A (Very) Uncomfortable Take On Inflation
[Editor's note: When I set about writing this, I had something different, albeit tangentially related, in mind. Specifically, I wanted to highlight recent research quantifying the "interest relief" sovereigns enjoyed thanks to central bank largesse since the financial crisis. Ultimately, I decided to save that discussion for a separate article. What follows will be repetitive for some longtime readers, but it's one of the most provocative lines of argumentation I employ in these pages and thanks
If everyone has say twice as much money, and they all try to spend it, there will be a shortage of things to convert it into and prices will rise. That said, perhaps psychology will cause people to demand savings — “money” to spend later, but to say that we all just should have faith. Faith is different say when watching a football game on TV with a drink in hand (your team is winning, and things just couldn’t be better), than for a sailor in port for a visit and going back to war soon (spend it while you got it, it’s not going to get better).
Fear of your future ability to eat with $100 Billion in cash outstanding and waiting to be spent is different than Fear of running out of goods to buy with $500 Billion in cash outstanding and waiting to be spent.
MV does still equal PQ. Though as you seem to mention, price is sticky upwards. People don’t seem to raise prices until they start having shortages of goods, or inputs.
Personally, my bar has not yet run short of liquor, but the cost of water goes up about 7.5% a year, rent moves up, and labor is particularly hard to get at the moment as they appear to be playing hard to get given their other alternatives — like unemployment that pays them a solid wage to not work.
Well crafted note precisely because it provokes discussion and argument. Easily worth the price of admission whether denominated in dollars or sea shells.
People do not have twice as much money to spend, but there may be temporary shortages that will drive up prices, for now.
If you have been working a minimum wage job for years and make a bit more on unemployment for a few months……why would you rush back to a job that doesn’t pay a living wage? Especially when you
Keep hearing about higher paying jobs…..that sound easier than what you have been doing. About time workers had a bit of power in the labor market.
I’m not overly concerned that the dollar menu may disappear.
“If you have been working a minimum wage job for years and make a bit more on unemployment for a few months……why would you rush back to a job that doesn’t pay a living wage? The obvious answer is that you UE$ have run out and you are hungry?
Does the fact that the dollar is legal tender (giving it the ability to extinguish debts) give it a bit more ‘tangibility’ than simply a shared delusion? If there’s a collective adherence to the rule of law and a belief in the state’s ability to enforce the rule of law, doesn’t that fortify the currency’s ‘value’ in a debt-based economy? Were the historical episodes of true hyperinflation a symptom of a broader political collapse?
Right. But.
Maybe this is responding more to “Wealth Tax and Shared Insanity” but… you seem to describe either inflation limited to a sector/group of sectors where supply is (temporarily) out of synch with demand (lumber prices being the perfect recent example) or as hyperinflation when people lose confidence in the money myth.
This does leave episodes like the 70s somewhat unexplained. It did start with a supply/demand imbalance in oil, you might say but the wage price spiral isn’t quite captured in either that initial supply/demand shock and yet the 70s didn’t degenerate in hyperinflation/people did not lose confidence in the USD despite high single digit or low double digit inflation in some western countries.
I believe most policy makers are more afraid of the 70s than they are of the USA turning into Zimbabwe/the Weimar Republic…
Is the United States dollar in effect, a cult? The comparative belief systems you provided all are cult like, adherence to dogmatic beliefs and belief in a single savior that is all powerful. Being that the USD is the global sovereign currency this may be the largest cult ever to have existed. Globally everyone believes in the power of an ornate piece of paper or more realistically numbers next to a $ symbol on your device. In my mind the reason it still holds so much power is that no other manufactured out of thin air asset has been able to generate as much belief that it could overtake the USD and everyone needs to have a mechanism to buy and sell goods and services.
Correct. All correct.
Fundamentally, you could say economies run on trust. I feel like trust has been steadily eroding in the USA since the Tonkin Gulf Resolution…Hence, there is a political/ psychological component as well as a thepretical one. Loss of trust /oss of confidence is defficult to repair once it reaches critical mass……
It is to a large degree an engineered distrust. It is not a distress based upon actual facts. Therefore it can fall away extremely fast.
That said the factual distrust of the rich people running the show is not one that will fall away. People get a laugh when I say all men are created equal, the rich are just more equal.
In God we trust
“In God we trust.” That’s as it may be for some, but fewer and fewer people today self report as among those who feel that way. All by itself that particular trust is not legal tender and will pay no bills. In the same way that money requires belief and what we see as viable money has changed over time (remember we bought Manhattan from the natives for just over $20 or so in “wampum”), likewise there is no real agreement concerning the reality of the various gods the peoples of the world believe in. Even some philosophers in ancient Greece believed that nothing supposedly physical was actually real, rather everything was just perceived to be real.
Even the godless believe in the all mighty dollar. Godless my pa tootie!