Simple enough question. To the people who have been predicting it for years now, has the failure of your predictions caused you to re-evaluate your viewpoints?

10/21/2011 12:14:26 AM

IBTL

10/21/2011 12:45:28 AM

It has. I clearly failed to factor in the Obama induced Great Recession into my inflation calculation. You see, had the recession ended then inflation would have been the result. But, by dragging the recession on for years, Obama has kept inflation somewhat in check.

10/21/2011 12:56:37 AM

McDanger, you're proving with this thread that you haven't even bothered to understand (what you think are) your ideological opponents. That in itself is kind of funny, given that half of your posts are something along of the lines of, "C'mon on guys, just get educated, information is free and easy to come by!"

Hyperinflation is not very high inflation. Hyperinflation is "flight inflation"; something would trigger a loss of faith in the currency, leading to a sell off and pressure to either create more money or drop the currency altogether.

Hyperinflation is not an inevitability, it's just one of a few possible outcomes. Hyperinflation would certainly be preceded by a collapse in the bond market and the pyramiding of high yield bonds that, once matured, can only be paid for with higher yielding bonds. The government here will have a choice, just like governments in Europe have a choice. Of course, in Europe, they're somewhat restrained by the rules of the ECB and member states that have no interest in "bailing out" their counterparts. In the United States, we have a Fed chairman that I think has literally gone insane and will stop at nothing.

Anyone that says hyperinflation has to happen, or that they know when it will happen, is bullshitting. Since economics is ultimately just human behavior, it's hard to know how and when things will play out. The only thing that is guaranteed is that the U.S. government will not be able to keep up current levels of spending, regardless of any tax hikes that might occur.

10/21/2011 10:13:59 AM

Quote :

"Hyperinflation is not very high inflation. Hyperinflation is "flight inflation"; something would trigger a loss of faith in the currency, leading to a sell off and pressure to either create more money or drop the currency altogether."

Yes I know what hyperinflation is, or at least what the MMT'ers call "hyperinflation". Usage of the term is not universal, just as the usage of the term "inflation" has different definitions and usages. Austrian school people tend to use "inflation" to mean "any increase in the money supply", and Keynesians use the terms different (relative to some specific price-level).

The fact of the matter is many people use "hyperinflation" to mean "lots of inflation", and while I actually agree with your alternative definition as being more precise and useful ("psychological rejection of the currency"), feel free to substitute in "lots of inflation" for it if you'd like. I'm not going to start a thread with technical terminology that plenty of folks here don't know, nor did I want to start the thread with a semantic debate.

I'll repeat the question: "Where's the shitload of inflation that has been predicted year after year?" I mean it's always just around the corner, isn't it? I wonder why investors haven't seen this light.

Keep in mind I'm assuming Austrians, who howl about (hyper?)inflation (depends on the person) after each and every QE event is announced, are not claiming "inflation is going to occur because inflation is occurring", leaving the rest of us to wonder if you give a shit about price-levels or not. (IIRC you said sometime a few months ago that you want to see price levels gradually drop over time)

[Edited on October 21, 2011 at 11:13 AM. Reason : .]

10/21/2011 10:58:16 AM

Quote :

"I'll repeat the question: "Where's the shitload of inflation that has been predicted year after year?" I mean it's always just around the corner, isn't it? I wonder why investors haven't seen this light."

What metrics are you looking at? Health care, education, energy, and food are getting more expensive. There's definitely some inflation.

For the most part, though, all of the money that has been created is being stored as excess reserves. It is the "zombie" of the "zombie banks". Sure, they're solvent on paper, but without injection from the Fed, many banks would have failed already. Big price increases only happen when the newly created money makes it into circulation, and the banks are loaning much out.

10/21/2011 11:38:46 AM

Quote :

"What metrics are you looking at? Health care, education, energy, and food are getting more expensive. There's definitely some inflation."

BLS publishes various CPI numbers

I want to know where you think this inflation comes from, can you give me a mechanism that's driving these prices?

10/21/2011 12:35:37 PM

You seem pretty anti-authoritarian. Is there any reason in particular that you trust the numbers coming from the same government that has every reason to cover up the disastrous effects of its policies?

I think the price increases in those areas have different explanations. Tuition increases are undoubtedly a result of credit being too available, and of course, credit originates from the banks. Loans are being given to students that would not be able to get them without the cheap money. If market discipline was allowed to work, there's really no way that a bank would risk issuing hundreds of thousands of dollars on a student going to a fourth tier law school. The student loan bubble is, perhaps, the best example of how private banks can drive up prices.

Food and energy may be partially money-related and partially supply related. I think the argument could be made that the "Arab Spring" was set off in part by huge increases in the price of food, and since it's now verified that a lot of the Fed's money is being sent out of the country, this seems like an important factor.

Health care costs are going up, but I think the explanations are primarily structural; the third party system doesn't work, as it shields consumers from the true cost of health care through group plans or government coverage.

The thing about inflation is that it's impossible to know exactly where the money goes, or what products/services are going to get "bid up". It all depends on who the banks give the money to.

[Edited on October 21, 2011 at 12:56 PM. Reason : ]

10/21/2011 12:55:52 PM

Quote :

"Health care costs are going up, but I think the explanations are primarily structural; the third party system doesn't work, as it shields consumers from the true cost of health care through group plans or government coverage."

*Has never even glanced at healthcare in non-US countries*

Quote :

"You seem pretty anti-authoritarian. Is there any reason in particular that you trust the numbers coming from the same government that has every reason to cover up the disastrous effects of its policies?"

Lmao if the best you can do is "I don't believe these numbers" then you're in serious trouble. Basically the implication of such an acusation is "If those numbers are true, my model fails and I'm a dummy." I guess this is the old anti-AGW trick of, "If the data doesn't match your per-conceived expectations, dismiss the data as concocted by conspirators."

[Edited on October 21, 2011 at 1:04 PM. Reason : .]

10/21/2011 1:02:07 PM

Quote :

"Is there any reason in particular that you trust the numbers coming from the same government that has every reason to cover of the disastrous effects of its policies?"

Are you going to point out an actual shortcoming or problem with the numbers, or refer me to someone who has? Obviously I don't see compelling evidence to ignore the BLS' price statistics. Can you at least produce something for me to think about, if you think I'm foolish for doing this?

Quote :

"I think the argument could be made that the "Arab Spring" was set off in part by huge increases in the price of food, and since it's now verified that a lot of the Fed's money is being sent out of the country, this seems like an important factor."

I agree with the "Arab Spring" explanation (oil prices drive a lot of prices). I am curious about the monetary end of the explanation, can you give me a little more? I'm not sure what to make of it; Fed sends money abroad. This money must have been created (did the Fed gather reserves and then mail them?); can you give me a clearer idea how this money going abroad in this fashion is going to drive, say, our food prices up?

Quote :

"It all depends on who the banks give the money to."

I certainly agree with this. I promise I'm not being a huge prick here or trying to back you into some "gotcha!" bullshit. Just picking your brain a bit. So much screaming about inflation as if a QE event is going to somehow cause a "general price level" to skyrocket. This is mostly equivocation between the Austrian definition of "inflation" and normal uses of the word, leading folks to draw the conclusion that any increase of the monetary supply should drive up a general price level. Just wanted to see if this was what you thought, you don't, and so we actually agree about a lot of stuff.

Quote :

"Big price increases only happen when the newly created money makes it into circulation, and the banks are loaning much out."

This actually does a lot for my opinion of you (not that you care); I'll stop treating you like you're wearing the dunce hat now

10/21/2011 1:07:53 PM

I guess I take people at face value; I seem to recall you declaring yourself an Austrian school person at some point. It never occurred to me that you'd deviate from them on core pillars of economic thought, so I apologize for treating you with so much frustration and exhaustion. I argue with these folks a lot.

10/21/2011 1:14:26 PM

Quote :

"*Has never even glanced at healthcare in non-US countries*"

A single payer system is a lot more efficient than what we have now. Not the most efficient in my opinion, but better than having virtually all people covered through either Medicare or employer-provided insurance (or not covered at all). People need to somehow bear the cost of their health problems.

Quote :

"Lmao if the best you can do is "I don't believe these numbers" then you're in serious trouble. Basically the implication of such an acusation is "If those numbers are true, my model fails and I'm a dummy." I guess this is the old anti-AGW trick of, "If the data doesn't match your per-conceived expectations, dismiss the data as concocted by conspirators.""

Quote :

"Are you going to point out an actual shortcoming or problem with the numbers, or refer me to someone who has? Obviously I don't see compelling evidence to ignore the BLS' price statistics. Can you at least produce something for me to think about, if you think I'm foolish for doing this?"

I'm saying there's a conflict of interest. It's the same reason I think that internal investigations into police brutality are completely worthless. There's reason to be suspicious, aside from any computational oversights that might be going on.

With that said, I think the CPI weighs housing far too heavily, and it completely ignores the cost of food and energy. As I've said, inflation isn't predictable unless you actually know where the money is going.

Quote :

"I agree with the "Arab Spring" explanation (oil prices drive a lot of prices). I am curious about the monetary end of the explanation, can you give me a little more? I'm not sure what to make of it; Fed sends money abroad. This money must have been created (did the Fed gather reserves and then mail them?); can you give me a clearer idea how this money going abroad in this fashion is going to drive, say, our food prices up?"

It's hard to say. We know that in 2008 and 2009, the Fed was dealing to foreign banks through the discount window. Beyond that, we don't know where the money is going. The dollar is the reserve currency, though, which means that the dollar is probably used in some capacity in most countries. When you also take into account that oil is only traded in dollars, you can see how us exchanging fresh money for oil has a ripple effect; oil goes up in terms of dollars, which in turn raises transportation costs, operating costs, and eventually the cost of food.

My position is that when we create money, then trade it for goods at the same rate that those goods were traded at before we created the money, we're ripping people off. Sure, maybe we're only ripping them off a little bit at a time, but it adds up. Fair trade isn't possible without stable, honest currency. It's the classic problem of asymmetric information.

Quote :

"So much screaming about inflation as if a QE event is going to somehow cause a "general price level" to skyrocket. This is mostly equivocation between the Austrian definition of "inflation" and normal uses of the word, leading folks to draw the conclusion that any increase of the monetary supply should drive up a general price level. Just wanted to see if this was what you thought, you don't, and so we actually agree about a lot of stuff. "

This does seem to get thrown around a lot, but it's an oversimplification on the part of people that haven't fully fleshed out the concept of how money/credit is created and how it makes its way into the economy. If a bank creates a quadrillion dollars worth of notes but keeps them in reserves, nothing changes. No prices go up. However, if the bank starts loaning out money to, say, students trying to pay for school, tuition is going to go up because credit has been made too easy.

After a while, you should see general prices increases as the money makes its way into general circulation, but it's not immediate and it depends on money velocity/what the banks are doing. Yeah, you're going to hear a lot of Austrians say, "Print money = higher prices," and that's true, but it doesn't always mean higher prices across the board in some predictable, linear way.

[Edited on October 21, 2011 at 2:11 PM. Reason : ]

10/21/2011 2:10:39 PM

Not all Austrians see price inflation ahead.

http://libertarianpapers.org/articles/2010/lp-2-43.pdf

However, it is a major weakness of most of the Austrian school that most simply do not account for debt or the long-run consequences (or even possibility) of deleveraging. I was a Lew Rockwell-like inflation guy, until about 2007 thankfully.

10/21/2011 2:36:56 PM

I got my wheel barrow ready.

10/21/2011 3:06:58 PM

Funny story. the CPI includes an entry for housing, which is falling for reasons I'm sure all of us can understand. As such, the CPI should be under-reporting inflation as we speak.

10/21/2011 5:03:10 PM

Come now, these things take time to get all vertical, I think its way to early to ask where is it considering the size of this global money printing. You know what are the most expensive words in the world are, this time is different.

[Edited on October 21, 2011 at 8:05 PM. Reason : no pic]

10/21/2011 7:58:35 PM

Quote :

"It's hard to say. We know that in 2008 and 2009, the Fed was dealing to foreign banks through the discount window. Beyond that, we don't know where the money is going. The dollar is the reserve currency, though, which means that the dollar is probably used in some capacity in most countries. When you also take into account that oil is only traded in dollars, you can see how us exchanging fresh money for oil has a ripple effect; oil goes up in terms of dollars, which in turn raises transportation costs, operating costs, and eventually the cost of food. My position is that when we create money, then trade it for goods at the same rate that those goods were traded at before we created the money, we're ripping people off. Sure, maybe we're only ripping them off a little bit at a time, but it adds up. Fair trade isn't possible without stable, honest currency. It's the classic problem of asymmetric information."

Well I mean at least SOME sort of model would be helpful to look at here, so I could at least plug in some numbers and think a bit more systematically about it. I really wonder how much of these foreign funds are just a drop in the bucket; can't you just check the sectoral balances sheet and see what our foreign balance is, or is the money you're discussing not included in our foreign balance, or what?

After all we don't know where it's going, but we do know it's going overseas. Shouldn't it be on the foreign sector balance?

Speculation on oil and on shit that Glass Steagall used to regulate (IIRC coffee prices recently bumped around due to speculators gettin DAT SKRILLA) can inflate prices as well.

Do you think it's a rip off to go from home telephones to iPhones, or from the level of morbidity in medicine in the 50's compared to now? Yes, the currency is "Worth less" and somebody who sat on money since 1950 would be "ripped off"; but ideally, if distribution of material benefits is egalitarian enough, the improvements in technology and quality of living touch everybody and are accessible to everybody. Really the person getting ripped off the worst in this scenario is the megawealthy, although they're being "Ripped off" in the sense of "Denied feudal privileges".

Quote :

"After a while, you should see general prices increases as the money makes its way into general circulation, but it's not immediate and it depends on money velocity/what the banks are doing. Yeah, you're going to hear a lot of Austrians say, "Print money = higher prices," and that's true, but it doesn't always mean higher prices across the board in some predictable, linear way."

It's true and I agree with a lot of what you're saying and honestly, it doesn't sound like an Austrian dude to me. This is why I had to open you up a bit because I was starting to get sceptical over time that we were speaking the same language, etc.

I want to point out that I don't honestly think inflation is a bad thing across the board; of course, it depends on who gets the money (and you said this). If you dump money to the creditors and rentiers obviously you're putting society in a bad position; if you give it to grandma and the working class in the form of wages (and use that labor power to solve issues that the private sector is not equipped to solve without guidance), consumer goods inflate, but it also allows these folks to inflate out of their debt some as their wages rise. Seeing as how I don't consider this a morality play (or insofar as I do, social consequences matter), I don't see a problem with forcing creditors to tighten their belts. I also don't see why we should take on deflationary policies that do nothing but serve to make debts more valuable and the wealthy more powerful.

10/22/2011 9:59:09 AM

Here's the most recent image of sectoral balances I could find:

10/22/2011 10:02:14 AM

Quote :

"The CPI used to include the value of a house in calculating inflation and now they use an estimate of what each house would rent for -- doesn't this switch simply lower the official inflation rate? No. Until 1983, the CPI measure of homeowner cost was based largely on house prices. The long-recognized flaw of that approach was that owner-occupied housing combines both consumption and investment elements, and the CPI is designed to exclude investment items. The approach now used in the CPI, called rental equivalence, measures the value of shelter to owner-occupants as the amount they forgo by not renting out their homes. The rental equivalence approach is grounded in economic theory, receives broad support from academic economists and each of the prominent panels, and agencies that have reviewed the CPI, and is the most commonly used method by countries in the Organization for Economic Cooperation and Development (OECD). Critics often assume that the BLS adopted rental equivalence in order to lower the measured rate of inflation. It is certainly true that an index based on home prices would be more volatile, and might move differently from other CPI indexes over any given time period. However, when it was first introduced, rental equivalence actually increased the rate of change of the CPI shelter index, and in the long run there is no evidence that the CPI method yields lower inflation rates than some other alternatives. For example, according to the National Association of Realtors, between 1983 and 2007 the monthly principal and interest payment required to purchase a median-priced existing home in the United States rose by 79 percent, much less than the rental equivalence increase of 140 percent over that same period."

http://www.bls.gov/cpi/cpiqa.htm#Question_2

@LoneSnark: shouldn't people getting pushed out of home-ownership inflate rent? If CPI is actually keyed to estimates of possible rental value, shouldn't that imply the opposite of what you say above?

[Edited on October 22, 2011 at 2:07 PM. Reason : .]

10/22/2011 2:07:34 PM

Quote :

"Well I mean at least SOME sort of model would be helpful to look at here"

You want a model of a chaotic system and will attempt to draw conclusions from that? You'd make a great economist...sociologists... economist.

Quote :

"the improvements in technology and quality of living touch everybody and are accessible to everybody"

What in the world are you trying to say? That inflation has been a factor in technology and productivity enhancements?

Quote :

"I also don't see why we should take on deflationary policies that do nothing but serve to make debts more valuable and the wealthy more powerful."

So why not just print money into infinity?

10/22/2011 5:45:45 PM

If you can't produce any kind of model for your speculations about how the economy functions then you might as well be reading from goat entrails and calling them market outlooks.

10/24/2011 12:18:42 PM

Oh wait I think the WSJ already does that...

10/24/2011 12:21:41 PM

You bring up a good point...banks/fed reserve/Chicago Economists likely would have just as much success with an entrails model for housing prices as the ones they used.

10/24/2011 5:20:51 PM

Quote :

"What in the world are you trying to say? That inflation has been a factor in technology and productivity enhancements?"

Not at all. I'm saying that increases in price level don't come with disastrous social effects if wages keep up and society is generally equitable with its material advancements. Everybody's heard the old guy bitching that a nickle used to buy a candy bar; but a hundred dollars didn't used to buy a portable computer, and that difference makes a difference (assuming most people can afford 100 dollars, which has to do with another issue altogether: ethical wages). Progress has to get financed somehow, and sometimes, in order to make progress socially acceptable (without unethical consequences to a lot of human beings), we have to shift debts around. To assume that we should never have to do such a thing is to assume that we can perfectly tune our society.

Quote :

"So why not just print money into infinity?"

I'm assuming you can draw the obvious conclusions here.

10/24/2011 5:43:16 PM

Quote :

"I'm saying that increases in price level don't come with disastrous social effects if wages keep up and society is generally equitable with its material advancements."

I think it's pretty much a disaster that you can't perform a unit of labor today and expect to be able to decide at ANY point between now and in the future how you want to exchange your labor for whatever it is you want to exchange it for.

Quote :

"but a hundred dollars didn't used to buy a portable computer, and that difference makes a difference"

Terrible example. New technologies making us more productive has nothing to do with the money supply (which was why I asked wtf you were and apparently still are talking about).

Quote :

"Progress has to get financed somehow, and sometimes, in order to make progress socially acceptable (without unethical consequences to a lot of human beings), we have to shift debts around."

Well, no argument here. That says nothing of inflation though.

Quote :

"To assume that we should never have to do such a thing is to assume that we can perfectly tune our society."

Never do what? Inflate away debts?

Quote :

"I'm assuming you can draw the obvious conclusions here."

You said that deflation is something to be avoided and that inflation (I'll assume mild) isn't. I can only assume if inflation isn't to be avoided, then lots of inflation isn't to be avoided.

I'm sure you'll latch on to this comment with way more angst than it deserves: but over the past 6-12 months you've been doing an outstanding and increasing job of posting in this high brow way that I can only imagine is the norm in academia where intellectual egos must constantly be stroked and you guys must play the role of scholar whether you really are or not. But the soap box demands brevity and to the point-ness that this type of tripe just isn't meeting. You thinking you're saying a lot but you're really saying nothing at all here.

10/24/2011 6:58:30 PM

Chance I am not trying to say the moving around of price levels are intrinsically tied to anything resembling technological progress, or whatever. Clearly there's nothing you can do *purely* in monetary theory (without thinking about recipients and actors in the real economy and the material conditions they act/decide in). My comments thus far have been trying to demonstrate that fundamental disconnection, but also, demonstrate that changing conditions may mandate the expansion of monetary supply. If done properly, people in general can survive the rise in price levels. This is what I was talking about before with respect to accessibility; the crest of progress isn't the only important factor in life, we should care about the social conditions and consequences of our policies too.

Quote :

"You said that deflation is something to be avoided and that inflation (I'll assume mild) isn't. I can only assume if inflation isn't to be avoided, then lots of inflation isn't to be avoided."

I didn't make any such blanket claim. Certain conditions call for certain actions. You've taken my stance towards a type of inflation in today's environment as a call not only for inflation at ANY point in time in ANY set of conditions, but also as a call for limitless amounts of it. Can you see why that's a ridiculous extension of what I'm saying, or do I really have to guard against this level of uncharitable hyperbole every time I post?

Edit: I'd like to point out I'm trying extra hard to be patient here, so please don't insult me. I try to write as simply and precisely as I possibly can, so you're going to have to take that at face value.

[Edited on October 25, 2011 at 2:11 PM. Reason : .]

10/25/2011 2:04:50 PM

Quote :

"I try to write as simply and precisely as I possibly can"

You seem to have some sort of an argument worked out in your head, but as best I can tell, you haven't really made one. Well, at least not one you're supporting with anything other than conjecture.

Quote :

" but also, demonstrate that changing conditions may mandate the expansion of monetary supply."

Ok, but you haven't yet articulated those conditions. You've made references to a mythical model that you would like to hand wave into existence to begin the discussion...but it's pretty clear we aren't anywhere near able to do that and likely never will be so long as chaos is a real thing. Oh sure, you'll scoff that this is an absurd thought but so far all evidence we have of actually doing the things you suggest (causing inflation via money printing) only harms the human race so either the model exists and is being wielded for purely devious methods or we have a model that is being wielded that doesn't reflect reality and only results in negative outcomes for humanity.

Quote :

"If done properly, people in general can survive the rise in price levels."

You're going to have to start being more specific than "survive".

Quote :

"we should care about the social conditions and consequences of our policies too"

Oh I do. I can't fathom someone making such a statement would believe that any policy of direct and purposeful inflation would be a good one.

Quote :

" Certain conditions call for certain actions."

Well, no. All we should do is ensure property is protected and contracts are honored.

Quote :

"You've taken my stance towards a type of inflation in today's environment as a call not only for inflation at ANY point in time in ANY set of conditions, but also as a call for limitless amounts of it. Can you see why that's a ridiculous extension of what I'm saying"

Until you actually attempt to define even a minimal set of parameters where inflation is just and how much of it is just I can only assume your level of 'ok' inflation could be anything from 0 to some arbitrarily large number so I'll go ahead and set it at infinity and let you work backwards from there.

10/25/2011 7:11:43 PM

Honestly I'm more interested in hearing what LS and destroyer have to say, in continuing the thread of discussion above. I honestly think you and I are incapable of really talking about this, I'm not really willing to pick the pieces up at the moment to figure out how to connect right now.

10/25/2011 8:26:42 PM

So being unable to articulate a cogent argument is another hallmark of CM or what?

10/25/2011 9:28:43 PM

Dude we are unable to talk because we'd have to go right back to the foundations of everything. It's clear we're not using words the same, we don't have the same idea of what science, theories, modeling is, etc etc. It's like the definitions/concepts we use are mismatched across the board; haven't you noticed this same issue when you talk to Kris? The discussions always seem to descend into utter confusion with you, and so I want to return back to the somewhat more understandable/cogent part of the thread, which destroyer and lonesnark have bowed out of since you came in to play their Patsy.

10/25/2011 10:44:36 PM

Quote :

"Well I mean at least SOME sort of model would be helpful to look at here, so I could at least plug in some numbers and think a bit more systematically about it. I really wonder how much of these foreign funds are just a drop in the bucket; can't you just check the sectoral balances sheet and see what our foreign balance is, or is the money you're discussing not included in our foreign balance, or what? After all we don't know where it's going, but we do know it's going overseas. Shouldn't it be on the foreign sector balance?"

Looking at sector balances won't tell us which specific institutions get the money, which is a major factor when trying to predict price increases. There is a human element at play, since a person (or group of people) is always making some judgment concerning how they will use their cash.

Quote :

"Do you think it's a rip off to go from home telephones to iPhones, or from the level of morbidity in medicine in the 50's compared to now? Yes, the currency is "Worth less" and somebody who sat on money since 1950 would be "ripped off"; but ideally, if distribution of material benefits is egalitarian enough, the improvements in technology and quality of living touch everybody and are accessible to everybody. Really the person getting ripped off the worst in this scenario is the megawealthy, although they're being "Ripped off" in the sense of "Denied feudal privileges"."

That's not a rip off, because the value of a home telephone versus an iPhone is completely subjective and determined at the time of availability. Yes, currency devaluation is a rip off.

Inflation hits the poor much worse than the megawealthy. The super rich won't keep their wealth in cash when there are much higher yielding options; a 3-10% annualized inflation rate will be a drop in the bucket for them. The working class usually has no wealth, has a small amount of cash savings, and gets paid in cash. That's a substantial cut in purchasing power for them.

Sure, you could say that wages will outpace the rate of inflation and unemployment...but will they? They certainly aren't now. It all depends on the central bank setting interest rates. Now, perhaps you believe that the perfect (or close enough to perfect) market interest rate could be determined. I think we'd be better off letting the market (i.e. people) determine interest rates and avoid the system-wide boom bust cycle.

Quote :

"I want to point out that I don't honestly think inflation is a bad thing across the board; of course, it depends on who gets the money (and you said this). If you dump money to the creditors and rentiers obviously you're putting society in a bad position; if you give it to grandma and the working class in the form of wages (and use that labor power to solve issues that the private sector is not equipped to solve without guidance), consumer goods inflate, but it also allows these folks to inflate out of their debt some as their wages rise. Seeing as how I don't consider this a morality play (or insofar as I do, social consequences matter), I don't see a problem with forcing creditors to tighten their belts. I also don't see why we should take on deflationary policies that do nothing but serve to make debts more valuable and the wealthy more powerful."

I agree that it would be better for fiat monetary injections to occur at a lower/middle class level, but I can't imagine a system that would allow that to happen beyond a short-term basis. Yes, ideally, you'd have a system where the money supply did grow and new currency was only exchanged for productive or beneficial labor. That's not how it ever ends up playing out, though. A bureaucracy arises, and the bureaucrats care more about their own job security than doing any real work. The "waste" gets rolled into the currency, it's subtle enough that no one cares too much, and the ever-expanding state rolls on.

As I mentioned above, I don't think inflation benefits the rich as much you think. Yes, inflation makes debt go away, but it also takes away purchasing power. Furthermore, it encourages the running up of debt where it would not normally occur, and it discourages savings and thrift. Deflation encourages thrift, inflation encourages consumption and waste.

What's so bad about deflationary pressure anyway? The theory is that if people know their currency will be worth more next year, they'll hold off on buying. Is it not clear that people are willing to buy the things they want now, even if it may be easier to come by later?

[Edited on October 25, 2011 at 11:40 PM. Reason : ]

10/25/2011 11:38:13 PM

Quote :

"Dude we are unable to talk because we'd have to go right back to the foundations of everything."

Yeah, I think that is fairly clear. You're a slavish devotee of the macro and those type of people have been at the forefront of the destruction of our economy and are in need of re-education.

Quote :

"we don't have the same idea of what science, theories, modeling is, etc etc."

Science? Economist? I realize having someone tell you we aren't capable of modeling the macro in any useful way sort of blows your mind and you just aren't entertaining the thought. But all evidence points to we aren't able to do it and have a sufficiently small range of expected outcomes. Would you like to give me one example where we can?

10/26/2011 7:00:47 AM

Quote :

"Looking at sector balances won't tell us which specific institutions get the money, which is a major factor when trying to predict price increases. There is a human element at play, since a person (or group of people) is always making some judgment concerning how they will use their cash. "

I agree, but unless the funds you're talking about are not on the foreign balance, those funds would have had to switch hands suddenly from "normal" recipients to abnormal ones which would have driven the inflation you're pointing to. This is what I'm trying to get a grasp of; given the mass of what's in the balance sheet, I find what you're saying implausible; the foreign balance has been increasing but at a leveled-off (and decreased) rate. The rate seems more under control than the period between 2001 and 2008 ... so are you saying that the increases (or that a large amount of pre-existing balance) was shifted over to new recipients that drove the current inflation? I am just looking for something resembling evidence is here, as I acknowledge the possibility of a price-level increase if the right people get enough money.

Quote :

"That's not a rip off, because the value of a home telephone versus an iPhone is completely subjective and determined at the time of availability. Yes, currency devaluation is a rip off."

Yet the value of currency is not subjective and determined at the time of availability? There are a lot of things money can't buy. Plus the bearishness of the public will also determine the value of money, along with how valuable we consider long-term investment to be. You have to keep the finance motive for acquiring money in mind; money is a link between the past and the future, allowing for production time or times between gluts of remittance.

Quote :

"Inflation hits the poor much worse than the megawealthy. The super rich won't keep their wealth in cash when there are much higher yielding options; a 3-10% annualized inflation rate will be a drop in the bucket for them. The working class usually has no wealth, has a small amount of cash savings, and gets paid in cash. That's a substantial cut in purchasing power for them."

Just a minute ago you admitted it matters who gets the money and who doesn't. Did the inflation of the past century drown the poor? Inflation can be extremely bad for the wealthy as it devalues debts (and the wealthy are holding debt over everybody's head at the moment). Nobody's suggesting we run up the price of consumer goods without compensating the working poor/class more.

Quote :

"Sure, you could say that wages will outpace the rate of inflation and unemployment...but will they? They certainly aren't now. It all depends on the central bank setting interest rates. Now, perhaps you believe that the perfect (or close enough to perfect) market interest rate could be determined. I think we'd be better off letting the market (i.e. people) determine interest rates and avoid the system-wide boom bust cycle."

Wages aren't keeping pace at the moment because of:
(1) free trade
(2) automation (robotics and computing)
(3) increased population / work force (women now are encouraged to seek full time employment as well)

I'm not saying any of these 3 things are negative "in themselves", but given the advancement of our society they've led to bad things. Obviously we want computer programs and robots doing mindless or repetitive work, freeing those workers to do other things with their time instead. It's the "do other things with their time instead" that's the catch; in a monetary economy they need to be able to sell their labor for money, which they can then use to purchase goods, services, shelter, etc to get by. Simply cutting people loose in adulthood isn't good for anybody (except the streamlined economy that casts them off, caring not about the social consequences).

Quote :

"I agree that it would be better for fiat monetary injections to occur at a lower/middle class level, but I can't imagine a system that would allow that to happen beyond a short-term basis."

Public sector jobs

Quote :

"Yes, ideally, you'd have a system where the money supply did grow and new currency was only exchanged for productive or beneficial labor. That's not how it ever ends up playing out, though. A bureaucracy arises, and the bureaucrats care more about their own job security than doing any real work. The "waste" gets rolled into the currency, it's subtle enough that no one cares too much, and the ever-expanding state rolls on."

You know, it's silly to throw your hands up in the air because political processes can be corrupted. Clearly they can, and that's why political fights are necessary. Just because people can use a tool badly doesn't mean you scrap the tools and return to a world rife with inefficiency and social misery. This is the argument of an anti-gun fanatic, adapted to financial issues: "But you could kill someone with that gun!" Why yes, and also, hunting and legitimate protection just got a boatload easier. How about we just use guns properly rather than ban them? I'm suggesting we use our democratic institutions more wisely (and the notion of democratic sharing of power / executive control) rather than simply abandoning democracy to the form of democracy that LoneSnark would like (where you vote with your dollars rather than your personhood).

Quote :

"What's so bad about deflationary pressure anyway? The theory is that if people know their currency will be worth more next year, they'll hold off on buying. Is it not clear that people are willing to buy the things they want now, even if it may be easier to come by later?"

Yes and when they hold off buying, they save, dropping outputs and as a result employment. Employment drops in this scenario when entrepreneurs react to save their own skin (which is clearly understandable, you can't run a negative balance sheet indefinitely, and dues must be paid). Think about what would happen if a society at full employment suddenly kicked off a "thrift campaign" where the public started saving a lot more than it used to.

Quote :

"Yeah, I think that is fairly clear. You're a slavish devotee of the macro and those type of people have been at the forefront of the destruction of our economy and are in need of re-education."

Let's focus less on my re-education and more on your education. I'm not a "slavish devotee of the macro" to believe that some relationships in data are identifiable, I think you simply don't understand my position and are extremely anxious to pretend you do so, so that you can flame me. I think you did a better job with flame wars in chit chat, since all you had to do was scan a photo gallery for data.

Quote :

"Science? Economist? I realize having someone tell you we aren't capable of modeling the macro in any useful way sort of blows your mind and you just aren't entertaining the thought. But all evidence points to we aren't able to do it and have a sufficiently small range of expected outcomes. Would you like to give me one example where we can?"

No it doesn't "blow my mind", in fact many of my favorite economic thinkers were skeptical that some grand model could actually work out all of the details in mathematics (Keynes is a pretty good example; does it blow YOUR mind that you and him share positions?). Of course a lot of these guys wrote at a time where mathematics OR computing were not advanced enough to empirically test models rigorously ... and who knows, maybe we'll actually be able to achieve analytic results for complex dynamic systems such as this in the future (after all, it only takes the proper analogy to get it right; yes I know you think "analogies" are intellectual failures, but the entire intellectual tradition of the Earth has some beef with that idea).

This is why many economists, even today, still include a lot of informal discussion of their models and their implications. While today formal methods are more ubiquitous in economics (as a mark of "rigor"), economists used to simply build models for certain kinds of logical relationships that they posited, to test the conclusions. Nobody takes the naive realist position you want to attribute to them.

Plenty of liberal economists have predicted the nature of today's inflation (yes, even the dreaded ~~~KRUGMAN~~~~). By the way, I wrote "Krugman" and "Keynes" in the same post, so I made it easy for you to skim and dismiss. It doesn't take a rocket scientist to have realized these QE events wouldn't have driven massive inflation (and weren't driving the temporary blips in commodity prices); all it takes is a realization that there was no mechanism for the money to make it into circulation in a way that would matter to the price-levels we associate with "bad, scary inflation".



Chance you really need to just calm down, get less angry and less intent to "own people", and simply listen/read more with an open mind. I'm surprised that after all of the time I've seen you engaged in discussing these sorts of issues that you are still so crammed up on so much, or at the very least, unaware of what liberal economists say (and how much overlap you do or don't have in your personal beliefs). Is an economy a massive non-linear dynamic system that's hard as fuck (probably impossible in practice) to model to every last little bit? Absolutely. Does that mean we can't say anything useful about setting the terms of lending, setting banking regulations, setting labor laws, etc, to combat what we DO know about economies? Of course not.

[Edited on October 26, 2011 at 8:53 AM. Reason : .]

10/26/2011 8:50:45 AM

Quote :

"I am more attached to the comparatively simple fundamental ideas which underlie my theory than to the particular forms in which I have embodied them. . . [For the classical economists] facts and expectations were assumed to be given in a definite and calculable form. . . The calculus of probability . . . was supposed to be capable of reducing uncertainty to the same calculable status as that of certainty itself. . . Actually, however, we have, as a rule, only the vaguest idea of any but the most direct consequences of our acts. . .I accuse the classical theory of being itself one of those pretty, polite techniques which tries to deal with the present by abstracting from the fact that we know very little about the future."

From Keynes's collected works (XIV: 112-13, 115), quoted in the Cambridge Companion (thus the formatting). Contrast this with the philosophy you're trying to pin on your vaguely defined "leftist/socialist/Keynesian" enemy (to which you sometimes throw in "Chicago", presumably only to amuse me).

10/26/2011 11:38:16 AM

From Ch 2 of The Cambridge Companion to Keynes:

Quote :

"“Keynes’s claim that the existence of uncertainty, in the sense of uncertainty that cannot be reduced to probability, has provided the justification for a more radical interpretation of the Keynesian revolution, which has been described in such terms as ‘fundamentalist’ or ‘chapter 12’ Keynesianism (cf. Coddington 1983: ch. 6). Where Hicks, Samuelson, Modigliani, Patinkin and the other architects of the neo-classical synthesis interpreted the Keynesian economics using standard price theory, in which supply and demand depend on the actions of rational, maximizing agents, fundamental Keynesianism claimed that Keynes was challenging the foundations of orthodox price theory; orthodox Keynesians were therefore missing the point of Keynes’s revolution. Fully specified, determinant models such as the IS-LM model or Patinkin’s model miss the point of the General Theory, for Keynes’s argument is that no model can be specified (Loasby 1976: 167).”"

(Article by Roger E. Backhouse, "The Keynesian Revolution")

It's worth adding that these arguments are still quite alive (how to best interpret Keynes's standpoint w.r.t. modelling and theorizing), but nobody pins on him the "we can forecast everything from God's perspective and do what's best" line that you try to heap on everybody other than yourself (who seems to deserve the bulk of this criticism). You always declare the "impossibility" of forecasting, inference, prediction, etc, and then in the same breath go on to talk about the "evidence" for your views. Remind me how you square any evidence with your theory whatsoever without a notion of forecasting or prediction with which to compare the evidence?

When I ask Destroyer for some sort of model, I'm simply asking him to put his ideas on relatively clear display so that I can examine them for myself. I'm not asking for the true-theory of the economy (whatever that would look like), or a set of differential equations, or any of that crap. Just an informal, prosaic model will do, that at least allows me to roughly check proportions, intuitions, assumptions, etc. Is this seriously so hard to understand?

[Edited on October 26, 2011 at 12:28 PM. Reason : .]

10/26/2011 12:03:22 PM

Quote :

"With that said, I think the CPI weighs housing far too heavily, and it completely ignores the cost of food and energy."

Destroyer, as demonstrated above, the CPI does not weigh "housing" prices, but rather, specifically the estimated price of rent. Why should this be deemed irrelevant for working class folks who don't own their own homes?

[Edited on October 26, 2011 at 12:41 PM. Reason : .]

10/26/2011 12:34:57 PM

bump

10/27/2011 3:12:29 PM

Quote :

"I agree, but unless the funds you're talking about are not on the foreign balance, those funds would have had to switch hands suddenly from "normal" recipients to abnormal ones which would have driven the inflation you're pointing to. This is what I'm trying to get a grasp of; given the mass of what's in the balance sheet, I find what you're saying implausible; the foreign balance has been increasing but at a leveled-off (and decreased) rate. The rate seems more under control than the period between 2001 and 2008 ... so are you saying that the increases (or that a large amount of pre-existing balance) was shifted over to new recipients that drove the current inflation? I am just looking for something resembling evidence is here, as I acknowledge the possibility of a price-level increase if the right people get enough money."

There isn't any evidence that I know of that would meet your requirements. We know for a fact that the money is going through the Fed's discount window to European banks, but compared to the overall economy, the injection could be (and probably is) less than 1% of the total European and U.S. economy. Depending on where the bank sends the money, you could see prices jump in three or four products/services and nothing else. I'm not going to speculate.

Quote :

"Yet the value of currency is not subjective and determined at the time of availability? There are a lot of things money can't buy. Plus the bearishness of the public will also determine the value of money, along with how valuable we consider long-term investment to be. You have to keep the finance motive for acquiring money in mind; money is a link between the past and the future, allowing for production time or times between gluts of remittance."

It is subjective, but consider these two scenarios:

Nation A trades 100 of their currency for 50 of Nation B's currency
Nation A creates 100 of their currency and trades it for 50 of Nation B's currency.

In the first scenario, Nation A lost 100 of their currency but got some of Nation B's currency. In the second scenario, Nation A lost nothing, and Nation B got a slightly devalued amount of currency.

Quote :

"Just a minute ago you admitted it matters who gets the money and who doesn't. Did the inflation of the past century drown the poor? Inflation can be extremely bad for the wealthy as it devalues debts (and the wealthy are holding debt over everybody's head at the moment). Nobody's suggesting we run up the price of consumer goods without compensating the working poor/class more. "

That's exactly what happens, though. When you have price inflation, that hits the employer too. The employer has to buy capital and has operating expenses.

Yes, right now, inflation benefits debtors...sometimes. But, in a free market with free banking, you'd have much less debt and a lot more savings. That's what we need to get back to. Banks should not be allowed to pyramid debt like they do.

Quote :

"Public sector jobs"

There's a big problem with public sector jobs, which I discussed in the OWS thread.

Quote :

"You know, it's silly to throw your hands up in the air because political processes can be corrupted. Clearly they can, and that's why political fights are necessary. Just because people can use a tool badly doesn't mean you scrap the tools and return to a world rife with inefficiency and social misery. This is the argument of an anti-gun fanatic, adapted to financial issues: "But you could kill someone with that gun!" Why yes, and also, hunting and legitimate protection just got a boatload easier. How about we just use guns properly rather than ban them? I'm suggesting we use our democratic institutions more wisely (and the notion of democratic sharing of power / executive control) rather than simply abandoning democracy to the form of democracy that LoneSnark would like (where you vote with your dollars rather than your personhood)."

It's not that they can be corrupted...it's that they will be corrupted. And, sometimes when they get corrupted, the central body has so much taxing power that they can raise gigantic armies and destroy entire nations. I want to avoid having that much power placed in the hands of any one entity.

Quote :

"Yes and when they hold off buying, they save, dropping outputs and as a result employment. Employment drops in this scenario when entrepreneurs react to save their own skin (which is clearly understandable, you can't run a negative balance sheet indefinitely, and dues must be paid). Think about what would happen if a society at full employment suddenly kicked off a "thrift campaign" where the public started saving a lot more than it used to. "

Nope. Employers get the benefit from deflation too, since they have to buy stuff to operate.

Quote :

"Destroyer, as demonstrated above, the CPI does not weigh "housing" prices, but rather, specifically the estimated price of rent. Why should this be deemed irrelevant for working class folks who don't own their own homes?"

The estimated price of rent is connected to home prices, but at the end of the day it's an aggregated figure that doesn't give us a good picture. If home prices (and rent) are going down because of an inflationary bubble bursting, but gas and food are going up, then it might show that inflation is low or even negative, but expansionary policy is still responsible for the price fluctuations.

[Edited on October 27, 2011 at 4:23 PM. Reason : ]

10/27/2011 4:22:53 PM

Quote :

"we don't have the same idea of what science, theories, modeling is, etc etc"

How would you know? You're not bothering to read what I post. I'm echoing comments that Hayek has made about economics and you're twisting that into me not understanding science, theories, modeling? I'm telling you it is my (and Austrians) belief that our current capability is such that we can't collect enough data and once having it create a good enough model such that we can make tweaks to the system at a macro level and really understand what is going to happen. This statement is in direct response to this:

Quote :

"Well I mean at least SOME sort of model would be helpful to look at here, so I could at least plug in some numbers and think a bit more systematically about it."

More on this topic:

Quote :

"we can forecast everything from God's perspective and do what's best" line that you try to heap on everybody other than yourself"

This is a position you've imagined I have. I probably haven't articulated it very well but seeing these comments:

Quote :

"Chance you really need to just calm down, get less angry and less intent to "own people""

I tend to err on the side of you not giving due diligence to the statements. I did say this:

Quote :

"But all evidence points to we aren't able to do it and have a sufficiently small range of expected outcomes."

To which this would be a reasonable reply:

Quote :

"Does that mean we can't say anything useful about setting the terms of lending, setting banking regulations, setting labor laws, etc, to combat what we DO know about economies? Of course not."

except that it is jumping to a conclusion that has no evidence. For any given outcome over the past 100 years (and then some, really), you can find arguments from multiple positions about what were the root causes. That is the raging debate in all economic circles. So for you to state with such certainty that we know (literally, as if it is a shut case) while I am sitting here telling you that we clearly do not know based on the evidence is just...I don't even.

Quote :

"It's worth adding that these arguments are still quite alive (how to best interpret Keynes's "

I've made no references to Keynes in this thread.

Quote :

"Remind me how you square any evidence with your theory whatsoever without a notion of forecasting or prediction with which to compare the evidence?"

Again, are you daft? It's like you see the words I post but because of a mental block you're refusing to entertain them. I am specifically saying the forecasting and prediction with any useful certainty is impossible.

Quote :

"Just an informal, prosaic model will do"

And yet, you're apparently oblivious that he is giving you your answer (and confirming my own comments):

Quote :

"Beyond that, we don't know where the money is going"

Quote :

"There is a human element at play"

Quote :

"There isn't any evidence that I know of that would meet your requirements."

Quote :

" Depending on where the bank sends the money"

[Edited on October 27, 2011 at 5:50 PM. Reason : .]

10/27/2011 5:36:53 PM

Quote :

"I am specifically saying the forecasting and prediction with any useful certainty is impossible."

lmao, conversation over. Enjoy Hayek I guess, I'll be busy studying the real world.

(seriously get fucking lost, I don't even care if you threaten to kill my grandkids I ain't postin with you no more. I'd really rather type in a journal.)

Quote :

"There isn't any evidence that I know of that would meet your requirements. We know for a fact that the money is going through the Fed's discount window to European banks, but compared to the overall economy, the injection could be (and probably is) less than 1% of the total European and U.S. economy. Depending on where the bank sends the money, you could see prices jump in three or four products/services and nothing else. I'm not going to speculate."

Well you see why I reject the monetary end of your explanation then, for this particular case (right now), without rejecting the general possibility of those conditions EVER existing?

Quote :

"The estimated price of rent is connected to home prices, but at the end of the day it's an aggregated figure that doesn't give us a good picture. If home prices (and rent) are going down because of an inflationary bubble bursting, but gas and food are going up, then it might show that inflation is low or even negative, but expansionary policy is still responsible for the price fluctuations."

Yeah certainly, but if those prices are supported because working class consumers have more buying power, I'm having trouble imagining how rents wouldn't rise as well. When people get pushed out of their houses in a crash like the one we just saw, this increases congestion in the market for apartments. http://online.wsj.com/article/SB10001424052970203911804576653403871400400.html

Quote :

"That's exactly what happens, though. When you have price inflation, that hits the employer too. The employer has to buy capital and has operating expenses."

But again it depends on which prices are inflating. There's no way to address this otherwise. What you're saying doesn't hold generally.

Quote :

"Nation A trades 100 of their currency for 50 of Nation B's currency Nation A creates 100 of their currency and trades it for 50 of Nation B's currency. In the first scenario, Nation A lost 100 of their currency but got some of Nation B's currency. In the second scenario, Nation A lost nothing, and Nation B got a slightly devalued amount of currency."

Nothing wrong with your argument, but if you want it to correspond to the real world then you need to adjust the proportions drastically. Again: the argument is valid, and I agree there's a devaluation, but to really get the perspective straight for real world discussions you shouldn't use such bloated numbers, it stretches the intuitions.

Quote :

"Yes, right now, inflation benefits debtors...sometimes. But, in a free market with free banking, you'd have much less debt and a lot more savings. That's what we need to get back to. Banks should not be allowed to pyramid debt like they do."

You realize that savings can kill output, and thus employment, right?

Quote :

"It's not that they can be corrupted...it's that they will be corrupted. And, sometimes when they get corrupted, the central body has so much taxing power that they can raise gigantic armies and destroy entire nations. I want to avoid having that much power placed in the hands of any one entity."

I know that's what you want, but it's also what massive deregulation and a move toward a "free" market would affect. I know you think there's no mechanism by which this happens, and I know you don't care how many actual economists/mathematicians/game-theorists have done the modeling (or that the models are logical extensions of your actual theoretical bedrock), but the work is out there. You really should check it out, at least as an internal consistency check.

Quote :

"Nope. Employers get the benefit from deflation too, since they have to buy stuff to operate."

You keep pointing out that relative price levels are important, but it doesn't seem like you've internalized it yet.



[Edited on October 27, 2011 at 7:13 PM. Reason : .]

10/27/2011 6:54:50 PM

Quote :

"I'll be busy studying the real world"

Of course you will, it's what humans do. You'll toil your whole life thinking that the work you are doing is going to make the machinations of man a superior system for making life better than the chaos that is the sum of trillions of interactions between billions of people.

Quote :

"You realize that savings can kill output, and thus employment, right?"

And? Markets adjust, it's what they've been doing for...forever.



[Edited on October 27, 2011 at 7:20 PM. Reason : .]

10/27/2011 7:15:39 PM

Quote :

"And? Markets adjust, it's what they've been doing for...forever."

Markets adjust to a high aggregate savings rate by laying off millions of people who did nothing to deserve it and contracting in general. That's not really an adjustment we should be trying to provoke, it leaves the entire economy weaker than it has to be.

10/28/2011 9:43:34 AM

^ Not true. Layoffs engender reductions in consumption and balance sheet repair, which is what is needed during a recession. Recovery cannot resume until consumption patterns are back in line with productivity.

10/28/2011 12:09:17 PM

"In the long run . . ."

10/28/2011 4:20:08 PM

"In the long run, my friend, it's your theory that's dead"

10/28/2011 6:10:10 PM

When you drop a rock into a pond, eventually the waves calm down. That is, unless something else hits the pond. The end.

10/28/2011 10:12:43 PM

http://www.google.com/gwt/x?source=reader&u=http%3A%2F%2Fcafehayek.com%2F2011%2F10%2Fdrunk-with-keynesian-prejudices.html

http://www.google.com/gwt/x?source=reader&u=http%3A%2F%2Fcafehayek.com%2F2011%2F10%2Fquotation-of-the-day-104.html

[Edited on October 29, 2011 at 10:53 AM. Reason : I]

10/29/2011 10:51:33 AM

bump. any real conversation left, or?

10/31/2011 9:08:08 AM

10/31/2011 11:29:26 AM

set 'em up

11/9/2011 2:15:56 PM