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naraburns  nihil supernum  2yr ago (text post)   31474 thread views

Culture War Roundup for the week of November 7, 2022

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It seems to me politics are especially bad at countering inflation. People may be pissed off the "government isn't doing enough" to fix it. However, the levers the government can easily pull to fight inflation (raising taxes/interest rates, cut transfers/subsidies, lower consumption/wages) won't gain them any popularity points. Even worse, there are plenty of socially-desirable policies that'll make inflation worse: tax cuts, raises, loan forgiveness, more transfers. I'm grateful our system is even capable of doing unpopular things like raising interest rates. If monetary policy had heavier democratic influence, I'd worry high inflation would just be the long-term equilibrium.

Ontario's leader is under heavy fire for playing hardball and preventing educational workers from getting large raises. I don't know the details well, but couldn't one argue this is what fighting inflation looks like?

Monetary inflation isn't the only cause. Demographic turnover (large generation retiring/small-generation aging into the workforce), supply chain restrictions/problems, new regulatory compliance restrictions, and more all can cause wage/price shocks. While you're correct that the monetary solution to those shocks are not popular, there are other actions which can be taken (as appropriate) which combat non-monetary wage/price shocks - trade policy, onshoring of industry, immigration policy, etc.

Ontario's leader is under heavy fire for playing hardball and preventing educational workers from getting large raises. I don't know the details well, but couldn't one argue this is what fighting inflation looks like?

Only if those raises would otherwise come from new currency (i.e. the Canadian central bank prints new money), which I would assume is not the case. I don't think that has any connection to inflation.

It's not that simple. Tax cuts increase inflation without directly printing more money. Raises are a big component of inflation. If everyone got a 5% raise do you think prices would remain the same?

Beyond the conflating of money supply inflation, asset price inflation, and consumer price inflation, everyone experiences the erosion of their purchasing power differently and seems to have a weak understanding of how leads and lags affect apparent inflation levels and the tools policy makers can use to combat it.

You can run through all the factors on the supply side, demand side, supply chain issues, protectionism, changing consumer behaviors, shortages & gluts, and so on, and then try to wrap your head around the way money and debt is created/moved/destroyed in the global financial system and how that impacts the money available to consumers with different spending habits, and you'll only realize this is too complex to comprehend.

The simple solution is energy. Energy is directly included in the CPI basket as electricity and fuel, has a significant role other items like transit and air travel, and indirectly affects almost all goods and services as goods need to be manufactured, distributed, stored, and sold, plus people need to move to perform most services.

Fighting inflation generally, but especially for Europe now specifically, can not be done without cheap abundant energy. Draining the SPR was/is the best tool available to the US government to have an immediate effect on inflation however poor a decision that may be in the longer-term strategic context of sustained low oil and gas capex, deteriorating relations with OPEC and Russia, and the strength of the anti-fossil fuel political/social movement in the west.

With debt levels where they are, continued elevated inflation (4%-6%, which doesn't seem like a lot, but it adds up fast) is really the only path forward for major sovereign governments to remain solvent over the coming decade. As long as we are able to produce enough energy, we should avoid major fiscal crises and severe inflation, but that is looking more challenging as time goes by.

The truss case is a bit unusual: The inflation hit very quickly and her policies were a very apparent cause.

The average case is a lot muddier. Prices are sticky and it takes a while for inflation to get noticed. Most nations saw a steady inflation increase since 2020. Many of those nations, like the USA, have new leaders since the inflation started. It's probably the case that some leaders picked known inflationary policies before elections to get more votes (e.g. student forgiveness before the mid-terms), knowing the resulting inflation would be delayed and its cause nebulous.

The Liz Truss case is not particularly unusual for third-world countries - it is just that the post-Brexit UK is the only first-world country to be stupid enough to elect a government that is stupid enough to do what Truss did.

There are a number of relevant differences between the UK and US that mean the punishment for Truss' mini-budget was much faster than it would be for a similarly stupid US government:

  1. The US dollar is the global reserve currency, so it is less likely that a Liz Truss level of stupid would tank the dollar the way the actual Liz Truss tanked the pound.

  2. The US is a less open economy than the UK (mostly because big countries are more self-sufficient than small ones, not for any policy reason) so the impact of a falling dollar on Americans' cost of living is less than the impact of a falling pound on Brit's cost of living.

  3. British mortgages are much less likely to be long-term fixed rates, so the increase in interest rates has a much more immediate impact on household budgets than it would in the US.

The government's policy economic policy has been so nutty that it's hard to believe inflation is not a policy goal. The trillions of dollars freshly printed and handed to people to *not * work immediately turbocharged the price of every equity and commodity. Instead of slowly raising rates early to counter the effect of unprecedented helicopter money and restrictions imposed on economic activity, they waited until a recession started so that they can see what it's like to hike into it. Energy is even worse. Governments are telling oil & gas companies that they need to invest in capacity, but also that they're going to shut it down in 10 years. I don't have a tendency to overestimate government officials, but nobody is this stupid.

The trillions of dollars freshly printed and handed to people to *not * work

And not just that; but also in a global production/transit slow-down!!!

I've been saying this for years, but every government policy makes sense if you assume they believe its going to fail in the next 10-15 years, and they're just looting all the valuables off to their hidden vaults while insisting everyone remain calm the eastern offensive is going to turn around.

None of the hard decisions about social security, Medicare, defense spending, the petrodollar, the deficit, the national debt, all the unfunded public employee pensions, the everything bubble, the housing bubble etc. are going to be solved before the next massive recession hits just as the boomers are all retiring...

This is the most favorable government cashflow is ever going to be (all the boomers are at the top of their career and peak tax paying) and the government's still insolvent. over the next 5-10 years all those valuable boomers are going to turn from the highest earning assets, into the largest liabilities any citizen has ever been in any nation...combine that with cold/hot wars with China and Russia, probably another Arab spring in 2023 with rising food costs, the subsequent hit to global oil markets... that's it.

The libertarians and fiscal hawks were saying we only had 30 years in the 90s, 20 years in the 2000s, 10 years in the 2010s... and now its next year or the year after.

.

This is why western governments passed trillion dollar bailouts and gifts to their friends in 2020-21... they expected it was the last time they'd have the power to do it. They're just extracting the last dollops of money and power before the next big political happening kills the golden goose and strips them of power.

The libertarians and fiscal hawks were saying we only had 30 years in the 90s, 20 years in the 2000s, 10 years in the 2010s... and now its next year or the year after.

Do you have a citation on this? (Especially the implied consensus)

I was hearing about how the entire system was going to fail from deficits, inflation, and the demographic collapse of social security since 2008 when i was still in Gradeschool.

The centrality of the looming death of Social Security and medicare under the boomer's mass retirement has been a fiscal hawk talking point forever.

David Stockman, Regan's Budget manager, has been talking about almost nothing else since the mid-90s. This is also a perennial obsession of anyone related to Austrian economics. Anyone who's work appears at Zero hedge... this a founding narrative of the modern American economic right... and the timeline has not changed like other doom predictions, though several tried to suggest the market wold correct early in anticipation and a lot of people lost money gold speculating that inflation would suddenly hit in like 2012-2014...

But the narrative arc and the timeline of when social security and the empire would collapse under demographic and fiscal weight... that's always been late 2020s early 2030s and maybe a bit sooner if the market notices the gravity kicking in

What's the point of letting r_tarded people restrict oil & gas production while at the same time draining the strategic reserve? Nobody wins except oil & gas firms themselves, and even then only in the short term. Given that these companies have been the favoured whipping boy for politicians everywhere in my lifetime, it would be strange to turn around and reward them now. Especially while the President (lol) simultaneously cries about price gouging on Twitter.

Unless they're simply paying a cost to kill Europe and reward OPEC, it makes no sense. The NS2 event and reaction suggests that this theory may have some merit.

Boomers are generally defined as the generation from 1946-1964. Assuming a retirement age of around 65, that would mean over a half of them being retired already, and the rest are hardly going to be at their career peak at this point either.

Average age of a CEO: 59

Average age of senator, house member: 64.3, 58.4

Well, that is why the Fed is designed to be relatively immune to short-term political considerations; for example, Fed governors serve 14-year terms, and cannot be reappointed.

OTOH, it is worth mentioning that inflation affects different groups differently (eg: borrowers at fixed terms are helped by inflation, and the real value of their payments decline over time. Lenders and people on fixed income are hurt by inflation. And, since inflation affects different sectors differently, their are always relative winners and losers. And, of course, a recessionary anti-inflation policy harms some people more than others; some people are far more at risk of being laid off than others are. So, even a policy that says, "the Fed should prioritize fighting inflation, even if unemployment rises" is itself a political decision.

And since the Fed is supposed to be independent, I doubt they can just outright say to Congress "If you pass X bill, you're making our job harder, please don't do that."

Surely there's backchannels that allow the same communication to take place, but it would look a bit suspicious if the Fed was taking open policy 'positions' based on their supposed impact on the rate of inflation.

The Fed was openly asking Congress to do more fiscal stimulus during the last recession. They comment on this stuff all the time.

Keep in mind that elections are not just a tool for choosing forward-looking policies, but also for punishing or rewarding successful or failed policies. It may be the case that what inflation we get is mostly baked into the cake, but firing the chefs that mixed up that batch of ingredients (often enough, while denying that inflation is any concern at all!) is a useful incentive for future politicians not to make the same recipe.

Unfortunately the cake has been baking for a long time. Biden, Trump, and probably Obama have all contributed. But people don't understand this, and so they just blame whoever is in power when it happens. The Fed definitely screwed up not raising interest rates earlier, but making it subject to short-term political whims is not going to be an improvement.

A recent YouGov poll showed that, regardless of support of opposition, 55% and 52% of Americans respectively believe that increasing domestic oil production and "investing in strengthening the supply chain" would lower inflation. Increasing domestic oil production may lower energy prices but this is the kind of thing that takes years. Companies are intentionally limiting their drilling operations to avoid having a crash like in 2014, and they aren't going to drill beyond their current long-term plans unless there's some kind of subsidy, which would be inflationary in the short term. I don't know what "investing in strengthening the supply chain" means but any time people talk about investing in a political context it normally means more government spending which, again, would be inflationary in the short term regardless of its long-term effects.

Next up, 47 and 44% of respondents, respectively, thought that fining companies for price gouging and having the government enforce limits on price increases would lower inflation. I won't comment on the appropriateness of price gouging laws generally, but those that do exist aim to prevent sharp price increases of goods in limited supply in situations where there are acute shortages. It's hard to argue that price increases of a few extra percentage points annually (or even 20% annually) is price gouging in the traditional sense. Enforcing price controls sounds good in theory until you go to the grocery store and discover they're out of half of the items on your list. Those price tags look good, though.

Those are actually fairly reasonable, though, because next we have a couple of real doozies. 38% of Americans believe that cutting taxes would decrease inflation, compared with only 19% who believe it would make it worse and 17% who believe there would be no change. And 35% believe that lowering interest rates would curb inflation, compared with 25% who think it would make matters worse and 14% who believe it would have no effect. I'll let those ones speak for themselves. On the other side of the coin, 31% believe raising interest rates actually helps inflation compared to 32% who think it makes matters worse. 29% believe that reducing the number of foreign imports would cut inflation compared to 22% who believe the opposite. The only semi-reasonable position on the whole list is that 33% believe reducing spending on social services would help, compared to 17% who believe it would make things worse.

Is this the same poll the_nybbler was complaining about below?

It can’t just be poor phrasing, because some of those beliefs are pretty unambiguous. It probably isn’t mere partisanship, because Have You Seen Gas Prices Lately has been universal, and partisan criticism has been focused on doing something/anything rather than on efficacy. There’s a case for economic illiteracy—raising rates means I pay more, so it must be inflationary, right?

Regardless, it’s depressing.

Yeah, it's the same poll, and it's totally economic illiteracy. I'm no fan of Biden but when I talk to conservatives about inflation they assume that Democratic "big government" spending policy is the cause of this mess and that it will abate as soon as Republicans take control of congress. While there's certainly an argument for less spending these people inevitably point to Trump-era pandemic policies that have already ended. I don't know how many times I heard that the labor shortage was caused by enhanced unemployment benefits months after those benefits had ended, or how the eviction moratorium was an issue even though the hated Democrat Tom Wolf signed an order ending it well before anyone was complaining about it.

avoid having a crash like in 2014,

Was that one Saudi caused?

American Congress could stop funding the Ukraine war and stop sanctioning Russian energy and Russian business, and push for negotiations and the end of the war and that would ease some of the pain points.

It's definitely not a given that monetarism and democracy are compatible, laying the fate of the nation on the idea that people are wise enough to vote themselves into misery instead of just throwing the whole system into the fire doesn't sound like a good bet to me.

I'd rather go the Austrian way and not trust anyone to plan the size of the money supply, but right now there's nothing to do but hope that we can ruin ourselves quick enough to avoid more ruination.

Even worse, many people identify pro-inflation policies as tools that could cut inflation. The only realistic path to curbing inflation seems like aggressive monetary policy being less tied to public opinion. I suppose I could hold out hope that Republicans could cut social spending in 2025, but I'd expect that to come with tax cuts that would offset any savings anyway.

That's a terrible poll. Number 1 is "increasing domestic oil production", which depending on how you do it could increase, decrease, or keep inflation the same. The next one, "investing in strengthening the supply chain" is vague to the point of uselessness.

The question remains: what mechanism would be especially good at countering inflation?

Say we have an nRX-approved philosopher-king who holds absolute political power. What are his options if he decides to keep inflation level? It doesn’t seem amenable to single, decisive actions, so he’s left with the same interest rate, tax, or command economy options. I suspect those will cause roughly as much suffering/ if implemented decisively rather than by a democratic half-measure.

Then again, I’m not terribly well versed in economic history. How effective was austerity at fighting inflation? If it failed, was that due to wreckers political will, or to outside economic forces?

Taming inflation is pretty doable for a fiscally responsible government that can redenominate the currency. Aka reintroducing the gold standard while doing austerity. I mean, it wouldn’t be popular and it would have other drawbacks, but it would work.

At the simplest level of understanding, inflation is the consequence of too much money chasing too few goods.

Since none of us are Scrooge McDuck, we don't have a need for money: we want the goods that money represents.

An NrX solution would be to appoint Jeff Bezos as a Czar of logistics with the intent of increasing supply. I would nationalize all food banks and related charities, and import German managers from Aldi to coordinate them. I would create biblical-scale, Josephian government granaries that are needlessly large - seven years worth? - enough to convince even the most ardent hoarder that there is a lot of goods to be had.

I would also enlarge the strategic fossil fuel reserve and convince oil companies to invest in extraction with a fixed, contracted price. Housing is more difficult, but the creation of a state-based stockpile of common building materials - ensuring a stable price for construction - would also work, too.

The best thing about all of these agencies is that their mission is very defined: and can be phased out when the need passes.

I feel like since an nrx government wouldn't have to buy votes for $10,000 a pop in handouts, inflationary spending wouldn't be a serious issue in the first place.

If prices started going up, the government's main lever would be sighing and delaying construction of the giant gold pyramid housing the AIngram of Charles I.

I don’t buy it.

Government spending isn’t the only (or main?) source of inflation; the whole process of lending adds money into the ecosystem. Even without any welfare or public payroll, if Charles I cranks down the federal funds rate, people will take advantage of “cheap” loans and circulate more currency. Whether or not that guarantees inflation...I’m not actually sure. I think so, assuming demand for goods doesn’t scale accordingly?

Interesting. I’m seeing taxation as deflationary because it’s the government acting as a “sink” for excess dollars. Does that only apply if it runs a surplus, or can a cut from year to year have the same deflationary effect?

I’d also be interested in hearing more about said laws.

I think the framing is wrong. Inflation is a trailing indicator resulting from either or both an increase in the money supply and a decrease in the supply of goods indexed. It seems like we've had both of these things, some from governmental actions and some from actions it would have been difficult or impossible for government to prevent entirely although could have mitigated them better. Inflation is prevented before it happens and just grown through after the fact. The nRX approved philo king would have done many things differently resulting in more manageable inflation, among which include more carefully managing the money supply and creating more robust supply lines, for example building these chip plants domestically a decade ago.

Keeping supply stable seems like something that could be achieved by an NAP-king. It’d be more expensive, in the short run, than our free market solution. That’s not inflation, but paying a price for antifragility. So that works towards keeping inflation down.

What does the NAP-king’s ideal money supply look like? Are you thinking of something as technocratic as @IGI-111’s digital deflation (or a more conventional version of literally decirculating currency)? I’m trying to get a handle on what deflationary policy looks like without the constraints of politics.

I'm unusually for liking crypto but also recognizing some inflation is probably ideal to shift the balance somewhat against creditors and in favor of borrowers. I would however like this rate of inflation to be stable and predictable, which is in theory what the current fed is tasked with as the problem isn't as simple as just having the money supply grow linearly because the overall size of the economy and number of participants isn't static. I think something like the fed should exist but with constraints, more than anything being forbidden from printing more money for the sake of paying for policy, perhaps the inflation targeted money would go straight to the federal budget as a base tax on all cash holders but anything more than the exact amount measured to keep inflation at an ideal level would need to be raised through taxes or debt.

I find @IGI-111's suggestion strange and don't think it'd work very well in practice.

I don't think stable, predictable inflation shifts the balance between creditors and borrowers. Lenders would just increase the nominal interest rate to get the same real interest rate.

The reason economists today support a small, stable rate of inflation is that it keeps money circulating and prevents deflation, which would be disastrous economically.

It does shift the balance in favor of borrowers generally because it puts pressure on creditors to lend money or watch their capital depreciate. It's a component of why deflation would be disastrous economically. If it costs you every day you are cash heavy then you're going to be much more willing to lend.

As long as the long run rate of deflation is less than the real interest rate paid on other safe, liquid dollar denominated assets like treasuries that doesn't really matter much. I don't think you understand someone holding cash is essentially already lending their resources out at 0% interest.

This is the best explanation I can think of for what we're talking about.

To be clear I'm not for monetarism, my preferred way of doing it is to use sound money instead of trying to plan the size of the money supply.

But if you're going to plan, that's how I would do it.

instead of trying to plan the size of the money supply.

The money supply isn't set by God - someone is choosing it. If you use a gold standard, that is likely to be foreign gold speculators - or in the most famous case of an inappropriate monetary contraction with megadeath consequences, a foreign central bank.

Seriously, the reason why monetary policy is hard is that the use of money as store of value and money as medium of exchange conflict - money which is hoarded is not circulating. Stablish prices and fullish employment require a stablish supply of circulating money, but the demand for hoarded money can vary rapidly due to speculation. So you either need sufficiently and predictably high inflation that the demand for hoarded money is consistently negligible relative to the demand for circulating money, or you need to vary the supply of money to match hoarder demand.

The classical gold standard that actually existed, as opposed to the one which modern goldbugs think should have existed, depended on the ability of the big fractionally reserved central banks (the Bank of England, the Banque de France, the Reichsbank before WW1, the Federal Reserve Banks after WW1) to print money - particularly to carry out their lender-of-last-resort function. The NBER paper I link to makes the argument that when the Banque de France tried to move closer to a full-reserve gold standard without deflating the French economy (in effect by redeeming GBP and USD for gold and hoarding the gold), it crashed the system causing the great depression.

Say we have an nRX-approved philosopher-king who holds absolute political power. What are his options if he decides to keep inflation level?

The hypothetical dollar is now replaced with a centralized digital currency. All taxes are only payable in it and all payments on hypothetical soil are to be made in is, all physical bills are destroyed.

Once adoption is widespread enough, the King presses the inflation tax button and burns enough money in everyone's wallets to decrease the size of the money supply as needed. Or makes a given amount of them only spendable over a long period of time so that their velocity is reduced.

austerity at fighting inflation? If it failed, was that due to wreckers

Very funny. But I don't recall persecution of enemies of austerity, as enemies of communism were. Thus this seems to be either a) minimizing communist atrocities or b) inventing neoliberal ones.

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