Not an economist but I have attended a lecture by a cftc guy. I still say supply is what’s driving price increases. Which I believe is somewhat different from inflation driven by monetary issues....
Not an economist but I have attended a lecture by a cftc guy.
I still say supply is what’s driving price increases. Which I believe is somewhat different from inflation driven by monetary issues. Monetary policy changes may serve to curb some demand, which can cause some supply issues to kinda go away. But ultimately we have a production and logistics problem that needs some time to work through. And tightening money supply does little to help regular folks buying milk, eggs, and electricity.
Obviously it's high wages caused by worker empowerment, and savings from government welfare checks are the problem. We need people to be unemployed for long enough that they they have no savings...
Obviously it's high wages caused by worker empowerment, and savings from government welfare checks are the problem. We need people to be unemployed for long enough that they they have no savings and don't feel empowered to quit crappy jobs anymore.
To simplify, there are two situations: If you buy more, they make more. There are businesses who would be happy to sell you more stuff if you're willing to buy it. There is always some stuff like...
To simplify, there are two situations:
If you buy more, they make more. There are businesses who would be happy to sell you more stuff if you're willing to buy it. There is always some stuff like this, but it's more broadly true in a recession. Economic stimulus is about convincing people to buy more. For some people, having more money is enough to result in higher spending. Less so for others.
There is only so much to go around - that is, a shortage of some sort. If it's something people want, prices go up until they buy less.
Both of these are going to be true at the same time, depending on what goods and services you look at, but the mix has changed. There are more shortages now.
It was surprising to me (and I think to many people) that as people started to buy more, businesses weren't able to make more. I vaguely assumed there would be more capacity. The bottlenecks were worse than I thought.
But people having more money (particularly poor people) seems like what we want? Some prices going up (like fossil fuel prices in particular) is actually a good thing for climate change reasons, because limited supply is intentional, or should be. There are "sin taxes" on some things (like cigarettes) for reasons. Some labor shortages are not actually a bad thing, if it reduces inequality by paying lower-income workers more.
Talking about "growth" or "limiting demand" in an abstract macroeconomic sense isn't enough; you need to look at specific sectors. Where are there bottlenecks, and are they good or bad? When would it actually be better if we had more stuff, and when do higher prices serve a purpose?
For example, I generally think water shortages are bad, and we all know that more housing is needed in many places. There don't seem to be enough nurses. But restaurant workers? I don't care since eating out is a luxury. Restaurant wages and prices have gone up, but it mostly seems fine?
In addition to supply shortages, there are also worker shortages. Economists have noted that older folks simply retired early rather than risk COVID. This has caused wages to go up. Normally if...
In addition to supply shortages, there are also worker shortages. Economists have noted that older folks simply retired early rather than risk COVID. This has caused wages to go up.
Normally if wages go up because people are more productive, thats a really good thing. Currently I think wages are going up and people are producing less. Which is bad. Especially if it costs more just to live and get to your job.
BLS actually publish detailed information on CPI. If you click on food, you will see the cost of food at home has increased significantly more than the cost of food away from home, and the real killer is transportation, food and shelter... https://www.bls.gov/cpi/
There are a number of reasons why high inflation is considered bad in general. Excuse me if I am explaining things you already are familiar with.
It can spiral out of control like in the 70's.
It can drive up rates, which with the massive amounts of debt would mean a significant chunk of the government budget and peoples budgets going to interest payments.
With rates up, assets would go down. Can you imagine house prices if mortgage rates go to 16%? What about stock prices if treasuries return 10%? That isn't just bad for the rich. The impact of that is felt by everyone when retirees can't afford to spend money on necessities.
But then no inflation is also bad. Deflation. Yikes.
So... a little bit of inflation is considered ideal, and even needed. The Fed struggled with near zero inflation for so long, they decided they would let inflation run a little higher than normal so that inflation would average out to about 2% over the long run.
But then supply chain issues led to wage inflation, which can get out of control. If people are getting paid more because core prices are going up, I'm not sure that is not helpful.
You want people to get paid more because they are more productive. And I think that has slowly happened outside of the USA in general, and in the tech industry in the USA.
It's just a lot of the middle class in America have felt the squeeze, because it's cheaper to offshore jobs. All the profits end up in the wallets of fewer Americans.
Long winded way of saying I don't think inflation is helpful to the poor. The poor need a larger slice of the economic pie. The productivity gains should not just go to the rich. Which to me implies taxing the rich, and giving to the poor. Which sadly makes a lot of people angry in America.
I don't think inflation is good overall, just that higher relative prices can sometimes be good, for some purchases. It seems like the labor market is another area where treating people...
I don't think inflation is good overall, just that higher relative prices can sometimes be good, for some purchases.
It seems like the labor market is another area where treating people abstractly, in a macroeconomic way, can obscure as much as it reveals? People and jobs aren't interchangeable, in general. There are some jobs where most workers would be able to do it and others that require a lot of training.
The high pay for software engineers means that many would-be scientists go into programming instead where the money is better. It doesn't mean the average unemployed worker can learn to code (though some do).
Temporary inflation was the Fed's initial thought process. Then it became temporary but persistent. Now it's just inflation, because wages are keeping up with inflation....
Temporary inflation was the Fed's initial thought process. Then it became temporary but persistent. Now it's just inflation, because wages are keeping up with inflation.
The Fed is worried about inflation getting out of control like in the 80's, which would mean continued wage driven inflation even after the supply chain unknots itself. So they tap on the monetary brakes, cause a brief (but potentially nasty) recession, and while you still may have supply shortages, you don't have any wage driven inflation.
Not an economist but I have attended a lecture by a cftc guy.
I still say supply is what’s driving price increases. Which I believe is somewhat different from inflation driven by monetary issues. Monetary policy changes may serve to curb some demand, which can cause some supply issues to kinda go away. But ultimately we have a production and logistics problem that needs some time to work through. And tightening money supply does little to help regular folks buying milk, eggs, and electricity.
Obviously it's high wages caused by worker empowerment, and savings from government welfare checks are the problem. We need people to be unemployed for long enough that they they have no savings and don't feel empowered to quit crappy jobs anymore.
--The Fed, probably
To simplify, there are two situations:
Both of these are going to be true at the same time, depending on what goods and services you look at, but the mix has changed. There are more shortages now.
It was surprising to me (and I think to many people) that as people started to buy more, businesses weren't able to make more. I vaguely assumed there would be more capacity. The bottlenecks were worse than I thought.
But people having more money (particularly poor people) seems like what we want? Some prices going up (like fossil fuel prices in particular) is actually a good thing for climate change reasons, because limited supply is intentional, or should be. There are "sin taxes" on some things (like cigarettes) for reasons. Some labor shortages are not actually a bad thing, if it reduces inequality by paying lower-income workers more.
Talking about "growth" or "limiting demand" in an abstract macroeconomic sense isn't enough; you need to look at specific sectors. Where are there bottlenecks, and are they good or bad? When would it actually be better if we had more stuff, and when do higher prices serve a purpose?
For example, I generally think water shortages are bad, and we all know that more housing is needed in many places. There don't seem to be enough nurses. But restaurant workers? I don't care since eating out is a luxury. Restaurant wages and prices have gone up, but it mostly seems fine?
In addition to supply shortages, there are also worker shortages. Economists have noted that older folks simply retired early rather than risk COVID. This has caused wages to go up.
Normally if wages go up because people are more productive, thats a really good thing. Currently I think wages are going up and people are producing less. Which is bad. Especially if it costs more just to live and get to your job.
BLS actually publish detailed information on CPI. If you click on food, you will see the cost of food at home has increased significantly more than the cost of food away from home, and the real killer is transportation, food and shelter... https://www.bls.gov/cpi/
There are a number of reasons why high inflation is considered bad in general. Excuse me if I am explaining things you already are familiar with.
It can spiral out of control like in the 70's.
It can drive up rates, which with the massive amounts of debt would mean a significant chunk of the government budget and peoples budgets going to interest payments.
With rates up, assets would go down. Can you imagine house prices if mortgage rates go to 16%? What about stock prices if treasuries return 10%? That isn't just bad for the rich. The impact of that is felt by everyone when retirees can't afford to spend money on necessities.
But then no inflation is also bad. Deflation. Yikes.
So... a little bit of inflation is considered ideal, and even needed. The Fed struggled with near zero inflation for so long, they decided they would let inflation run a little higher than normal so that inflation would average out to about 2% over the long run.
But then supply chain issues led to wage inflation, which can get out of control. If people are getting paid more because core prices are going up, I'm not sure that is not helpful.
You want people to get paid more because they are more productive. And I think that has slowly happened outside of the USA in general, and in the tech industry in the USA.
It's just a lot of the middle class in America have felt the squeeze, because it's cheaper to offshore jobs. All the profits end up in the wallets of fewer Americans.
Long winded way of saying I don't think inflation is helpful to the poor. The poor need a larger slice of the economic pie. The productivity gains should not just go to the rich. Which to me implies taxing the rich, and giving to the poor. Which sadly makes a lot of people angry in America.
I don't think inflation is good overall, just that higher relative prices can sometimes be good, for some purchases.
It seems like the labor market is another area where treating people abstractly, in a macroeconomic way, can obscure as much as it reveals? People and jobs aren't interchangeable, in general. There are some jobs where most workers would be able to do it and others that require a lot of training.
The high pay for software engineers means that many would-be scientists go into programming instead where the money is better. It doesn't mean the average unemployed worker can learn to code (though some do).
Temporary inflation was the Fed's initial thought process. Then it became temporary but persistent. Now it's just inflation, because wages are keeping up with inflation.
https://fred.stlouisfed.org/graph/?g=NYQD
The Fed is worried about inflation getting out of control like in the 80's, which would mean continued wage driven inflation even after the supply chain unknots itself. So they tap on the monetary brakes, cause a brief (but potentially nasty) recession, and while you still may have supply shortages, you don't have any wage driven inflation.