Austrian and related firms of economics function more as a religion than economic science. Specifically, it is a religion to"comfort the comfortable, and afflict the afflicted".
Praxeology sounds like the exact opposite of how economics should work. Humans are complex, so reasoning from principles won’t work and experiments are the only way that we can get a decent idea of how humans work in reality. If the first line of your proof is “assume humans are rational”, throw out the rest.
Just translate the premise to another discipline, say physics. *In principle*, you could solve any problem by starting with a fundamental sub-atomic model and tracing through the consequences using pure logic. But that only works for the simplest problems, not the hardest! For example, you wouldn't take that approach to predict human behaviour ...
It's funny you mention this. I was thinking of this example but in the complete opposite way. i.e., if you start with a fundamental particle you absolutely cannot know all the information about how it is going to behave but when you put a bunch of them together you can do some of the most accurate and thorough experiments and predictions humans have ever come up with.
No, manage the free market to avoid consequences of market failure. Fed Reserve + treasury are needed to spend money into existence, especially during market failure caused by pandemics and the climate change emergency. The idea that inflation is caused by these market emergencies is absurd; there is no loss of available resources or productive *potential* in the economy which would cause inflation.
Interestingly, MMT allows fiat currency-issuing governments to spend debt-free *public* money, on behalf of the welfare of citizens, when necessary (eg during market failures). OTOH, Bitcoin amounts to a *private sector* 'fiat currency' whose value derives from a Ponzi scheme, unlike the government's fiat currency whose value is derived from the nation's productive capacity.
It's an important part of economics. Human action is only partly rational. That's why so much advertising works. Just look at most adverts you see on TV. Does it say 'buy our product because it provides a higher cost-benefit ratio than the competition?' Sometimes it does, yes. But most often it says 'Buy our product because these super-hot models are having a great time with it, and you want to be like them.' And that sort of message works.
People are still citing Shadowstats after that excellent evisceration in 2013? I had forgotten about it. I figured the proponents would have all slunk off in shame.
One obvious problem with the Shadowstats numbers is that they imply that prices have increased sixfold in the past twenty years, and that clearly just isn't true. The apartment I rented for $800 in 2001 might rent for $2,000 now, but it definitely doesn't rent for $4,800. And that's without taking into account the low rate of inflation in manufactured goods.
This is a fair takedown of the inflation fringe. But reducing positions into two extreme camps is killing useful analysis.
Bitcoin is a terrible substitute for the current international monetary system. Yes, agree 100%. And also -- what's your short position?
The loudest inflation hawks are crazed astrologers. Yes, agree 100%. And also -- how long until the 10-Year Breakeven plateaus?
We should be able to raise an eyebrow at T10YIE's trajectory without being lumped in with Dorsey-ian econometrics. We should be able to say about Bitcoin "eh, the price is the price and I clearly don't fully understand all the ways people move money" without being dismissed as HODLers.
I saw the best minds of my generation destroyed by Twitter, dragging the goldbugs until dawn looking for an angry fix...
Noah's generally supported the long position on Bitcoin unless that's changed and has a nuanced body of work. I think this guest post was brought in specifically to debunk the loud weirdos because the loud weirdos need to be debunked.
My point was that by focusing on loud weirdos, we misread more nuanced arguments. We try to force them into oversimplified positions.
I'm a bit worried you then misread my point as just "long bitcoin!"
Happy to chalk part of that up to my own bad writing. But it really reinforces my original worry. Focusing on loud weirdos (who aren't really listening anyway) makes it harder for us to understand each other.
And I want to stress I don't even really disagree with John's conclusions, I just think he's overextending the arguments on the margins, and that lowers the likelihood they'll land with the people he's targeting.
Note: I deleted another version of this reply that was less charitable. Sorry if you read that one in an email.
I see your point. I think there's a big difference between who the audience is in a public debate. Is the audience the loud weirdos or those watching from the sidelines who haven't decided on their mental model of this topic yet. I think private, personal persuasion would look a lot different but there isn't a great venue for that online.
I suppose he made some strong rhetorical choices, but takedowns catch eyeballs because conflict is what catches eyeballs. I doubt I would have given this topic much thought if people weren't debating it. (Being off Twitter for the last few months probably made me a nicer person.)
I would just add that there's no need to put quotes around "money printing". QE is certainly money creation, and the technical point that the money is created digitally not on paper is not relevant to the "debate" over whether QE causes inflation. Rather there is a very simple explanation for when money creation idrives inflation and when it doesn't. When money creation funds increases in spending, it's inflationary. Inflation is driven by increased spending, not by increased money supply. That's empirically perfectly well established and it's also a very simple, obvious first principle, unless you're a charlatan or a fool. (Sorry for the garbled first post).
"Inflation is driven by increased spending"......only if the goods and services - which the created money is chasing - are not available for purchase.
Governments should only have paid - with 'printed' money - all essential bills during the pandemic lockdowns; but even so, there has been no loss of *potential* productive capacity during the pandemic, so any inflation is due to post pandemic market failure (caused by supply chain bottlenecks etc)
Re: "only if the goods and services - which the created money is chasing - are not available for purchase" - that's poorly put. One can generally assume that there's not infinite inventory sitting around. But of course both demand and supply are factors in inflation, and a simple version of the full equation is that spending increasing faster than supply equals inflation.
In developed economies like the US, governments don't control money creation, but they can print bonds which is very close to the same thing. During the pandemic they printed a lot of bonds, and central banks created a lot of money and bought a lot of those bonds. But all that bond and money creation merely kept the aggregate pace of spending growth roughly on recent trend.
"there has been no loss of *potential* productive capacity" Rubbish - there were huge losses of potential capacity, beginning with hundreds of millions of people staying home. In a modern economy capacity is constantly withering and growing anew at the same time, and a major trauma like the pandemic throws that all out of whack. The story differs from sector to sector and subsector to subsector - there are many businesses to this day still operating in skeleton crew bare survival mode hoping their clients will come back in full next spring. One cannot just walk away and shut down a business one day and turn it back on again another day at the same capacity one had when one shut it down without new investment.
Re "there has been no loss of *potential* productive capacity"...I deliberately emphasized the word *potential*, but you still failed to grasp the significance, which is that the unemployed (non-essential) workforce was still available when the lockdowns ended (and the idled machinery, schools, etc etc).
In fact J.Powell could have paid all the essential bills in a locked-down economy without buying bonds and without increasing government debt, nor increasing inflation after the lockdown was lifted. You wrote:
"In developed economies like the US, governments don't control money creation, but they can print bonds which is very close to the same thing".
Well yes, but it need not be the case, especially in cases of 'market failure' (sic) like pandemics or a global climate emergency. In these emergency cases sovereign currency-issuing governments should issue debt free money, to by-pass private sector 'market failure'., when market capitalism must be subsumed by a command economy, to save people's lives and/or the planet. I know the idea of a command economy to transition to green ASAP might offend your ideology, but the atmosphere certainly doesn't care about your ideology.
Tom2 hr ago
Re: "only if the goods and services - which the created money is chasing - are not available for purchase" - that's poorly put. One can generally assume that there's not infinite inventory sitting around. But of course both demand and supply are factors in inflation, and a simple version of the full equation is that spending increasing faster than supply equals inflation.
In developed economies like the US, governments don't control money creation, but they can print bonds which is very close to the same thing
On the broader issue, it's absurd to think that Powell can reduce covid related price rises for petrol, groceries, consumer goods, etc - wrongly referred to as "inflation" - by raising interest rates. He knows it and is resisting.....
Generally speaking I think you're spot-on about the inflation "truthers" and it's important to point out how wrong they've been - about inflation, policy, austerity, etc.
That said, QE has almost certainly led to "asset" inflation (possibly even hyperinflation) - stocks, bonds, art, NFTs, crypto, etc. This does seem quite relevant both from an economic perspective and also its sociological effects. Let's not pretend QEforever hasn't at least helped create a billionaire class and a world full of insufferable tech VCs. And inasmuch as this very well could be planting the seeds to the next crisis, and clearly has significant political effects - this seems worth some analysis as well no?
"created a billionaire class and a world full of tech VCs" yeah, exactly like the elimination of aristocracy and clergy as legally distinct classes created a world full bourgeois types. Still, worth it.
What this comment misses is that the only channel through which QE could have helped VC or stocks is by lowering the baseline returns. Of course if you cannot park your money in some super safe asset and make money just because you have money, you will be willing to tolerate some more risk. That's just substitution effect applied to financial instruments, if we imagine opportunity cost to be the price.
So sure, Elon Musk or crypto billionaires or Peter Thiel, or anybody who was offering something extremely risky, probably benefitted from QE.
The point is that no matter how little you like those figures, it's still better to have some "random rich" than an high baseline interest rate.
Yep. You can imagine a dollar making its way through its cycles, multiplying itself per various theories, and as long as it stays in the financial sector, it's lauded as "growth". But if people start talking about consumers being pissed off, then we are on the road to serfdom.
But there's some grain of truth to these claims right? Sure, Bitcoin fetishists are full of shit, but there's something going on here. I think many of us experience inflation higher than the given numbers. Not because those numbers are wrong, but because it's an aggregate average.
In my city, for instance, rent has risen much more than 6%, which is the bulk of my spending. Meanwhile, though technology prices have fallen adjusted for quality, I don't really care about the increase in quality; 2015 computers would have been fine for Substack and Reddit. On the other hand, the spike in gas prices has barely touched me, since I don't drive much.
So I wonder if part of this just comes from the issue of aggregation. The median family income may be 60k, but some people are homeless and some people are Elon Musk.
In short, I think these truthers arise because some people are simply seeing way more than a 6% increase in their cost of living.
> But there's some grain of truth to these claims right?
No, not as I see it.
It's not the case that mainstream institutions like the Bureau of Labor Statistics allege no inflation, while Shadowstats and Chapwood Index Guy merely point out that there is inflation.
It's not the case that the BLS et al. deny that inflation's unusually high, while Shadowstats et al. merely point out that it is.
The mainstream position is explicitly that inflation is not only present but unusually high, which encompasses the true & verifiable parts of what Shadowstats et al. claim. I don't see what additional "grain of truth" is brought to the table when Jack Dorsey tweets unsourced blather about a pre-Reagan inflation methodology, Shadowstats adds an arbitrary offset to official inflation data, and Chapwood Index Guy hasn't updated his what-his-friends-buy index in years.
It's true that a national inflation index won't, in general, fit one's individual consumption basket. That's because it's impossible for one index to represent every individual person when different people consume different baskets. The honest solution would be to use price measurements for a basket that better represents oneself, and to be frank about that less ambitious index. It isn't honest to suggest that one's own opaque index is the REAL one true index.
I mean, it's not that food weights as much as funko pops in the CPI either. The distance between your perception and indexes looks to me much more connected to biases (that all people have, not just you) than to some flaw in datas.
I think I heard (1) person noticing how low the gas price was during the pandemic, but anybody I know was a bit upset of seeing the price rising afterwards. Even at the time when the price was just going back to the pre-pandemic level. Humans are just more prone at noticing things getting worse than things getting better.
I do not care much about Inflation, this can be adjusted. I look at the production of goods and services in the economy. If the capacity to produce goods and services diminishes then we have a big problem and Inflation is a serious symptom.
I worry about people trading crypto rather than working to produce goods. Frankly I see almost no good ending for crypto. Yes, bring the heat from the heavily invested suicide pact crypto mafia, it will not matter, the ending is inevitable. Yes I was savaged when I predicted years ago that Napster was not sustainable, everyone was telling me I am an idiot, how could anyone put that genie back in the bottle, I am a luddite curmudgeon of the worst kind, get out of the way grandpa. Well I will make a new prediction, crypto, as it currently exists is unsustainable. Government will need to kill it to maintain order and authority.
I am largely in favor of financial innovation ( blockchain underpinnings ), and increasing services in that sector is going to continue and grow, but on this specific invention crypto ( uncontrolled distributed currency ) the answer is no, it will fail, but you can make a lot of money until the lights go out, so just get your timing right.
At least Napster had some positive impacts. It started a ten-year-long 'golden age of piracy' - first Napster, then a slew of successors. Attempts to quash piracy through legal means all failed, and forced the entertainment industry to innovate and adopt new online, low-priced distribution channels - an idea that had previously met with very heavy resistance from that industry. For well-founded reasons: A fear that digital goods would have a lower perceived value. People might pay $20 for a CD, but they wouldn't pay $20 to download it. Without Napster there would have been no iTunes, Steam, Netflix or Spotify. The period of rampant copyright infringement was a period of transition.
And what is crypto-currency bringing us a transition to? Nothing. It's a big joke. You can't run the whole world economy on crypto-currency - the networks already strain to keep up with just the transactions of speculators. Every cryptocurrency has an exchange rate bouncing like an orgy on a trampoline. On top of that, you are right: Government action could stamp it out with ease. The only reason that hasn't happened is that crypto-currency is not seen as a threat. It's too volatile to even use for simple tax evasion!
Just because the CPI says 6%, doesn't mean that's the actual rate of inflation (especially in an era of accelerating technological progress). Imagine we became 10% more technologically efficient, we would expect prices to decrease by 10% which would make everyone's life 10% cheaper.
So when we say we have 6% inflation, the rate of "deflation" is hidden. So if we were supposed to have deflation of 10% (due to technological progress), and instead we had inflation of 10%, it means that true inflation was 16%.
This is pernicious for multiple reasons — mainly because it pumps asset prices of rich people, and raises the cost of goods for poor people (instead of allowing the price of goods to drop).
But even if we think about 2% innovation coupled with 2% CPI, that means that consumers are losing 4% in purchasing power per year. In 10 years that means their savings will buy them ~50% fewer goods.
And if inflation is 6% (+2% in technological innovation), you lose ~60% over 10 years. Those are pretty big numbers imo.
Dude, as much as I like counterfactuals as a theoretical instruments, you just can't say that actual inflation (or actual anything really) is the difference between current year reality and past year in your counterfactual.
Otterwise I can make up a just so story of why the civil unrest following government inaction during the pandemic would have led to complete economic collapse and Weimar-like inflation, thus the actual inflation should be 6-200= - 194. You see it's not tenable in any way?
It's not theoretical at all. If we agree that innovation causes deflationary pressure, we can logically conclude that real inflation = CPI + Deflation from Innovation.
The numbers I used were just examples — obviously, we can't figure out what the deflationary numbers are because they are invisible to us.
My only point is that regular people should receive the benefit of innovation (in the form of lowered prices), but because of inflation, they don't.
I guess you could disagree with this if you think that there is no deflation from innovation, but I doubt you would make that argument.
Strawman much? This inflation truther thinks we’ve had a permanent (and regressive) increase in the price level despite the best attempts of our policy-making, “transitory truthers” to convince us otherwise.
The truth is simple: we pushed asset prices too high and sent too much money to people who didn’t need it (I know many “COVID windfall” stories among the wealthy). And instead of unwinding some of this we’d rather have everyone pay for it via a regressive inflation tax.
Where did you fathom that I was pro-inflation? 6% is obviously far too high, and needs to be lowered, and will be lowered via getting a handle on the supply chain issues which are causing shortages, and by dealing with other factors such as worker absences relating to the pandemic which have caused shortages and supply chain issues. And after that the Fed has ample tools to unwind, including reverse QE, and raising rates. This post is aimed at the continuing outgrowth of nonsense coming from, as you readily admit, fringe lunatics. Which includes people with millions of followers on Twitter such as Jack Dorsey, and Jordan B. Peterson.
Ok we can agree there is a degree of sensationalism out there. The only point I’ll cede to them is that the path to very bad inflation begins with a casual attitude towards high inflation, which is consistent with the behaviors of policy makers so far.
We’re beyond the supply shock phase at this point. In a true supply shock, prices of the affected goods would fall once was supply was restored, thus bringing the overall price level back to trend. No one is even pretending that’s the case now because we have exacerbated a supply shock with over-stimulus (and again, much of that stimulus went to people who didn’t need it, including via the asset pride channel).
Yes we have the tools to deal with inflation. But no, we’ve shown no inclination to use them. Policy makers remain in denial despite knowing their forecasts have consistently underpriced inflation. Trust us, they continue to say…
Hucksters predicting hyperinflation seems especially pernicious because inflation this high really is a problem by itself and people rightly or wrongly place less weight on inflation as a social problem when people lie to argue that it is a problem.
A 3 year-old article from Frances Coppola — a notable sufferer of Bitcoin Derangement Syndrome — which has been widely debunked? Please.
The Lightning network is growing extremely rapidly and is being used regularly for payments in various countries.
When the Wright brothers took flight many journalists and experts were still proclaiming that flight was impossible, and certainly not by those trumped up bicycle repairmen.
The best critiques of Bitcoin come from within the community. Consider taking a deeper look.
Frances Coppola has forgotten more about Bitcoin than Bitcoin 99.99% bros will ever know.
What is actually being used are centralised custodial ledgers. Lightning as originally envisaged as a decentralised second layer is being experimented with, but suffers from transaction failures, loss of coins, and all sorts of other problems. The correct solution, or at least the one with the highest chance of some kind of long-term viability was always to raise block size, but the Bitcoin community was taken over by clowns who had no issue with migrating transactions to centralised off-chain custodial systems. I know, I was a Bitcoiner before you were.
Well, setting aside Frances Coppola’s sieve-like galaxy brain, or how long I’ve been a bitcoiner (how would you know?) I’m now getting a good idea about your journey with bitcoin.
You decided that Bitcoin should scale as a payments network by expanding the size of blocks, thereby obtaining a (modest) increase in the number of transactions in given period. Unfortunately the small blockers won - thankfully - and by doing so ensuring that the Bitcoin network would remain people-controlled money and avoiding the disaster that would have entailed had the big blockers and miners gotten their way. The precedent that would have set would have led to repeated changes over the years, each leading to more and more centralization in the network, and control being exerted by those with the most money and influence. Not to mention bugs due to overly aggressive release schedules (you remember those with the big block forks, right??)
Things didn’t go your way in that battle, nor did lightning pan out the way you expected (custodial ledgers - aka payment channels, your point is?), so now you claim the whole system is broken, while it’s demonstrably working before our very eyes.
At this point, I struggle to imagine what it could possibly take to convince you to change your mind. ))
"Nobel-winning Card & Krueger minimum wage study which constructed a natural experiment from a policy change to test the hypothesis that raising the minimum wage would cause unemployment, and found that it did not." Their award have more to do with natural experiment methodology than the result. As for the result, it is wrong because it uses bad proxy of focusing the young and only the food service. A better experiment would be the Seattle imposed 15 dollar wage policy. Data was taken from the city statistics monitor to see the economy as a whole and it show significant unemployment. Hours was cut and the minimum wage worker work more jobs
One doesn't have to be an Austrian, or a libertarian, to be anxious about the monetary argument. Absent an increase in supply a spike in demand caused by excess specie, logically implies price inflation. While in 2008 that didn't happen, history gives us too many examples of very bad outcomes. The Weimar Republic, the entire west during the 1970s; yes these episodes can be explained away, still it seems to me the burden of proof doesn't fall on monetarists to prove why the current growth of money won't result in an inflationary shock -- didn't Friedman already do that in any case -- rather's it's upon the anti-monetarist to prove that it won't.
Austrian and related firms of economics function more as a religion than economic science. Specifically, it is a religion to"comfort the comfortable, and afflict the afflicted".
I suppose they're trying to pray God into existence since spooking enough people could fulfill their prophecies.
Praxeology sounds like the exact opposite of how economics should work. Humans are complex, so reasoning from principles won’t work and experiments are the only way that we can get a decent idea of how humans work in reality. If the first line of your proof is “assume humans are rational”, throw out the rest.
Exactly!
Just translate the premise to another discipline, say physics. *In principle*, you could solve any problem by starting with a fundamental sub-atomic model and tracing through the consequences using pure logic. But that only works for the simplest problems, not the hardest! For example, you wouldn't take that approach to predict human behaviour ...
It's funny you mention this. I was thinking of this example but in the complete opposite way. i.e., if you start with a fundamental particle you absolutely cannot know all the information about how it is going to behave but when you put a bunch of them together you can do some of the most accurate and thorough experiments and predictions humans have ever come up with.
No, manage the free market to avoid consequences of market failure. Fed Reserve + treasury are needed to spend money into existence, especially during market failure caused by pandemics and the climate change emergency. The idea that inflation is caused by these market emergencies is absurd; there is no loss of available resources or productive *potential* in the economy which would cause inflation.
Interestingly, MMT allows fiat currency-issuing governments to spend debt-free *public* money, on behalf of the welfare of citizens, when necessary (eg during market failures). OTOH, Bitcoin amounts to a *private sector* 'fiat currency' whose value derives from a Ponzi scheme, unlike the government's fiat currency whose value is derived from the nation's productive capacity.
It's an important part of economics. Human action is only partly rational. That's why so much advertising works. Just look at most adverts you see on TV. Does it say 'buy our product because it provides a higher cost-benefit ratio than the competition?' Sometimes it does, yes. But most often it says 'Buy our product because these super-hot models are having a great time with it, and you want to be like them.' And that sort of message works.
People are still citing Shadowstats after that excellent evisceration in 2013? I had forgotten about it. I figured the proponents would have all slunk off in shame.
One obvious problem with the Shadowstats numbers is that they imply that prices have increased sixfold in the past twenty years, and that clearly just isn't true. The apartment I rented for $800 in 2001 might rent for $2,000 now, but it definitely doesn't rent for $4,800. And that's without taking into account the low rate of inflation in manufactured goods.
This is a fair takedown of the inflation fringe. But reducing positions into two extreme camps is killing useful analysis.
Bitcoin is a terrible substitute for the current international monetary system. Yes, agree 100%. And also -- what's your short position?
The loudest inflation hawks are crazed astrologers. Yes, agree 100%. And also -- how long until the 10-Year Breakeven plateaus?
We should be able to raise an eyebrow at T10YIE's trajectory without being lumped in with Dorsey-ian econometrics. We should be able to say about Bitcoin "eh, the price is the price and I clearly don't fully understand all the ways people move money" without being dismissed as HODLers.
I saw the best minds of my generation destroyed by Twitter, dragging the goldbugs until dawn looking for an angry fix...
Noah's generally supported the long position on Bitcoin unless that's changed and has a nuanced body of work. I think this guest post was brought in specifically to debunk the loud weirdos because the loud weirdos need to be debunked.
My point was that by focusing on loud weirdos, we misread more nuanced arguments. We try to force them into oversimplified positions.
I'm a bit worried you then misread my point as just "long bitcoin!"
Happy to chalk part of that up to my own bad writing. But it really reinforces my original worry. Focusing on loud weirdos (who aren't really listening anyway) makes it harder for us to understand each other.
And I want to stress I don't even really disagree with John's conclusions, I just think he's overextending the arguments on the margins, and that lowers the likelihood they'll land with the people he's targeting.
Note: I deleted another version of this reply that was less charitable. Sorry if you read that one in an email.
I see your point. I think there's a big difference between who the audience is in a public debate. Is the audience the loud weirdos or those watching from the sidelines who haven't decided on their mental model of this topic yet. I think private, personal persuasion would look a lot different but there isn't a great venue for that online.
I suppose he made some strong rhetorical choices, but takedowns catch eyeballs because conflict is what catches eyeballs. I doubt I would have given this topic much thought if people weren't debating it. (Being off Twitter for the last few months probably made me a nicer person.)
I would just add that there's no need to put quotes around "money printing". QE is certainly money creation, and the technical point that the money is created digitally not on paper is not relevant to the "debate" over whether QE causes inflation. Rather there is a very simple explanation for when money creation idrives inflation and when it doesn't. When money creation funds increases in spending, it's inflationary. Inflation is driven by increased spending, not by increased money supply. That's empirically perfectly well established and it's also a very simple, obvious first principle, unless you're a charlatan or a fool. (Sorry for the garbled first post).
"Inflation is driven by increased spending"......only if the goods and services - which the created money is chasing - are not available for purchase.
Governments should only have paid - with 'printed' money - all essential bills during the pandemic lockdowns; but even so, there has been no loss of *potential* productive capacity during the pandemic, so any inflation is due to post pandemic market failure (caused by supply chain bottlenecks etc)
Re: "only if the goods and services - which the created money is chasing - are not available for purchase" - that's poorly put. One can generally assume that there's not infinite inventory sitting around. But of course both demand and supply are factors in inflation, and a simple version of the full equation is that spending increasing faster than supply equals inflation.
In developed economies like the US, governments don't control money creation, but they can print bonds which is very close to the same thing. During the pandemic they printed a lot of bonds, and central banks created a lot of money and bought a lot of those bonds. But all that bond and money creation merely kept the aggregate pace of spending growth roughly on recent trend.
"there has been no loss of *potential* productive capacity" Rubbish - there were huge losses of potential capacity, beginning with hundreds of millions of people staying home. In a modern economy capacity is constantly withering and growing anew at the same time, and a major trauma like the pandemic throws that all out of whack. The story differs from sector to sector and subsector to subsector - there are many businesses to this day still operating in skeleton crew bare survival mode hoping their clients will come back in full next spring. One cannot just walk away and shut down a business one day and turn it back on again another day at the same capacity one had when one shut it down without new investment.
Re "there has been no loss of *potential* productive capacity"...I deliberately emphasized the word *potential*, but you still failed to grasp the significance, which is that the unemployed (non-essential) workforce was still available when the lockdowns ended (and the idled machinery, schools, etc etc).
In fact J.Powell could have paid all the essential bills in a locked-down economy without buying bonds and without increasing government debt, nor increasing inflation after the lockdown was lifted. You wrote:
"In developed economies like the US, governments don't control money creation, but they can print bonds which is very close to the same thing".
Well yes, but it need not be the case, especially in cases of 'market failure' (sic) like pandemics or a global climate emergency. In these emergency cases sovereign currency-issuing governments should issue debt free money, to by-pass private sector 'market failure'., when market capitalism must be subsumed by a command economy, to save people's lives and/or the planet. I know the idea of a command economy to transition to green ASAP might offend your ideology, but the atmosphere certainly doesn't care about your ideology.
Tom2 hr ago
Re: "only if the goods and services - which the created money is chasing - are not available for purchase" - that's poorly put. One can generally assume that there's not infinite inventory sitting around. But of course both demand and supply are factors in inflation, and a simple version of the full equation is that spending increasing faster than supply equals inflation.
In developed economies like the US, governments don't control money creation, but they can print bonds which is very close to the same thing
I didn't ignore I contradicted with lengthy explanation.
On the broader issue, it's absurd to think that Powell can reduce covid related price rises for petrol, groceries, consumer goods, etc - wrongly referred to as "inflation" - by raising interest rates. He knows it and is resisting.....
You're off topic.
Generally speaking I think you're spot-on about the inflation "truthers" and it's important to point out how wrong they've been - about inflation, policy, austerity, etc.
That said, QE has almost certainly led to "asset" inflation (possibly even hyperinflation) - stocks, bonds, art, NFTs, crypto, etc. This does seem quite relevant both from an economic perspective and also its sociological effects. Let's not pretend QEforever hasn't at least helped create a billionaire class and a world full of insufferable tech VCs. And inasmuch as this very well could be planting the seeds to the next crisis, and clearly has significant political effects - this seems worth some analysis as well no?
"created a billionaire class and a world full of tech VCs" yeah, exactly like the elimination of aristocracy and clergy as legally distinct classes created a world full bourgeois types. Still, worth it.
What this comment misses is that the only channel through which QE could have helped VC or stocks is by lowering the baseline returns. Of course if you cannot park your money in some super safe asset and make money just because you have money, you will be willing to tolerate some more risk. That's just substitution effect applied to financial instruments, if we imagine opportunity cost to be the price.
So sure, Elon Musk or crypto billionaires or Peter Thiel, or anybody who was offering something extremely risky, probably benefitted from QE.
The point is that no matter how little you like those figures, it's still better to have some "random rich" than an high baseline interest rate.
So QE is on par with the bourgeois revolutions that swept Europe?
Yep. You can imagine a dollar making its way through its cycles, multiplying itself per various theories, and as long as it stays in the financial sector, it's lauded as "growth". But if people start talking about consumers being pissed off, then we are on the road to serfdom.
(If no one mentions inflation, does it exist?)
Or is this praexological thinking? ;)
But there's some grain of truth to these claims right? Sure, Bitcoin fetishists are full of shit, but there's something going on here. I think many of us experience inflation higher than the given numbers. Not because those numbers are wrong, but because it's an aggregate average.
In my city, for instance, rent has risen much more than 6%, which is the bulk of my spending. Meanwhile, though technology prices have fallen adjusted for quality, I don't really care about the increase in quality; 2015 computers would have been fine for Substack and Reddit. On the other hand, the spike in gas prices has barely touched me, since I don't drive much.
So I wonder if part of this just comes from the issue of aggregation. The median family income may be 60k, but some people are homeless and some people are Elon Musk.
In short, I think these truthers arise because some people are simply seeing way more than a 6% increase in their cost of living.
> But there's some grain of truth to these claims right?
No, not as I see it.
It's not the case that mainstream institutions like the Bureau of Labor Statistics allege no inflation, while Shadowstats and Chapwood Index Guy merely point out that there is inflation.
It's not the case that the BLS et al. deny that inflation's unusually high, while Shadowstats et al. merely point out that it is.
The mainstream position is explicitly that inflation is not only present but unusually high, which encompasses the true & verifiable parts of what Shadowstats et al. claim. I don't see what additional "grain of truth" is brought to the table when Jack Dorsey tweets unsourced blather about a pre-Reagan inflation methodology, Shadowstats adds an arbitrary offset to official inflation data, and Chapwood Index Guy hasn't updated his what-his-friends-buy index in years.
It's true that a national inflation index won't, in general, fit one's individual consumption basket. That's because it's impossible for one index to represent every individual person when different people consume different baskets. The honest solution would be to use price measurements for a basket that better represents oneself, and to be frank about that less ambitious index. It isn't honest to suggest that one's own opaque index is the REAL one true index.
I mean, it's not that food weights as much as funko pops in the CPI either. The distance between your perception and indexes looks to me much more connected to biases (that all people have, not just you) than to some flaw in datas.
I think I heard (1) person noticing how low the gas price was during the pandemic, but anybody I know was a bit upset of seeing the price rising afterwards. Even at the time when the price was just going back to the pre-pandemic level. Humans are just more prone at noticing things getting worse than things getting better.
I do not care much about Inflation, this can be adjusted. I look at the production of goods and services in the economy. If the capacity to produce goods and services diminishes then we have a big problem and Inflation is a serious symptom.
I worry about people trading crypto rather than working to produce goods. Frankly I see almost no good ending for crypto. Yes, bring the heat from the heavily invested suicide pact crypto mafia, it will not matter, the ending is inevitable. Yes I was savaged when I predicted years ago that Napster was not sustainable, everyone was telling me I am an idiot, how could anyone put that genie back in the bottle, I am a luddite curmudgeon of the worst kind, get out of the way grandpa. Well I will make a new prediction, crypto, as it currently exists is unsustainable. Government will need to kill it to maintain order and authority.
I am largely in favor of financial innovation ( blockchain underpinnings ), and increasing services in that sector is going to continue and grow, but on this specific invention crypto ( uncontrolled distributed currency ) the answer is no, it will fail, but you can make a lot of money until the lights go out, so just get your timing right.
At least Napster had some positive impacts. It started a ten-year-long 'golden age of piracy' - first Napster, then a slew of successors. Attempts to quash piracy through legal means all failed, and forced the entertainment industry to innovate and adopt new online, low-priced distribution channels - an idea that had previously met with very heavy resistance from that industry. For well-founded reasons: A fear that digital goods would have a lower perceived value. People might pay $20 for a CD, but they wouldn't pay $20 to download it. Without Napster there would have been no iTunes, Steam, Netflix or Spotify. The period of rampant copyright infringement was a period of transition.
And what is crypto-currency bringing us a transition to? Nothing. It's a big joke. You can't run the whole world economy on crypto-currency - the networks already strain to keep up with just the transactions of speculators. Every cryptocurrency has an exchange rate bouncing like an orgy on a trampoline. On top of that, you are right: Government action could stamp it out with ease. The only reason that hasn't happened is that crypto-currency is not seen as a threat. It's too volatile to even use for simple tax evasion!
Just because the CPI says 6%, doesn't mean that's the actual rate of inflation (especially in an era of accelerating technological progress). Imagine we became 10% more technologically efficient, we would expect prices to decrease by 10% which would make everyone's life 10% cheaper.
So when we say we have 6% inflation, the rate of "deflation" is hidden. So if we were supposed to have deflation of 10% (due to technological progress), and instead we had inflation of 10%, it means that true inflation was 16%.
This is pernicious for multiple reasons — mainly because it pumps asset prices of rich people, and raises the cost of goods for poor people (instead of allowing the price of goods to drop).
That’s only relevant if we expect 10% innovation in a single year, which seems absurdly high. I’d expect it to be much closer to 1-2%.
Yeah, that was just a hypothetical example.
But even if we think about 2% innovation coupled with 2% CPI, that means that consumers are losing 4% in purchasing power per year. In 10 years that means their savings will buy them ~50% fewer goods.
And if inflation is 6% (+2% in technological innovation), you lose ~60% over 10 years. Those are pretty big numbers imo.
Dude, as much as I like counterfactuals as a theoretical instruments, you just can't say that actual inflation (or actual anything really) is the difference between current year reality and past year in your counterfactual.
Otterwise I can make up a just so story of why the civil unrest following government inaction during the pandemic would have led to complete economic collapse and Weimar-like inflation, thus the actual inflation should be 6-200= - 194. You see it's not tenable in any way?
It's not theoretical at all. If we agree that innovation causes deflationary pressure, we can logically conclude that real inflation = CPI + Deflation from Innovation.
The numbers I used were just examples — obviously, we can't figure out what the deflationary numbers are because they are invisible to us.
My only point is that regular people should receive the benefit of innovation (in the form of lowered prices), but because of inflation, they don't.
I guess you could disagree with this if you think that there is no deflation from innovation, but I doubt you would make that argument.
Made a typo— deflation of 10% + inflation of 6% = real inflation of 16%
Strawman much? This inflation truther thinks we’ve had a permanent (and regressive) increase in the price level despite the best attempts of our policy-making, “transitory truthers” to convince us otherwise.
The truth is simple: we pushed asset prices too high and sent too much money to people who didn’t need it (I know many “COVID windfall” stories among the wealthy). And instead of unwinding some of this we’d rather have everyone pay for it via a regressive inflation tax.
Didn't you just re-assert the thing being disagreed with?
I don’t believe in hyperinflation nor shadow stats nor any other inflation sensationalism.
I do believe while the pro-inflation crowd spends their time debating fringe lunatics, the weakest among us are being hurt by todays inflation.
Where did you fathom that I was pro-inflation? 6% is obviously far too high, and needs to be lowered, and will be lowered via getting a handle on the supply chain issues which are causing shortages, and by dealing with other factors such as worker absences relating to the pandemic which have caused shortages and supply chain issues. And after that the Fed has ample tools to unwind, including reverse QE, and raising rates. This post is aimed at the continuing outgrowth of nonsense coming from, as you readily admit, fringe lunatics. Which includes people with millions of followers on Twitter such as Jack Dorsey, and Jordan B. Peterson.
Ok we can agree there is a degree of sensationalism out there. The only point I’ll cede to them is that the path to very bad inflation begins with a casual attitude towards high inflation, which is consistent with the behaviors of policy makers so far.
We’re beyond the supply shock phase at this point. In a true supply shock, prices of the affected goods would fall once was supply was restored, thus bringing the overall price level back to trend. No one is even pretending that’s the case now because we have exacerbated a supply shock with over-stimulus (and again, much of that stimulus went to people who didn’t need it, including via the asset pride channel).
Yes we have the tools to deal with inflation. But no, we’ve shown no inclination to use them. Policy makers remain in denial despite knowing their forecasts have consistently underpriced inflation. Trust us, they continue to say…
Hucksters predicting hyperinflation seems especially pernicious because inflation this high really is a problem by itself and people rightly or wrongly place less weight on inflation as a social problem when people lie to argue that it is a problem.
“[bitcoin] adding additional layers with lower transaction fees have so far proven fruitless”
Gave up on the article after reading this line.
lightning network doesn't work properly, it never has, and it's fundamentally flawed.
https://www.coppolacomment.com/2018/01/probability-for-geeks.html
A 3 year-old article from Frances Coppola — a notable sufferer of Bitcoin Derangement Syndrome — which has been widely debunked? Please.
The Lightning network is growing extremely rapidly and is being used regularly for payments in various countries.
When the Wright brothers took flight many journalists and experts were still proclaiming that flight was impossible, and certainly not by those trumped up bicycle repairmen.
The best critiques of Bitcoin come from within the community. Consider taking a deeper look.
Frances Coppola has forgotten more about Bitcoin than Bitcoin 99.99% bros will ever know.
What is actually being used are centralised custodial ledgers. Lightning as originally envisaged as a decentralised second layer is being experimented with, but suffers from transaction failures, loss of coins, and all sorts of other problems. The correct solution, or at least the one with the highest chance of some kind of long-term viability was always to raise block size, but the Bitcoin community was taken over by clowns who had no issue with migrating transactions to centralised off-chain custodial systems. I know, I was a Bitcoiner before you were.
Well, setting aside Frances Coppola’s sieve-like galaxy brain, or how long I’ve been a bitcoiner (how would you know?) I’m now getting a good idea about your journey with bitcoin.
You decided that Bitcoin should scale as a payments network by expanding the size of blocks, thereby obtaining a (modest) increase in the number of transactions in given period. Unfortunately the small blockers won - thankfully - and by doing so ensuring that the Bitcoin network would remain people-controlled money and avoiding the disaster that would have entailed had the big blockers and miners gotten their way. The precedent that would have set would have led to repeated changes over the years, each leading to more and more centralization in the network, and control being exerted by those with the most money and influence. Not to mention bugs due to overly aggressive release schedules (you remember those with the big block forks, right??)
Things didn’t go your way in that battle, nor did lightning pan out the way you expected (custodial ledgers - aka payment channels, your point is?), so now you claim the whole system is broken, while it’s demonstrably working before our very eyes.
At this point, I struggle to imagine what it could possibly take to convince you to change your mind. ))
"Nobel-winning Card & Krueger minimum wage study which constructed a natural experiment from a policy change to test the hypothesis that raising the minimum wage would cause unemployment, and found that it did not." Their award have more to do with natural experiment methodology than the result. As for the result, it is wrong because it uses bad proxy of focusing the young and only the food service. A better experiment would be the Seattle imposed 15 dollar wage policy. Data was taken from the city statistics monitor to see the economy as a whole and it show significant unemployment. Hours was cut and the minimum wage worker work more jobs
Does the CPI include the cost of buying bitcoin? That stuff has gone up in price more than prime rib.
One doesn't have to be an Austrian, or a libertarian, to be anxious about the monetary argument. Absent an increase in supply a spike in demand caused by excess specie, logically implies price inflation. While in 2008 that didn't happen, history gives us too many examples of very bad outcomes. The Weimar Republic, the entire west during the 1970s; yes these episodes can be explained away, still it seems to me the burden of proof doesn't fall on monetarists to prove why the current growth of money won't result in an inflationary shock -- didn't Friedman already do that in any case -- rather's it's upon the anti-monetarist to prove that it won't.