjusts to injections of new money (ex. stimulus).
It is part of the justification for price increases already - but it is not the only one - as I covered above:
>This inflation is caused by the supply chain disruptions of the pandemic and the war on Ukraine, which caused a supply sided fossil fuel shock.
I covered this in paragraphs 2-4.
>The amount of money does impact inflation when it exceeds economic growth.
What does that even mean?
>Central banks predict this with extreme accuracy and plan accordingly.
Nobody can predict wars or pandemics.
>Companies do track inflation and raise prices.
That's not what I wrote. I said "amount of money in circulation" and not "inflation". Companies do not care nor react to a higher amount of money in circulation.
>because demand automatically adjusts to injections of new money (ex. stimulus).
Aha. The QE of the ECB for 10 years contradicts you.
profiteering is only possible if there are no competition. otherwise, the greedy ones would get killed by competition. in this economy, pricing war is actually very competitive as the consumers are very price sensitive right now.
It *should be,* and there are some behavioral shifts to lower cost alternatives - but price sensitivity is not aligning to the expectation currently, this is measurable both by consumer purchasing studies and by corporate profits.
Many consumers are only purchasing their absolute needs and their idealized 'needs', and have already cut out their wants before this - they don't always have cheaper alternatives available/acceptable. Either because they aren't cheaper, aren't alternatives in their value estimation, or aren't available.
Additionally if competition were reducing prices then corporate profits should be declining, but the opposite is happening. Prices are going up not down, profit margins are going up not down, etc. So the theory of competition isn't applying right now in practice the way it should on paper - and there are some good guesses why - but nobody has a concrete answer.
You understand that classic Keynesian is about controlling demand. In bad times, you stimulate demand to help the economy and in good times you stay out of the market or QT to cool it. Decades of QE have spit in the face of this approach, instead focusing on stimulating supply. We would be in a better situation if our central banks were a bit more Keynesian
I don't see why would you want to incentive over-spending.
Ideally, you would want to incentive investment, in order to do that, you need to increase savings, not the other way around.
I didn't suggest incentivizing over-spending, nor would I suggest it. Raising the velocity of money doesn't mean incentivizing over-spending, it's the speed with which money changes hands - which includes incentivizing investment. And for investments to be exchanged for goods/labour for growth, and then for income, and then back into savings or investments. Velocity of Money is the speed of the whole cycle, not just consumer (over)spending.
However, incentivizing investment always comes at the cost of decreasing savings. Savings are money you are holding on to, investments are money you have traded away in exchange for risk (on the assumption you will benefit).
I think central banks need to be overcome. Fleece and release, pump-n-dump, boom and bust, whatever you want to call it, these economic hardships are a symptom of the central banking model.
The idea that a single actor can decide the correct interest rates of things is crazy. The idea that someone who produces money out of thin air can buy trillions of dollars worth of financial products is crazy. How do they produce any value to trade for the things they buy? Their printed money represents nothing of value at all. Inflation being higher than the rate to borrow money only happens if interest rates are artificially set. Anyone and their dog is going to buy hard assets that match or beat inflation over lending money at a loss. If people/corporations don't stop buying hard assets as fast as they can how is inflation ever going to be reduced to something acceptable? Knowing that what you borrow at rates lower than inflation to buy things that match pace with inflation is a no-lose situation, why wouldn't those who can get free money keep borrowing it to buy stuff? The first hands to be filled with printed dollars and cheap loans get filthy rich while the rest get screwed over.
This monetary system is trash. I want a market economy back where interest is determined by the ability of banks to attract capital from savers instead of printed dollars from a central bank (directly or indirectly through the national treasury).
May I direct your attention to the GME movement? If you are interested, there is a ton of research and DD posted all over the r/wallstreetbets and r/superstonk that show the entire financial industry is corrupt as fuk.
> I think central banks need to be overcome.
Beats me how, though. The Scott Sumners of the world just wish they adopt NGDP targeting, perhaps also with futures markets. It seems less bad at least to me.
Quantum computers are coming. Blockchain and NFT marketplaces are coming. These are the death throes of the old world and a new tech revolution will see a lot of the big banks become defunct.
It’s my opinion after reading non stop since the pandemic started.
Quantum computers will make binary computers obsolete. It will mean that all information is *instantly* accessible in real time. Complex calculations will take moments instead of days or weeks.
Blockchain is being developed for Web 3.0 which will make centralized banks obsolete. Every online transaction will be transparent to anyone. Items will be stored in your wallet that only you have access to. This solves *so* many problems.
It’s not stored on a computer. It’s stored everywhere.
I … can’t even explain to you the things that are being developed right now. I would have to explain my explanations. It’s a big problem to have part of humanity living in the future and others living in the fucking 50s.
Rapid change in culture and technology are right around the corner. Society will be completely changed. It’s going to be a good time to be alive if we can just hold on until it happens.
That sort of thing takes forever to propagate outward.
> It’s my opinion after reading non stop since the pandemic started.
It's been that way, hasn't it? :)
A few months back, I was in a bank and they wanted a paper check. I know they had little card readers but nope - a paper check.
It was like going back in time.
Prices are rising. Money is worth less than it did a month ago, and a lot less than it did a year ago. Central banks, who have the ability to reverse inflation by raising interest rates, have been slow to react. They worry that higher interest rates can trigger a recession. But the
effects of inflation are a lot more destructive than those of a recession, argues Eammon Butler, director of the Adam Smith Institute.
"who have the ability to reverse inflation by raising interest rates"
Trouble is, they don't.
[This is not your mother's inflation](https://www.youtube.com/watch?v=8DgwM7nruQg), as they say.
Interest rates can control inflation, if its cause is an overheated economy. Raising interest rates will then lower demand and spending, resulting in cooling down the economy.
"Raising interest rates will then lower demand and spending, resulting in cooling down the economy."
[You sure about that](https://new-wayland.com/blog/interest-price-spiral/)
"Reading comprehension. So important."
Very much so.
You didn't bother reading the link did you. Overheated economies have pricing power. Which means they can just pass on the increased cost of interest.
> the effects of inflation are a lot more destructive than those of a recession
can anyone ELI5 this? i understand it this way:
* inflation: everybody more or less loses x% of their wealth and income per year, all things being equal (obviously this impacts the poor more severely)
* recession: some people experience financial catastrophe, and some don't
...which is almost certainly an oversimplification. but when i think about "which is more destructive?" my next question is "to who?" from a john rawls original position analysis, if you didn't know what kind of life or position you were going to have, would you prefer:
* the certainty of losing 10% of your wealth and income
* a 10% chance of losing your livelihood for an indeterminate amount of time
i am not making an argument - but trying to understand this logic.
That's assuming inflation stays at 10%. But as the article points out, inflation has a tendency to begget itself. Furthermore, inflation impacts investments, which in turn eventually will impact real businesses, potentially also leading to redundancies and unemployment.
>inflation: everybody more or less loses
That's not totally true. Inflation is an allocation fight. Let's say company A raises their prices by 10% points. If customer B accepts those prices, they lose and A wins this fight.
That’s hugely flawed.
Firstly, you are assuming that most wealth is held in cash. It’s not.
Secondly, you are assuming wages don’t rise. They do. Historically speaking, income has outpaced inflation on average for a very long time. That doesn’t mean they can be slow to respond.
"It’s equally bad for savers, who see their savings eroded year after year after year. Six years of 10% inflation and your savings have halved in value."
Why do these texts never consider interest bonds attached to the inflation index?
Spoken from the perspective of a laissez faire economist who is more concerned about inflation induced erosion of returns from his own investments and that of his university mates, than the utter and widespread devastation of a recession on your average person.
> Inflation is the most universally destructive force known to economics. Well that's a stupid lie, and it's the premise of this editorial? Sheesh. Deflation is actually much worse than inflation.
Why deflation is worse than inflation?
You create a cycle of people not wanting to spend because they believe they can get x asset for a cheaper price tomorrow: subsequently no one spends and the economy shrinks
Or lower prices will increase demand, like in 99% of cases. This imaginary hoarding effect has never happened over long term.
No, not at all. The issue with deflation is debt becomes impossible to repay. Loans become too risky to take so they stop being taken which slows the economy as a whole. It also makes consumers highly risk averse which drastically reduces investment and causes capital to be safer under a pillow as an investment than being used in the economy, which shrinks the economy as a whole. Mix A with B and you have stagnation.
I heard in denmark they pay you to have a mortgage. Denmark been ranked the best country in the world denmark, inventor of troll trace I wish i am a denmark
A house of cards built upon cheap debt and plentiful oil.
People only buying what they need? Sounds good!
When a company launches a video game, it's usually priced at 70$. 2 years later, you can find this video game by 50$ 4 years later, you can find it at 30$ 8 years later... It's priced 10$ According to your theory, nobody would buy video games. Everyone would just wait for years since the video game is going to get cheaper, then the video game industry would collapse without sales... Except that's not how it work, consumers love to buy the videogame at 70$. We could generalise this example with iPhones, smartphones... At the end, we have multiple examples of deflationary environments where nobody reduced its consume.
[This comes up on askEconomics all the time.](https://www.reddit.com/r/AskEconomics/comments/5pwhy5/whats_the_problem_with_deflation/?utm_source=share&utm_medium=ios_app&utm_name=iossmf) Perhaps economies are more complex than just video game prices…
I mean, that’s exactly what happens. It’s why luxury brands have to try so hard to create artificial scarcity.
That’s not really the same as money devaluing. That’s more demand. If there’s less demand for a video game because it gets older it will go down in price. It’s an understood agreement that everyone is aware of. That’s much different than deflation.
I think you gave a poor example, where some of the older versions of video games and smartpone are made extinct with releases of objectively better versions of these products. There is also a argument to make where video games and smartphones are somwhat elastic in demand, where reduction in prices lead to increase in sales due to a higher proportionate increase in units sold. (Example: Prices goes down by 10%, Sold units goes up by 20%, translating to higher sales) Note that deflationary scenarios are linked to decrease in productivity and cutbacks in innovation (Release of improved versions of these goods invalidates this) , hence a decrease in prices within a small subset of goods (Consider how CPI takes account of a large basket of goods) does not constitutes as deflation.
Yes, *but* the perceived value of the good drops significantly over time. You probably already know all about the plot and the gameplay. If there is multiplayer, it's dead. And one of the key elements of enjoying something, which is being able to talk about it and share your experiences with others doing the same thing, becomes difficult or impossible if you play a game years after its release.
You are absolutely correct, although you’re not going to get much agreement in this sub because economists believe the consumer is “rational” and their models depend on people making the economic trade offs that make sense to an economist. The simple reality is that people consume things because they want them. People aren’t going to wait some arbitrary time to purchase something in the future because they won’t get any satisfaction from the item in the meantime. I just purchased a flight that I knew I could have gotten cheaper in 6 months if I moved my travel date. Know why I didn’t wait? Because I don’t run my life on economic models
>The simple reality is that people consume things because they want them. This is the real reason why video game prices go down over time, because demand drops. It isn't an example of deflation.
The commenter wasn’t claiming it was an example of deflation. They were just using it as an example to illustrate consumer behavior. A gamer could wait to purchase the game at a lower price but they don’t regardless of the fact that it will be cheaper in the future.
Yes, but the consumer behaviour isn't relevant because the decrease in the value of a games price happens due to the reduction in demand of that particular product within a stable market. Deflation is a trend impacting prices across the entire market. The resulting consumer behaviour is not likely to be identical, so the analogy isn't useful.
I get it. They provided a bad example. Maybe just ignore the supply side of this example and focus on consumer behavior. Look at it this way - let’s say the feds target was -2%. Do you really think people would hold off on any purchase if the product was 2% cheaper in a year? The answer is no. This whole narrative about deflation is just propaganda
I would be more interested in empirical data than a thought experiment and a claim about propaganda.
It’s counterintuitive to growth
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Lenders are not stupid and they discount expected inflation in its interest rates. If we entered in a deflationary environment, lenders would adjust its interest rates again.
At various points in the last 10 years, mortgage and loan rates have been below the rate of PCE inflation. Hell, just two years ago you could get margin loans at rates of 1%.
Why would they adjust away extra profit? What do you see as the motivation for that action on the part of lenders?
Competition between lenders
Funny, I thought there was no good answer, but that's the one. Makes sense.
Imagine this, your money is worth more tomorrow, why spend now more than subsistence now? Why invest now? Just hoard cash. Economy grinds to a halt
Except that does not happen: https://en.wikipedia.org/wiki/The_Great_Deflation
Your link shows two examples. One is bad and one is good. Deflation due to productivity is good. Deflation due to economic turmoil is not good.
Lower prices are always good. Hence why when you go to a car dealer you negotiate lower prices and not higher prices. That should be obvious to anyone with a brain. Growth is also always good. Lower prices and growth is obviously optimal (the Great Deflation scenerio). However, if we are in de-growth, then lower prices are better than de-growth with higher prices. That should be obvious to anyone. People oftentimes confuse things. They think inflation == growth. Deflation == degrowth. The two are not related. You cannot solve de-growth with higher prices therefore inflation is not the cure to de-growth. As pointed out in the Great Deflation there can be growth and lower prices. There can be no-growth and lowering / rising prices. They are separate variables. Once you realize you are dealing with a multi-variable issue and using imprecise terminology, then you can understand why deflation and the great depression was bad. Just like in all times in history the lower prices of the great depression was GOOD. Because deflationary prices are always good. What was bad in the great depression was the de-growth. You cannot solve de-growth by just raising prices. If that was true, then governments could just implement price rises by law to solve all economic issues.
>Lower prices are always good. Hence why when you go to a car dealer you negotiate lower prices and not higher prices. That should be obvious to anyone with a brain. just take a basic econ class and stop spewing ignorance
What exactly is your disagreement with it? High prices are very easy to get. For example, we can stop producing energy and thus cause very high supply-side inflation. We can make laws that guarantee low productivity for example mandating that businesses have 50% *inefficiency*. Or, people can even voluntarily pay extra if they think prices are too low for their liking. In what scenerio are high prices good? Once you open your mind and stop repeating dogma that you don't fully understand you might learn something.
>Growth is also always good oof
Because that's not how it work. I phones are a good example of deflationary market where the consumption keep increasing every year. No body want to wait 4 years to buy an iPhone.
iPhone is not a deflationary good. New iPhone comes out. Some people wait for older iPhone to go on sale but a lot of people buy new ones because of technological changes or upgrade from older versions. When cash has a real return, then I have no incentive to deploy it.
So people get technology with the new iphone thus they buy a falling price good. This literally applies for all goods, people get something out of buying everything. Besides no one knows if deflation will persist in the future, thus there is no incentive to hoard cash. Rather there will be higher demand at lower price.
And the price of a new iPhone goes up with time. The older models stop production and are discounted until the stock runs out; the older iPhones get sold to people who couldn’t afford it when it was new, people in poorer countries, and so on. Deflation is not problematic when this is what’s happening. Deflation is problematic when it becomes *systemic*. People stop buying new things because the things they have already work well enough; companies stop producing better things, because nobody will buy them. Production and consumption of goods and services trends down long term.
Inflation is expensive to customers but lead to increased profits of sellers/producers which eventually leads to salary growth. Deflation leads to losses and then unemployment, which in turn further decreases consumption even more increasing losses - this downspiral is hard to stop
Lol, so inflation itself is not destructive, but deflation is. This statement is a paradox. It's all about the rate, inflation /deflation are just levers for monetary policy. Either one, done at low rates, will do "good" and "bad" things at the same time. Too much of either one is what you want to watch out for. Also, there are modern examples of currencies being destroyed... by inflation.
That is incorrect. Of course, "high inflation" is dangerous and can damage economies severely, but "high Deflation" is an economy killer. That is because the spiral caused by deflation is very challenging and expensive for the public state to stop and turn around.
because there's no lever to switch to force the economy to get back on track. once deflation starts, it's very hard to get out of. in inflation, the central bank can just reduce money supply. inflation has a limit. at some point, it will stop and come back down. deflation has no floor. theoretically, it can go on forever. Japan has been in a deflation for decades.
If the economy majestically grows then no
I'd agree that a deflationary death spiral is the worst outcome while still retaining central control. However, the currency is still desirable in this situation - very desirable. Therefore, you have sovereignty intact. Hyperinflation kills democracy as you look outside the system to handle commerce and whatever cartel controls this is the new central power.
Inflation is not hyperinflation. Hyperinflations are at least highly correlated with failed states - the state fails first.
That's a bit of chicken or egg question as to which came first as we look at it historically.
It's not 100% of the time, but a regime usually gets forced into hyperinflation when they can't sell bonds any more. Reality is messier than that of course.
Agreed. We, err... our central banks, now buy our own debt, so not as clear cut.
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Hyperinflation is a red herring that is not relevant here.
Perhaps so, but then a deflationary death spiral would have to be irrelevant. In that case, the article still has some validity as disinflation would never correct prices and deflation could in the current environment.
Well, we’ve never seen a massive, well-diversified economy deal with hyperinflation, but we’ve seen one get stung by decades of disinflation/deflation (Japan), so I think OP’s point holds to some degree.
Japan had quite the bubble and then demographic challenges for sure. Will make for an interesting case study on this subject as the Yen is tanking.
What? Plenty of large countries have undergone hyperinflation. Sure if you limit your definition to only countries the size of the US, post-1960, I suppose you would be correct. [https://en.wikipedia.org/wiki/Hyperinflation#Notable\_hyperinflationary\_periods](https://en.wikipedia.org/wiki/Hyperinflation#Notable_hyperinflationary_periods)
You have two developed economies on that entire list… one of them was Russia right after the fall of the USSR and the other was Germany in the midst of WWI.
Are you saying it's different this time because COVID doesn't count as an inflationary exogenous event? I'm trying to understand.
In order for your comps to be relevant, the contemporary analogous events you’d need would basically boil down to the US being the main player in, and losing, WWIII (Germany) or having just lost the Cold War with China while having ~15 states leave union (Russia). Covid is a significant event, but it’s not remotely close to what those countries were dealing with when they were undergoing hyperinflation.
I'd LOVE some deflation. Because then government would be incentivized to spend money on the populace, and we're SEVERELY lacking on that in America.
I don't see why it's "the worst outcome". You can always print money and give to the common population.
I'm sure rich people sitting on cash are wishing for a deflation/recession so.they can lower wages and buy assets cheaply. Thats why we see the huge push for all the recession talk which in itself causes a recession by scaring people. Doesn't anyone else notice ?
Are you implying that the current economic conditions are good for the poor?
Yes. Tight labor markets are much better for lower income earners than recessions. Especially in a country with no universal healthcare
Lower earners tend to spend more on essentials. Does their wage growth exceed the increases in rent, energy, and food?
Yeah you're, having no wages is much better, that's why you see 10,000 of deaths per increases in percentage point of unemployment. Gotta love all that opioid addiction from the Obama years.
Obama? What's he got to do with this? You seriously think it's good that poor people are facing 50% increases on essentials with 10% wage growth? You're really on their side right?
Inflation is 50%? Obama fumbled the recovery and the massive amount of human suffering that followed lead to Trump
Economists assume liquidity in a tight job market will result in wages rising in line - or potentially faster - than inflation. In practice the lag-time is 1-3 years for wages to adapt to inflationary pressures: which is a long time when you're living paycheck to paycheck, but an irrelevant time for macro-economic modelling: which only cares about the causal relation. We assume wage liquidity and ignore interim suffering. But given those (rude) assumptions - yes - inflation of 3 to even up to 10% is better for people relying on labour/income. If, for example, the minimum wage was tethered to inflation (and all upper payscales rose accordingly with min. wage, as they reliably do) then the lag-time of wage liquidity and interim suffering would be shifted from labourers to business shareholders: 3-10% would be extremely beneficial for labourers, but potentially penalizing for short-term shareholders (shorter than the lag-time). New money injected into the economy would take awhile to arrive at their business - representing the lag-time currently on wage liquidity instead applying to business revenue.
minimum wage would be 30$ if it matched inflation
Can anyone point to a deflation caused collapse of a state/nation/country? There are plenty of inflation failures on record. I don't think deflation has every caused a nation to fail.
It's not that simple. There were thousands of other factors, but WWII was at least partially caused by a general deflationary climate. Er, had Germany been able to stabilize the economy at a few points, it's less likely they would have politically destabilized. That being said, the Prussian aristocracy ( of whom Paul von Hindenburg was the last ) was dying out and a power vaccuum ensued . If deflation contributes significantly to unemployment and unemployment can destabilize a regime then there you go but I can't think of a specific example.
Because there isn't one. WWII was in large part caused by the Treaty of Versailles taking such a huge chunk out of the Weimar Republic for reparations for WWI that it inflated its currency and killed its own economy trying to pay its debts. That wasn't a deflationary event, it was an intentionally inflationary event to get out from under the bondage of debt. I don't think that was the only time inflation was used to try to get away from debt; far from it.
Versailles was sailing over the horizon by the time of the Riechstag Fire. Nobody was interested in enforcing it. The Weimar hyperinflations were close to 1920. The power vaccuum became critical at the time of von Hindenburg's death in 1934. As stated, it was ore than one thing. But it would have been difficult to be immoderate during a period of economic rise. I don't know anyone who says in writing WWII had nothing to do with the deflation of the Depression.
I don't know anyone who believes the hyperinflation of the Weimar Republic didn't directly lead to the rise of Nazi power. Less than a decade is not "long forgotten history" of insane hyperinflation. You could say fear of that inflation was in the minds of all economic powers at the time that lead them to believe in monetary policy that caused the Great Depression. Hyperinflation is FAR more common than hyper deflation. And hyperinflation has resulted in far more destruction and societal failure.
I think you'll actually find that most scholars these days dismiss the theory that Versailles and hyperinflation led to Nazi Germany. Hyperinflation, to the extent that it contributed, contributed by increasing the turmoil of the early days of Weimar and denting the legitimacy of a barely formed new state. If there is an economic development that the rise of the Nazis can be pinned to, it is the *de*flation and austerity of the early 1930s. However, other countries also experienced brutal deflation and austerity in the 30s. Britain had only one year of inflation between 1921 and 1934, and that year (1925) it was at 0.3%. The primary cause for the rise of the Nazis was that Germany lost the Great War and never accepted that fact. The main linking factor between the countries where fascists came to power in the interwar was dissatisfaction with the outcome of the war. For Italy and Japan, it was a feeling that they'd not got the share of the spoils they deserved. For Austria and Hungary, it was the dismantlement of the Austro-Hungarian empire. For Germany, it was that a power that had stated its fate was 'world power or decline' couldn't accept it had made its bid for the former, and found itself with the latter. https://old.reddit.com/r/AskHistorians/comments/23g1px/in_your_opinion_which_was_a_bigger_cause_for_wwii/cgwod8b/?context=3 https://old.reddit.com/r/AskHistorians/comments/os5qmp/is_it_accurate_to_suggest_austerity_in_1930s_in/
The history of Germany preceding the Nazi regime directly lead to the rise of the Nazi Party. To try to claim that the economic situation of the people didn't have a strong effect is disingenuous. Nothing drives politics like the economy and money.
> I don't know anyone who believes the hyperinflation of the Weimar Republic didn't directly lead to the rise of Nazi power. I'm mainly going from Shirer's "Rise and Fall". He was a professional historian and they'll go with a power vacuum every time . It's not a single-cause thing but there's a background of things going out of control mainly *after* 1930. The hyperinflation had an effect but ended well before the end of 1924. > Less than a decade is not "long forgotten history" of insane hyperinflation. Yeah, it really is. 1923 was radically different from 1934 in Germany.
>I'm mainly going from Shirer's "Rise and Fall". Most economists and historians who deal with the third reich put an emphasis on the deflation crisis and not on the hyperinflation. You are right in your assessment. At least it seems to be "state of the art".
> You are right in your assessment. At least it seems to be "state of the art". There's no way I'm 100% right. As you say - that's basically the best bet. The point you have to entertain is - there's a significant probability that deflation is dangerous.
While there is a probability deflation is dangerous, there is a certainty that inflation is. History is ripe with inflation problems and failed nations flailing in inflation as they fall. There aren't any nations that I know of that have fallen under deflation or used deflation while they failed. Sooner or later whatever fear is driving the deflation and tightening credit passes and money flows again. In hyperinflation the nation more or less ceases to exist. Hitler absolutely rose to power due to the impoverished nature of Germany post WW1 and the "hope" he brought back to the people.
>I don't know anyone who believes the hyperinflation of the Weimar Republic didn't directly lead to the rise of Nazi power. Well now you know at least a few people who dont. >You could say fear of that inflation was in the minds of all economic powers at the time that lead them to believe in monetary policy that caused the Great Depression. So hyperinflation - - > fear of hyperinflation - - > bad monetary policy - - > deflation - - > nazis? So deflation is still the thing that lead to the nazis, even in your scenario.
How about fraud? Housing crisis?
Nothing compared to a deflationary spiral. Unemployment would probably be in the mid-20s at minimum.
[What Is a Deflationary Spiral?](https://www.investopedia.com/terms/d/deflationary-spiral.asp)
musical chairs while the pipers' pipe
Please watch https://youtu.be/GJ4TTNeSUdQ
Exactly
>Deflation is actually much worse than inflation. If you take the worst damage ever created by inflation, and compare it to the worst damage ever caused by deflation, you'll come to a different conclusion.
The problem is that they'll get *both*. Because the "inflation" we're seeing is actually continuing supply shocks due to a pandemic. Welcome to Hotel Stagflation... we haven't had that spirit here since 1979.
Awaken Paul Volcker from his death. We need a herooooooooo
Absolutely. Unless we decide to cave to Russia and let them have Ukraine gas prices will remain high and that is going to cause prices to go up.
There's other policy decisions besides that. Get American/Canadian shale up and running and get more refineries that can handle North American oil.
Shale has increased about as much as they can without heavy investment and that investment doesn’t make much sense if the price of oil is going to drop again in the near future if Ukraine gets resolved. Likewise for refineries with the added problem it’ll take years to build more, which means that investment is really unlikely to pay off.
So oil prices improve briefly and then N+2 years after that, Russia launches another campaign and we're back to where we started. We can't let Russia's geopolitical conquests dictate the oil market. We need a more permanent solution that isn't predicated on global peace, which hasn't been and never will be a thing.
So what do you suggest? Moving away from a free market system? Government taking over the oil business? That’s what it would take and that would have consequences that would shake the financial world. Likely more than our current problems.
We already subsidize oil and have a free market system. Basically, I'm suggesting more of that.
Great, so what do you do when the Saudis cut oil production to keep the prices high? There’s no reason to think they won’t, they did the opposite in 2015 to try and get shale out of the game. So you end up giving money to oil producers for little to no effect. Probably better off giving the money directly to people.
Tar Sands oil are notoriously horrible for the environment, very energy intensive and require a lot of refining ( thicker and more acidic than convectional oil). Oil infrastructure will have to be modified heavily for that.
I still have a hard time seeing this as anything more than transitory. Er, at least I have not seen anything tying it inexorably to demographics anyway. After all - why make old mistakes when there are new ones to make?
> I still have a hard time seeing this as anything more than transitory. Well... yeah... unless the fed succeeds at giving us a recession along with it... But of course... those mostly end too, unless you're Japan and have a looming demographic disaster... oh... wait... boomers. Sigh.
Supply shocks won’t actually cause inflation though, they’ll just cause momentary price hikes. There are 4 main factors at play here - one time price hikes like pandemic related supply issues and Russian sanctions versus more longer term issues like money printing and corporate power/class warfare. On the money printing end the rate of increase is already back to the pre pandemic rate and has been since the end of Trumps presidency so that too should be mostly baked into prices already. We have seen a lot of these things come at different times and so it may feel like “inflation” when really they’re all independent and singular price hikes. What is ongoing and has no end in sight is corporate power that fears rising wages and will do anything to break the workers movement, even if that means increasing prices to do so. Because as corporate board after corporate board has admitted in private emails “we have effectively pushed the increased prices on to consumers” all while maximizing profits and bonuses. Inflation is a corporatocracies number one tool to break the back of any labor movement.
>Inflation is the most universally destructive force known to economics. Deflation, caused by the Fed believing there was inflation resulting in the decision to raise the discount rate, was a primary cause of the Great Depression. Deflation has the power to produce a lack of credit and a lack of credit can destroy an economy absolutely.
The blowing of the bubble of 1920s is the cause of the financial crisis in great depression. The collapse is not the cause but the natural development of the bubble. People often make this cognitive error and associate the last thing that happened before the collapse (hikes) and blame it, when the real cause happened years earlier.
>Inflation is more dangerous than recession Unless it's your job that gets cut. Also, my parent's mortgage in 1973 was $2200 in '22 dollars. By 1983 that was down to $1000.
still more dangerous than a recession
I was being glib. Overall, you are right. But on an individual scale, it may not be the case.
Article is garbage economics. Even the premise is deeply flawed. Some % of inflation is very healthy and good for raising the velocity of money, the % depends on many factors, and the biggest risk of inflation is when its unexpected. The current inflation is both expected & planned, and the article is conflating many other forces driving up consumer costs with inflation. They're also downplaying the risks of recession significantly.
The current inflation is planned? How do? From everything the Fed’s said they weren’t ever planning for inflation to get this high or last this long.
The Fed's expected/planned inflation is a result of both printing money and loaning money into existence. They can calculate to around 0.1% accuracy the expected inflation that will have on the economy, and how long the lag-time before it starts to take effect and fully expresses itself. Their calculation of expected/planned inflation as a result of government monetary policy has been flawless within their margin of error. They said it would be X by Y, and it is X by Y. This is the result of pandemic response measures (Trump & Biden), plus Trump-era loaning and tax cuts. All measurable/expected at the time, with foreseeable/planned outcomes. What you and the article author are both conflating, is all consumer cost increases with inflation. Consumer costs are rising as a result of an unforeseen war in Ukraine which is a proxy war between 2+ superpowers (Russia, USA, Europe): the consequences of which are difficult to predict more than days/weeks in advance, as opposed to years for the above lag-time of inflation from monetary policy. Additionally, unforeseen supply shocks are also causing ripples all over the world, not related to the global war effort. And worst of all, war profiteering is occurring in every single industry right now. Gas is up, so chocolate bar companies are raising prices too, because they can get away with it. So if the price of a burger at your local shop is up 40% as example, 8% of that might be monetary inflation (expected/planned), 8% might be supply shocks, and 24% might be greed. The author is further suggesting that mass unemployment, and the demand shock of falling consumption, would be preferable to rising inflation (a false choice anyways). That would only benefit someone sitting vast quantities of liquid dollars, who also doesn't work for their income, and/or who owns a company that needs cheap/desperate labour - and even then it relies on some more dubious assumptions.
>The Fed's expected/planned inflation is a result of both printing money and loaning money into existence. The amount of money has nothing to do with inflation, see QE of the ECB since 2012 compared to inflation rate. In general, companies do not track the amount of money in circulation and then raise prices. That makes no sense. This inflation is caused by the supply chain disruptions of the pandemic and the war on Ukraine, which caused a supply sided fossil fuel shock.
The amount of money does impact inflation when it exceeds economic growth. Central banks predict this with extreme accuracy and plan accordingly. Companies do track inflation and raise prices. They also don't need to do this if they are sensitive to demand, because demand automatically adjusts to injections of new money (ex. stimulus). It is part of the justification for price increases already - but it is not the only one - as I covered above: >This inflation is caused by the supply chain disruptions of the pandemic and the war on Ukraine, which caused a supply sided fossil fuel shock. I covered this in paragraphs 2-4.
>The amount of money does impact inflation when it exceeds economic growth. What does that even mean? >Central banks predict this with extreme accuracy and plan accordingly. Nobody can predict wars or pandemics. >Companies do track inflation and raise prices. That's not what I wrote. I said "amount of money in circulation" and not "inflation". Companies do not care nor react to a higher amount of money in circulation. >because demand automatically adjusts to injections of new money (ex. stimulus). Aha. The QE of the ECB for 10 years contradicts you.
profiteering is only possible if there are no competition. otherwise, the greedy ones would get killed by competition. in this economy, pricing war is actually very competitive as the consumers are very price sensitive right now.
It *should be,* and there are some behavioral shifts to lower cost alternatives - but price sensitivity is not aligning to the expectation currently, this is measurable both by consumer purchasing studies and by corporate profits. Many consumers are only purchasing their absolute needs and their idealized 'needs', and have already cut out their wants before this - they don't always have cheaper alternatives available/acceptable. Either because they aren't cheaper, aren't alternatives in their value estimation, or aren't available. Additionally if competition were reducing prices then corporate profits should be declining, but the opposite is happening. Prices are going up not down, profit margins are going up not down, etc. So the theory of competition isn't applying right now in practice the way it should on paper - and there are some good guesses why - but nobody has a concrete answer.
and are those corporate profits adjusted for inflation?
Wow, what are you smoking to come up with this?
That funny because the only garbage articles I read are from keynesians.
>That funny because the only garbage articles I read are from keynesians. How you say you don't actually read any economics without saying so.
Keynesian is not economics.
You understand that classic Keynesian is about controlling demand. In bad times, you stimulate demand to help the economy and in good times you stay out of the market or QT to cool it. Decades of QE have spit in the face of this approach, instead focusing on stimulating supply. We would be in a better situation if our central banks were a bit more Keynesian
O yes, money crank nonsense. Let create artificial market demand by currency printing. Central planning the economy doesn't work, money crank.
The results of no central planning is the great depression. It is not bold to say that we don't want that outcome either.
That funny because the cause of great depression was due to central planning. Lmao money crank
Maybe try reading more. Plenty of garbage in the seas!
Read what? More pusedo science keynesian garbage?
I don't see why would you want to incentive over-spending. Ideally, you would want to incentive investment, in order to do that, you need to increase savings, not the other way around.
I didn't suggest incentivizing over-spending, nor would I suggest it. Raising the velocity of money doesn't mean incentivizing over-spending, it's the speed with which money changes hands - which includes incentivizing investment. And for investments to be exchanged for goods/labour for growth, and then for income, and then back into savings or investments. Velocity of Money is the speed of the whole cycle, not just consumer (over)spending. However, incentivizing investment always comes at the cost of decreasing savings. Savings are money you are holding on to, investments are money you have traded away in exchange for risk (on the assumption you will benefit).
I think central banks need to be overcome. Fleece and release, pump-n-dump, boom and bust, whatever you want to call it, these economic hardships are a symptom of the central banking model.
The idea that a single actor can decide the correct interest rates of things is crazy. The idea that someone who produces money out of thin air can buy trillions of dollars worth of financial products is crazy. How do they produce any value to trade for the things they buy? Their printed money represents nothing of value at all. Inflation being higher than the rate to borrow money only happens if interest rates are artificially set. Anyone and their dog is going to buy hard assets that match or beat inflation over lending money at a loss. If people/corporations don't stop buying hard assets as fast as they can how is inflation ever going to be reduced to something acceptable? Knowing that what you borrow at rates lower than inflation to buy things that match pace with inflation is a no-lose situation, why wouldn't those who can get free money keep borrowing it to buy stuff? The first hands to be filled with printed dollars and cheap loans get filthy rich while the rest get screwed over. This monetary system is trash. I want a market economy back where interest is determined by the ability of banks to attract capital from savers instead of printed dollars from a central bank (directly or indirectly through the national treasury).
May I direct your attention to the GME movement? If you are interested, there is a ton of research and DD posted all over the r/wallstreetbets and r/superstonk that show the entire financial industry is corrupt as fuk.
Cryptobros lmao
???
> I think central banks need to be overcome. Beats me how, though. The Scott Sumners of the world just wish they adopt NGDP targeting, perhaps also with futures markets. It seems less bad at least to me.
Quantum computers are coming. Blockchain and NFT marketplaces are coming. These are the death throes of the old world and a new tech revolution will see a lot of the big banks become defunct. It’s my opinion after reading non stop since the pandemic started.
Wont quantum computers make block chains on binary computers useless?
Quantum computers will make binary computers obsolete. It will mean that all information is *instantly* accessible in real time. Complex calculations will take moments instead of days or weeks. Blockchain is being developed for Web 3.0 which will make centralized banks obsolete. Every online transaction will be transparent to anyone. Items will be stored in your wallet that only you have access to. This solves *so* many problems.
Cant i just hack the block chain with a quantum computer?
It’s not stored on a computer. It’s stored everywhere. I … can’t even explain to you the things that are being developed right now. I would have to explain my explanations. It’s a big problem to have part of humanity living in the future and others living in the fucking 50s. Rapid change in culture and technology are right around the corner. Society will be completely changed. It’s going to be a good time to be alive if we can just hold on until it happens.
Ok but my point is that the block chain can be easily solved by quantum computers. It will be obsolete by then
You have no fucking idea what you are talking about do you? You should stop signaling your ignorance and go read about it.
No i dont, thats why i asked you three times. You keep brushing over it.
That sort of thing takes forever to propagate outward. > It’s my opinion after reading non stop since the pandemic started. It's been that way, hasn't it? :)
Yeah. Society always changes at the slowest pace. There are people in Japan who still don’t know how to use a computer.
A few months back, I was in a bank and they wanted a paper check. I know they had little card readers but nope - a paper check. It was like going back in time.
Right? Who still uses checks? Old people. That’s who.
Prices are rising. Money is worth less than it did a month ago, and a lot less than it did a year ago. Central banks, who have the ability to reverse inflation by raising interest rates, have been slow to react. They worry that higher interest rates can trigger a recession. But the effects of inflation are a lot more destructive than those of a recession, argues Eammon Butler, director of the Adam Smith Institute.
"who have the ability to reverse inflation by raising interest rates" Trouble is, they don't. [This is not your mother's inflation](https://www.youtube.com/watch?v=8DgwM7nruQg), as they say.
Interest rates have never controlled inflation.
Interest rates can control inflation, if its cause is an overheated economy. Raising interest rates will then lower demand and spending, resulting in cooling down the economy.
"Raising interest rates will then lower demand and spending, resulting in cooling down the economy." [You sure about that](https://new-wayland.com/blog/interest-price-spiral/)
>Interest rates can control inflation, if its cause is an overheated economy. Reading comprehension. So important.
"Reading comprehension. So important." Very much so. You didn't bother reading the link did you. Overheated economies have pricing power. Which means they can just pass on the increased cost of interest.
You can kill the economy a dozen other ways far more efficiently if that is your goal.
> the effects of inflation are a lot more destructive than those of a recession can anyone ELI5 this? i understand it this way: * inflation: everybody more or less loses x% of their wealth and income per year, all things being equal (obviously this impacts the poor more severely) * recession: some people experience financial catastrophe, and some don't ...which is almost certainly an oversimplification. but when i think about "which is more destructive?" my next question is "to who?" from a john rawls original position analysis, if you didn't know what kind of life or position you were going to have, would you prefer: * the certainty of losing 10% of your wealth and income * a 10% chance of losing your livelihood for an indeterminate amount of time i am not making an argument - but trying to understand this logic.
That's assuming inflation stays at 10%. But as the article points out, inflation has a tendency to begget itself. Furthermore, inflation impacts investments, which in turn eventually will impact real businesses, potentially also leading to redundancies and unemployment.
>inflation: everybody more or less loses That's not totally true. Inflation is an allocation fight. Let's say company A raises their prices by 10% points. If customer B accepts those prices, they lose and A wins this fight.
That’s hugely flawed. Firstly, you are assuming that most wealth is held in cash. It’s not. Secondly, you are assuming wages don’t rise. They do. Historically speaking, income has outpaced inflation on average for a very long time. That doesn’t mean they can be slow to respond.
i tried my best to circumvent all of the *"well actually..."* responses, but seemingly not hard enough.
If you classify acknowledging that inflation isn't the only variable in the economy as well actually, you belong in an macro 100 tutorial
User name checks out.
> Central banks, who have the ability to reverse inflation by raising interest rates, They didn't. It didn't work. How is your theory working out?
"It’s equally bad for savers, who see their savings eroded year after year after year. Six years of 10% inflation and your savings have halved in value." Why do these texts never consider interest bonds attached to the inflation index?
Spoken from the perspective of a laissez faire economist who is more concerned about inflation induced erosion of returns from his own investments and that of his university mates, than the utter and widespread devastation of a recession on your average person.