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Comment by greyface- | Hacker News Reader

> Inflation is one of the most politically salient factors of this decade

> Inflation has lots of causes, it's true.

https://fred.stlouisfed.org/series/M2SL

Algorithmic price fixing is certainly a not-insignificant part of the issue. But it's strange to see zero acknowledgement of the massive increase in money supply over the same time period. When doing causal analysis, we need to examine both the private sector and our government.

When you use M2 as denominator for egg prices, we're at the same place we were in early 2016: https://fred.stlouisfed.org/graph/?g=1DcVw

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> But it's strange to see zero acknowledgement of the massive increase in money supply over the same time period.

Because when you look at inflation in the period of say ~2000 to ~2025 [1] it's really not very obvious that there's an increase in M2 from '08 onward.

Talking about M2 as a source of inflation is like shouting Red at a roulette wheel. Sure, sometimes the ball will land on Red but your shouting is a non-sequitur on the result.

[1]: https://fred.stlouisfed.org/series/CPALTT01USM657N

Because true inflation isn’t CPI!

The CPI time series you provided is monthly % change. Here's M2 in those same units: https://fred.stlouisfed.org/graph/?g=1DcYJ

They look pretty similar to me. Chaotic in the short term, but averaging positive between 0-1%. In other words, slow but consistent exponential growth. I didn't say anything about a discontinuity in '08, I'm not sure what point you're trying to make with that.

Edit: here they are both plotted side by side in those units: https://fred.stlouisfed.org/graph/?g=1DcZr

Maybe you can see something in that noise, but I just plotted those and looked at their correlations, and it's garbage. Even looking at their sums, they have different slopes (over decades), all you can say is "number go up". The monthly correlation is junk, the yearly correlation of their sums is junk, the decade long optimally lagged correlation is junk (include 2008-2010 and it's worse). I had to look, because I wondered if there was some interesting coincidence, but there's not.

Now, if what you're trying to say is that the much larger (non M2) eurodollar currency correlates to long term global growth and inflation, yeah that's true. There is a trillion $ industry maintaining that called the banking system. But the idea that eggs, oil, lumber, or rent are well correlated is not even a funny joke. Gold and bitcoin are a bit different because they are so financialized, but I wouldn't go day trading them just based on Fed stats either.

For money supply to be inflationary it has to increase demand or reduce supply for a given product.

It sounds neat but there’s little evidence of that occurring on more than a temporary basis during covid. But covid also caused supply shocks.

It seems that what happened is covid showed companies what they could get away with both because of decades of consolidation and because of new ways of colluding.

More dollars in circulation chasing the same supply of products = increased demand for those products, in dollar terms. I'm not looking specifically at the COVID spike (which, indeed, seems to be over from a monetary policy perspective), I'm looking at the longer term continuous exponential increase in money supply.

But those extra dollars aren’t with consumers. Otherwise, yes. That’s where the money supply causes inflation argument falls apart — at least for this case.

Maybe not at T=0, depending on how you look at money creation. But the "extra" dollars, wherever they originate, will eventually be spent, and will eventually diffuse out to every part of the economy. We're not printing trillions of dollars, locking them in a treasure chest, and burying them deep underground so that they may never move.

> https://fred.stlouisfed.org/series/M2SL

This graph is absolutely insane. As I am completely unfamiliar with what is represented, would you have some pointers on where to start to understand what it represents?

I'm particularly intrigued by the very sharp rise during the covid time, when the global economy was in taters.

It's not as insane as it looks. They changed the definition of M2 in 2020, which means we expect to see a jump right then

Ah, thank you for the clarification.

The definition of M1 expanded in ~April 2020: https://fredblog.stlouisfed.org/2021/05/savings-are-now-more...

And to the extent that the definition of M2 changed in 2020 (the FRED series description indicates it did), this was only in response to the expansion of M1, to ensure that it was not double-counted in or removed from M2.

https://en.wikipedia.org/wiki/Money_supply

Go to the settings of the graph and set the graph to logarithmic. Growth is linear.

Ohhh, missed that. Thanks!

An upward line on a log graph represents exponential, not linear, growth.

The rate of growth is linear. In fact, looking at the graph in logarithmic scale shows that the rate of growth of M2 is slowing.

ok, but does the increase in money supply explain the price collusion that businesses admit to doing? You're bringing up an issue that's not pertinent to companies criming.

I'm addressing the part of the article that uses inflation as a framing device. If inflation is the motivating issue, then we are turning a blind eye to the elephant in the room. I don't disagree with the criticisms of price collusion criming.

> does the increase in money supply explain the price collusion that businesses admit to doing

Why would one cause of a phenomenon explain another cause?

The hypothesis "both wood and plastic burn" doesn't require wood to explain to existence of plastic.

Increase in money supply only causes inflation if the money is spent on purchases of items with inflated prices (say, ferraris instead of basic food items).

When the basic food items become ferraris, people have no choice on that.

> Increase in money supply only causes inflation if the money is spent on purchases of items with inflated prices

The economy doesn’t work like that. You can’t inject money but only have it apply to specific sectors.

Everything is interconnected in the economy. If a lot of money comes into the market it will cause a lot of activity, changes in demand, new job openings that entice employees upward, increased wage demands for jobs, new hires requiring higher wages, rising costs to cover those wages, and the cycle goes on and on.

You can’t isolate the effects of inflation. At the scale of economies, inflation effects ripple through everything.

Also, eggs are a terrible indicator. Did everyone forget about the bird flu? It’s a supply problem.

Increased wages do not cause inflation. There are plenty of studies that show this.

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