[HN Gopher] The Importance of Price Signals
___________________________________________________________________
The Importance of Price Signals
Author : jger15
Score : 133 points
Date : 2021-12-26 12:45 UTC (10 hours ago)
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| kqr wrote:
| I agree with the general sentiment in this article. Price as a
| mechanism to coordinate supply and demand is underappreciated by
| the general public. You can use it to control the level company-
| internal resources are used so it stays within reasonable bounds
| and doesn't grow a huge backlog.
|
| You can even use a price to make distributed, globally optimal
| decisions on product decision. If e.g. time to market is a scarce
| resource in your project, you can tell everyone that if they can
| reduce time to market without costing the project budget more
| than $x/week saved, they need no permission to adjust the
| requirements -- they should just go ahead and do it. (Boeing used
| this except for a weight problem with one of their models.)
|
| I have but one quibble: the first point starts out true but then
| does a correlation-is-causation error right after that.
|
| > 1) Broad money supply and price inflation are rather
| correlated.
|
| > The most precise way to phrase it is that rapid money supply
| growth is necessary but not sufficient to cause widespread price
| inflation.
|
| The alternative perspective here is that obviously money supply
| and inflation is correlated, but for exactly the opposite reason:
| when prices go up without real values changing, people are still
| going to need the same real stuff, so banks and governments will
| print more money so people can afford the things they need.
|
| In other words, money supply could be a symptom of inflation as
| much as a cause.
| Proven wrote:
| JohnJamesRambo wrote:
| We play Monopoly. Suddenly the bank gives everyone 40% more
| money. What happens to the prices for owned properties and
| houses?
|
| We play Monopoly. Suddenly everyone wants 40% more money for
| their owned properties and houses. No one has any more money to
| pay for these items.
|
| Which of these two scenarios seem more likely to cause
| inflation?
|
| For more info about which we are seeing, this is a great
| summary from Bridgewater.
|
| https://www.bridgewater.com/its-mostly-a-demand-shock-not-a-...
| throw0101a wrote:
| > _We play Monopoly. Suddenly the bank gives everyone 40%
| more money. What happens to the prices for owned properties
| and houses?_
|
| Nothing if it just sits around, which is what is generally
| happening in the real world:
|
| * https://fred.stlouisfed.org/series/M2V
|
| Please stop with the Monetarism: there is no empirical
| evidence for it, no matter how 'intuitive' you think it is.
|
| > _But also - why do so many people insist that inflation is
| an increase in the money supply? This makes zero sense.
| Here's why - our economy is mostly a credit based economy.
| So, if I take out a loan for $100,000 then the money supply
| has technically increased by $100,000. But what if I don't
| actually tap that loan? What if I borrow the money because,
| for instance, house prices just went up 25% and I want to
| have some cash around for emergencies? This doesn't tell us
| anything about prices, living standards or really anything.
| But this is what so much of the money supply represents -
| money that has been issued and is just sitting around unused.
| Why is this useful? It's like calculating your weight changes
| by counting how much food you have in your refrigerator. No.
| That's potential calories consumed and potential weight gain.
| The amount of food in your fridge tells you little about your
| future weight changes just like the amount of money in the
| economy tells us little about the actual price changes in the
| economy._
|
| > _Sometimes I feel like people read some econ 101 and the
| admittedly intuitive idea that inflation is "always and
| everywhere a monetary phenomenon", but didn't stop to think
| that it might be a lot more complex than that._
|
| * https://www.pragcap.com/three-things-i-think-i-think-i-
| see-d...
|
| * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1799102
|
| Edit: Regarding the downvotes, it doesn't change what the
| evidence has been saying for a few decades:
|
| * https://www.longtermtrends.net/m2-money-supply-vs-
| inflation/
|
| > _So why did the monetary base increase not cause a
| proportionate increase in either the general price level or
| GDP? The answer lies in the private sector's dramatic
| increase in their willingness to hoard money instead of spend
| it. Such an unprecedented increase in money demand has slowed
| down the velocity of money, as the figure below shows._
|
| * https://www.stlouisfed.org/on-the-
| economy/2014/september/wha...
|
| > _Similar analysis on the eurozone reflects the same trend:
| Central bank money printing is largely irrelevant to money
| supply and inflation._
|
| * https://blogs.cfainstitute.org/investor/2021/04/19/myth-
| bust...
|
| What people should _really_ be asking is: why is (has)
| velocity (been) dropping? One hypothesis I 've heard is
| wealth inequality: if the top _x_ % has most of the money,
| then it's probably just sitting around collecting
| interest/dust and not circulating.
| js8 wrote:
| Except according to (neoclassical) economic theory, real
| economy is not like Monopoly. In real economy, you can have
| capital investment (or lack of it), which changes how much
| real production you have (in Monopoly, this is fixed by the
| amount of houses available).
|
| So whether increase in money supply causes inflation depends
| on whether you can increase the production. If it is possible
| to increase production, the inflation should happen only
| temporarily, as the extra money from the demand will get
| reinvested. This should cause the supply to catch up and
| prices to fall back again.
|
| However, I think the current social inequality complicates
| the situation a bit. If the investors know that the increase
| in money supply is only temporary, and the money from the
| demand will again very quickly end up in the hands of the few
| (in increase of asset prices), there is no real incentive to
| invest and increase production, because who will consume, if
| the extra demand is only temporary? This seems to me like a
| marxian trap of too low rate of profit (at least for the
| typical consumer goods).
|
| The general problem with the broad macroeconomic indicators
| (such as inflation) is that they completely ignore the
| different classes in society. Unfortunately, the mode
| american economy is in now (where 50% of it is owned by only
| a small number of people), this becomes much more relevant.
| ethanbond wrote:
| Land is finite in both Monopoly and in real life. This is
| actually what Monopoly was designed to communicate to
| players. It pisses players off and turns them against each
| other because it was designed to.
| candiodari wrote:
| Land might be finite but we're nowhere near its limits. I
| once read that you could easily fit every human building
| ever built in a 10km stretch of the Grand Canyon. So
| let's carefully say we can have 1e9 times the number of
| buildings we have now.
| BirdieNZ wrote:
| Desirable locations are finite, though. People want to
| live near jobs, infrastructure, amenities, their friends
| and family. There is limited supply of locations that are
| near to those things, so land functions as a monopoly.
| remram wrote:
| Isn't that second one already literally inflation?
| photochemsyn wrote:
| You should consider another option not possible in Monopoly:
| what if 25% of the properties are removed from the playing
| board?
|
| For a concrete example, consider the debate over what caused
| the recent spike in vehicle fuel prices. Was it the Fed's QE
| policy? Was it a spike in demand by consumers? Was it a
| deliberate reduction in supply by the crude oil producers and
| refinery operators?
|
| For the third option, note that in 2015 the US government
| lifted the ban on the export of crude oil from the United
| States. In 2020, several major refineries were closed down.
| As a result more crude oil (produced by fracking) is being
| exported to global markets, and less gasoline is being
| refined in the US. This is a pretty good explanation for the
| spike in gas prices. This view is loudly condemned by the
| corporate media, Wall Street, and the fossil fuel
| corporations... for reasons that should be obvious. They'll
| instead try to blame restrictions on the import of dirty
| Canadian tar sands oil for the rise in prices, while
| deliberately ignoring the 2015 crude oil export law and the
| refinery closures.
| 01100011 wrote:
| How correlated is the rise in US gas prices with the rise
| in commodity oil prices? If the US gas price rose
| independently of international crude prices then I think
| you'd have a point. I don't know, I'm just curious.
|
| I seem to remember hearing that a lot of US crude
| production went offline during 2020 because the falling
| price of oil made it uneconomical. With the rise in crude
| prices, maybe it's back now, but I don't know if production
| can scale as quickly as oil prices. In any case, I think it
| would be hard to argue that fed printing did not at least
| significantly contribute to the rise price of nearly every
| commodity.
| photochemsyn wrote:
| It's very easy to argue that Fed QE (aka 'money
| printing') had nothing to do with current inflation, just
| look at when the QE boom began, i.e. right after the
| 2008-2009 subprime-mortgage-fraud-triggered collapse.
| Inflation wasn't an issue througout the decade after
| that, it wasn't even mentioned in the analysis of QE at
| the time (2014) [1] nor does it show up in the data until
| this year[2]:
|
| [1] https://www.bbc.com/news/business-29227597
|
| [2]
| https://www.usinflationcalculator.com/inflation/current-
| infl...
|
| So if the Fed dumping $4 trillion into the economy from
| 2009-2014 didn't jack up inflation then, what's the
| argument now? Sounds more like a basic supply and demand
| issue due to frail global supply chains, plus
| monopolistic price manipulation by centralized power in
| corporate America.
| 01100011 wrote:
| Perhaps Fed QE, with artificial suppression of lending
| rates(if I understand it correctly), was akin to leaving
| kindling around, but without the spark of a global supply
| panic, there wasn't a sure bet for traders to leverage.
| Once it seemed clear that prices were heading upwards due
| to supply shocks, it was a no-brainer to use the cheap
| money and drive up the prices of assets even further.
|
| I'd also add that the helicopter stimulus from the
| government probably helped goose asset prices as well.
|
| I don't know... if you listen to some folks, QE is
| deflationary because it traps money in the financial
| system. I'll say that I personally pulled most of my
| money out of the market in late 2019 because I already
| thought we were due for a correction. It seemed like,
| while it took a few years, asset prices were already
| climbing before COVID hit. The lack of inflation could be
| explained by increasing globalization and overall anemic
| economic growth(which is one piece of evidence used by
| the "QE is deflationary" crowd).
| kqr wrote:
| If you play monopoly with house rules that make it more
| similar to a real mix of sovereign economies, surely the
| latter. (Source: I have played with such house rules. Yes, it
| gets more interesting than vanilla monopoly. Yes, that's how
| inflation happens in those games. One bank has never, so far,
| suddenly decided to give people money they don't need (that
| sounds like financial suicide). External events, however,
| have caused changes in demand for one bank currency which
| forces that bank to lend more money.)
| wallacoloo wrote:
| so... what are these house rules?
| kqr wrote:
| The core of it is free banking: anyone who wants to can
| produce their own currency and manage it however they
| want. The exchange rate to the standard monopoly currency
| is determined by the market.
|
| Another major element (though more common in house rules)
| is that arbitrary agreements between players are allowed,
| enforced only by one's honour.
|
| (These rules probably only work when sort of the same
| group of people play multiple sessions.)
| steelstraw wrote:
| Also don't we know in this case that the bank increased the
| supply by 40% first? Inflation followed, as you would expect
| when there are drastically more money units competing for
| goods and services (combined with fewer goods/services as a
| result of shut downs).
|
| I don't get all the mental gymnastics around this.
| kqr wrote:
| Could it be the case that banks end up lending more not
| only in response to increased prices, but also in when
| there are expectations of future increased prices?
|
| The only mental gymnastics I don't get are the ones where
| one pretends the market is simple and ultimately controlled
| by one entity. It's not.
| hnuser847 wrote:
| The base money supply has more than doubled since
| February 2020, and the M1 money stock has more than
| quadrupled since then. Any one with half a brain knew the
| "transitory inflation" claim was pure propaganda.
| ldoughty wrote:
| Add 2 new players to the game after all but 2 properties are
| claimed... See how that works out :-)
| Geee wrote:
| > The alternative perspective here is that obviously money
| supply and inflation is correlated, but for exactly the
| opposite reason: when prices go up without real values
| changing, people are still going to need the same real stuff,
| so banks and governments will print more money so people can
| afford the things they need.
|
| Clearly untrue. It can be reasoned from first principles that
| expanding money supply leads to rising prices. Furthermore, if
| governments answered price inflation by expanding money supply
| even more, it would lead to hyperinflation.
| kqr wrote:
| Similarly, it can be reasoned from first principles that any
| other cause of a decreased demand for a currency leads to
| rising prices. I'm not disregarding one explanation in favour
| of others, I'm just saying that what I've seen in terms of
| evidence for the default explanation is far from conclusive
| as far as I can tell.
|
| More lending in response to inflation _does_ sometimes lead
| to hyperinflation! That 's how little Weimar and his printing
| press got into such a pickle. But in the presence of other
| corrective feedback loops, it doesn't have to.
| hirundo wrote:
| "Inflation is always and everywhere a monetary phenomenon in
| the sense that it is and can be produced only by a more rapid
| increase in the quantity of money than in output." -- Milton
| Friedman
|
| If you can accept this, inflation becomes a lot less
| mysterious.
| nabla9 wrote:
| Friedman's model is now considered false, or at least only
| very conditional. It fits only certain economies.
|
| Is Inflation Always and Everywhere a Monetary Phenomenon?
| https://www.jstor.org/stable/3441104
|
| >The relation between long-run inflation and the money growth
| rate is not proportional. The strong link between inflation
| and money growth is almost wholly due to the presence of
| high- (or hyper-) inflation countries in the sample. The
| relationship between inflation and money growth for low-
| inflation countries (on average less than 10% per annum over
| the last 30 years) is weak.
| __blockcipher__ wrote:
| The part you quoted doesn't seem to address the output half
| of Friedman's statement, repeated here for convenience:
|
| > can be produced only by a more rapid increase in the
| quantity of money than in output
| rowanajmarshall wrote:
| Surely inflation can also be caused by a rapid decrease in
| the quantity of goods e.g. production moved to weaponry in
| wartime, blockades, natural disasters, strikes, pandemic
| shutdowns? Same money, chasing fewer goods.
| DasIch wrote:
| If Milton Friedman were right with this statement, then the
| increasing money supply since 2008 due to the actions of the
| Fed, ECB and BoE would imply that since then we've seen
| either a massive increase in economic output or inflation.
|
| Neither of those things happened and as a consequence we can
| conclude that Friedman was wrong about this.
| G3rn0ti wrote:
| > then we've seen either a massive increase in economic
| output or inflation.
|
| No, there wasn't a massive increase in economic output nor
| a hyperinflation. But there was an asset price inflation.
| World wide we saw a surge of housing prices (in US, China
| and Europe -- where money supply grew phenomenally over the
| years), booming financial markets and a massive price
| increase of cryptographic money. So much of the growing
| monetary supply was being absorbed by those markets. But
| now the time has come where the all the additional money
| starts having an effect on the price of everyday items.
|
| So contrary to what you _want_ to believe, Milton Friedman
| turns out to be right ... again.
| DasIch wrote:
| Demand for housing in Europe is also huge as people move
| towards cities and supply hasn't caught up and struggles
| to catch up due to regulation and NIMBYism. This
| naturally leads to an increase in prices. The price
| changes of everyday items right now can be explained with
| effects from the pandemic.
|
| Perhaps you are right and there is indeed a tipping point
| and we've crossed that point. Time will tell however
| people have also claimed we'd reach that tipping point
| any moment for the last 10 years or so, claiming Friedman
| was right because of the effects we now has strong broken
| clock vibes. Perhaps that's genuinely the case but it's
| still way too early to make that call.
| deepnotderp wrote:
| Except _CSI_ across the board has increased incredibly
| fast compared to historical trends since 2000 ish, not
| just in cities.
|
| EDIT: I meant CSI, Case-Schiller Index, for house prices,
| a tragic typo XD
| DasIch wrote:
| The BLS has a page that shows the CPI over the last 20
| years[1]. Looks perfectly fine over that timeframe. Some
| ups and downs as one would expect but generally on
| target.
|
| [1]: https://www.bls.gov/charts/consumer-price-
| index/consumer-pri...
| deepnotderp wrote:
| I meant CSI haha, that was a bad typo
| roenxi wrote:
| Friedman would still on logically safe ground. The quote
| says [Inflation -> Monetary policy]. Logically, monetary
| policy may not necessarily cause inflation.
|
| That isn't a pedantic point - if someone gave me 10
| trillion dollars and banned me from spending it, there
| would be no inflation. Or if I lent it all out to people
| buying assets, or "invested" it in government bonds.
| spaetzleesser wrote:
| We have seen a massive increases in stock and housing
| prices all over the world. I don't think that either
| companies have done multiple times better work over the
| last decade or that houses have improved several times.
| That should count as inflation.
| BurningFrog wrote:
| > _when prices go up without real values changing_
|
| So in your model, why does this happen?
|
| In the classic Friedman model it's because the money supply has
| increased. In your model, it just happens for no reason?
| kqr wrote:
| There are so many different reasons prices can change.
| Changes in availability of natural resources, changes in
| consumer demand, changes in the means of production, changes
| in technology.
|
| We know the market is complex and with cyclical components
| and resonances at various frequencies. We know of the
| feedback loops caused by expectations driving self-fulfilling
| prophecies. We know of its fractal and stochastic nature. We
| know it's almost never a simple cause-and-effect relationship
| -- rarely is a market participant strong enough to wrestle on
| even terms with everyone else.
| BurningFrog wrote:
| Individual prices change all the time for a zillion
| reasons.
|
| The _aggregate_ price level depends on the amount of
| circulating money. When gas prices go up, we have less to
| spend on other items, which then fall in price.
|
| Milton Friedman figured this out in the 50s, which led to
| his Nobel prize.
| kqr wrote:
| To be clear, in case I have made myself misunderstood: I
| agree money supply affects prices.
|
| In fact, whenever someone purchases or sells something,
| there are two objects being exchanged. One is a currency
| and the other being the object of sale. Supply and demand
| for the currency affects the price just as much as supply
| and demand for the thing being sold.
|
| That's all I'm saying. It's very hard to convincingly put
| a direction on quantities so tightly intertwined.
| BurningFrog wrote:
| I agree that it's a hard problem, but economists figured
| out most of it 60+ years ago!
|
| I don't mean to pick on you personally, but I don't know
| any other field where educated people are so happy to
| believe their hunches over the established science...
| kqr wrote:
| "Economists" disagree today, though, regardless of how
| strong their agreement was 60+ years ago. It seems unfair
| to the scholarly argument to pretend it's not there.
|
| Saying that economists figured it out is a bit like
| saying "doctors figured blood-letting out 200 years ago".
| As true as that may be, we know today whatever it was
| they figured out is complete garbage.
|
| What am I missing?
| BurningFrog wrote:
| If economists disagree about _this_ particular thing, I
| 've missed it.
|
| Which scholars are you referring to?
|
| Putting "Economists" in quotes and comparing them to
| blood letting doctors doesn't really shake my impression
| that you don't really respect this field of science :)
| kqr wrote:
| Thank you for holding me accountable. The ideas I refer
| to (as much sense as they make to me) do not, indeed,
| seem to have much support of mainstream economics.
| (Contrary to what I thought before you had me look it
| up.)
|
| I'm still not ready to write them off, in part because of
| the bias against professional economists you've already
| caught me exhibiting. But I can admit at this point that
| it's completely based on personal whim and not much
| actual substance, as long as the substance is determined
| by mainstream economics.
| BurningFrog wrote:
| Well, if you're going to be reasonable we'll have to stop
| arguing :)
|
| I'm a "hard science" guy. My degree is in physics and I
| work writing software. But last 1-2 decades I've found
| economics to be the most interesting science there is,
| since it makes me understand society much better than I
| used to.
| __blockcipher__ wrote:
| > In fact, whenever someone purchases or sells something,
| there are two objects being exchanged. One is a currency
| and the other being the object of sale. Supply and demand
| for the currency affects the price just as much as supply
| and demand for the thing being sold.
|
| This philosophy of viewing currency itself as subject to
| supply/demand is literally one of the insights that led
| to Friedman's philosophy. For example see the Great
| Depression where an insufficient supply of money was one
| of the primary factors.
|
| (See https://en.m.wikipedia.org/wiki/Causes_of_the_Great_
| Depressi...)
| jrexilius wrote:
| Except that the timing of those don't line up. Money supply
| increasing leads inflation, there are almost no instances of
| CPI increase leading inflation. [edit to add:] (except one very
| small blip at the beginning of recovery from the great
| depression)
| dragonwriter wrote:
| > there are almost no instances of CPI increase leading
| inflation
|
| CPI increase defines inflation, I think you mean monetary
| expansion, not inflation.
| jrexilius wrote:
| Yeah, typoed that. Thanks for pointing it out.
| dragonwriter wrote:
| > Broad money supply and price inflation are rather correlated.
|
| No they aren't. Consumer prices (inflation is the ratio of the
| first derivative of this to itself) and broad money supply might
| be, though charting them against each other that doesn't look
| particularly true beyond "both tend to increase over time".
| overton wrote:
| The argument starts that people who need gas more are going to
| buy it in the shortage (suggesting efficient distribution), and
| then acknowledges that it's just as likely wealthier people or
| price gougers who don't need it.
|
| In actual shortages where there's a strong political motivation
| to efficiently distribute goods (e.g. wartime), we switch to
| central planning (i.e. rations) because we know that's what
| works, denying price gougers their tax and making sure poor
| people who need stuff can get it.
| skybrian wrote:
| Alternatively, the government makes advance purchase agreements
| because it's that important, and this has nothing to do with
| denying manufacturers their profits. (Covid vaccines.)
| inglor_cz wrote:
| "efficiently"
|
| This is the weasel word.
|
| In war, especially a war of national survival, one can argue
| that winning the war is _the_ important cause and all others
| are of secondary importance. So you can actually use the word
| "efficient" about distribution of goods without first
| discussing the _ends_ of said distribution. The main end is
| simply to win, or at least not to lose catastrophically.
|
| In peacetime, there isn't a single primary objective, but a
| multitude of smaller, competing ones. Once you start speaking
| of "efficient distribution of goods", you imply existence of a
| ladder of importance on which these objectives are sorted.
|
| An example: is it more efficient if Peter and Paul have one car
| each or if Peter has two cars and Paul has none? Well, it
| depends what they do with them, no? What if Paul is legally
| blind and cannot drive? (But radicals might still argue that
| Peter having two cars is a big no-no because it increases
| inequality.)
| overton wrote:
| Sue me, I have whatever concept of efficiency that means that
| people eating and having housing and having a habitable
| environment is more important than NFT's or space tourism or
| car collections. That's my ladder of importance. So weasely!
| inglor_cz wrote:
| That ladder of importance isn't as simple as you present
| it.
|
| Having housing of which quality? What floor size per
| person? In what location? You can buy an entire empty house
| in depopulated Italian villages for 1 euro, which isn't a
| prohibitive cost for anyone, but there seem to be few
| takers [1].
|
| Is space tourism necessary for promotion of space research
| in general? What about the money it brings into various
| coffers? Maybe it contributes to having habitable
| environment in the future.
|
| As for eating, Coca-Cola and McDonalds are ready to drown
| the entire world in cheap sugary fast food. That probably
| isn't what you had in mind - this kind of eating will kill
| people slowly. Is it possible to feed 8 billion people just
| with organic food? Probably not either. Etc.
|
| [1] https://www.idealista.it/en/news/tags/1-euro-homes-
| italy/
| overton wrote:
| Heck, even private businesses often do a kind of ad-hoc
| rationing for essential goods when there's a rush on them,
| because they know that the kind of arbitrage free-for-all
| described in the article has extremely poor social outcomes in
| a crisis.
| roenxi wrote:
| > In actual shortages where there's a strong political
| motivation to efficiently distribute goods (e.g. wartime), we
| switch to central planning (i.e. rations)
|
| That is glossing over the fact that wartime is _miserable_ for
| the average consumer. Extreme central planning leads to
| horrible outcomes.
|
| Central planning in wartime has two motivations: 1. It allows
| tactical objectives to be met very quickly, at unreasonable
| cost. 2. Free markets are at heart anti-war, because war
| destroys capital and suppresses trade/investment, both bad
| outcomes for traders. So there needs to be a mechanism to
| suppress the markets and force it to make economically bad
| decisions.
|
| Wartime central planning has nothing to do with getting poor
| people what they need. It is more likely poor people will be
| purposefully starved drafting able bodied farmers into soldiers
| then making sure they have lots of food.
| kqr wrote:
| I might be in a more conspiratorial mood than usual, but isn't
| centralised rationing more about ensuring the government can
| take its cut before anyone else has a chance to place a bid?
| kaashif wrote:
| > In actual shortages where there's a strong political
| motivation to efficiently distribute goods (e.g. wartime), we
| switch to central planning (i.e. rations) because we know
| that's what works,
|
| There's a big difference between war and peace. Markets allow
| individuals, who do not necessarily have winning a war as their
| number one objective, to pursue their own objectives with their
| own demands, as communicated by prices.
|
| In war, there is a political motivation to override individual
| objectives and force everyone to serve the needs of the war
| effort above all, even if they don't particularly want to.
|
| Central planning isn't used in war because it's the most
| efficient way for every individual to achieve their own
| objectives, it's the opposite - central planning is the most
| efficient way to erase individual objectives in favor of a
| single overriding objective: winning the war.
|
| This isn't an argument in favor of price gouging, my point is
| that full-on central planning isn't a means to general
| prosperity, and that's not even _why_ everyone centrally plans
| during war. Central planning is about control and the erasure
| of individual freedom. Sometimes that 's needed in a war.
| Inefficiently pursuing one objective (the war) is more
| effective at winning a war than efficiently pursuing a whole
| range of objectives, most of which have nothing to do with war.
|
| The old socialist arguments about central planning being more
| efficient even during peacetime have been dead and buried for
| decades.
| marcosdumay wrote:
| The pricing mechanism is very good at ensuring people prepare
| for resource shortage (with storage or whatever) and avoid the
| worst part of it at all.
|
| There are still a few shortages one simply can't prepare for,
| but dismissing the entire mechanism due to a few very large
| scale emergencies that wold break any kind of normalcy isn't
| constructive.
| mmarq wrote:
| Inflation is always and everywhere a monetary phenomenon
|
| Inflation is always and everywhere a fiscal phenomenon
| echopurity wrote:
| lkrubner wrote:
| About this:
|
| " _When price inflation occurs, it can be a very challenging time
| for everyone. In that type of environment, prices of goods and
| services often go up faster than wages, and the public and
| policymakers wish to constrain them._ "
|
| Wages in the USA went up faster than inflation during the period
| 1893-1973, despite two long upwards trends in inflation,
| 1893-1920 and 1938-1973.
|
| Likewise, wages rose faster than inflation for most of the 1800s,
| though the 1800s didn't see many long-term inflationary trends.
|
| When you read an article like this one, it is worth remembering
| that the era 1973-1995, when inflation rose much faster than
| wages, is unique in USA history.
|
| Also, inflation rose faster than wages for most of the period
| from 2000-2015, even though this was an era of low inflation.
|
| So, when someone says high inflation will outrace the increase in
| wages, they are really just talking about 1973-1995.
|
| I've read many different theories about why the era 1973-1995 was
| so bad, and I don't think there is a definite answer, but there
| is wide agreement that two of the big contributing factors then
| were deindustrialization and the collapse of the labor unions. It
| seems unlikely that anything like deindustrialization is going to
| repeat itself now, as the USA has already lost all of the jobs
| that compete directly with low wage export industries.
| kilroy123 wrote:
| I'm a big fan of this theory:
|
| https://www.youtube.com/watch?v=1gEz__sMVaY
| wallacoloo wrote:
| > The Cardboard Box Reform - Nixon's Ghost Bill & A Crucial
| Flaw in Democracy
|
| video title, for those without a magic youtube url preview
| device.
| paulpauper wrote:
| _Commodity cycles and price inflation are tightly correlated._
|
| _Next we can follow that logic to look at commodities. This
| chart shows the 5-year rolling change in CPI vs oil prices:_
|
| https://www.lynalden.com/wp-content/uploads/price-signal-cpi...
|
| This is not a tight correlation at all. All the evidence she
| gives is weak.
| echopurity wrote:
| simon_000666 wrote:
| This is a nice story and makes rational sense. But the world is
| rarely rational, and I doubt that price signals behave any where
| near as logically or predictably as the author implies during the
| article. It reminded me of the classic 'beer distribution game'
| referenced in Peter Senge's - The fifth discipline of how delayed
| feedback loops in supply chains can amplify or mute signals
| traveling back through layers of producers due to lack of shared
| context and understanding.
| Wonnk13 wrote:
| I've seen this domain submitted in the last year or so. Who or
| what is Lynalden? Are they an economist, or a blogger, or both?
|
| Not that credentials are the be all end all, but what's different
| about this person vs anyone who's posting at SeekingAlpha, or any
| of the investing sub reddits?
| lottin wrote:
| She's not an economist. She's an engineer who taught herself
| economics. You can tell because she gets a lot of things wrong.
| carlineng wrote:
| > You can tell because she gets a lot of things wrong.
|
| That puts her in good company with pretty much all of the
| world's most respected economists.
| skybrian wrote:
| Most people can't tell. If you see something that's wrong, it
| might be helpful to point it out.
| lottin wrote:
| I agree, however her posts tend to be very long and if you
| starting pointing out all the mistakes that you find it can
| become tedious very quickly.
| hamiltonians wrote:
| how about 2 things she gets wrong
| steelstraw wrote:
| As an engineer, she's more bound by reality and reasons from
| first principles. I find that she's right more often than
| mainstream economists.
|
| Relevant example: They were surprised by non-transitory
| inflation, she was not. That's a huge miss by other
| economists.
| dragonwriter wrote:
| > As an engineer, she's more bound by reality and reasons
| from first principles.
|
| Reasoning from first principles (applying _a priori_ dogma)
| and being bound by reality (responding to empirical cues)
| are generally opposed, the exception is when the dogmas are
| laid down by people who are bound by reality.
|
| Much (but not all) engineering _work_ is bounded by reality
| inherently because there is quick and non-murky feedback
| when it is wrong; this is a feature of the work, not the
| worker. Engineers working in economics (and even moreso in
| economic punditry than actual policy, though it 's true
| either way) don't get that. And the available "first
| principle" dogmas they can choose to apply are either
| intentional pedagogical simplifications, poorly tested
| against reality by comparison to anything in most domains
| of engineering, or flatly falsified, often ideologically
| motivated, ideas.
| pepy wrote:
| ranks top 15% of public stock pickers
| lottin wrote:
| Economists don't pick stocks.
| baq wrote:
| Is there a law that forbids them to?
|
| An economist placing bets on the market puts money where
| their mouth is, so should just write whatever they think
| is true.
| AutumnCurtain wrote:
| She's very popular with the bitcoin crowd, tends to write
| respectable-looking articles legitimizing them. She's also
| quite a skilled self promoter. I assume that's why she gets so
| much attention, because her blog posts are usually pretty
| banal, basic stuff in my experience. Not the worst, but not
| particularly worthy of attention or praise, IMO.
| wallacoloo wrote:
| what are more interesting blogs you'd recommend that touch
| similar-ish topics to Lyn's?
| [deleted]
| jbay808 wrote:
| Price signals are an important part of ensuring that resources go
| where they're needed, but this also sort of assumes that everyone
| has an equal capacity to pay.
|
| There's an extent to which, yes, in a gas shortage I'll pay 4x to
| drive my wife to the hospital but not to drive my kids to the
| pool, so the gas goes where it's needed.
|
| But if I'm very poor, I can't pay 4x even if my wife is in
| labour, and if I'm very rich, I'll pay whatever to drive my kids
| to the pool because I don't even notice gas prices.
| devops000 wrote:
| How do hedge inflation?
| paulpauper wrote:
| Index funds (S&P 500 up 23% vs 5% cpi)
|
| Real estate, mortgages
| ByteJockey wrote:
| Those are investments (which carry certain risks).
|
| Gold is traditionally used specifically as a hedge against
| inflation (though you won't be getting nearly the returns
| over the long term compared to index funds).
| baq wrote:
| As evidenced in the past 18 months.
|
| Oh wait.
|
| Gold is a terrible inflation hedge. Any other commodity
| worked better. Basically anything that is a part of the cpi
| basket is an inflation hedge. (Insert used car meme.)
| wallacoloo wrote:
| > Basically anything that is a part of the cpi basket is
| an inflation hedge. (Insert used car meme.)
|
| much of the CPI are depreciatory or non-durable goods. i
| can't hedge against multi-year inflation by purchasing
| meat and dairy. if i buy a car as you suggest, it's not
| _likely_ to be worth as much 5 years from now than today.
|
| or do you mean not literally buying the CPI basket, but
| buying commodity futures, stock in producer companies,
| etc?
| paulpauper wrote:
| Gold is better hedge if your currency is in freefall such
| as in Turkey. Not so great for Americans, when the US
| dollar is the global unit of wealth.
| ak_111 wrote:
| Know the risks though: when inflation increases very fast,
| the Feds might end up having to respond with a shock, and
| usually real estates are the first to respond to this shock
| by losing 5-10%.
| silexia wrote:
| Lyn Alden is a better economist than most, and this article helps
| explain in a simple way what causes inflation.
|
| We have inflation because of massive government "stimulus"
| handouts over the last two years of the pandemic. The response to
| this pandemic was way overblown and has ended up destroying our
| economy and did no save many lives.
|
| Everyone loves getting government checks, but if all that new
| printed cash has to chase a smaller supply of goods and services
| (as a result of shutdowns), then massive inflation hits.
| mym1990 wrote:
| Inflation can be found as a result of several possible root
| causes, and stimulus is probably certainly one of them. But you
| also have a shortage of goods due to extended supply chain
| issues. You have a reshuffling of the housing market as people
| go remote and move to different places(people leaving SF to go
| to Nashville, etc...). You have low interest rates that allow
| for incredibly cheap borrowing. There is no way to pin
| everything inflation to just printing.
| [deleted]
| js8 wrote:
| > Everyone loves getting government checks, but if all that new
| printed cash has to chase a smaller supply of goods and
| services (as a result of shutdowns), then massive inflation
| hits.
|
| I am not really sure what do you suggest as an alternative
| solution to the sudden demand decrease, that some people simply
| die of hunger being unemployed? Inflation is IMHO less harmful
| than real wage decrease or unemployment.
| silexia wrote:
| Real wages are going down. Nominal wages are going up
| significantly, but prices for goods and services are going up
| far faster. Keep in mind government corruption meant the rich
| got far more handouts than the poor, and that many billions
| were stolen by scammers.
|
| Government enforced shutdowns and regulations caused this,
| people should have been allowed to exercise their personal
| freedoms to stay home if they were at risk rather than
| required to at gunpoint.
|
| BTW, I am not an anti-masker / anti-vaxxer. I have the
| vaccine and booster and wear a mask. I just think the
| government reaction has been worse than the pandemic itself.
| b9a2cab5 wrote:
| > Inflation is IMHO less harmful than real wage decrease or
| unemployment
|
| For minimum wage workers and in general unskilled labor, this
| is just not true. Minimum wage workers can't afford to hedge
| against inflation by buying assets, and their income is
| artificially kept high by a price floor (minimum wage +
| legally mandatory benefits). When you inflate the USD their
| real income will drop to its true market value since the
| price floor doesn't move with inflation. Low paid workers
| also don't benefit from their debt reducing in real value
| because their nominal wage won't increase as fast as
| inflation due to the price floor I just talked about.
|
| Government checks made sense in the beginning of the pandemic
| but the 2nd round of stimulus passed later on by
| reconciliation did not. At that point there was a vaccine and
| a strong economic rebound. You need only look at the
| popularity of Dogecoin, WSB, etc. to see that people did not
| actually need that extra round of stimulus.
| roenxi wrote:
| 1. I echo josephcsible, shutting down employers is a mistake
| and likely to cause starvation. If people are banned from
| improving their own lives, there is a chance that their lives
| will get worse.
|
| 2. Just because there is an emergency doesn't mean everyone
| needs to sit around twiddling their thumbs. There was _more_
| work that needed doing in the pandemic, not less. That could
| have been parleyed into a job, leading to money for food.
| diordiderot wrote:
| >that some people simply die of hunger being unemployed
|
| thats exactly what they want
| josephcsible wrote:
| Not GP, but how about the alternative that the people not
| become unemployed at all, because the government doesn't
| force their employer to shut down?
| kesor wrote:
| Nah, that wont work. How about we give everyone money and
| then those that are still employed are earning way way less
| than they used to in terms of purchasing power. That would
| be a much better equalizer for the middle class towards the
| bottom.
| paulpauper wrote:
| I am guessing inflation spiked because the economy and asset
| prices recovered much faster than expected. The expectation in
| April 2020 was that there would be a prolonged slump or a crisis
| similar to 2008. Few foresaw that there would be such an abrupt
| V-shaped recovery in GDP, asset prices, consumer spending, and
| large cap profits even after accounting for the stimulus.
| Suppliers cut back production in anticipation of a long slump,
| which never came.
|
| There was a lot of stimulus spending in 2009-2010 and the fed cut
| rates to zero, but the recovery was slower, nor did inflation
| spike. So it's not like more spending = more inflation.
|
| However, despite all the doom and glom, Americas have gotten
| wealthier over the past year thanks to surging asset prices and
| strong wages and the supremacy of the US dollar, which has surged
| this year. The same cannot be said for Turks, who have gotten
| poorer due to collapsing currency and whose inflation problem is
| far worse.
| neffy wrote:
| No, inflation is spiking because the Government expanded the
| money supply by about 25%.
|
| https://fred.stlouisfed.org/series/M2SL
|
| Now sit back, and watch every economist who doesn't pay
| attention to the money supply make a complete fool of
| themselves in public.
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