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Comment by almog | Hacker News Reader

Claiming that "a little more inflation" is preferred to "a bigger recession" is an opinion, I'm really not sure it's a consensus, though even if it is a consensus, it's not a good argument for or against it. I think it comes down to whether we soon realize we're near hard landing (recession) or no landing (ongoing inflation). As far as I know (though I'm really not well educated when it comes to economy), in the entire Fed's history, inflation has never just disappeared by itself without restrictive financial conditions. I think it wouldn't be hard to argue why a no landing scenario could be worse than recession.

As to the soft landing scenario, sure, it might happen but based on what followed past inflation, it seems unlikely (if I'm not mistaken soft landing was only achieved once in the mid 90's and with a much lower inflation than we see now.

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I am starting to doubt that interest rates are the best lever against inflation.

Rising prices are supply not meeting demand. It feels like improving productivity would be an equally powerful tool with less human cost. Granted that is a harder thing to control quarter over quarter.

Consider this analysis that intetest rates may in some cases raise prices. https://economicsfromthetopdown.com/2023/02/04/do-high-inter...

And more links along that line from the pluralistic blog. https://pluralistic.net/2023/02/04/if-i-was-a-horse/#friedma...

Does anybody else hear talk of productivity in talk of inflation?

Absolutely.

The mainstream economists are wringing their hands over full employment and rising wages, the first time in decades that we might see the middle class grow, because production isn't sufficiently meeting demand.

We should be producing more stuff - especially housing - instead of trying to keep people from earning more.

We’ve had unaffordable housing in the U.K. for a generation and haven’t built because of nimbys.

Housing costs thus increase to suck all income.

It’s a great way to return to feudalism.

At least you guys can have the bona fide real feudalism. We others have to pretend the Lords are just accomplished citizens, only a bit more equal than others.

Raising interest rates on its own doesn't do anything about inflation at all, actually. When you raise interest rates you are decreasing demand for borrowing but even that on its own doesn't decrease inflation. Inflation slows down as people pay off their debts as this destroys money that was previously created through loans. It's basically a side effect, not the main effect.

If you have a bankrupt government that can't afford interest payments, then raising interest rates will just lead to borrowing more money to pay the interest in a vicious cycle until hyperinflation sets in.

If you can limit borrowing and speed up payback of debts through any means other than raising interest rates you achieve the same effect much sooner.

Well yes, but like I said, it seems like most people feel this is the good approach in my experience. I dunno if it is a good thing or not...

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