HN user
Sounds good.
Aight chief I'm out. Glad we have agreed that 25% unemployment is a good thing. You sure are concerned about those working class people trying to feed their families! I am in awe of your superior economic knowledge and humanitarian instincts. It is unfortunate that the people running the central banks are such rascals, rigging the economy for the benefit of the ultra-wealthy, when you could be doing their job instead.
it was a joke...
It decreases the value of the money use to pay for them
That is meaningless, though. Imagine last year you bought some asset, that someone else did not, and it appreciated 2% with the price level. You are not any better off. I see you are implying that the other person "couldn't afford" to invest and kept their money in cash instead, to argue that the other person is worse off. That is also wrong - the issue here is holding cash, not the wealth disparity. Don't hold cash if you are worried about inflation. Mutual funds have low minimums, and you can buy fractional ETF shares at this point. You have no argument here.
"Low, stable inflation increases inequality" is not a statement that you could find much agreement on from economists.
Also, Krugman is just a pop-econ writer at this point. He is not a big deal in the economics profession. Yes, I am sure he understands how inflation and sticky wages interact. I am not so convinced that you understand it. Just going to repost my other comment for you to puzzle over:
"You are purposefully ignoring the normal explanation, which is this: because wages are sticky, firms that need to cut costs in a recession are more likely to lay off people than they are to give pay cuts. Inflation helps to weaken that rigidity so that job losses are not as large. Maybe you know that.
You claim that central banks depreciate the currency because they "think wages among the working class are too high." But rhetorically, you are doing more than just referring to the explanation I gave above. You are implying that central banks "think" working class wages are too high, and want to lower them to hurt working class people.
Which is the opposite of the standard explanation - the purpose of inflation in that instance is to implicitly reduce the downward rigidity of wages so that employment does not contract as much in a downturn.
Presumably you, champion of the working class, would rather more people be unemployed?"
people who benefit most have both assets and debt. These are wealthy people
Generally you have to have more assets than debt to be considered "wealthy." This is why the word "net" is important in the parent comment. And you are completely ignoring the second-order effects, which is that an economy with low, stable inflation is good for everyone. And if you are going to quibble "why is low, stable inflation good for everyone," then look at the deflationary spirals of the great depression (or any pre-1900 crash) and any hyperinflationary economy of your choosing.
If demand decreases then production should decrease
Okay Chairman, have it your way. COVID hits, demand plummets, we do nothing to try to keep people in jobs or keep the financial system from collapsing. Less production is indicated!
buggy whips
This is a total red herring and you know it. No one is talking about counter-cyclical monetary policy and implying it is being used to keep anachronistic firms in business.
You are purposefully ignoring the normal explanation, which is this: because wages are sticky, firms that need to cut costs in a recession are more likely to lay off people than they are to give pay cuts. Inflation helps to weaken that rigidity so that job losses are not as large. Maybe you know that.
You claim that central banks depreciate the currency because they "think wages among the working class are too high." But rhetorically, you are doing more than just referring to the explanation I gave above. You are implying that central banks "think" working class wages are too high, and want to lower them to hurt working class people.
Which is the opposite of the standard explanation - the purpose of inflation in that instance is to implicitly reduce the downward rigidity of wages so that employment does not contract as much in a downturn.
Presumably you, champion of the working class, would rather more people be unemployed?
Thanks, I am glad someone else actually has the energy to explain this.
Depreciating currency causes those assets to go up in nominal terms
That does not increase the real value of those assets, and it does not have any distributional consequences.
Thats a theory-laden and motivated explanation
You could go read like, any of the vast literature on the great depression, the things that caused it and the things that made it worse. But you'd rather expose your ignorance on the Internet for us to see.
discover that the central bank is very much fact and not at all theory.
I happen to know a lot about central banking, actually. You might be pulling a Dunning-Kruger on this one.
Only because the wealthy benefit from depreciating currency
Source this claim. Everyone benefits from a depreciating currency because inflation provides a buffer against deflationary spirals that lead to large recessions and job losses for people of all classes. Tell me exactly how inflation benefits only the ultra-wealthy and not anyone else.
because the oligarchs want workers’ wages to go down.
I would suggest that you clarify this claim so it does not sound so much like a conspiracy theory.
Hi yes I know quite a bit about sticky wages and inflation. What's your point.
Sadly it isn't really worth arguing econ on HN. This place is full of cranks when it comes to that, unfortunately. Maybe better if we all just stick to programming.
It is tricky, but they try to apply what are called "hedonic adjustments." [1] If a new iPhone comes out that is way better than last year's iPhone, but it is the same price, then that's deflation! You got more stuff for the same price. Or even if your new plasma TV is more expensive than the old CRT, how do you compare them to decide whether the price level has increased or decreased while attempting to hold "quality" constant? They walk through an example like this on the webpage.
Of course it is very difficult to compare for entirely new product categories, though the good news is that brand new products likely are not a large portion of the consumption basket at the time they are introduced. So it shouldn't make that much of a difference. Otherwise, you are comparing each year to the next in a sort of "family resemblances" kind of way - maybe you can't directly compare a smartphone to something in the 1950s, but you can do incremental comparisons along the way.
[1] https://www.bls.gov/cpi/quality-adjustment/questions-and-ans...
Yeah, people on HN are kind of cranks about this sort of thing
The root cause is demographics. People have a standard life cycle - you save when you are young, peak saving around a decade before retirement, and then spend savings in retirement. What is different now is that China has a massive boom in working-age population, and they are rapidly becoming more affluent, and the have a savings rate that is like 10x of the average American. I wouldn't say they are "so rich," just that savings rates have a cultural component.
So anyway, you have this massive influx of savings flowing into the system, buying up investable assets to save for retirement, and thus bidding up prices. They call this the "global savings glut." There are OLG (overlapping generation) models that show how this behavior works in a simplified setting; you can easily get over-saving, dynamic inefficiency, and "rational bubbles" as an outcome in an OLG model with different demographic curves.
That's not how employment works. There is a certain amount of natural unemployment even in a full employment economy: this is called "frictional unemployment." Like, you just moved or quit your job or got laid off and are looking for a new one. You are unemployed for a couple weeks or months, or longer if you're retraining. There's also structural unemployment, people who are unemployed (or underemployed) because their skills are not suited to the current environment. Central banks can't do anything about that with interest rates. There will always be some people unemployed.
Full employment is defined by the concept of the NAIRU, the non-accelerating inflation rate of unemployment. The lowest sustainable unemployment before inflation begins to take off in a feedback loop (as higher inflation pushes expectations of future inflation up, resulting in a spiral).
I'll take the other side of that argument. It's an interesting article! But it doesn't make me think that the numbers are "rigged," just that they have been misinterpreted. Semiconductors are getting way better, and have been for a few decades, and that counts as an awesome productivity improvement in manufacturing. If you just look at the top-line number, it says "manufacturing is getting more productive," which in an aggregate sense is still true! But it seems a lot of people though that meant "manufacturing is getting more productive because we have a lot of robots" even though manufacturing employment is declining, rather than "manufacturing is getting more productive because our semiconductor fabs are awesome and the rest of the sector is bleeding out." Which is what it actually meant.
The "US manufacturing is super productive" narrative is unfortunate, especially if policymakers were making decisions based on it. But it doesn't really call into question the data or methodology, just that people have misinterpreted it. But the people who are actual experts in this area are writing papers about that! This paper is from 2014[1], and she's been writing about this since 2010! With economists from the Federal Reserve system, no less.
edit: I guess my point is, the point that article makes isn't, "the game is rigged, inflation is made up, we should use shells for currency." The point it makes is, "don't just read the top-line number and then write an opinion article, make sure you read the breakdown first."
Also, assets do hedge inflation. Most of them, anyway. I never argued otherwise. Just that asset price increases are not the same thing as inflation.
It's possible. You are right that productivity growth is the big driver behind everything. There are some people that make the argument that massive growth is behind us, that the internet revolution is not the same kind of game-changer like trains, planes, etc. Not clear how much more "Smithian" growth via trade liberalization is possible, either. If you look at the long histories, there have been plenty of times in the past 2000 years when interest rates and economic growth were very low for an extended period of time. Inequality tends to grow to it's maximum sustainable level in between catastrophes, though that level is likely lower now, because there is a certain amount of disperse affluence necessary to sustain the modern knowledge economy that creates that wealth in the first place.
But at this point, we're talking technology and society instead of economics. Will innovation continue, and are those innovations a big enough deal that they will continue to make our world more productive, wealthier, more successful? I lean towards yes, but it is not at all obvious. It is certainly possible that productivity growth stagnates, most countries catch up to a generally-developed level of output, and asset prices stagnate as temporary demographic bumps are smoothed out.
From a programmer's perspective, you are right that there are no technical barriers to constructing an arbitrary index that delivers whatever value of inflation you want. But of course that is the case for most human things. Which is why institutions are important - hopefully while we are over here being honest and thinking hard about programming, there are people over there being honest and thinking hard about the consumption basket. But then a lot of us work in adtech so maybe that honesty is questionable...
And then there are the other even more severely complicated parts. If next year's iPhone is better but costs the same amount, that's deflation. You got more for the same amount of money. How do we quantify that? Those are called hedonic improvements. How do you account for free services? What is Google worth? What if a new thing comes out that has never existed before? How do you compare that to the previous consumption basket? It would be relatively easy to argue that the preponderance of brand-new, incomparable, improving every year, cheap/free tech stuff that we are living in a relatively deflationary environment. You get more, better stuff every year for less money!
Though I will say, asset prices are not determined directly by central bank actions, there is a third component that pushes both asset prices and central bank policy - the global supply/demand of savings vs investment opportunities. Which is driven mostly by demographics, looking at China in particular. I've commented about this before. There is an interesting hypothesis that the global deflationary and asset price-increasing forces will wane as China's economy becomes more consumer focused and as working age people in China age out of the labor force, thus moving from the net-saving part of the lifecycle to the net-spending part. It's very plausible, unless that population bulge bracket is replaced again by another massive, increasingly-affluent population, say in a fast developing India or Africa.
On the inequality side, it is a bit unfortunate to be in the workforce at this time competing with the massive influx of other savers, bidding up productive assets to save for retirement, enriching the people who were "lucky" enough to be in the generation before that population/affluence boom. But there's not really anything that can be done about it, not without tightening financial conditions enough that it has severe negative effects for the labor market.
Props to you for looking into it! Economics and finance are really complicated. Bank lending decisions are based on risk and profit opportunities, and not at all on reserves availability. QE mostly just substitutes central bank money for the balance sheet "bank money" in M2, increasing reserves and lowering longer term interest rates without flowing immediately into the real economy. Lower interest rates encourage lending and investment, but do not force it. It's a lot more subtle of a tool.
That is the correct answer :)
And you would be wrong. Inflation != asset prices. Don't make me post the global savings glut thing again... Also "rigged" is just conspiracy language. YOU CAN LITERALLY LOOK UP THE INDEX YOURSELF. Channel your inner hacker and do it, learn something, you don't need anyone's permission. I'll even help.[1]
[1] https://en.wikipedia.org/wiki/Personal_consumption_expenditu...
MMT is dumb, it's isomorphic to the current situation only it moves the responsibility for "cooling off" an overheating economy from the central bank (interest rates) to the legislature (taxes). And there is no way the legislature will have the wherewithal to actually raise taxes when it needs to to regulate that system.
Sure. But that's not inflation. That's an increase in housing prices. If housing prices rise but rents do not, it doesn't make a difference to consumption - your consumption is either the rent you pay or the imputed rent. If buyers want to bid up the price of housing past what renting it out will pay for, that's their problem.
And at the risk of just reposting this comment on HN all the time. Focusing on central banks as the driver of asset price increases is looking in entirely the wrong direction. There is a third component that pushes both asset prices and central bank policy - the global supply/demand of savings vs investment opportunities. Which is driven mostly by demographics. China's massive working class, and the unprecedented rate at which they are getting wealthier, and their savings rate which is like >10x the average US citizen means there is a huge increase in the global supply of savings. Which bids up asset prices and pushes down yields, as savers compete with each other to buy up the extant profitable and safe opportunities. Central banks are the on the receiving end of this too: over-saving pushes down the natural rate of interest, which means policy rates must be lower to respond (unless you want to condemn some working Americans to unemployment). So long-term interest rates fall, and central banks have less operating space to smooth out the business cycle by moving short-term rates.
Buying Bitcoin to hedge inflation instead of just buying TIPS is like saying: I think the price of AAPL will go down, so I'm going to get some lottery tickets.
Federal Reserve act of 1977. Dual mandate: price stability and maximum sustainable employment. Inflation around 2% and unemployment under 4% pre-COVID doesn't smell like failure to me, but that's up to you. Especially if you compare to other developed economies with even more sluggish inflation and insane unemployment rates since 2008.
HN desperately wants to discuss economics but will not take a single second to read up about macro beyond some crank Austrian stuff. It's an entire field of study! There are people who devote their entire lives to investigating just one corner of it! These threads are always packed with software engineers who are absolutely full of it and want to talk confidently about a subject they have absolutely no background in.
Because he has no idea what he's talking about. HN people are absolutely clueless on economics but insist on talking out of their ass at every opportunity.
Housing services are included in CPI and PCE inflation indices.
AI is a meaningless term. Expert systems are AI. ML is AI. Regressions are AI. I know that's hilarious but until we get a better definition of AI than "a system that exhibits learning and decision making" then regressions are AI.