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Comment by medvezhenok | Hacker News Reader

Yes, this is because conventional wisdom assumes that monetary velocity stays constant (it has been dropping instead).

Basically, it comes down to who actually gets the money generated by an increase in M2. If it's people with a low propensity to consume / buy things (i.e. the rich), then extra M2 is not inflationary (caveat: not inflationary for goods. It's inflationary for stocks/real estate/etc instead, since that is what rich people "consume").

If it's people with a high propensity to consume (i.e. the average citizens), then it is.

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So, it wasn't until the working class got pay raises that it was a problem. Company after company raised prices during COVID and reported RECORD profits. But the moment worker salaries go up, it's a crisis, interest rates need to be RAISED NOW, and company after company starts doing layoffs - while maintaining RECORD profits.

“That's a hell of an act,” the agent says. “What do you call it?”

Capitalism!

You have it backwards. The Fed kept interest rates low while wages outpaced inflation during the recovery of the 2008 recession. They only raised interest rates after inflation started rising faster than wages and companies reported record profits.

https://fred.stlouisfed.org/series/LES1252881600Q

The only way to meet the demand of the masses without inflation is increasing supply without increasing the marginal cost of the extra supply. These days, that's mostly driven by technological progress and aggressively pursuing efficiency. The primary driver of inflation is the human desire to procreate and improve their living conditions; not to say that's necessarily bad, but it imposes a constraint that can't be resolved by the rhetoric of rich vs poor people. While I agree economists seem to be too obtuse to realise the hypocrisy of increasing unemployment to reduce inflation, a primary issue is that we as a society haven't figured out how to control consumption in a way that makes everyone happy.

Nor will we. That's okay though, tax the rich. They have other reasons to be happy.

I thought the marginal cost for most goods goes down as the scale goes up

That's not a physical law. It only happens sometimes in some parts of the supply chain in the form of economies of scale. But if you run out of easily drilled oil sources, the unit cost of produce more oil increases. If you want to build more cars, you would increase demand for parts, and would in turn be willing to pay more for the scarcer parts, and your BOM increases.

It only makes sense to refer to what you described as a phenomenon you want to pursue if you want to run a successful business, but can never be used to describe the economy as a whole.

Yes and no. If you own a factory operating at design capacity, and a supply shock bumps prices up enough to incentivize you to increase supply, your marginal cost is probably going to go up to get from %100 to 120%. (Overtime, more expensive downtime, increased duty cycles on equipment, more expensive rush repair, etc.

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