Edit: The deficit has come down, and then the inflation came down. Figures 1A and 2. https://epicforamerica.org/the-economy/is-inflation-the-resu...
Edit2: The reason for it is the Law of Supply & Demand. When more money chases the same basket of goods and services, the money loses value (which is what inflation is). Federal deficit spending is just that - more money dumped into the economy devalues the rest of the money.
It's old and quite corny but this video gives the cliff notes on how the FED works
The reason for this expanding money supply is to facilitate an expanding economy.
Our FED operates the same way, the government must pay back the FED's loans, and these loans have interest. When the US was printing greenbacks without the FED there was no one to "pay them back to". This is how the USA operated before 1913.
There's a reason why the Federal Reserve has two primary missions--stable prices and maximum employment. Deflationary periods cause massive unemployment and declines in investment, so they really want to avoid deflationary periods. Ask any economically literate historian about the devastation deflation causes at the individual level; it's far, far worse than inflation at nominally comparable levels. This is why the Fed is biased toward inflation. 20th (post-Bretton Woods) and 21st century inflationary periods haven't been any worse than the 19th century or early, but we have avoided severe deflationary periods, and that's absolutely worth the small long-term inflation. It's also arguably kept prices more stable, but confounders (technology, etc) make comparisons with the 19th century industrial revolution complicated--the emergence and rapid evolution (to this day) of the commodification of goods and services.
I haven't seen any evidence for that.
> This is why the Fed is biased toward inflation.
The Fed is biased toward inflation because that way the government can spend more without raising taxes.
This is nothing like how the Fed, or banks, work: depositor's money is not given out to people who get loans. Tobin called this the "Old View" in 1963:
* https://elischolar.library.yale.edu/cowles-discussion-paper-...
It's beyond old now:
* https://www.bankofengland.co.uk/explainers/how-is-money-crea...
* https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625
Double check your timeline, Biden did not become president until 2021 so you cannot lay the 2020 deficit on him.
The single highest deficit year was Trump's FY 2020 with a deficit of $3.3 trillion. It came down the next year (FY 2021) which can either be credited to Biden or shared between Biden and Trump since it spans both their terms.
There was no inflation in 2020, the year that COVID hit. Many places experienced a month or two of deflation due to shutdowns. Remember when oil price went negative?
* https://www.cbc.ca/news/business/oil-negative-price-1.553899...
Inflation didn't start going up until 2021, and some of that was due to base effects:
Providing this little snippet of context again in case you wish to improve your reading comprehension
...but if it does happen, inflation will come down, too.
Sub 2 percent inflation, not sub 2 percent real interest rates.
This is what happens when you have monopolies and oligopolies doing what they please (after getting massive handouts in the form of tax cuts from Trump... surely with more on the way).
The interest-rate hikes have failed; and yet here we are, waving our hands as if helpless.
"Core inflation is the change in the costs of goods and services but does not include those from the food and energy sectors. Food and energy prices are exempt from this calculation because their prices can be too volatile or fluctuate wildly." - https://www.investopedia.com/terms/c/coreinflation.asp
And yet the cost of food is probably the most often-cited one in any news story about inflation... unless the winner is the other statistically-omitted one, fuel.
There are multiple types of CPI because they measure different things, and they each have pluses and minuses.
The reason why Core CPI is useful is illustrated by the orange and blue lines in the first graph:
* https://www.economicshelp.org/blog/2587/inflation/difference...
Good luck trying to policy with the orange (non-Core, which has food and energy) line. Or the red line in Chart 1 of:
* https://www.frbsf.org/research-and-insights/publications/doc...
Food and energy are heavily dependent on commodity prices, which can swing widely: one month the Fed would be cutting by 3% and the very next month raising by 4% if they followed non-Core CPI (versus PCE).
The Bank of Canada, who sets rates in Canada based on StatCan data, looks are three different CPI measures:
* https://www.bankofcanada.ca/rates/indicators/capacity-and-in...
* https://www.statcan.gc.ca/en/statistical-programs/document/2...
https://epicforamerica.org/the-economy/is-inflation-the-resu...
https://epicforamerica.org/the-economy/is-inflation-the-resu...
Other countries are pretty instructive as well. For instance Germany had inflation during a period when they had a budget surplus (for over a decade prior to 2019).
And that the revenue may be lower. Look at 2008 and 2009. Major increases in unemployment which also resulted in reduced revenue. Which created a double whammy, spending increased because the social safety net did what it was supposed to do (carry people through tougher times) and revenue dropped because there were fewer people paying taxes and many people reduced spending (beyond just those who lost their jobs). Then the deficit drops while the employment rate increases and revenues increases while spending again decreases commensurately.
It's like a deficit in Kansas does not result in inflation in the US, because Kansas does not have its own currency.
Deficit = Spending - Revenue[edit later after parent edit] Ok I think you are saying governmental spending deficit. And your link doesn’t go nearly so far as to say that you must account for every governments spending in the EU to account for this.
Do you have any other links? This is a much more expansive view on the relationship between deficits and inflation than I’ve read before.
https://www.nytimes.com/2022/07/21/opinion/paul-krugman-infl...
The charts are handy all in one place, but if regularly incorrect, likely means looking at wrong data, or just using it wrong.
I’m sure he’s a nice guy and all, and this isn’t meant to be an attack on anyone, just an observation that I find frustrating. Seems to be very little to no negative feedback for some economists making bad predictions or analysis.
For two, if you are punishing people for being willing to put thoughts out there, all you will succeed at is getting fewer people putting thoughts out there.
Your observation here, though, is largely that public figures have public records of failures. You jump from there to the idea that they only have failures. This is as useful as thinking they only have public success. Which is clearly false.
My gut is going to be that some reputation can be more easily laundered than others. And recency, as well as strength, of criticism will play a strong role in how bad failures impact credibility. For that matter, availability of alternatives?
Gravity, of course, is still one of the most mysterious forces/properties of nature. Such that I'm not really clear how trying to pull that one in is anything other than sophistry?
To the point of this subthread, I'm not clear what your aim is. I was pushing back on the idea that public academics don't know what they are talking about. They can, of course, be wrong. But so can largely anonymous actors online.
I think there is almost certainly a useful model that can explain why some people are more trusted than others. My assertion is that you will have to bring in aspects of what we call marketing. Along with a general awareness of who is driving criticism. But, specifically, relying only on having a history of pure success is easy to disprove. For an easy example, Newton was a failed alchemist, just like every other alchemist. I'm guessing you don't view him as a failure.
When someone asserts that the Law of Supply & Demand doesn't apply, they are wrong. I've pointed out the particular error many times to people who asserted such things.
A typical one is rent control. Another is laws against price gouging.
A corollary is TANSTAAFL - There ain't no such thing as a free lunch. You can bank on it.
You'd be justified in assuming I'm arrogant about this. I am. But I have an awful lot of experience with it.
> Such that I'm not really clear how trying to pull that one in is anything other than sophistry?
Look into predictions Einstein made about gravity. Not only was he correct, he was as correct as measurements could measure it. All attempts at finding exceptions to it have failed.
And sure, Einstein was Einstein. Now it is sophistry with an appeal to authority?
You seem to be shadow boxing claims I'm not aware of? Are these claims of Krugman? Just further up thread than where I jumped in?
What if they also have a lot of successes? What if their successes outnumber their "a lot of failures"? Can you measure a percentage/ratio between the two?
A lot of people were predicting dire consequences of QE:
> We believe the Federal Reserve’s large-scale asset purchase plan (so-called “quantitative easing”) should be reconsidered and discontinued. We do not believe such a plan is necessary or advisable under current circumstances. The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed’s objective of promoting employment.
* https://www.hoover.org/research/open-letter-ben-bernanke
Krugman (and others) predicted things would be fine; Krugman was right.
A lot of folks predicted "expansionary austerity" would be a good thing:
* https://en.wikipedia.org/wiki/Expansionary_fiscal_contractio...
Krugman (and other Keynesians) thought it would be bad; Krugman et al was right:
* https://www.theguardian.com/business/2016/may/27/austerity-p...
* https://www.theguardian.com/business/ng-interactive/2015/apr...
See the graphs I posted links to.
As i understand it, gov spending CAN trigger inflation, but it doesn’t automatically. If gov buys something that scales up easily, then their demand is easily absorbed without inflation. If gov buys up stuff that’s in short supply, some inflation might happen.
What will actually happen to the deficit is anyone's guess.
Did a bit of digging, and this place is run by Paul Winfree:
> Winfree’s former employer has arguably made that shift. One of the last things Winfree did at Heritage was help pen a section of its controversial Project 2025 policy roadmap for the next GOP administration. That section raised the idea of effectively eliminating the Federal Reserve.
* https://rollcall.com/2024/10/31/with-an-epic-name-this-conse...
Who was previously with the Heritage Foundation:
* https://en.wikipedia.org/wiki/The_Heritage_Foundation
Heritage are the folks that published Trump's Project 2025:
There are an awful lot of people that benefit from the deficit spending, so they have a major incentive to blame inflation on something (anything) else. The usual suspects are:
1. corporate greed
2. union greed
3. oligarchs
4. supply chain disruption
5. oil companies
6. Arab countries
7. Putin's price hike
And you're serving more Kool-Aid. Deficit spending is merely one form of monetary creation. The bigger one is cheap loans from the Federal Reserve to banks, which is responsible for the ongoing housing, stock, and other asset bubbles.
The Fed's technocratic mandate declares that price inflation must happen regardless. Myopically focusing on "deficit spending" merely hamstrings the Legislative/Executive's ability to spend money for directed deliberate purposes, leaving more for the Reserve to hand out to the financial industry and existing asset holders.
Yes you are technically right, the Federal Reserve (a part of the government) issues credit and puts money into the economy.
>The Fed's technocratic mandate declares that price inflation must happen regardless. Myopically focusing on "deficit spending" merely hamstrings the Legislative/Executive's ability to spend money for directed deliberate purposes, leaving more for the Reserve to hand out to the financial industry and existing asset holders.
You're putting a spin on it that I can't stand. Are there other modes of money creation? Yes, and all tie back to the government itself. The government is the primary beneficiary of money creation because it has the largest debt and it creates the money, and forces everyone to accept it at gunpoint.
Yes, but surely you can see that the different mechanisms by which the government creates money (and the subsequent destinations for the new money) will each have their own resulting effects.
By driving the focus on to only one of them ("deficit spending") while tacitly giving the other(s) a pass, you're actually advocating for a specific course of ongoing government intervention (aka "policy") - especially while the unquestioned overall policy is such that diminishing one will automatically increase another.
>[...] especially while the unquestioned overall policy is such that diminishing one will automatically increase another.
I think it's wrong to take that for granted.
Yes, which is why I am trying to discuss the effects of different government policies. Stopping at "the problem is government" only makes sense if you're taking a principled approach of rejecting all government intervention, which you're not doing. Your argument is framed as if it's coming from that position, but you've been skipping criticism of the largest source of monetary creation which is why I've been saying you've been giving it a pass.
> I think it's wrong to take that for granted.
This is literally just a pillar of the Federal Reserve's explicit mandate. If monetary inflation from the deficit isn't high enough to create the target price inflation, then the Fed steps in and lowers interest rates to create enough monetary inflation to make up the difference.
> If the Federal Reserve issues credit for worthwhile private banking endeavors, it is much more likely to be productive than anything the government spends money on.
Okay, thank you for finally expressing a judgement between different government interventions for creating price inflation. I completely disagree with your statement (I'd say that giving new money to "banking endeavors" mostly just goes to driving up the leveraged-everything bubble). But at least now that you've actually made the argument explicitly (rather than having it be implicit from a whole host of unvisited assumptions), we can even just agree to disagree.
The Fed does more than just this of course. You also have cause and effect mixed up. By the act of manipulating the bond market and dumping money into the economy, the Fed lowers interest rates. The target is stated in terms of rates but it is not the case that the rates increase money supply. If the rates were lowered through natural market activity, there would be no consequent effect on the money supply.
>Okay, thank you for finally expressing a judgement between different government interventions for creating price inflation.
I think you're splitting hairs. The government has limited control over inflation, because of its spending obligations. They cannot arbitrarily limit inflation without bankrupting themselves. But inflation is an onerous tax on everyone, and the idea that we "need" inflation is preposterous. It would be better to have a stable unit of currency and to let prices fall as necessary. This phenomenon reflects the reality of supply and demand, and facilitates effective financial planning by individuals and businesses. Inflation, even under the pretense of "price stability" aka money evaporating 2 to 10 percent per year, is not helpful in the slightest. It penalizes savers and the poor to benefit people who make bad investments and waste resources.
Although I am kind of an expert on all of this, having studied it for several years now in depth, I don't have time to argue with people about such things on HN at the moment. I just want to encourage you to question what you've been told about the necessity of inflationary policies over sound money, and the actual reason our government keeps imposing this inflation tax on people. It's covering up for its own dysfunction, not trying to help you. Government spending and other fiscal programs caused most bubbles we've seen in our lifetimes. Everything... College debt, real estate bubbles, multiple stock market bubbles. The Fed likely caused or at least prolonged the Great Depression by trying to buy all the gold from people, then tried to profit from it by increasing the price artificially. The whole point of that exercise was to enrich the government and certain insiders while establishing a precedent that the government can do whatever the fuck it wants, regardless of what the Constitution says about property rights or what can or can't be used as money.
What changed in 1914? Persistent deficits.
Spoiler alert: they were bad.
There was deflation for many periods of time before 1914:
> There have been several deflationary periods in U.S. history including from 1815 and 1860 and again between 1865 to 1900. One of the most dramatic deflationary periods in U.S. history took place between 1930 and 1933 during the Great Depression. Deflation rarely occurred in the second half of the 20th century. The dramatic and consistent price increases from 1950 to 2000 have been unparalleled since the founding of the country.
* https://www.investopedia.com/ask/answers/040715/were-there-a...
* https://en.wikipedia.org/wiki/The_Great_Deflation
Before the 1930s was called the Great Depression, that label was applied to another event by people:
* https://en.wikipedia.org/wiki/Long_Depression
In 1937 when FDR tried to balance the budget due to political pressure and the then-orthodoxy that "deficits bad":
* https://en.wikipedia.org/wiki/Recession_of_1937–1938
Deficit spending has led to more more stable and predictable prices, as has getting off the gold standard:
* https://archive.is/https://www.theatlantic.com/business/arch...
The last few decades have probably been the most stable level of prices that people have seen:
* https://en.wikipedia.org/wiki/Great_Moderation
COVID (and the energy price spike because of Russia) has been the main anomaly since the 1980s (the inflation of which was caused by OPEC-related energy spike).
Given a choice between deflation and <4% inflation, I'll take the inflation.
> […] https://epicforamerica.org
If these guys are so worried about deficits, why are they pushing for expanding tax cuts that make the deficits worse with articles like "Lawmakers Must Preserve and Expand the 2017 Tax Cuts":
* https://epicforamerica.org/federal-budget/lawmakers-must-pre...
US outflows ("spending") relative to GDP is coming down to historical levels (~20%):
* https://fred.stlouisfed.org/series/FYONGDA188S
And yet the deficit relative to GDP is getting worse:
* https://fred.stlouisfed.org/series/FYFSGDA188S
It's inflows (income) that's the problem, i.e., not enough tax revenue.
Now do Japan:
* https://fred.stlouisfed.org/graph/?g=1680i
Increasing money supply, low inflation (and more than on period of deflation).
The problem with looking at money supply is that you don't bother looking at what the money is doing:
> But also – why do so many people insist that inflation is an increase in the money supply? This makes zero sense. Here’s why – our economy is mostly a credit based economy. So, if I take out a loan for $100,000 then the money supply has technically increased by $100,000. But what if I don’t actually tap that loan? What if I borrow the money because, for instance, house prices just went up 25% and I want to have some cash around for emergencies? This doesn’t tell us anything about prices, living standards or really anything. But this is what so much of the money supply represents – money that has been issued and is just sitting around unused. Why is this useful? It’s like calculating your weight changes by counting how much food you have in your refrigerator. No. That’s potential calories consumed and potential weight gain. The amount of food in your fridge tells you little about your future weight changes just like the amount of money in the economy tells us little about the actual price changes in the economy.
> Sometimes I feel like people read some econ 101 and the admittedly intuitive idea that inflation is “always and everywhere a monetary phenomenon”, but didn’t stop to think that it might be a lot more complex than that.
* https://www.pragcap.com/three-things-i-think-i-think-i-see-d...
The problem with Monetarists is that they ignore the velocity of money.
I don't know much of anything about Japan's economy. But I have read that the Japanese have an unusually high savings rate. I hypothesize that may have an effect of withdrawing money from the economy, which counteracts the deficit money printing by the government.
Don't just put other people's money where your mouth is