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Comment by WalterBright | Hacker News Reader

Why doesn't deflation occur?

Deflation occurred on the gold standard, as prices are not that sticky. Besides, a general price increase doesn't occur without an increase in the supply of money relative to the value in the economy. That doesn't happen unless the printing press is run.

> The 1800s were hardly an economic paradise though, the wild inflation/deflation cycles were destructive.

Every one of those was caused by government meddling with the currency.

Why is 9% inflation (what we have today) not destructive? It certainly is destructive to my finances.

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> a general price increase doesn't occur without an increase in the supply of money relative to the value in the economy.

It's still entirely possible for the value to vanish rather than the supply of money causing inflation. The disappearance of Russian gas from Western markets, for example. Energy is such a critical input that an energy price increase manifests as a general price increase.

A demand for zero inflation is a demand that $1 now and $1 in a decade should buy you the same amount of gas, which .. will not continue forever.

What your argument doesn't account for is where does the money come from to enable a general price increase?

> A demand for zero inflation is a demand that $1 now and $1 in a decade should buy you the same amount of gas, which .. will not continue forever.

Gas prices do not cause extra money to be printed.

It doesn't actually require extra physical printed money? Have you heard of "petrodollar recycling?"

The money can come from a shift in the debt/savings profile, in the reallocation of business investment, or a shift in the demand for speculative assets. It's not really a coincidence that as the fuel price has gone up the gold price has gone down not up: https://goldprice.org/gold-price-history.html

There's a big spike around 2020 for inflation fears, but the gold price doesn't track the price level numbers in ways that hard money fans want it to.

> Besides, a general price increase doesn't occur without an increase in the supply of money relative to the value in the economy.

Not quite true, they are correlated but not linked 1:1 see 2020 and WW2. Think of economics a bit like the dual nature of light, not one theory can explain it. The 'Austrian'-school types believe this though, so maybe be where you have heard it?

> Why is 9% inflation (what we have today) not destructive? It certainly is destructive to my finances.

No, I didn't say 9% was good. It obviously reduces the value of savings materially, 2-3% y/y doesn't.

> 2-3% y/y doesn't

Yes, it does, just not as much as 9% does.

Inflation is not hard to understand. It is always a monetary phenomenon. When the money supply increases faster than the value in the economy, you get inflation (because of Law of Supply & Demand, which no government has yet succeeded in repealing).

The rising cost of gas does not cause inflation, because when gas prices go up, you have less money to spend, and hence other prices come down.

> Inflation is not hard to understand. It is always a monetary phenomenon.

How do you reconcile that with the fact that there was uncontrolled inflation before fiat money?

I'm guessing the underlying point both of you are making, re: 2-3% vs 9% you is that it's inflation... set against popular access to investments that meet or exceed that rate.

I don't mind 3% inflation, when I have low-risk investments that earn >3%.

I do mind 9% inflation, when my low-risk options earn <6%.

(To pull some random demonstrative numbers out of a hat)

And I think it's specifically the broadness of access to the sub- or supra- inflation investment opportunity that matters. If only some, limited-access opportunities exist, then it still hurts.

Which I guess is another way of saying economic-growth-vs-inflation is the important metric, with a dash of central bank policy.

In defense of fiat money... it is a powerful tool in the hands of a responsible macroeconomic manager. Emphasis on powerful & responsible.

> Why is 9% inflation (what we have today)

We have approximately 0% inflation today (at least, the monthly—not the headline 12-month trailing, but the actual amount for the month—number for the last two months has been between 0% and 0.1%; 0% to a little over 1% annualized.)

The 12-month trailing is 8.3%, but it takes a while for the 12-month trailing to reflect current conditions, when there is a change, for reasons explained by the name.

I see. So whenever monthly inflation goes up, it's transitory, and when it doesn't, there is no inflation.

Meanwhile, prices on a lot of things I buy doubled.

Your own personal inflation may be different to the typical rate encountered by the typical person

US Gas prices are $3.68 a gallon, down from over $5 a few months ago. That's hardly inflation.

https://gasprices.aaa.com/state-gas-price-averages/

Picking a random date about 6 months ago it was $4.25

https://web.archive.org/web/20220310032222/https://gasprices...

Lumber prices are down 65% since March, about the same as this time last year, and indeed back in 2018

https://markets.businessinsider.com/commodities/lumber-price...

This is not symptomatic of hyperinflation, it's symptomatic of supply being lower than demand, causing an increase in supply or a decrease in demand, which takes time

> US Gas prices are $3.68 a gallon, down from over $5 a few months ago. That's hardly inflation.

If gas prices drive inflation, why are we not seeing deflation from the gas price drop?

Have you factored in human greed?

Yes, I have. I greedily want to keep as much of my money as I can so I buy the cheapest goods available, sending money to the greedy corporation who offers goods at the lowest price.

This stubborn hand-wavy argument that prices stay high due to greed smacks of economic illiteracy and White House propaganda.

Charging prices the market will bear is considered "hand-wavy" or propaganda now?

If I raise the price of a gizmo I'm selling by 20% because my costs went up, why would I reduce the price when my costs go down but demand is still high? I like my increased profits, and so does my competition. The myth of perfect competition is a exactly that: established companies do not engage in races to the bottom, "cartel" behavior is emergent.

Why do gasoline prices go up and down all the time? same for airline ticket prices? I'm afraid your theory has a lot of 'splainin' to do.

You've cherry-picked 2 outlying low-margin, high-velocity products where there is a race to the bottom. I counter your gas with smartphones, where Apple and Samsung are ratcheting up the price year over year, while competitors like LG are bowed out. Why couldn't LG compete at lower prices, and chose to exit the smartphone market entirely?

How does your perfect competition theory explain why tuition prices have been going up over 5+ decades, vastly exceeding inflation?

The same tuition prices that has the full faith and credit of the federal government behind it driving it up?

> Why couldn't LG compete at lower prices, and chose to exit the smartphone market entirely?

Because Apple keeps making the phone better.

> How does your perfect competition theory explain why tuition prices have been going up over 5+ decades, vastly exceeding inflation?

I didn't espouse a "perfect competition" theory. That's your strawman. Anyhow, tuition prices have gone up because the government provides rivers of cash to prospective students. The pool of students thus has gone up drastically, and because of limited supply of colleges, and vast demand by students with fistfuls of cash (and little sense), the tuition went up. A lot.

Competition, velocity, fungibility

Gas isn't the only input into prices. Salaries are up 10% in a year for example.

Changes in costs also take time to filter through the economy, and indeed in the last 2 months prices have come down (CPI in June was 296.311, in August it was 296.171)

> So whenever monthly inflation goes up, it's transitory, and when it doesn't, there is no inflation.

No, when consumer prices (not inflation) goes up, there is inflation, and when they don’t, as they have not (overall) in the last two months, there isn't. That’s the definition of inflation.

> Meanwhile, prices on a lot of things I buy doubled.

So... assuming that's over a 12-month period, there are some things that you buy that have been affected vastly more by inflation than even the highest overall sector of the CPI (fuel oil, +68.8% over 12 months.)

Not sure what general importance you want assigned to this or why.

The CPI is not calculated honestly. If you use the CPI tabulation from the 1970s inflation will be way higher than what the current govt statistics from BLS state. For example, Owner’s Equivalent Rent is used, not actual rent that many families are struggling to pay. In addition, the Fed’s core inflation number is ex food and energy prices, which is also misleading.

> The CPI is not calculated honestly

None of your argument supports that it isn't calculated honestly, just that you don't like the particular choices. And it doesn't help that you misrepresent them.

> For example, Owner’s Equivalent Rent is used, not actual rent that many families are struggling to pay.

Actual rent is used for renters. Owner’s equivalent rent (imputed rent) is used instead of asset purchase costs to assess the consumption cost of housing separate from the cost of acquiring a durable asset for homeowners.

> In addition, the Fed’s core inflation number is ex food and energy prices, which is also misleading.

The headline number is the full CPI, not core CPI. Core CPI is also reported, and may be used for some purposes by certain consumers of CPI data, but it's not the headline figure/main measure, so disagreement with its appropriateness as the main measure is fine, but a beating a strawman.

> For example, Owner’s Equivalent Rent is used, not actual rent that many families are struggling to pay.

This is simply false. Firstly CPI includes both rent and owners equivalent rent, weighted in proportion to the people that rent and own houses respectively. Secondly, OER is calculated based on estimates of current rental prices. Plus of course including OER rather than treating rent as something homeowners don't have to worry about tends to increase CPI when rents rise fast...

> In addition, the Fed’s core inflation number is ex food and energy prices, which is also misleading.

"Core inflation" is a separate time series to the CPI, clearly reported as an alternative measure excluding volatile energy and food prices to compare with CPI.

The only "misleading" is people ranting about how a separate dataset created specifically for comparison purposes proves dishonesty on the part of those calculating CPI...

CPI is cherry picked to minimize the measurement of inflation. Apparently not everyone is aware of that.

The government changes the period of inflation as convenient. When inflation is rising rapidly, they push annual inflation figures. When inflation is moderating, they push monthly figures.

Inflation follows the money printing with a lag of around 13 months. The government just printed a trillion dollars to erase student loan debt. Get ready for another round of inflation. Also the "Inflation Reduction Act", another free-spending bill which will add another chunk to inflation.

> The government changes the period of inflation as convenient.

No, it doesn’t. At least, the present administration hasn't been.

> When inflation is rising rapidly, they push annual inflation figures. When inflation is moderating, they push monthly figures.

The present administration has been fairly consistently focusing on the monthly 12-month trailing figure, which has also been the headline number for, well, ever.

> Inflation follows the money printing with a lag of around 13 months.

Looking at the history of monetary policy changes, QE rounds, and monthly inflation rates, there’s absolutely no support for that at all.

> there’s absolutely no support for that at all.

Look at the money supply changes layered over inflation.

That's just obvious enough that we might have already done it. We might, for instance, have looked at the inflation data 13 months after Q1, Q2, Q3, and Q4. And based on that data, we might have reached conclusions that are spectacularly different from yours.

If you want to convince us, you're going to have to do more than just say "look at the data" and repeat your previous point. Specifically what data are you looking at, and over what time frame, and how do you think it demonstrates your position?

It's a chart by the WSJ, but I've made repeated searches on wsj.com and can't find it. It's pretty frustrating, as I'd really like to cite it.

Only because energy (which is more volatile) is way down the last two months. What happens when energy swings back the other way? Anyways 0.6% MoM for all items less food and energy is very far from success.

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