Inflation is a disease (1978) [video]

the supply of money in an economy has nothing to do with how long it takes to do something.

Better to just say that you can't make free lunches out of money. The standard can't-eat-money point.

There ARE such things as free lunches, and the "no free lunch" quip is a meme that serves as propaganda for the idea that everything in life should have a price (and if it doesn't, it means the price is hidden). That's just not true. Some things in life are abundant and need no pricing and have nothing hidden.

https://ia902809.us.archive.org/2/items/NinasAdventuresFree/...

You can cancel debts of the past and borrow for the future. If you happen to unlock a new level of productivity by doing so, you could possibly get your lunch for free based on the future productivity catching up to your spending.

IMVHO many countries haven't learned a thing: a country must be as much independent as possible. Witch means, since we do not eat oil, having oil might be good, selling it might bring richness but you can't develop only oil, you MUST use produced richness to incentive all the others production you need from food to housing to defense, health etc. Having naturals resources in general it's the same. A State must satisfy it's own basic needs inside it's own borders or it's already doomed. Anything else should be treated as a nice surplus to get more local things.

Autarchy alone is not easy to sustain of course, but tending to it is, and must be done.

Interesting mentioning Latin America and Chile here, Friedman was a big fan of Pinochet in Chile, as Pinochet implemented Friedman's ideas by torturing, killing, and disappearing thousands, all under the guise of of stopping inflation.

I think it is more evil than that. You can print 100 billion of your currency and hand it to your crony friends. Boom they are all multi-billionares now. Everyone else (not your friends) gets screwed immediately. It's stealing but it looks like it isn't. That is why gold is critical (or some other unit not easy to create).

Or, the economy is a very complicated system, and you can get emergent behavior that is counter-intuitive given the micro behaviour.

In particular, most recessions in the modern economy are caused by a demand disruption. It is not that we lost our ability to produce stuff, we had to stop producing stuff because we couldn't consume it faster. This (normally) isn't caused because people want to consume less, but rather because they had reduced ability to acquire goods (generally because they have less money than they previously did). That is to say, it is not a problem about our ability to produce goods, or even consume goods. It is a problem with our ability to allocate goods. At a high level, this really is a problem that you should be able to just through money at. Decide who you want the surplus goods to go to and throw money at them until consumption matches productive capacity. Of course, reality has a lot of pesky details to work out since, as I mentioned, the economy is incredibly complicated.

This is not to say that you can just inject unlimited money into the economy without causing any issues. But the effects of injecting money into the economy are dependent on how they are injected. Other ways of injecting money into the economy might increase productive capacity, which would have a deflationary effect that may act as a counter balance to the inflationary one. Other ones may quarantine the money in a part of the economy where they have minimal effect on the rest of the economy. For instance, if the treasury department sells bonds on the open market, the federal reserves prints money to buy those bonds, then the treasury department uses that money to pay interest on bonds held by the federal reserve; did anything really happen?

Ultimatly, economics is too complicated to try and solve from first principles. You need your thinking to be backed by empirical evidence. Prior to Covid, the Fed was trying to cause inflation by dumping money into the economy, but discovered that the economy simply doesn't work that way.

Edit: It is also worth noting that Covid caused an economic shock that is significantly different from the typical shocks we have experience with. If your approach to economics is rooted on empirical evidence, then you would expect to perform worse in such a situation, because you simply do not have as relevent of data to inform you decision making.

It is also worth noting that, unlike most economic crises, Covid was not primarily a breakdown in our ability to allocate goods. It looked like it was going to be, but that Governments did what this post suggests and injected money directly to people who lost their fiscal ability to consume.

Democratic socialism isn't based on "free lunch", that's neither the argument forwarded nor a good argument against it. To take the example I'm most familiar with (Allende's Chile), the point was to put the value produced by the economy in the hands of the workers and to run the economy democratically. If anybody's trying to get a free lunch, it's rentiers who extract profit from other people's labour.

The reason Allende's Chile collapsed was due to US intervention - first, putting them under economic sanction, then funding far-right resistance groups and protests, then eventually just saying "fuck it" and backing a military coup. Nothing to do with free lunches or inflation.

Yes, but the more explicit take away is at 9:18

"There has never in history been an inflation that was not accompanied by a rapid increase in the quantity of money. There has never in history been a rapid increase in the quantity of money without an inflation."

> The idea that you can take 3 trillion dollars in goods and services without producing anything in return without impact is ridiculous and frankly childish. It's as if these people lost touch with reality and forgot that it takes time, effort and resources to produce anything of value.

Lost touch with reality? Not at all. Yes, limitlessly printing money is flawed politics. But they're 100 % aware of what they're doing.

It's pretty simple.

Printing money is just the currently most popular (amoung politicians) way of governments to make sure they can finance their budgets.

Budgeting - deciding what to spend money on - is one of the most important ways in which governments implement their election programmes.

There's different ways in which governments can finance new/increased/additional expenses:

1. raise taxes

2. cut other spending

3. take on more debt

Taking on more debt - aka printing money - is just the option that leads to (currently) the lowest level of opposition amoung citizens. So it's everything but surprising that politicians choose this way ... as I wrote, they know exactly what and why they're doing it.

The money supply-driven inflation you saw in Argentina is nothing like what developed nations are seeing now. Prices are spiking because real demand for semiconductors, slots at ports, oil, etc is outstripping supply, causing prices to go up. It’s possible that the situation will devolve into a wage-price stagflationary cycles similar to what Argentina and other emerging markets have experienced over the decades, but that is not what is happening now.

> USA did this in the pandemic, and now you have the consequences. You can't print money from nothing, its that simple.

When it was going on, you couldn't speak against it. Every single comment on HN or otherwise, that brought up inflation was being casted as right-wing or consipiratory, and therefore flagged. If you tried to speak about inflation just in last year, March 2021, you wouldn't be able to on HN.

Why did we do this?

> they have to make all other money illegal, or else people would just stop using the fake currency

See: efforts to ban crypto

> The cause is trivial: Governments are given the 'infinite money' machine and they abuse it. They abuse it like if they were primary school kids, thinking printing money to pay for stuff is a valid solution, its unbelievable but they truly did this for decades.

Primary school kids? I disagree. As I wrote above, they know exactly what they're doing.

It's just the easiest way for politicians, as long as citizens don't demand honest policies.

Honest policies means: ressources can only be allocated once. So because they're scarce, politicians (would ideally) have to decide where to cut allocation and where to increase. But cutting allocation gets them bad rep, so they avoid it.

So instead they borrow/print money and spend it as they promise prior to elections. Which does exactly the same thing under the hood. Printing money allocates _less_ ressources to everything _but_ those things where the printed money goes. It just dilutes the value, so the amount by which the whole pool was diluted can be freely allocated.

It's relatively easy to do. Currently, because people have difficulties arguing against it and there's a deeply ingrained culture that justifies it, there's not much opposition.

That's why they do it.

The Fed is 100% stuck, and they know it. The idea that raising rates 25 bps multiple times this year will do anything to inflation is laughable, and the fact that their quantitative tightening is just letting MBS's run off the balance sheet naturally instead of selling them won't do anything towards bringing housing prices down, or even steadying them.

In May 2020, the definition of M1 changed to include savings accounts that were previously excluded. If you look at the “old” series it’s _much_ less alarming: https://fredblog.stlouisfed.org/2021/05/savings-are-now-more....

Federal debt isn’t really directly related to what you are concerned about, since there’s no monetarist argument that issuing more debt itself is inflationary. (If it were, then private debt would also be inflationary, which is nonsensical!) The only reason debt would be inflationary is if it’s bought by the Fed, printing money. But a) we already covered that, with money supply (not as scary as it looks!) and b) the % of debt held by the Fed has only increased slightly (https://fredblog.stlouisfed.org/2017/03/the-depth-and-breadt...).

The deficit is not printing money, because the money is borrowed.

Is this what the initial signs of hyperinflation look like? Are we at risk of seeing that? Paired with geopolitical movements to try and replace the dollar as reserve currency, that feels like it could reach a rather bad tipping point, especially if the US finds itself in a position where it cannot just print its way out.

Not really. It has three different causes:

1) Excessive lending and consequent increases in the money supply by commercial banks. 2) Governments printing money without any regulatory compensation to prevent 1 3) Shortages in goods and supplied measured by the CPI, such as food.

Right now we have 2 and 3, and some countries will probably have 1 as well..

"The real tax on the American people is what government spends" -M. Friedman

Right. Inflation makes your rent go up which for most working people is already significantly higher than their taxes.

Stimulating aggregate demand past output with monetary policy is one way inflation can happen, and central banks do have control over that. That can be considered a stealth tax by central banks.

But sometimes output actually does decrease and that isn't due to central banks.

The price of gas in Europe, for example, increased because there was a cold winter, a lack of wind, a recent issue with the supply due to Russia's attack on Ukraine. Not all increases in demand are due to central banks, and not all inflation is due to changes in demand.

Inflation is stealth debt relief.

The definition of what is inflation depends on the economic school of thought. In the case of the Austrian and Chicago economic school of thought inflation is the increase of money supply caused by the central bank that allegedly results in systematic and non temporary increase of CPI consumer price index and money loss of value. There are school of economics, such as Keynesian that argues that a limited and controlled inflation is a good thing for increasing market liquidity, avoiding deflation and promoting a full employment policy. On the other hand some economists believe that some inflation is also good for weakening the currency, boosting the exports and reducing the imports. Inflation becomes problematic when it is used for financing uncontrolled government spending like in Argentina, Turkey and Lebanon as making money out of thin air is the easiest way to a government to raise money since raising taxes can result in massive opposition; taking loans denominated in foreign currency may requires good credit rating and reasonable credibility; austerity measures, such as cutting government spending, unreasonable subsidies or unreasonable government employees wages may also result in political clashes.

The raise of money supply is not be the only cause of CPI and raise of cost of living as supply and demand problems around the world may also increase the CPI. For instance, we also should remember that we have faced several unexpected black swans, such as the pandemic; supply chain shutdown around the world, specially in Asia, that the West has become too dependent on; massive flooding in China what prompted the country to hoard grains; massive droughts in USA (California) and south of Brazil, both countries accounts for great deal of the world's food production; and finally the current war in Europe reduced the amount of natural gas, crude oil supply, fertilizers and wheat in the global market. Both countries involved in the current war accounts for about 1/3 of the world wheat production. Too much foreign dependency can also affect the CPI, since any currency devaluation against the dollar increases the price of everything if the country does not produces enough food to cover its needs like Lebanon.

I've lived in Brazil during a few moments of inflation and it's actually the opposite.

Our central bank will hike basic interest to control rising prices. That makes treasury bonds very attractive investments, while slowing down the rest of the economy.

> is that a lot of the current inflation is not coming from money policies but rather from supply side issues.

The caveat to this argument is that supply side issues only affect certain portions of the economy. Printing money affects all of it, no matter what. This is why it's often the sole thing looked at, because while supply side issues do cause problems, they can be avoided entirely by finding a new supplier.

You can't however, avoid the money that was already printed. You can try to get the politicians to avoid the printer, but good luck.

So in regards to me for instance, supply issues with many of the grains out there just doesn't affect me. Why? I don't use them. I have no need for them anymore for the most part. Anything they might contribute towards my lifestyle is so insignificant that I can literally say I don't need grains.

So that means when there is shortages of these grains and the rest of you are clamoring for them; I won't be. And when the prices of these grains go up and you are all having to pay for them; I won't be.

Therefore, the inflation to costs of grains, doesn't affectt me. At least, not directly. Indirectly it may affect me, like an employer deciding they don't need that many employees when they have to pay X amount more for the bread that often just gets thrown away due to mold.

Yes, that scenario could actually happen in a real world situation. If food stuffs are becoming more expensive, the boss is going to cut costs in other ways, or find new ways to gain more money. Possibly both.

So. Supply side isn't false, but it's not the end all and be all like you saying with your complaining about inequality and reallocation of resources.

The reality is that up until very recently; there was no need to readjust our supply lines. It has nothing to do with whatever fantastical idea you have cooking up in your head there, because ultimately I am correct in saying that you all don't need to have everything. Not every single thing that exists on this planet, needs to be yours. Or anyone's for that matter. This is part of why I brought up grains. They are an item that lots of people use; but not everyone actually technically needs it. There are ways to get around using those grains, or avoiding them entirely without issue.

So a question to you would be this. If I am not getting my 'fair share' of grain, am I being made unequal? How so? I don't use them. Perhaps I could trade them with someone who does, sure. But perhaps they don't have something I want. Trade it for money you say? Okay, sure; but your society is automatically delegitimized on the grounds of equality then; since you can never truly make people equal through money. Someone will always be able to hold onto more of it than others can. Unless you make that illegal... which would make you the problem in the eyes of everyone who holds any sort of money.

See. It's not about 'supply lines'.

It's simply just about people being people and thinking they need to have everything at every god damn moment in time, and nothing less.

Here's the truth of it.

NONE OF YOU NEED:

1. Avocadoes. These are supporting Cartels now down south, so you shouldn't be buying them from there anymore anyways, if you are a logical person that is... (I know this one might trigger some people, but that's kinda the point. You don't actually need this food in many countries it doesn't grow naturally in. There are other foods folks.)

2. A wide variety of specialty grains. These are often ridiculously expensive to transport and ship around, because even when processed this stuff gets heavy. Most of the cost attached to these things is all the processing done to them. This is still yet ignoring some main grains like wheat, oats, barley and even rice or corn. (Yes, these last two are technically grains.) Even if we only ever used the mainstays, and avoided all the 'special' ones, we would still be spending far too much money on keeping this supply chain running as it does. Meanwhile, every town and city could have their own local farms churning out the actual amounts of grain and flour that people actually need. With a cap and trade system attached to this, you can effectively keep these items price values normalized. Thus increasing the affordability for anyone who might want these things.

3. Imported foods in general, though not all. This one is tricky, but much like the specialty grains and avocadoes; there are plenty of foods that we don't really actually need to import. We could grow them here instead via interesting methods to replicate the climate they want. (Where ever 'here' is for you, etc.) Basically all the same things apply. The more these things are travelling or being processed to get to your mouth; the more they are going to cost.

And notice I haven't even began starting to talk about Meat yet? There is a reason for that. It's the same reason you use for your own comment. Veggies and other non-meat products are often overlooked by people who focus too fiercely on meat. Those same people often don't realize that many of the products we feed these animals, are NOT the same products we feed ourselves. We don't give them the best cobs of corn. We don't give them the nicest grains and greens. We give them sileage instead. (rotted/fermented grains/greens) We give them the cobs of corn that people won't buy. We give them everything we won't use, because it turns what is still food to them but waste to us into more food for us.

But they ignore all of that, due to their own biases. And it takes people like me who see both sides of this issue for what they are, and call you all out on it.

So, Tarsul.

It's not a allocation problem. It's not even an equality problem. Yes we could do better on those things; but they aren't the source of the problem. The fact of the matter is that when you increase the total amount of money flowing through the system, you get a variety of effects that have to do with it.

1. The greedy see a way to get more money. They charge more, since there is more. If supply happens to be lower than demand, then they make even more money through doing this. But they do this regardless. In normal times, we often just call this 'passing on the buck'. That term applies to a few situations really.

2. Governments often give that printed money to all the wrong people in the hopes that it will trickle down through economic activity. And in some regards they are correct. It will trickle down, somewhat. But trickle is definitely the right word in regards to the speed of which it changes hands. It's slow, because as I said earlier about money; those who have it will generally find ways to keep it longer. Longer than they should be, or ever should have been able to since it wasn't properly earned, but given.

3. Since that money isn't free even when printed; it affects the total worth of our dollar to boot. Between the automatic inflationary effects felt, and the interest the government will need to pay back to the banks they printed it through; this just increases the speed of which that inflation occurs.

Between lowering the worth of the dollar in general, plus the increase of money supply overall thus lowering the worth of the dollar even further; supply side issues are just not that big a concern when it comes to dealing with inflation. The only time they truly become a concern is when legitimate demand overpowers supply. Note I say legitimate, and not just demand. The key difference here being the point of much of what I have said up til now about supply side issues.

We just don't actually need many of those things people want. Like it or not, there are other options. Sometimes better options.

In regards to global supply lines, there are other options if governments were willing to make use of them. But they generally aren't. And then there comes the final point to this all...

Governments aren't in charge of absolutely everything, and that's probably a good thing; but right now it's not so much. Why? Because the private companies that don't want to change appropriately are being the hold backs in regards to supply lines. And that right there is the only reason your comment has any validity whatsoever. Literally.

Businesses of all sorts need to get their act together, or step out of the system entirely. Governments need to get their act together as well, or risk being forced out of the system entirely. The both of them together bungling everything the way they do, is why we are inflating our currencies, but Government has more control over things than businesses usually do; so they get the immediate blame. Always.

It’s a combination of supply side issues and demand which remains heavily tilted towards goods (vs services)

It's funny that you think supply shortages are being overlooked. It seems to me a whole camp of economists thinks it's the sole cause of inflation.

And then there's another whole camp that thinks pumping money into the economy is the sole cause, or at least orders of magnitude more important than any other cause.

I'm far from an expert, but my understanding was that Weimar Germany did cause hyperinflation by printing Deutschmarks. But there's a really interesting point here:

They printed Marks to buy foreign currency with which to pay off war debt.

So, yeah, if you just run the printing presses on the Mark to buy, say, GBP, then the Mark will indeed lose value vs the Pound.

Critically, this scenario can't happen if all your debt obligations are denominated in your own currency, as in the US. The scenario where the USD experiences hyperinflation because the Fed has to crank out ever more money to pay off Treasury obligations simply cannot happen, but it's a fairy tale used, as best as I can tell, to scare gullible daytime TV viewers into buying American Liberty Coins.

Note, that they changed the definition in May 2020…

There were technical changes to definitions:

* https://fredblog.stlouisfed.org/2021/05/savings-are-now-more...

Productivity is deflationary, not inflationary, by definition.

You're confused here. Price inflation specifically means the same products have a higher price. If you have more money and more productivity so you can buy more with the more money, that's not inflation.

Inflation is short for "price inflation" not "money supply inflation" and not a synonym for "economic growth"

Given that this guy stopped being a serious economist sometime in the early 70s and started being an ideologue who made his fortune giving speeches, it's no wonder that he'd be pretty good at public speaking given that's basically what his career was until his death. I think part of the reason for the clarity is that because these folks grew up without great audio production, they were forced to enunciate as clearly as possible, both on the radio and on stage. It's also why it's hard for me to watch old films and take the characters seriously. Nobody actually talked like that.

This is a phenomenon the world over, not just Americans, and not just young ones. It’s kind of ridiculous actually to suggest that filler words are unique to American kids.

Another contributing factor is likely that back then most recorded voices you heard were from professional speakers/performers. Nowadays anyone can easily record their voice. Not only does this mean that many more amateurs will do so, but also that it has become a more casual affair - people don't generally put as much care into it.

Former California governor Pete Wilson practically refused to say, "uh." So much so that I used to listen to him just to see if I could catch him at it. My successes were few. He would simply pause, mid-sentence if necessary, to phrase his thoughts precisely. He was governor from 1991 to 1999 and his precise manner of speaking was noticeable even in his era.

> In America, many kids today cannot go longer in a sentence without uttering 'like' and 'um'.

You seem to be comparing children to professional speakers. Why?