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 service…
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.
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.
:)