tag:blogger.com,1999:blog-582368152716771238.post3226769521219527653..comments2024-03-29T07:18:14.271-05:00Comments on The Grumpy Economist: Inflation meditationJohn H. Cochranehttp://www.blogger.com/profile/04842601651429471525noreply@blogger.comBlogger39125tag:blogger.com,1999:blog-582368152716771238.post-2295496767703268232021-11-27T16:29:10.465-06:002021-11-27T16:29:10.465-06:00There's a supply story for restaurants that do...There's a supply story for restaurants that doesn't involve inflation. Many restaurants have closed. Social distancing requirements and other restrictions reduce the capacity of the restaurants that remain. The supply of "restaurant experiences" is down, and the reservation price (the lowest price at which a restaurant is willing to provide a meal) of restaurants is up. So restaurant prices could have gone up even without increases in labor and food prices.mobilenoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-47477318444662679462021-11-23T14:29:41.867-06:002021-11-23T14:29:41.867-06:00If a building were threatened with collapse and yo...If a building were threatened with collapse and you declared that the crumbling foundation has to be rebuilt, a pragmatist would answer that your solution is too abstract, extreme, unprovable, and that immediate priority must be given to the need of putting ornaments on the balcony railings, because it would make the tenants feel better.<br /><br />There was a time when a man would not utter arguments of this sort, for fear of being rightly considered a fool. Today, Pragmatism has not merely given him permission to do it and liberated him from the necessity of thought, but has elevated his mental default into an intellectual virtue, has given him the right to dismiss thinkers (or construction engineers) as naive, and has endowed him with that typically modern quality: the arrogance of the concrete-bound, who takes pride in not seeing the forest fire, or the forest, or the trees, while he is studying one inch of bark on a rotted tree stump.<br />-Ayn Rand<br /><br />To stunt a mind means to arrest its conceptual development, its power to use abstractions—and to keep it on a concrete-bound, perceptual method of <br />functioning.<br />John Dewey, the father of modern education (including the Progressive nursery schools), opposed the teaching of theoretical (i.e., conceptual) knowledge, and demanded that it be replaced by concrete, “practical” action, in the form of “class projects” which would develop the students’ social spirit.<br />“The mere absorbing of facts and truths,” he wrote, “is so exclusively individual an affair that it tends very naturally to pass into selfishness. There is no obvious social motive for the acquirement of mere learning, there is no clear social gain in success thereat.” (John Dewey, The School and Society, Chicago, The University of Chicago Press, 1956, p. 15.)Stephen Grossmannoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-60806633762054892682021-11-23T14:26:16.354-06:002021-11-23T14:26:16.354-06:00> For a thousand years, inflation has led to a ...> For a thousand years, inflation has led to a witch hunt after "speculators" and "middlemen" and price rising conspiracies. Here we go.<br /><br />In _Economics In One Easy Lesson_, Henry Hazlitt says economics is the study of long-range, indirect, unintended consequences. Our national philosophy, Pragmatism, is a rationalization of short-range, unprincipled, unsystematic thinking.<br /><br />"if a building were threatened with collapse and you declared that the crumbling foundation has to be rebuilt, a pragmatist would answer that your solution is too abstract, extreme, unprovable, and that immediate priority must be given to the need of putting ornaments on the balcony railings, because it would make the tenants feel better.<br /><br />There was a time when a man would not utter arguments of this sort, for fear of being rightly considered a fool. Today, Pragmatism has not merely given him permission to do it and liberated him from the necessity of thought, but has elevated his mental default into an intellectual virtue, has given him the right to dismiss thinkers (or construction engineers) as naive, and has endowed him with that typically modern quality: the arrogance of the concrete-bound, who takes pride in not seeing the forest fire, or the forest, or the trees, while he is studying one inch of bark on a rotted tree stump."<br />-Ayn Rand<br /><br />"To stunt a mind means to arrest its conceptual development, its power to use abstractions—and to keep it on a concrete-bound, perceptual method of functioning. John Dewey, the father of modern education (including the Progressive nursery schools), opposed the teaching of theoretical (i.e., conceptual) knowledge, and demanded that it be replaced by concrete, “practical” action, in the form of “class projects” which would develop the students’ social spirit. 'The mere absorbing of facts and truths,” he wrote, “is so exclusively individual an affair that it tends very naturally to pass into selfishness. There is no obvious social motive for the acquirement of mere learning, there is no clear social gain in success thereat.'” (John Dewey, The School and Society, Chicago, The University of Chicago Press, 1956, p. 15.)<br />-Ayn Rand, "The Comprachicos"<br /><br /> Unknownhttps://www.blogger.com/profile/17627050381752342405noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-74261951111434511122021-11-22T19:41:03.163-06:002021-11-22T19:41:03.163-06:00Surrealist: Actually, service providers have take...Surrealist: Actually, service providers have taken steep losses in 2020 and are doing whatever they can to recover their fixed costs incurred and incurring. Yes of course they are now enjoying higher volume (although it's hard to confirm that since your graph outlines spending, which may in fact consist largely of higher prices - to recover losses/costs from period of lower volume. Yes, after very low demand, increasing prices makes total sense. DoDealshttps://www.blogger.com/profile/03771077157351067426noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-46463927980467801402021-11-22T12:45:13.022-06:002021-11-22T12:45:13.022-06:00I too think that recovery tracing up the supply cu...I too think that recovery tracing up the supply curve plays a role, see this JE output gap measure: https://outputgapnow.github.io/ <br />But money-induced demand is not enough to be the whole story: a positively sloped Phillips curve would predict inflation rising quite a bit, but not all the way to +6%. A typical elasticity from a state dependent pricing model would give you (in reduced linearized form) 25 to 50 basis points for each 1 percentage point of output. So +3% output gap would imply 75 to 150 basis points of inflation on top of the 2% aim, so max 3-4%.<br /><br />And so supply factors must be responsible for the other 2-3 percentage points of inflation. This doesn't mean inflation would necessarily be short-lived...Anton Nakovhttps://www.blogger.com/profile/01978109474130264659noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-24435548724549935112021-11-22T12:43:17.872-06:002021-11-22T12:43:17.872-06:00"Inflation is always and everywhere a monetar..."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. ... A steady rate of monetary growth at a moderate level can provide a framework under which a country can have little inflation and much growth. It will not produce perfect stability; it will not produce heaven on earth; but it can make an important contribution to a stable economic society." Milton Friedman<br /><br />The solution it seems would be to reduce government spending to a level that removes the pressure on monetary expansion and allow the markets to clear products and services at appropriate prices.<br /><br />My real name is Todd MoraAnonymoushttps://www.blogger.com/profile/03104846631611635199noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-59241416193646576062021-11-22T06:00:31.864-06:002021-11-22T06:00:31.864-06:00This comment has been removed by the author.FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-5468285505200583772021-11-22T05:57:59.246-06:002021-11-22T05:57:59.246-06:00Anonymous,
TIPs are a special case. Because the ...Anonymous,<br /><br />TIPs are a special case. Because the inflation component was not legislated into existence, Congress and / or Treasury can change the terms on those at any time as they see fit.<br /><br />For instance, to reduce expenditures, Congress / Treasury could set the inflation component at 0%, -3%, -7%, etc. regardless of the actual CPI.<br /><br />Also, Congress has several times over the past 30 years redefined how the CPI is calculated - first in 1983 with OER replacing housing prices, again in 1997 with the introduction of hedonic adjustments.FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-54257096129661583422021-11-21T11:07:15.156-06:002021-11-21T11:07:15.156-06:00"Services increasing prices in an attempt to ..."Services increasing prices in an attempt to recover their fixed costs in the face of lower volume. The notion that services prices will drop in short order to reflect the lower demand is preposterous."<br /><br />That's at odds with the reality of what we see in measures such as restaurant and hotels CPI - https://fred.stlouisfed.org/series/USACP110000GYQ . The period of very restrained inflation for these sectors was the months in 2020 when they faced a combination of consumer reluctance to use their services and government restrictions. Inflation has then increased as business came back. It's been from Q2 2021 onward that this subset of CPI has been increasing at rates higher than pre-March 2020. <br /><br />That makes sense because "we aren't seeing much customer demand, so let's increase prices" would be a strange strategy to pursue. Overcapacity in industries very rarely (if ever) leads to short-term higher prices to "recover fixed costs". The competitive dynamics of chasing fewer customers instead lead to lower prices and profits.<br /><br />Overall U.S. restaurant spending also don't support the underlying claim that these businesses are now having to chase lower volume. In nominal dollars, U.S. restaurant spending in Sept. 2021 was 16% above the same month in 2019. https://fred.stlouisfed.org/series/MRTSSM7225USNrealisthttps://www.blogger.com/profile/15859878286157071663noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-77306570212332745472021-11-21T09:28:15.663-06:002021-11-21T09:28:15.663-06:00Also bear in mind a large portion of government li...Also bear in mind a large portion of government liabilities are essentially indexed to inflation: TIPS, social security, Medicare, military expenditures, etc. This notion that the US can inflation away it's obligations is just wrong.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-16591022479743800882021-11-21T01:00:27.796-06:002021-11-21T01:00:27.796-06:00ReaderThinker,
"Doesn't the value of all...ReaderThinker,<br /><br />"Doesn't the value of all debt decline with inflation?"<br /><br />Not exactly. Government debt is different in that taxation (the means by which government pays back it's debt) is not completely correlated to changes in the price level (inflation).<br /><br />It is entirely possible for inflation to rise and tax revenue to fall in which case not even inflation relieves the government of it's obligations.FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-37374613134475689312021-11-20T18:55:25.652-06:002021-11-20T18:55:25.652-06:00Here is your first statement:
"Frisky and Gr...Here is your first statement:<br /><br />"Frisky and Grump: Again, with measuring the wrong things. Demand Deposits are up as a result of Fed Open Market Operations and QE."<br /><br />Incorrect. Here is your amended statement:<br /><br />"The increase in private sector bank deposits is a result of Govt Deficit Spending."<br /><br />Correct.FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-30212100101187692832021-11-20T15:15:38.049-06:002021-11-20T15:15:38.049-06:00Frisky: I'm familiar with CPI, thanks. When ...Frisky: I'm familiar with CPI, thanks. When real estate crashes, folks buy properties for less and have less of a nut to cover. They can use this improved cashflow to lower rents to maintain their buildings filled. DoDealshttps://www.blogger.com/profile/03771077157351067426noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-48027817494890509912021-11-20T15:13:21.780-06:002021-11-20T15:13:21.780-06:00Frisky: You need to up your game a little bit.
...Frisky: You need to up your game a little bit. <br />The increase in private sector bank deposits is a result of Govt Deficit Spending. QE has no effect on private sector bank deposits held by the nonbank public. If the Govt buys a Gvt bond held by a bank, it has no effect on nonbank players. A bank is unlikely to go on a shopping spree. <br />DoDealshttps://www.blogger.com/profile/03771077157351067426noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-13453963875758238992021-11-20T15:10:19.444-06:002021-11-20T15:10:19.444-06:00Absolutely! Just as the oil price hikes amounted t...Absolutely! Just as the oil price hikes amounted to generalized, though surely uneven,supply shocks, on average the decline in productivity and output would have raised the price level even without an increase in the money supply.<br /><br />Just like today: Covid is first and foremost a supply shock -- people are not allowed to work as usual. This would raise the price level even without an increase in the money supply.<br /><br />Using government expenditure, even if deficit financed, to ameliorate the pain of some people was the right thing to do, for they could not borrow on their own. Monetary expansion was also correct because the demand for money exploded, as everyone was scared out of their brains.<br /><br />As always, the trick is knowing when to stop. Frank https://www.blogger.com/profile/00272351675231621678noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-54061803193976931442021-11-20T15:05:30.110-06:002021-11-20T15:05:30.110-06:00Why government debt in particular in this quote? D...Why government debt in particular in this quote? Doesn't the value of all debt decline with inflation? "All prices and wages rising together means that one thing is falling in value -- money, and government debt. Inflation is a change in the relative price of money and government debt relative to everything else." ReaderThinkerhttps://www.blogger.com/profile/00843921662893708861noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-13985738769703436712021-11-20T09:23:53.281-06:002021-11-20T09:23:53.281-06:00Ben,
"Verily, I am much more of a fan of tax...Ben,<br /><br />"Verily, I am much more of a fan of tax cuts on workers to stimulate, rather than more social welfare."<br /><br />Please read the Blog that I wrote concerning equity sold by the US Treasury department. It is a common misconception that a government "must" borrow / sell bonds.<br /><br />"A Social Security tax holiday, offset by Fed purchases of Treasuries that are placed into the SS fund, is a good idea."<br /><br />Fed purchases and Treasury bonds are not necessary.FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-9270061858081643182021-11-20T07:22:10.036-06:002021-11-20T07:22:10.036-06:00Being just a little rude apparently works. Your co...Being just a little rude apparently works. Your comment gets approved, but most people wouldn't want to answer you, so you get the last word. Enjoy it.Michael Lhttps://www.blogger.com/profile/03825467898707191856noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-12465135355553086772021-11-20T05:46:58.708-06:002021-11-20T05:46:58.708-06:00DoDeals,
"Housing. The real estate crash is ...DoDeals,<br /><br />"Housing. The real estate crash is coming. THAT will cause a drop in inflation."<br /><br />Not exactly. The CPI includes a component called OER (Owner's Equivalent Rent).<br />When more people choose to rent vs. purchase a home that put's upward pressure on rental costs and downward pressure on home prices which RAISES the inflation component of the CPI.<br /><br />Learn how inflation (CPI) is actually measured before calling it hysterics.FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-91201286183849460842021-11-20T05:42:23.651-06:002021-11-20T05:42:23.651-06:00And over your head as well.
As usual you don't...And over your head as well.<br />As usual you don't know what you are talking about.<br />Check the following:<br /><br />https://www.federalreserve.gov/releases/z1/20210923/z1.pdf<br />B101 - Balance Sheet of Households and Non-Profit Organizations<br /><br />Checkable Deposits and Currency:<br />2018 - $1.208 Trillion<br />2021 (2nd Qtr) - $3.642 Trillion<br /><br />It sits on individual balance sheets as a spendable asset (that hasn't been spent).<br />It's sits on financial institution balance sheets as a liability.FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-43103344324720707132021-11-20T04:22:41.313-06:002021-11-20T04:22:41.313-06:00FRestly:
Verily, I am much more of a fan of tax c...FRestly:<br /><br />Verily, I am much more of a fan of tax cuts on workers to stimulate, rather than more social welfare. A Social Security tax holiday, offset by Fed purchases of Treasurues that are placed into the SS fund, is a good idea. Benjamin Colehttps://www.blogger.com/profile/14001038338873263877noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-37778236582110330752021-11-19T21:56:23.988-06:002021-11-19T21:56:23.988-06:00Seems quite likely actually. It's not necessar...Seems quite likely actually. It's not necessary for all prices to appreciate at the same time. Isn't some inflation the expected result of wars, socialist revolutions, climate change, increase in the dependency ratio, or widespread lockdowns?Michael Lhttps://www.blogger.com/profile/03825467898707191856noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-23782485465548582242021-11-19T16:52:10.604-06:002021-11-19T16:52:10.604-06:00Frisky and Grump: Again, with measuring the wrong...Frisky and Grump: Again, with measuring the wrong things. Demand Deposits are up as a result of Fed Open Market Operations and QE. It has very little effect on propensity to spend as it just sits on financial institutions' balance sheets. It's irrelevant. DoDealshttps://www.blogger.com/profile/03771077157351067426noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-39889519862692707252021-11-19T16:47:12.268-06:002021-11-19T16:47:12.268-06:00Who gives a dog poop about a theory predicting wag...Who gives a dog poop about a theory predicting wages for the next 100 years? <br /><br />Inflation is easily managed through several tools including<br />1) down payment and margin requirements on real estate and securities,<br />2) targeted supply chain actions, and<br />3) broad based tax increases/decreases.<br /><br />For example, the Job Gty/Green New Deal law should include AUTOMATIC across-the-board tax increases that kick in when certain monthly wage inflation targets are hit-say for 6 months in a row. These can include:<br />a) Income Taxes,<br />b) Sales/VAT Taxes<br />c) Asset Value (or Wealth) Taxes<br />That'll cool things off pronto. When inflation has cooled, the taxes automatically return to a base level.<br /><br />Easy Peasy. These policies would be part of a Job Gty which in turn is part of a Full Employment Fiscal Policy. <br /><br />I would go ahead and plow ahead to Econ 103. <br />DoDealshttps://www.blogger.com/profile/03771077157351067426noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-56631566717234870562021-11-19T16:42:32.836-06:002021-11-19T16:42:32.836-06:00Like a lot of dogs with small paws, monetarists an...Like a lot of dogs with small paws, monetarists and Austrians often end up measuring the wrong things. You can’t make an assessment on inflation based on 3 months of stats. As even the Grump points out, there are timing differences in spending. We are still going through a once-in-a-lifetime pandemic with dramatic impact on the economy. The government responded very well, essentially paying folks not to work to get this behind us. (with limited effect due to libertarian/conservatives exacerbating the recovery through encouraging the ant-vaxxers, not to mention supporting the Trumpian head in the sand response.) <br /><br />The inflation is largely the result of:<br /><br />• the economic recovery, focused especially on goods after months of not producing anything – not that we produce anything anymore – and services increasing prices in an attempt to recover their fixed costs in the face of lower volume. The notion that services prices will drop in short order to reflect the lower demand is preposterous. Spending is affected by both income and credit availability. Returning dining and drinking customers will gladly pay a premium in the short term, even if they have to put it on their credit cards. That won’t last in the intermediate term. <br /><br />• Oil price. Saudi Arabia and Putin would love to have Trump back in the White House, or at least as Speaker of the House; So they are curtailing supply to pinch Biden’s reelection chances. I know, I know, conservatives would like nothing better than a sharp increase in interest rates to create unemployment so their business-owner clients can make more money. <br /><br />• Housing. The real estate crash is coming. THAT will cause a drop in inflation. <br /><br />The inflation hysterics are going to look very silly in 9 months. <br /><br />What a Grump!DoDealshttps://www.blogger.com/profile/03771077157351067426noreply@blogger.com