Wow. First, on the length of this comment: Do we need comments longer than the article being commented on? Second, there is so much in this comment to disagree with that it would take a comment three times its length to begin to refute all I disagree with. I'll limit myself to one paragraph:
Wow. First, on the length of this comment: Do we need comments longer than the article being commented on? Second, there is so much in this comment to disagree with that it would take a comment three times its length to begin to refute all I disagree with. I'll limit myself to one paragraph:
"We're really acting like any of this matters or this exists? Really? Inflation is not at a 30 year high. It isn't. It's not 1975. There was a six percent increase. The economy has literally, never been better. The stock market is at an all time high. The reason there is inflation is that, as people get vaccinated, they have money and are spending it faster than producers can keep up with demand. That raises prices. Inflation isn't due to any government policy. It's due to capitalism. It's a success, not a failure. People are literally spending money more than ever before. Both retail sales and restaurant sales are now at pre-pandemic levels. There's inflation because we went from 'pandemic levels' to 'pre-pandemic levels' in four months. Much in the same way that there was rapid deflation in the beginning of the pandemic, there is now transitory inflation."
2021-1975=46. 46>30.
Asserting that the economy has never been better is just silly Trump style propaganda.
The reason the stock market is at an all time high is that our policies since the Great Recession have been designed to produce asset inflation. The money supply was increased before the pandemic in a very specific way to not produce inflation in consumer goods, but to raise asset prices so those with assets would feel wealthy, which means that this class would increase economic activity. During the pandemic, the government put money in the hands of consumers under the theory that demand needed to be strengthened to prevent economic collapse. It's still an open question whether this stimulus was overdone. But 6% inflation is not healthy capitalism. If it persists, it is a massive problem that probably will cause a recession. This inflation may yet prove transitory as pandemic related problems
work themselves out. We'll see. But the inflation we are experiencing now is clearly caused by the policy of increasing the amount of money in consumer hands.
No, the inflation isn't clearly caused by the policy of increasing the amount of money in consumer hands. It IS a contributing factor, though.
Demand for durable goods is way up (higher than the trendline demand according to FRED data). Demand is way up because: 1) yes, the USG handed out money; and 2) demand (and availability) of services is down (for obvious reasons).
People are buying things rather than services, because there are fewer services to buy and/or people are not taking the risk of exposing themselves to get services.
Supply of durable goods is down. This is because: 1) Demand is higher than expected or predicted (and it takes time to ramp up to meet increased demand); and 2) even if goods are theoretically available, supply chain issues are creating perceived scarcity.
When the money supply outstrips the supply of goods/services, inflation naturally occurs--until the two come back into balance. If the supply of goods outstrips the supply, the prices (theoretically) should go down.
Inflation has been incredibly low for years, to the advantage (in combination with low interest rates) to people playing the market. This has inflated values in the market. Policy shifted inflation from durable goods and consumer services to the financial market.
Doing this increased wealth inequality but also created the impression that the economy was good because prices that people encountered in their daily lives remained fairly constant.
In economics perception is actually more important than the reality. You can convince people that things are bad even if they aren't actually bad (and vice versa).
I'm a regular reader of Krugman's columns and the one you link to gives clear evidence of how political tribalism trumps rationality.
I agree on your correctives about current inflation. Sometimes completeness suffers from the desire to be brief. (Especially since I was just complaining about a lack of brevity.)
I think the reality of asset inflation is little understood. I live in a rural area where the value of a good acre of irrigated farm ground went from $2000/acre to $10000/acre over a few years. (Side note on the intersection of economics of government policy: Those 160 acre parcels given out under the Homestead Act are now worth over $1,000,000.) So why this big increase in value? It's still the same piece of dirt that can produce the same number of bushels of corn or soybeans. There are other factors, but I believe the biggest factor is the availability of money at extremely low rates. Compare what this asset inflation means for the farmer who, say, owns 500 acres and his hired man who makes $15/hour. The farmer now feels wealthy, having seen his farm land value go from $1 million to $5 million. So he feels comfortable vacationing in Hawaii or buying a new pickup. Meanwhile the hired man's wages have been stagnant.
Wow. First, on the length of this comment: Do we need comments longer than the article being commented on? Second, there is so much in this comment to disagree with that it would take a comment three times its length to begin to refute all I disagree with. I'll limit myself to one paragraph:
"We're really acting like any of this matters or this exists? Really? Inflation is not at a 30 year high. It isn't. It's not 1975. There was a six percent increase. The economy has literally, never been better. The stock market is at an all time high. The reason there is inflation is that, as people get vaccinated, they have money and are spending it faster than producers can keep up with demand. That raises prices. Inflation isn't due to any government policy. It's due to capitalism. It's a success, not a failure. People are literally spending money more than ever before. Both retail sales and restaurant sales are now at pre-pandemic levels. There's inflation because we went from 'pandemic levels' to 'pre-pandemic levels' in four months. Much in the same way that there was rapid deflation in the beginning of the pandemic, there is now transitory inflation."
2021-1975=46. 46>30.
Asserting that the economy has never been better is just silly Trump style propaganda.
The reason the stock market is at an all time high is that our policies since the Great Recession have been designed to produce asset inflation. The money supply was increased before the pandemic in a very specific way to not produce inflation in consumer goods, but to raise asset prices so those with assets would feel wealthy, which means that this class would increase economic activity. During the pandemic, the government put money in the hands of consumers under the theory that demand needed to be strengthened to prevent economic collapse. It's still an open question whether this stimulus was overdone. But 6% inflation is not healthy capitalism. If it persists, it is a massive problem that probably will cause a recession. This inflation may yet prove transitory as pandemic related problems
work themselves out. We'll see. But the inflation we are experiencing now is clearly caused by the policy of increasing the amount of money in consumer hands.
No, the inflation isn't clearly caused by the policy of increasing the amount of money in consumer hands. It IS a contributing factor, though.
Demand for durable goods is way up (higher than the trendline demand according to FRED data). Demand is way up because: 1) yes, the USG handed out money; and 2) demand (and availability) of services is down (for obvious reasons).
People are buying things rather than services, because there are fewer services to buy and/or people are not taking the risk of exposing themselves to get services.
Supply of durable goods is down. This is because: 1) Demand is higher than expected or predicted (and it takes time to ramp up to meet increased demand); and 2) even if goods are theoretically available, supply chain issues are creating perceived scarcity.
When the money supply outstrips the supply of goods/services, inflation naturally occurs--until the two come back into balance. If the supply of goods outstrips the supply, the prices (theoretically) should go down.
Inflation has been incredibly low for years, to the advantage (in combination with low interest rates) to people playing the market. This has inflated values in the market. Policy shifted inflation from durable goods and consumer services to the financial market.
Doing this increased wealth inequality but also created the impression that the economy was good because prices that people encountered in their daily lives remained fairly constant.
In economics perception is actually more important than the reality. You can convince people that things are bad even if they aren't actually bad (and vice versa).
Interesting article:
https://www.nytimes.com/2021/11/16/opinion/gas-prices-economy.html
I'm a regular reader of Krugman's columns and the one you link to gives clear evidence of how political tribalism trumps rationality.
I agree on your correctives about current inflation. Sometimes completeness suffers from the desire to be brief. (Especially since I was just complaining about a lack of brevity.)
I think the reality of asset inflation is little understood. I live in a rural area where the value of a good acre of irrigated farm ground went from $2000/acre to $10000/acre over a few years. (Side note on the intersection of economics of government policy: Those 160 acre parcels given out under the Homestead Act are now worth over $1,000,000.) So why this big increase in value? It's still the same piece of dirt that can produce the same number of bushels of corn or soybeans. There are other factors, but I believe the biggest factor is the availability of money at extremely low rates. Compare what this asset inflation means for the farmer who, say, owns 500 acres and his hired man who makes $15/hour. The farmer now feels wealthy, having seen his farm land value go from $1 million to $5 million. So he feels comfortable vacationing in Hawaii or buying a new pickup. Meanwhile the hired man's wages have been stagnant.
:)
Well, if deficits don't matter, let's put Saint Ronnie's picture on a $1,000,000 bill and drop them from planes. We're all rich!
Snark aside, under some economic conditions, deficit spending is inflationary and sometimes it is not.