His philosophy proven again correct in my view. I found Yellen's comments staggering - having to apologize for not seeing inflation coming - after the US increased money supply 40% from 2020-2022.
What other pretty basic economic realities are not being considered by our leaders?
The problem with central bankers is that they don't have any consequences for their mistakes. No one will lose their job or any detrimental effect on their career. In fact, the system will select for people that have a orthodox view on economics that allows politicians to increase spending, cut people a few thousand dollar checks and give huge handouts to the largest corporations all while obfuscating the actual effects of their policies and robbing future generations of wealth
At the instant of printing money they have not changed underlying economic production, but they have created more dollars in the economy with which people can use to compete to buy things, thereby pushing prices up.
Not sure if you are using the quote in the article as the one sentence definition here.
My point is that people often claim that inflation is tied very tightly to printing and that the government is full of idiots who should have known that printing would cause high inflation. The post that triggered my comment was the following.
> I found Yellen's comments staggering - having to apologize for not seeing inflation coming - after the US increased money supply 40% from 2020-2022.
> What other pretty basic economic realities are not being considered by our leaders?
Yet it is clearly more complex than this, since simple relationships between printing and inflation do not account for the last decade of observed printing and inflation.
Whether the people in government are idiots or not, it almost is always politically expedient to err on the side of printing more money, since politicians and politically appointed bureaucrats typically seem to be more focused on the short term (the next election) until there is uncontrolled inflation. That being said, I don't think we've had a president who had a strong intuition for economics since Eisenhower.
> Yet it is clearly more complex than this, since simple relationships between printing and inflation do not account for the last decade of observed printing and inflation.
How so? We've had inflation for the last decade, and we've had rising wealth inequality on top of consumer inflation (which I consider to be a different type of inflation), which can largely be attributed to increases in the money supply and broken graduated income tax brackets. The central issue here seems to be that you are not differentiating between the magnitude of money printing last time around (which did indeed affect prices throughout the market over the decade) and the unprecedented magnitude during the pandemic.
> If there is a many-year delay (to account for the low observed inflation during years of monetary intervention during the 2010s), then why are people blaming today's inflation on printing during the past two years?
2 years is a long time. While commodities, equities, and real estate started exploding pretty quickly, it took a little over a year for consumer prices to start increasing at an unsettling rate. But just because there is some hysteresis, does not mean it takes 10 years.
"Classically" CBs inject money into the economy via purchasing financial assets. It gets filtered through banks and financial markets, so it's expected that this is where inflation hits first and hardest. Over time as people cash out of those rising assets the inflation spreads and starts warping the prices of other things like houses, degrees etc.
The sort of inflation we're seeing now that also affects the prices of every day items is primarily due to lockdowns. CBs bought government bonds directly, which they'd been doing for a long time but they did so on a massive scale in order to fund support loans and stimulus cheques. But everything was shut down, so people just deposited those loans into their banks and had nothing to do with them except speculate on stuff like NFTs. Now the world is opening up again that money is getting withdrawn and spent on normal, every day items, some of which are also in short supply for lockdowns and war related reasons.
Yellen's comments are not contrary to what Friedman says and reasoning only from money supply is wrong headed. It's money supply & velocity and velocity dropped off a cliff in 2020.