83% of Americans Are Belt Tightening Due to Inflation Pressures
forbes.com
forbes.com
This is a poorly conducted survey if it's trying to show inflation is a problem. This response would be accurate even if inflation was just 2%. The concern isn't inflation but the amount of inflation.
So if people are experiencing inflation in the short term, that's notable.
Now, it's important to differentiate between inflation due to supply constraints vs. inflation due to long-term cost increases on inputs. For example, lumber is hella expensive right now, but it's probably not going to remain at the levels it is at in the long term. Whereas the cost increases of corn might be permanent.
https://www.ers.usda.gov/amber-waves/2008/february/corn-pric...
And the government heavily subsidizes crops.
That said, I agree, inflation isn't a problem, the rate of inflation is.
I also think folks, right now, are confusing price increases due to supply or demand shocks with inflation.
Housing, cars, computer chips, and many other products are experiencing a mix of a supply shock and a demand shock as last year's decisions to reduce production have bitten us as demand is coming roaring back and production can't be instantaneously re-adjusted for that demand.
That is causing a spike in prices that's rippling through the economy in various ways, from increases in prices of lumber to a spike in used car demand.
This is a fleeting effect that'll go on until supply chains catch up.
The problem is the outcome looks the same: price increases. But the policy response has to be very very different.
I doubt 83% of Americans know what inflation is, much less know about the current debates around it or understand its effects. I question whether 83% could be reacting to reports of inflation.
Inflation has been turned into a bad word, but the post-Great Recession era of near-nil inflation is the anomaly. Generally, through most of my life of reading economists, a low level of inflation (e.g, 2-3%) is considered the healthiest state.
I think part of it is politicization: Whenever someone talks about government spending or stimulus, particularly around the Great Recession in 2008 and the Coronavirus pandemic, people who advocate for small government use inflation risk as an argument against it. My feeling is that has created two conditions: 1) the stopped clock is eventually right, and 2) they've built up inflation as so much of a demon that people are afraid of it.
The direct effects of inflation are to help people with lots of fixed debt and inflationary income, because your debt of 100,000 is still 100,000 while your income inflates from e.g., 50,000 to 52,000. And it similarly hurts people with lots of fixed income or assets. The indirect effects are complicated, but again, a low level of inflation - higher than recent experience - has long been considered optimal.
83% at the bottom could tighten their belts, and the 17% at the top who control far more wealth could loosen theirs and economic activitt would increase.
> and there would be no inflation.
Even if we assume the first incorrect statement were true, this would still be wrong: there wouldn’t be demand-pull inflation, but there still could be supply-push inflation.
> Inflation is an excess of economic activity - too much money for the available truly valuable investments.
No, inflation is an increase in consumer price levels, and has nothing directly to do with investments, though there are indirect effects in both direction.
> inflation is an increase in consumer price levels
That's a common and well-known symptom (because everyone can see it), but that doesn't define inflation. From Britannica:
Inflation, in economics, collective increases in the supply of money, in money incomes, or in prices.
I used the term 'investments' loosely, rather than spelling out all the possible things on which we can spend money. But actual investments, by the narrow definition, count: asset bubbles, or example, are a form of and sign of inflation (in that one market). Again, inflation is an excess of economic activity for the economic realities of the situation.
> there wouldn’t be demand-pull inflation, but there still could be supply-push inflation
If you mean 'cost-push' inflation, that is caused by increased production costs, which lower production and thus reduce supply and thus, unless demand also decreases, prices increase. If demand also decreases sufficiently, as the headline might suggest, then there's no inflation. Increased production costs aren't the concern behind the inflationary effects of various stimulus measures, which should reduce costs of production (including via cheap debt).
The headline describes a response to inflation, not a cause. You are criticizing it because the response it describes does not explain the cause. Which is a silly criticism; responses aren’t supposed to explain causes.
> silly
Enough said.
But not to the same state. The description is of inflation at T(<n) producing belt-tightening at T(=n). You are complaining that the belt-tightening doesn’t explain the inflation. Of course it doesn’t.
Now, sure, there’s a valid question of “what is causing the inflation”; is it offsetting belt loosening in another group? Is it supply issues?
But
Since I already explained why this is wrong in my first post (and you acknowledged it in your response, but shifted your criticism of thr headline to that the belt-tightening doesn’t explain inflation even though it is consistent with inflation from other causes), I think we've come full circle here.
Oh sorry, I didn't realize you forbade me from expressing a different opinion.
What the government has done in the last year with its $10+ trillion in stimulus, is the exact definition of dropping money from helicopters and yet no one is pointing this out.
Which means we must have narrowly averted a truly horrific situation as a country. The fact that everyone keeps talking about more stimulus means that the government knows more than we do, and the risk of deflation still remains high.
As far as I’m concerned, VTI is a better inflation protected security than TIPS for any 3+ year investment horizon.
Like what?
In addition, they have an enormous spy apparatus operating in probably every country on earth. Military satellites can be used to gauge production around the world. They can monitor metal mines in Australia, track the shipments of ore to refineries, and have a good idea of where the finished products are going.
Clearly, all of this information is gathered and analyzed by different departments, but analysts within the White House can obtain an absurd amount of detailed information of almost any nature.
The issue I would be more concerned with is the overall structure of the economy. For example, only 15% of money lending goes to actual production use. The other 85% is just a house of cards that is lending to be lent again, or invested in nonproductive ways. Basically moneylending inception.
Even things like water levels of various bodies around the world are data points the military tracks (food shortages lead to strife) but aren't really easy for civilians to get.
I don't see these as playing a big role in the economy unless a fight between superpowers breaks out. The contracts for the items involved in these are generally well known.
Giving them an option upends all the assumptions that go into loans, and therefore having to raise wages would cause defaults for businesses, and otherwise wreak havoc for those who currently benefit from owning those assets and debt.
A slow increase in quality of life for those at the bottom is okay, but a large increase so that they jump up a few rungs on the ladder would cause pain for those above.
I’ve spoken to a lot of hotel owners and restaurateurs lamenting their inability to hire people for low wages part time work. And there are fast food restaurants around me that are closed at many times because they have no workers, especially for late night hours that they used to. Some hotel owners I know are closing off portions of their inventory because they cannot find housekeeping staff to clean their rooms for the wages/quality of life/stability they want to provide.
That is also the reason for all the PPP nonsense. Rather than simply paying the workers for lost wages and paying the businesses for lost revenue, PPP stipulations make it so the worker stays tied to the business.
Giving people money that you take away if they work dissuades them from taking jobs, especially jobs that net them the same or less than they get without working.
That doesn’t really prove anything about how giving people money that you don’t take away if they work effects their willingness to work.
They already live on the bare minimum, but they have to clean toilets to get it. Now the government says you can live on the bare minimum, but you do not have to clean toilets.
So now you have to raise wages to entice people to clean toilets.
You are correct that it is not the exact same situation, but I think there would be even more disruption of the same kind the more you increase the government assistance.
Or so now people doing even more distasteful and/or lower-paid work outside of the formal economy because it can stack with means tested benefits can afford to clean toilets for low wages in the formal economy because it stacks with the now-unconditional benefits. Conjecture as to which effect dominates based on behavior with additional means-tested benefits is on extremely shaky ground.
But my conjecture would be we might see lower wages for desirable work, but higher wages for undesirable work.
Well, kinda. It's like you're only flying the helicopters over company headquarters and LA's suburbs and nowhere else.
The stimulus checks and increased unemployment can be considered helicopter money from a practical perspective though because it reached everyone. It would be even better to spend it on infrastructure or building housing but you have to do something...
Inflation increases the value of assets. Wealthy people own assets and poor people consume goods to survive. As a result, inflation increases the gap between the wealthy and the poor.
The only realistic way to reduce the wealth gap is to accept deflationary periods. This would also improve the savings rate and reduce debt.
I understand that modern theories believe deflation to be the end of days. I attribute that belief to the fact that a deflationary period was observed during the great depression, and has been believed to be a cause rather than an effect. I frankly disagree with that viewpoint.
I believe that the government has a vested interest in ensuring inflation because the government is a debtor. A protracted period of deflation would bankrupt the government.
People cite the post-war period as one of a smaller wealth gap, but the primary reason for that is that there had been a ten year period of deflation just proceeding it.
People have been decrying (or praising) the helicopter money of the past year+ since before it even started. Hell, there was even a moment in March/April of last year when people were speculating that Trump might even implement a form of UBI.
In an economy where money fell in bags from helicopters from the sky, wouldn't you expect net makers and street sweeping trucks to experience drastic growth?
These three items are well known to have costs that have risen above inflation for decades.
I offer an alternative explanation: these three items are so vital to people that they will sacrifice spending in other areas to support these costs. All of the unmeasured inflation of the past decades is represented solely in these items.
Citation needed. I don't understand the logic here.
Inflation in the short term has more to do with elasticity of supply than demand (unless demand spikes hugely). Low interest rates don't have much to do with it (low rates are usually a tool to stimulate demand, but they only work when you don't have a pre-existing debt bubble that must be deleveraged).
If you have deflation together with a large debt bubble (like we have now), many people & companies will have to default. Not saying it's good or bad, but politically that kind of pain is intolerable (the politicians who support it would get voted out)
If that leads to your income being reduced (or you're downsized), you have less to spend and your contribution to demand goes down. That starts the process all over again with whatever you consume. The worst case is a "deflationary spiral" where that keeps going round and round.
It's widely thought that a small (2%) inflation avoids that spiral by encouraging people to spend their money today rather than sit on it. It slowly eats into fixed incomes, which isn't great, but in general it keeps the economy moving for those who are employed. Ideally it pumps the GDP faster than inflation, allowing us to compensate for those on fixed incomes.
For Uncle Sam, low rates are about survival. We're in deep caca.
The Federal Reserve is the largest purchaser of UST, so effectively yes, they can. As long as QE is happening, and as long as the rest of the world doesn't stop calling USTs "risk-free assets", it won't ever stop. If somehow the US loses its grip on that status, though, all bets are off.
For example, the Fed can in fact print money and buy treasuries (which they already did). They can (and do) pay the "profit" on Treasury bonds to the government, which they could accelerate to immediately, then buy a boatload. Or they can change reserve requirements on banks. Or ...
Whatever you think is going to bankrupt the US government, it's not going to be treasuries. It's just not.
For example: https://www.msn.com/en-us/news/us/koch-e2-80-99s-foundation-...
The trouble is that there's a strong strain of left-wing populism in the US based around a view of the economy that is simple, gives someone convenient to blame (the evil wealthy corporate class sitting on all the wealth like dragons on hoards), and bears almost no resemblance to the way the world really works. Which is why you still get people pushing for wealth redistribution as a solution to this inflation, even though the very argument that was being used to call for it before means that it will make the inflation problem worse.
Grocery prices have been rising since the start of the pandemic. Far more people are now accustomed to cooking at home. Anecdotally, I am one of them. I buy at least twice as many groceries as I did pre-pandemic and that is not going to change. Also the pandemic is still in full force internationally, especially in places where the US sources major food imports.
Clothing is up because commerce with the Chinese textile industry was shut down during the pandemic. It will take at least another year before clothing prices are restored.
Notice that the massive spikes in real estate prices are not even mentioned in the article. This is a propaganda piece. It cherrypicks items that poor people depend on in order to promote backlash against redistribution.
Either the respondents are not a representative sample of consumers, in which case the article's conclusions are of little value; or something other than increased consumer spending, like supply chain issues, is causing the inflation.
This can occur because companies lay off employees due to rising costs and lack of demand (while raising their own prices) or because the money is going to some alternate consumption.
Food prices could increase today simply because one or more of the beneficiaries of those trillions of dollars has allocated it to land acquisition. Retiring of productive capacity for other "economic" purposes will increase inflation.
However, in the US the investment rate is going up and businesses are expanding production. The biggest factor right now is the semiconductor shortage and there it is just a matter of time before things return to normal.
We capture increased production and investment in speculative assets as economic growth when it may not yield any new production.
I agree entirely. But the linked article explicitly blames increased deficit government spending. The article reads like a stealth attack on stimulus, with the implicit point that inflation should be controlled by ending it, rather than looking more deeply at causes like the ones you suggest -- which might lead to solutions that a Forbes contributor might not like, like taxing the rich.
GDP only dropped 2.3% last year [0], so there's approximately the same amount of stuff to buy.
The linked article reads to me like an incoherent attempt to scare people into thinking the stimulus was a bad idea.
[0] https://www.bea.gov/news/2021/gross-domestic-product-4th-qua...
My (naive) understanding is these are tightly linked. The process is something like:
=> Consumers have more cash to spend on goods.
=> Consumers buy more goods
=> More demand is created for commodities to build those goods
=> Demand for commodities exceeds demand
=> Commodity prices inflate
=> Manufactured good prices inflateI tend to agree that all the inflation we are seeing right now is supply chain related (with the one exception of graphics cards - the liquidity injected into the system probably made price of crypto go up which accelerated the demand for GPUs, so the GPU issue is both a supply problem & demand problem)
As incomes are still fixed and there are cheaper substitutes for almost everything you want to eat people will modify and reduce.
That's not to say prices haven't been suppressed over the years in various ways that combat normal inflation (6oz denim Jeans that are now 10% Spandex I'm looking at you) and there's a ton of money in the system that have mostly went into assets.
[0] https://www.bea.gov/news/2021/gross-domestic-product-4th-qua...
You're looking at the total supply (which is true in the long term, since those dollars have to be spent eventually). However, inflation in the short term has much more to do with velocity and actual spending - if all of that money just sits in bank accounts, there will be no inflation.
So looking at the money supply in isolation will tell you nothing about the actual inflation. It's about what's happening to that money.
Your response illustrates the likelihood that the article is a stealth attack on government stimulus to the non-rich, to deflect the possibility of more straightforward solutions, like curtailing stimulus to the rich.
The printing isn’t really the problem either, it’s a symptom of policies from both parties for 50-60 years resulting in a nation that functions purely on debt from individual households, small businesses, publicly traded businesses, to the government itself.
Before the pandemic the majority of households couldn’t cover a $400 emergency. But the truth is businesses and governments were in the same position, and even in “the greatest economy the world has ever seen” the majority of them live the equivalent of paycheck to paycheck just servicing their debts.
To the average American, if you food prices increase 50%, it is a big deal.
Even though they are excluded, they are still a component of other inflation factors. Food & energy costs contribute to the cost of materials & labor. So they are included by proxy in the long term.
And if you are really interested, the Fed does calculate personal consumption expenditures (PCE). See below.
https://www.bea.gov/data/personal-consumption-expenditures-p...
https://fred.stlouisfed.org/series/PCE
As you can see, long term, the trend matches that of inflation. Short term, it is all over the place.
it's not funny... they fudge the numbers to make politicians look good
We were already experiencing inflation (cost of living went up because housing went up because we bailed out a bunch of banks that should have failed.) This time it's just more obvious because the price of things people buy directly went up immediately.
Unless you are referring to money for housing? That is probably far more affordable of a tax bill relative to tuition.
So you have students who are poor and working way more than their wealthier counterparts not for savings, emergency funds, money for their family, or food, but simply to offset a tax liability they incur... because they are poor and smart. Absolutely bonkers.
I just don't understand why there isn't an income-based tax exemption on need-based full-rides. Like, ideally a need-based full-ride should have parity with the wealthy students with parents footing the entire bill. It could certainly help with the slightly higher attrition rate for poor students.
I would hardly call that elite. For many of these students, these schools are the primary mechanism for class mobility -- taxing their scholarships is a hindrance that many can't afford. At this point, college is so expensive and so much of that is taxable that work study is an accounting trick to offset the tax liability -- this forces poor students, literally not the elite, to operate with unnecessary time and financial pressures.
They shouldn't be treated better than the people at CSULA by virtue of their "genetic superiority".
>Considering the median income in the country for a single-earner is about $65k
Median != 'elite'.
>"genetic superiority".
???
If the tax implications are indeed the same for people at CSUs, it’s offensive that you used the Stanford example. It implies that normal people like me - the true 99.9% of society that hold it together - don’t matter at the expense of the people that already have literally everything going for them. I have nothing compared to them.
And yes, the people that get into Stanford are probably genetically superior to the ones at SJSU according to people like Thiel and anyone that buys into IQ having a significant hereditary component.
If you schedule recurring spending packages to compensate, you'll accelerate inflation by the same amount.
We should deal with the effects of inflation when we see the effects of inflation.