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Comment by donw | Hacker News Reader

Turns out that tripling the money supply... increased prices.

If only there had been some sort of model or discipline that could have predicted this beforehand.

You're literally commenting on an article about a negative supply shock leading to increases in prices and you're concluding it has everything to do with monetary policy.

Monetary policy is the elephant in the room that no one in charge dare mention.

A quick look at the numbers makes this obvious. Consider that 80% of all dollars that exist were created in the past three years.

Now ask why Janet Yellen, Jerome Powell, and the Biden administration conveniently forget to mention even the possibility that money printing may have been a contributing factor driving inflation.

Literally everyone talks about it, including with the "money printer go brrrr" meme. They even talk about it when it is completely inappropriate like when there's a blatant negative supply shock.

It is one of those "unpopular opinions" that are actually enormously popular.

Does 'literally everyone' include those in charge including the fed board members themselves criticizing their own monetary policies? The critique wasn't that the victims of inflations mention the ballooning the money supply, it's that those in charge of the ballooning tend not to. I think you may have missed where they said 'in charge.'

Jerome Powell is not posting "money printer go brrr" memes.

Unfortunately the party in charge right now is trumpeting the idea that inflation must be because companies are price gouging customers rather than trying to slow down domestic spending. The other party doesn't like to balance budgets either and if the Fed even touches interest rates the market (and everyone's 401k) tanks.

> Unfortunately the party in charge right now is trumpeting the idea that inflation must be because companies are price gouging customers rather than trying to slow down domestic spending.

What is the scope of the evidence that proves that this claim (which, btw, is really not being trumpeted by anyone "in charge") is false?

The law of supply and demand is what sets prices across an entire economy, not some grand conspiracy by every company to overcharge consumers. Greedy companies might collude in an industry here and there, but that doesn’t cause across the board inflation.

And this grand conspiracy argument is the position, at least in part, being pushed by the Democratic Party in the US. It’s actually similar to what flailing governments in third world inflationary economies say too. It’s always the evil capitalists raising prices for no reason but to line their pockets. Ignorant drivel meant to appease ignorant people and deflect blame.

> The law of supply and demand is what sets prices across an entire economy, not some grand conspiracy by every company to overcharge consumers.

Nope. Prices are set by what the market is willing to bear. Supply and demand are loosely correlated with the final retail price of things.

Demand for a good is based on its current asking price and how the consumer values that good. If the asking price ends up pricing the good out of the market's ability to pay for it the demand will drop irrespective of the supply.

As for conspiracies to increase prices, that's just a ludicrous position. All players in the market with the same incentives can move in lockstep with zero coordination. There doesn't need to be a conspiracy when every company basically lives by "make the most money".

If you see a competitor raising prices it's the perfect time to raise your own prices irrespective of your costs. If your costs haven't increased then you get better margins for free. There's no need for direct collusion when competitors are looking at the same news and have the same overall playbook.

>Nope. Prices are set by what the market is willing to bear.

Only when supply is constrained, for example housing in leading cities. Otherwise prices tend to fall to the marginal cost of the item you are buying.

Supply of tangible goods is always constrained, if by nothing else by physical limitations of the earth and our ability to exploit it.

Except that ignores the innovation we bring to manufacturing. If a car manufacturer finds a way to use less material in a component or a furniture maker finds a way to use more of the tree in their products then that lowers the marginal cost. Their competitors will adopt the same idea or else risk going out of business.

Housing however is constrained by the price of land, outside of a few small regions like the Netherlands there is no amount of innovation that will create more of it. Hence the price of housing is set by what the market will bear.

I've heard the "it's a conspiracy to raise prices!!" point of view too. It's a very simplistic way to think about the inflation, and I wish there were a little more critical thinking around it.

However, some of the inflation is being caused by companies just being comfortable raising their prices. They are comfortable because so many companies are monopolies, and as soon as there's any slight pressure in the direction of inflation, they immediately pass it onto their customers without any punishment. The anger against companies for gouging consumers is placed correctly, but of course it's with the wrong explanations.

There is no need whatsoever for a conspiracy. The interests of those who (a) own capital and (b) sell stuff naturally align without much need for coordination.

You seem to be claiming that the price increases seen over the last (pick a number) 10 months are all driven by "actual inflation", and that the instances of companies raising prices to increase their profit margins are rare.

I haven't seen good evidence for this claim. I have seen reasonable evidence that it's the other way around: a few limited sectors have experienced "actual inflation", but most of the price increases are arbitrary and imposed by sellers.

Note: we do not have "across the board inflation" either. Quite a few things have continued to drop in price across the pandemic.

Inflation is not just driven by changes in the supply curve. It can also happen due to shifts in the demand curve. If you pump money into the elite class by printing money, they can drive the prices of education, housing, etc. higher. Eventually, those increased prices work their way down to the middle and lower classes.

The word "can" is doing a lot of work here. Real-world economics is almost infinitely more complex than this sort of simplistic analysis.

Just as one example: housing prices often rise in response to a process frequently referred to as "gentrification" (often with a somewhat disparaging tone, to put it mildly). But that process tends to start when people with very little income to spend on housing move into low cost of living neighborhoods and subtly shift their demographics and nature. So is gentrification a process driven by the "poor" (the initial influx of new tenants) or by the "rich" (developers who can carry out significant remodelling and/or new construction) ? The answer is clearly both, yet even that doesn't really cover the whole mechanism. For a start, for gentrification to become significant in driving up housing costs, existing owners need to sell. These are often neither the newcomers nor the developers. Gentrification also requires a modest but distinct influx of businesses into an area, which in turn requires businesses to either start or expand.

I'm citing this as just one single example of where bullshit simplifications drawn from "basic" economics fail to describe the real world. There are so, so many more.

Gentrification is a classic example of supply and demand from microecon. As an area becomes nicer to live in it gains more and more demand with people with high willingness and ability to pay. Supply remains fixed, because of US zoning laws, or grows more slowly than people come into the neighborhood. The price goes up because of _demand_ going up without supply going up.

Why does it gentrify in the first place? Because the initial group of "gentrifiers" took the time and money to develop the area to make it more appealing, thus increasing demand.

Economics says you can't fix it no matter how much regulation you impose because at some point all the surrounding businesses, etc. will be gentrified too and force out poor people. Even if you freeze rent, ban new businesses from coming in, etc. the existing business owners will start to cater to their new clientele simply because the demand from those customers is much higher. The only thing you _can_ do is ban people from moving to the neighborhood, at which point you've turned into the worst parts of the Soviet Union.

> Why does it gentrify in the first place? Because the initial group of "gentrifiers" took the time and money to develop the area to make it more appealing, thus increasing demand.

Wildly simplistic. The first stage of gentrification involves almost no money and almost no development. It doesn't even really involve much time. It's the result of a demographic shift (and often not a very big one at at that) between the existing residents and newcomers who are willing to trade currently less-than-ideal living conditions for lower costs.

Also, more money in the hands of the elite class(es) does not inevitably drive prices of anything other than the few goods & services for which prices are actively negotiated. The fact that your rich clientele have more money does not, in and of itself, require you to raise your prices. That's a choice you make, which is dependent upon but also independent of their disposable wealth.

What does the money supply have to do with the supply chain shocks that are actually the root cause of the increased prices?

It's just a domino effect. Demand for good has decreased significantly during COVID as businesses had to scale back. Inevitably suppliers had to shutdown or cut production. FED started printing money in the meantime and giving consumers handouts to stimulate economy and increase spending. Instead, that money went into a stock market frenzy and savings accounts as people were forced to stay home. When COVID restrictions eased and economy started to open up and consumers rushed to spend their savings. This caused businesses and suppliers scramble to meet demand and ultimately triggered the supply chain crisis. As a result the prices on goods have shot up as there was too much money chasing to few goods and the economy wasn't able to keep up with demand after remaining dormant for months.

That's so much theorizing just to fit in the "money printing caused inflation" theory

The influence of supply on price applies not just to goods, but also to money. It's weird to dismiss it in this flippant way.

This false notion has caused so much misery in the last couple of centuries.

What false notion? That money supply influences value of money?

Yes. It doesn't.

The value of money depends on the underlying asset used to create this money.

Money is not created out of thin air.

Fiat money is absolutely printed out of thin air and it isn't backed by any asset. It is backed by the stability of the government that issues it. There is no amount of gold that can back a monetary system to sustain the levels of spending that we're seeing the US and other governments do, which is why most if not all modern governments are no longer on the gold standard.

Your comment implies that you think bonds and Banknotes are the same.

And you clearly have no clue what the gold standard was.

If the value of a dollar doesn't depend on supply, we could print infinite amounts of it and reach infinite wealth. This false notion has caused so much misery in the last couple of centuries. Unfortunately value of money is also subject to supply.

>The value of money depends on the underlying asset

Printing more dollars does not create more 'underlying assets.' Therefore it doesn't make sense to claim there will be no effect on value of money if more money is chasing the underlying assets. It's quite possible the value of the dollar decreases.

Using your own definition, which itself is debatable, it is guaranteed the value of money will decrease if you only change the supply of money and nothing else.

Anybody making this argument needs to tell me why the government needs taxes/bonds if it "can just print money"

I want to see the kind of mental gymnastics that people have to do fit in the false idea that government creates money out of thin air

What a bizarre statement. We know that supply and demand drive modern economies. It's taught everywhere in schools. It's what we rely on along with key economic metrics to have an idea where things are headed. It's an odd flex to just throw all of that out as some voodoo magic.

You claim that supply issues are the root cause, but it's certainly some combination. If monetary and fiscal policy had been tighter, we might not see the same jump when hit with a supply issue.

Because there has also been a 'supply chain shock' of monetary base.

We've been multiplying the money supply for decades. The fact that we are only seeing inflation now is proof that increasing money supply is by far the only factor and likely one of the smaller ones.

Um, the dollar buys 1/28th what it did prior to the Fed. The price increases have been small for a very long time. Small enough that you might only notice when buying a product you haven't bought for a few years. Couple the slow creep of inflation with efficiency gains and you might not notice the cost increase for a long time. Now the cost of continually increasing dollar supply and enormous debt is too much. If the Fed increases interest rates the economy tanks. If they create a bunch more money we get runaway inflation. There is no painless way out of this mess. The only real solution is political suicide. So, unfortunately, the dollar will die before we are out of this mess. Hope you are prepared.

And pundits have been proclaiming the end is nigh ever since the fed as well. If things get bad enough, the government can raise taxes and hold or destroy that currency. If things progress as you predict, it will become political suicide not to do so. If things get so bad that the dollar fails, there is little anyone can do in terms of financial hedging that will make much difference.

If only we actually listened to that model or discipline that keeps pointing out the pitfalls of inequality.

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