Inflation is at a 40 year high. What can history teach us?

That same thing will happen again once we have another huge advancement in technology. What we consider to be expensive and valuable today will be of zero or negative value to someone 100 years from now.

http://blog.jparsons.net/2011/03/shadow-stats-debunked-part-...

https://www.thestreet.com/economonitor/emerging-markets/deco...

https://www.bls.gov/opub/mlr/2008/08/art1full.pdf

> If the price of the S&P 500 for instance is higher due to an asset bubble, it decreases my ability to purchase shares of it.

BLS says that the CPI doesn't track savings, just day-to-day living expenses. And that's okay, people want these indices to do everything. (And the Fed is not even using the CPI, they are using the PCE ... and there's a bunch more https://www.bea.gov/resources/learning-center/quick-guide-so... And the PCE is considered too broad, because it has inputs from businesses, nonprofits, etc. But of course it's not like business costs are irrelevant to the economy...)

That said, I think the biggest problem is that these general indices are used for things like welfare calculations, but they already don't represent the average welfare recipient. So adding equity would make it even less useful for that. (Which is mostly just an argument for having more indices, each representing a large chunk of society. But of course the cynic in me says that we already have one for the important people, the SP500, and poor people only matter when they are undecided voters in swing states.)

> Now, supply is (mostly) recovered, but demand still remains elevated.

Mostly, though basic input like oil is still not at the early 2020 levels. Aaand OPEC cut production just yesterday.

https://ycharts.com/indicators/world_crude_oil_production (5Y chart)

> we are really looking at an “imbalance between supply and demand” due in part to all of economic, social, and political factors.

Yep. And every think tank from the political zoo has their own critique of the actions of the Fed, but monetary policy is simply a blunt tool, and all of the structural problems are ... surprise surprise ... structural conflicts between big powerblocks. (One common laughing stock is the Jones Act. US shipbuilding is basically non-existent, and what's left is useless for "national security" purposes anyway. But it's somehow completely entrenched. Similarly other protectionist policies that serve special interests serve exactly one purpose to enrich members of those special interest groups. It's bad for consumers, it's bad for the economy, it's bad for labor markets, etc.)

All in all there's an argument in this about how the US fucked up the transition during globalization. (The big one is using market access as a carrot in WTO, but then not enforcing reciprocity with China and others. And the lack of any real and effective management of wage deflation in the affected areas, like the rust belt, goes without saying.)

  How Much Does the Ford F-150 Cost?

  The 2022 Ford F-150 starts at $29,990, which is the lowest base price in the full-size pickup truck segment. However, that's for the three-seat Regular Cab, so if you're looking for more room, take note of the Super Cab's $34,075 base price and the SuperCrew's $37,700 MSRP.

The nearest dealer to me had 17 of them ranging in price from USD$34k to USD$62k

"The Price of Tomorrow" by Jeff Booth really nails this concept.

First, you can't get the old vehicle new for cheap. That option is no longer available. You do get an objectively better one, but value is fundamentally subjective.

Marginal economics bridges this gap with consumer choice, but if no choice is available then I don't think you can assume consumers are better off.

In any case, I think inflation is a backwards lens through which to examine vehicle prices. The primary mover is industrial learning curves. Inflation is downstream.

In the 20s, when domestic car sales increased annually, the auto manufacturing industry was constantly growing. Factory efficiency increased every year and prices came down every year. The model T got cheaper every year, not just better.

Part of what caused the depression was this process maturing. Auto sales peaked. Manufacturing volume stopped growing. Efficiency stopped growing with it.

This breaks many financial assumptions/instruments and results in deflation, or rather, a local quanta of deflation. Growth industries can vary a lot of long term debt/equity/promises. Shifting from one state to another is deflationary/deleveraging.

Anyway, vehicles stopped getting cheaper 100 years ago. They get better/nicer gradually. Not cheaper though, ever.

But yeah housing is a better example. We really fucked that one up didn’t we?

Healthcare is hard because we have so many better technologies, but worse outcomes so the price increase is arguably not worth it. Maybe this one is like the truck. Lotta new technology, at the end of the day not better.

Are modern pickup trucks objectively safer than modern cars, or is it more about the perception of driving something that feels it's half way to being an armoured vehicle?

In Europe almost no-one drives around in a truck. Even the tradespeople (carpenters, plumbers, roofers, gardeners, heating installers, you name it) all drive light vans, not trucks.

Now for money on your bank that pays interest it's not necessarily better. The bank can be robbed or simply go bankcrupt. And since the money there was used by the bank for various things, there's no guarantee you'll get it back. This inherent risk needs to be priced into the ROI.

So IF the government always saves banks with buyout, then yes. That's also why I believe it's not a great idea and people of such a bank should lose at least a part of their assets/savings to understand the fact that the money isn's just stored by the bank.

The rich aren't rich through this route, although things they do mean that bank interest rates are a guaranteed return for people who are less risk-tolerant. They're rich through one or more of: risk-taking, talent, hard work, luck, connections, etc, all of which feed into the one thing that makes them money: usefulness to other people.

Personally I like to think of it as, the US govt guarantees a return on overnight cash based on the Federal funds rate. Banks and other people that hold cash will give you that rate minus some fee(s) for the hassle of keeping up with your cash for you. Most banks have a very hefty fee, but not all banks.

As of this writing:

The Federal Reserve will pay 2.56% for cash deposited with them.

Bank Of America pays 0.01%, for a fee of 2.55%/yr.

Ally bank pays 2.25% for their savings account for a cost of .31%/yr

If you are willing to hold cash in an ETF, ICSH will hold cash for a 0.08%/yr fee.

For the record, I'm not against Bank Of America, I have an account with them, but I don't hold much, if any, cash with them for any length of time, because I know they charge a lot for that service.

What theory of science dictates infrastructure is the best place to spend it? If the answer is none, it’s a purely social policy and you’re spewing politically correct memory. That infra spend is not an immutable law of reality means there are options other than “poison the sky with expansive vanity projects.”

Even then, there’s plenty of money for both, and human agency available for both. We can stop pretending money is what drives human invention and discovery. It’s politically correct spoken tradition since it’s not an immutable law; how we feel about other economic choices is a range of possibilities, not just the ones we have been raised to speak of

Infrastructure for low density suburbs is a money pit that bankrupts cities.

Here is a good playlist that explains why this is the case:

https://www.youtube.com/watch?v=y_SXXTBypIg&list=PLJp5q-R0lZ...

The economy might be the aggregate production of society, but the distribution of the fruits of that production are not meaningless.

Nobody is proposing a return to subsistence farming, but some of us are willing to trade off a higher GDP for more equal distribution.

A labourer making daily wages and supplemented by govt dollars will spend all of it. A millionaire with a few millions in the bank is not going to spend any of it. Especially during an overheated inflationary period. It’s better spent to the most vulnerable to pay for their food, gas and utilities.

This is exactly what needs to be done to keep spending going. It’s spending from a healthy and happy middle class that keeps the economy going. Can’t freeze them out. Not implementing measures like this would collapse the economy.

An economy with hopeless disenfranchised hungry poor majority is exactly the first ingredient in the recipe for revolts and revolutions.

Also..it’s heartless to not share a surplus to people who are suffering. We are a rich country. No one died because someone else got a little extra money to pay their electricity bill or gas.

Yes but the energy crisis isn't evenly distributed across the world. NA, for example, is still doing relatively well. While Europe is being hit relatively hard by the shortage and will likely have to import from more expensive sources than previous years to make it through the winter.

Though this action is redistributive, it is explicitly not about printing money. It is about spending excess tax dollars. You may have opinions about taxes in the state, and you may have opinions about redistribution, but overall if the state temporarily has a surplus (ie it shouldn't put this money towards increasing long running programs that will become a burden in future years), shouldn't it give that money back to the citizens in some form?

Think again. You can't create energy by cutting taxes either. The tax cut can only be spent on energy, exacerbating the problem by making wasting energy much cheaper.

A check on the other hand discourages people to buy expensive energy because they could be spending the subsidy on something else that isn't energy constrained.

Do the fairly simple geometric series from that and you'll discover that all money creation generates additional taxation that extinguishes it - to the penny. All that changes with the tax rate is the number of hops before the money impulse disappears.

What you have to do to balance the system is remove some hops elsewhere. That's what threats about interest rate rises are supposed to do. Money then isn't created by loans, or the transaction hops from those loan creation events are fewer.

That reduction is what we call 'saving' and tends to show up in aggregate as a government deficit. The bigger the deficit, the more saving there was and the fewer transaction hops in the economy.

Saving is little more than voluntary taxation. The current approach is to go down the voluntary route rather than the compulsory one - largely because the population won't sanction any further taxes.

If the money used to purchase energy causes a large rise in the government deficit (or a significant reduction in the loan growth rate) then that will 'pay' for it without causing inflation.

Capitalism's own solution so far was to create more available properties - more individual debt such as credit cards and mortgages, privatize public goods like health and education, more destruction of ecosystems, selling attention and disrupting work, and the latest fad, cryptocurrencies. But these are only temporary solutions, they do not address the core problem of increasing social inequality.

Likewise, printing money and giving them to the poor (while half of it goes directly to the top, because the decision-makers are only human) is a stopgap solution in the system where most money quickly end up accumulated at the top. It's a desperate attempt by governments to maintain social order.

In the middle of 20th century, the capitalism's tendency to create disparity was somewhat resolved in Keynesian approach, where state "investments" (based on taxation) were basically redistribution of the money back to the bottom, so that the process of accumulation could continue slower and indefinitely. That was eventually abandoned, for ideological reasons (people shouldn't get "free money", and the "private property" is sacrosanct).

However, it is the only known solution. The proper taxation of the rich (and property) is badly needed to long-term stabilize the capitalist system.

One could make an analogy with any other competition. When another competition starts, winners (of the old competition) are usually given the same place at the start as everybody else. This is because without this rule, the competition would quickly demotivate everybody. But this is happening under neoliberalism, and threatens to eventually halt the positives of the capitalist competition.

As such, I would be hesitant to use a kerosene heater in my home without investigating it in much more detail.

(It's a theoretical issue for me as my geographical area has more NG than it can use)

The only thing that isn't a sure thing are wages but they have over the long term gone up [0] and when they do go down it is usually only for a few years.

The last one is a risk but I think it is well worth the risk.

[0]: https://fred.stlouisfed.org/series/MEPAINUSA672N

If producers decided not to produce during a period of high prices (unlikely), we have gas in storage, right now, to last through the typical winter.

https://ir.eia.gov/ngs/ngs.html

(unfortunately, export capacity is a rounding error, so we can't do a whole lot to help Europe out. https://www.eia.gov/dnav/ng/ng_move_expc_s1_a.htm )

I’m with you with cars… but even then the maintenance expense starts to catch up.

The interest-rate risk is on whoever owns the bonds to that ultimately funded the mortgage. The value of those bonds is going down as interest rates rise.

Most loans in the US are fixed rate for the life of the loan.

Also, California just passed a law requiring minimum wage be $22 in some industries/companies of a certain size (and the next step will likely be rolling that out to all industries and companies, as they did with the $15 minimum wage between 2016-2020)

But that specific question, nobody would take money out of the economy by fiscal means, even if they could. You would need huge fiscal changes to have the same effect of a small monetary restriction. And you don't do huge fiscal changes, ever.

Removing cash in the public's hand via taxation has several drawbacks, as mentioned by other posters. It's a very slow legislative process, because it has much more direct distributional effects (who is going to be taxed?). Additionally, most academic economists believe more taxation reduces real, as opposed to nominal, economic activity ("distortionary effects of taxation").

With a small inflation, there is no incentive to hoard cash, and there is enough liquidity to make sure goods get exchanged without too much delay. At the end of the day that is what an economy is, exchanging goods.

When technology increases increases productivity and society has a fixed supply of paper money, you'd think you'd see deflation because there are more goods and the same amount of money. However, actually during those periods of times, banks lend out money, which increases the money supply. This is a good thing because they're enabling economic activity that otherwise wouldn't have happened like a loan to start a new business. However, this system is fragile because if depositors lose faith in the bank, everyone will try to withdrawal their money, which is called a bank run. The bank doesn't have enough money because they leant some of it out, so they default and depositors that aren't quick money lose their money. One of the purposes of central banks is to ensure that this doesn't happen.

The US also had a civil war during that period. And then repeated brutal boom and bust cycles until Breton Woods.

This is grossly ahistorical: in 1914, 2/3rds of the US lived in abject poverty[1]. Individual farming, including subsistence farming, didn't peak until the 1930s[2]. The US's ascent to superpower status can be traced, at the earliest, to lending programs begun during WWI (and repeated, to fantastic effect, during WWII).

The US's phenomenal ascent in international status and power is directly tied to its monetary policy, a policy that has more or less kept inflation around 2% since 1935[3].

[1]: https://web.archive.org/web/20150720050803/https://www.irp.w...

[2]: https://www.ers.usda.gov/data-products/ag-and-food-statistic...

[3]: https://www.thebalancemoney.com/u-s-inflation-rate-history-b...

0% inflation is generally not a safe target. In an economy you want to avoid deflation at all costs. If consumers expect future price drops, demand can dip significantly and induce further drops in price (deflationary spiral). Businesses need consistent, predictable demand, else they enact shortsighted, over-reactive responses (e.g. layoffs) which can further exacerbate an economic downturn. See the Japanese financial crisis. Even a small fluctuation into deflationary territory can have long-lasting effects on consumer perception. It's safer (read: insurance policy) to maintain a slightly positive inflation rate so that consumers are encouraged to make purchase decisions promptly when needs arise versus indefinite speculative postponement.

Of course, the "optimal" inflation rate is context-dependent. Your unique economic situation will dictate which inflation trade-offs you end up selecting.

Because that sweet spot is very similar to the benefits liquidity confers to the holder of liquidity. Come on grandpa, please don't tell me all the people "bringing their wares to the market" are doing so at no cost and that the holders of liquidity aren't benefitting from stores optimistically stocking goods.

By the way the us was in a recession for practically the entirety of the second half of the 19th century, mostly because of absolutely garbage monetary policy.

Businesses give money value by offering products and services, meanwhile the holder of money expects the business to keep providing this costly service at no cost. In other words, there is a constant flow of free liquidity provisioning services toward the holders of money which makes the providers of liquidity poorer and the holders of liquidity richer if they market that liquidity. After all, money is worth more than the purchasing power it represents, it can buy anything available in the payments network. Money that buys bananas and apples is more valuable than money that only buys apples even if both have the same amount of purchasing power. Since liquidity is paid for by the general enterprising public, the holders who have none of the costs can just loan out and market their liquidity for a price and they get to pretend that they are providing a service, even though they haven't done anything for it in any way.

People who still have a need to transact must now pay the costs of liquidity to someone who doesn't provide it when they borrow money.

The person who borrows money is now stuck with the costs of liquidity even if they spend it. When they spend it, they no longer benefit from liquidity but they must still pay for the liquidity that someone else owns. That person then can lend his liquidity out without paying for it. The end result is that liquidity costs must be paid twice.

This is an endlessly compounding system. Like a pyramid scheme. Money acts like a perpetuity where the yield is paid out in liquidity which can through borrowing be turned into money. Previous perpetuities are paid by creating new perpetuities.

Very interesting scheme and Austrian economists are even denying the above so they are complicit.

The notion of an "overheating" economy always sounded like nonsense to me.

> full employment

Those figures are misleading because a great many people permanently left the work force during the pandemic and are not counted as unemployment.

Covid boom put money into the hands of regular people, and that -- combined with a supply shock -- made all the difference.

As economies grow and expand, they need more money supply to keep prices stable. If you're using 100 tons of Gold as your 'fixed money supply' then you run into deflationary problems.

Also, if there is a crisis in which people get really anti-liquid and tend to hoard and do other bad things, and/or the system needs to allocate resources somewhere fast or else face destruction - then if you only have a big pot of gold split between owners, you are screwed. Mad Max style. If a country is invaded or has a pandemic, most regular levers may not work. But helicopter money can help. It implies an 'unfair' re-balancing of who owns what, but so long as the community at large accepts that, then it's fine. It means a price adjustment for everyone.

That was a big reason why printing a lot of money in the past did not contribute to a lot of inflation: most of that money ended up sitting in the accounts of a few big institutions, who then did not end up spending it on anything.

This time around, we both gave that money directly to people (who then spent all of it), but also were dealing with global supply issues, an energy crunch, a food crunch, etc. Everyone had more money to spend, but there were less things to spend it on, leading to dramatic price increases.

This is called cost-push inflation. Unfortunately, that theory doesn't explain where the extra dollars come from.

It wasn't un-invested, it just didn't much make it out to buy consumer goods(at least not as directly as in 2020).

Like all things the devil is in the details, which get stupidly complicated.

Read some John Cochrane[0] if you want a more academic defence of my version(which is where I got it from, I'm certainly not smart enough to have come up with it myself).

0: https://www.justicenewsflash.com/2022/01/03/the-grumpy-econo...

Providing liquidity is a cumulative process.

2. Because companies just take all of the difference as extra revenue, and prefer to increase salaries (if not just keep everything as profit) rather than reducing prices.

Note that I'm not claiming that increased money supply doesn't cause inflation. It obviously does. I'm claiming it's not the only cause of inflation. It's sufficient, but not necessary for inflation to happen.

But electricity, gas, consumer goods, food, housing (via construction costs) - these will all go up, and they form the vast majority of consumer spending.

You should be. I doubt the rich hold any dollars at all. They invest it all. There aren't any Scrooge McDuck cash vaults.

(Criminals often do hold lots of cash, and they try to get rid of it by laundering it.)

Ever heard of a company called Apple?

They raise prices all the time because they can.

Same with AT&T, or banks ATM Fees, or gas prices.

Right now gas prices are at an all time high, and so are gas profits.

> The answer is Supply & Demand, it's the Law, and is in every econ textbook.

Also, that's Econ 101. Which isn't quite reality, it's idealized for simplicity because it is an introduction to macroeconomics. But I don't want to digress into Austrian vs. Modern theory because neither of us will do justice to that.

companies are constantly raising prices to hit the highest price point customers will tolerate. Normally, when prices get too high too quickly consumers eventually get sticker shock and start to feel ripped off so they stop buying the overpriced good (assuming they have the option), so companies lower prices by a very small amount and a new generation of consumers come into the world where the almost too high price is "normal" since it's all they've known and the whole process repeats and prices just climb and climb which is why everything when your great great grandmother was alive cost a nickle but today you pay using stacks of bills.

Right now though things are pretty messed up because every company had an excuse that let them jack prices up without customers blaming them. Companies said "Supply issues! Don't be mad at us! We're all in this together!" and consumers begrudgingly accepted excessively priced goods because "that's just how it is, extraordinary circumstances" and a generation of consumers now sees those excessive prices are normal. Some companies continue to limit supply, dragging their feet ramping production back up, because they're making money hand over fist and pulling in record profits while consumers are forced to scale back and watch their standard of living decline. Now companies are saying "Don't blame us, it's this damn inflation!" and since consumers are expecting it, they can continue to jack up prices while continuing to make money hand over fist. They don't ever want to lower prices and accept a little less so prices must continue to go up and up just like before, but now it's happening at a rate they couldn't have gotten away with previously.

Companies could accept making a little less profit and lower prices and inflation would drop. They don't want to though because for them greed is the whole of the law and anything less than higher profits and endless growth is failure. Consumers could help by refusing to buy the things they love and have spent their whole lives becoming accustomed to, but they're still traumatized from a global pandemic, they're desperate for normalcy and the goods they were forced to do without for 2+ years and in denial about the fact that their lifestyle is declining and things are only going to get worse.

This is just absurd. Not only is this a period so different than a modern economy that it's not useful for comparison, but during that period it was a roller coaster of inflation and deflation, both of which are terrible for people. Those curious can see the volatility here: https://commons.wikimedia.org/wiki/File:US_Historical_Inflat...

Ever since then when the Fed needs more money they just printed it.

Reminds me of that scene in Douglas Adams Hitchhiker Guide to the Galaxy

"“Thank you. Since we decided a few weeks ago to adopt the leaf as legal tender, we have, of course, all become immensely rich. [...]

"But we have also," continued the management consultant, "run into a small inflation problem on account of the high level of leaf availability, which means that, I gather, the current going rate has something like three deciduous forests buying on ship's peanut." [...] "

One wonders when the defoliation stage is going to hit.

I would have thought BND would have fallen a lot harder considering how much higher new bonds are paying but maybe the market is pretty good at pricing bonds based on their associated risk per length of bond time with inflation?

IDK, what do you think?

Please see this for other questions.

>3). Tax Deferred - I-bonds do not throw off interest. You only owe tax on the internally compounding interest once the bonds are cashed in, which means you control when you pay tax. Always a good thing!

https://www.reddit.com/r/personalfinance/comments/qprqpy/ibo...

CPI (Consumer Price Index) is often used to measure inflation, but is an imperfect measure. First, it only measures the prices of household consumption, not wages, business expenses, etc. Second, as this BLS article says: "The CPI has been criticized for having both an upward bias (overstating inflation) and a downward bias (understating inflation). Much of the criticism asserting an upward bias comes from the academic community. In 1995, Congress, aware of such criticism, commissioned a group of academic economists, led by Michael Boskin, to study and report on the CPI. The resulting study, titled "Toward A More Accurate Measure Of The Cost Of Living" (but often referred to as the Boskin Report), summarized the viewpoint that the CPI was upwardly biased. The report asserted that the CPI overstated inflation because of three main reasons: it omitted consumer substitution, did not fully account for quality change, and failed to properly reflect the addition of new goods. BLS has introduced some methodological changes since the report came out in 1996. Although these changes were intended to make the CPI more accurate, some think that they have introduced a downward bias."

https://www.bls.gov/opub/btn/volume-1/consumer-price-index-d...

> Is it possible to measure "how much money public will want to hold"?

No, not directly. We can only measure proxies, then debate how useful the proxies are.

The more holistic a metric is, the better a gauge of inflation it is. To the extent it measures relative price changes, rather than total-market price changes (including the price of labor), it may incorporate economic effects other than inflation. One flaw of the CPI for serving as a complete measure of inflation is right there in the name: Consumer Price.

Is this a fact?

I just checked the data from the US Census Bureau [1]. Here is what I see (all numbers inflation-adjusted to 2021 equivalent [2]).

Note: I chose 1994 as the comparison year since that was as far back as the Census data I looked at goes.

1994 median individual income: $44,618

2021 median individual income: $60,008

1994 mean individual income: $58,005

2021 mean individual income: $83,039

[1] Source: https://www.census.gov/data/tables/time-series/demo/income-p... . I used the 'Worked Full-Time, Year-Round' data since that was available for both 1994 and 2021.

[2] Using the PCE inflation index, which includes energy and food prices: https://fred.stlouisfed.org/series/PCEPI -- I used January 1994 and January 2021 as the reference points.

The national guard doesn't shoot people; that's been democratized to police and private citizens.

The big violent demonstrations are gone. What passes for it these days is a pale shadow.

One "benefit" of the increased inequality is that people making less than the median are too exhausted to demonstrate, much less rebel. Rebellion has always been the act of those who belong, and by excluding more of society there is "peace".

Scare quotes used in case it's not obvious that I don't approve.

Carter had no idea how economics works. The prosperity of the 80's was great.

Or an impressive series of riots? [https://en.wikipedia.org/wiki/List_of_riots#1970s]

Not to mention that whole Nixon thing?[https://en.wikipedia.org/wiki/Watergate_scandal]

It was a busy time.

It defies belief.

But, if most economists are wrong and Biden is right, well, we can look forward to his administration proudly proposing higher inflation.

Also, you’re assuming debt has fixed interest rates and asset prices will continue to rise forever. Neither of those things is likely to be true in the medium term (~5 years).

It’s complex. You can’t just look at high inflation in a vacuum without also considering that interest rates will rise (and possibly overcorrect) in response to high inflation.

But Ok, maybe we should follow the example of Brazil, right?