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.
'the deficit' isn't really driving inflation, as evidenced by japan's huge deficit and relatively low inflation. If you want to talk about what's going to cause inflation in the future? It will almost certainly be some combination of tariffs and a lack of workers due to deportation. I'm not supporting industries that thrive off exploiting the undocumented, I'm merely stating the fact that deporting them will raise inflation.
> The 2020 inflation was the result of 2019 deficits.
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?
> The 2020 inflation was the result of 2019 deficits. After that, the deficits were due to Biden.
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.
The fact that every dollar that is printed MUST be paid back to the Federal Reserve Bank with interest means that every dollar printed is worth less than it's face value. This is the original and primary source of inflation. All debt biassed currencies have this, not as a defect, but as a feature. If you own the bank you can do some money magic and get filthy rich. The Federal reserve Over the last 100 years the dollar has lost something like 96% of it's value.
It's old and quite corny but this video gives the cliff notes on how the FED works
> It's old and quite corny but this video gives the cliff notes on how the FED works
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:
Modern banking systems allow the banks themselves to 'print' dollars - by originating loans. The Fed (and central banks elsewhere) steer this money creation process through various mechanisms. However it is NOT the case that 'every dollar must be paid back to the Fed'.
The reason for this expanding money supply is to facilitate an expanding economy.
You are right, part of every dollar must be paid back. If there is any interest on a loan then you need to pay back more than 100% the original cost.
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.
Inflation existed before 1913. What was different was that inflationary periods were counterbalanced by periods of deflation.
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.
Try reading, Lords of Finance: The Bankers Who Broke the World. It won the 2010 Pulitzer Prize for History, among other accolades. I certainly enjoyed it, though I read it on the heels of the 2008 financial crisis, which may have made it feel especially salient.
Going right back to ZIRP will cede the Fed's credibility. Primary monetary creation needs to be done by the Treasury spending money for deliberate productive purposes, rather than given away as cheap undirected loans to banks so they can continue pumping up leveraged asset bubbles.
The way inflation is measured has radically changed over time. You can't realistically compare current numbers to those in the 70s. The same redefinition issue affects unemployment data. The only people I know trying to do apples-to-apples comparisons are the guys running https://www.shadowstats.com
Can you state your hypothesis more explicitly? Because a trivial reading of the numbers show the inflation rate coming down (a lot) while the deficit has gone up.
If you graph economic progress on top of all this isn't it just saying that governments spend more when economic shocks happen?
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).
You keep saying deficit. Do you mean the trade deficit or the governmental deficit?
[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.
> isn't it just saying that governments spend more when economic shocks happen?
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.
By what measure? Not to mention that reducing inflation isn't going to roll back the massive price increases that have hurt consumers on staple items.
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.
Inflation rate of what? Inflation can be measured against different "market baskets." Consider this huge defect in the commonly-cited one:
"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.
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:
Interesting, for sure. I guess we need some way to include these volatile elements in a sane manner, which allows for sustained increases (or decreases) to register while smoothing the wide swings.
It baffles me why an economist constantly making wrong predictions “is fine”. If their analysis leads to incorrect outcomes, what use is it? I think if you are good, you’re a trader and told to keep your mouth shut and make money. If you’re bad but well connected, it seems you become a professor or public figure/speaker.
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.
Well, for one, you have to establish that he is constantly wrong without any reflection on his decisions? Do you have numbers showing how often he is wrong?
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.
Sometimes? I'd be interested in a study on this, but it really seems that things are unsurprisingly more complicated?
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?
Supply and Demand has to largely take into effect the impacts of marketing. And, not shockingly, we go out of our way to not directly use supply/demand in some markets. (In particular, I'm looking at concert tickets. Scalping is a direct consequence of this law, yet we go through great efforts to reduce its impact.)
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.
> If they have a lot of failures, then their credibility wanes accordingly.
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.
Any economic theory that claims one can print money and spend it without inflation is another "free lunch", and their ain't no such thing as a free lunch. It doesn't matter how much wants to believe it is free.
Paul Krugman is an establishment hack who is always wrong, especially about inflation. The odds are that nothing will stop this inflation but at least cutting spending is a step in the right direction. It is overwhelmingly caused by government spending outrunning actual economic production.
So we would expect to find a strong correlation between how much of deficit a country runs vs how much inflation it’s seen over recent years, right? Now I’m not an economist, but that doesn’t seem to be there. Not that I’ve come across anyway.
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.
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.
> There was zero net inflation in the century prior to 1914. But persistent inflation ever since.
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.
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.
You are 100% right of course. Inflation is a monetary phenomenon. The money comes from our government spending on credit. There are lots of people on here drinking the Kool-Aid on this topic. There's no easy solution to the problem, and it is very hard to get the indoctrinated to understand where the problem truly lies.
> it is very hard to get the indoctrinated to understand where the problem truly lies
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:
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":
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.
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.
No paywall https://www.investopedia.com/fed-meeting-today-live-federal-...
so basically what was expected, market flat
There's a feedback loop on deficits.
The federal reserve creates inflation through printing fiat currency
There won't be progress on inflation until after the deficit comes down.
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.
'the deficit' isn't really driving inflation, as evidenced by japan's huge deficit and relatively low inflation. If you want to talk about what's going to cause inflation in the future? It will almost certainly be some combination of tariffs and a lack of workers due to deportation. I'm not supporting industries that thrive off exploiting the undocumented, I'm merely stating the fact that deporting them will raise inflation.
What if I told you that we exploit cheap immigrant labor in order to avoid inflation while continuing to print money? It’s an equation.
the inflation of 2020-2024 (some by trump 45) is somehow the result of trump 47?
The 2020 inflation was the result of 2019 deficits. After that, the deficits were due to Biden.
> The 2020 inflation was the result of 2019 deficits.
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:
* https://www.investopedia.com/terms/b/base-effect.asp
* https://blog.ons.gov.uk/2021/05/19/beware-base-effects/
> The 2020 inflation was the result of 2019 deficits. After that, the deficits were due to Biden.
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.
Fair enough. I was a year off.
The fact that every dollar that is printed MUST be paid back to the Federal Reserve Bank with interest means that every dollar printed is worth less than it's face value. This is the original and primary source of inflation. All debt biassed currencies have this, not as a defect, but as a feature. If you own the bank you can do some money magic and get filthy rich. The Federal reserve Over the last 100 years the dollar has lost something like 96% of it's value.
It's old and quite corny but this video gives the cliff notes on how the FED works
https://youtu.be/mII9NZ8MMVM
> It's old and quite corny but this video gives the cliff notes on how the FED works
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
* https://rationalreminder.ca/podcast/132
Modern banking systems allow the banks themselves to 'print' dollars - by originating loans. The Fed (and central banks elsewhere) steer this money creation process through various mechanisms. However it is NOT the case that 'every dollar must be paid back to the Fed'.
The reason for this expanding money supply is to facilitate an expanding economy.
You are right, part of every dollar must be paid back. If there is any interest on a loan then you need to pay back more than 100% the original cost.
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.
Inflation existed before 1913. What was different was that inflationary periods were counterbalanced by periods of deflation.
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.
> it's far, far worse than inflation at nominally comparable levels.
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.
Try reading, Lords of Finance: The Bankers Who Broke the World. It won the 2010 Pulitzer Prize for History, among other accolades. I certainly enjoyed it, though I read it on the heels of the 2008 financial crisis, which may have made it feel especially salient.
I don't know about the merits of that book, but the Pulitzer Prize means nothing at all. They've given out that prize for hoaxes and other nonsense.
The inflation rate has come down significantly from a huge spike in 2022. Seems like we are making progress.
Also, what’s the end game? Current rates are not that bad relative to historical rates.
The end game is the fed delivering on their sub 2% promise. Anything less would cede their credibility, which they will need in future crises.
I believe its no longer "sub" and now their mandate is just maintaining close to 2%
Not happening without a recession.
We heard that all through 2021-22 (or thereabouts) and it didn't happen. Why would it happen now?
Exactly my point! :)
...but if it does happen, inflation will come down, too.
The fed doesn't cause inflation, nor can the fed cure it. They can only react to it.
Going right back to ZIRP will cede the Fed's credibility. Primary monetary creation needs to be done by the Treasury spending money for deliberate productive purposes, rather than given away as cheap undirected loans to banks so they can continue pumping up leveraged asset bubbles.
The way inflation is measured has radically changed over time. You can't realistically compare current numbers to those in the 70s. The same redefinition issue affects unemployment data. The only people I know trying to do apples-to-apples comparisons are the guys running https://www.shadowstats.com
The deficit has come down, too.
https://epicforamerica.org/the-economy/is-inflation-the-resu...
Can you state your hypothesis more explicitly? Because a trivial reading of the numbers show the inflation rate coming down (a lot) while the deficit has gone up.
See the link. The deficit has come down, and then the inflation came down. Figures 1A and 2.
https://epicforamerica.org/the-economy/is-inflation-the-resu...
If you graph economic progress on top of all this isn't it just saying that governments spend more when economic shocks happen?
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).
Germany was part of the EU, and use Euros for currency. What matters is the deficit of the EU, not Germany in particular.
It's like a deficit in Kansas does not result in inflation in the US, because Kansas does not have its own currency.
You keep saying deficit. Do you mean the trade deficit or the governmental deficit?
[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.
> isn't it just saying that governments spend more when economic shocks happen?
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.
By what measure? Not to mention that reducing inflation isn't going to roll back the massive price increases that have hurt consumers on staple items.
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.
The measure is the inflation rate. Prices are not going to drop much or at all but income has also risen.
Inflation rate of what? Inflation can be measured against different "market baskets." Consider this huge defect in the commonly-cited one:
"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.
> Consider this huge defect in the commonly-cited one:
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...
Interesting, for sure. I guess we need some way to include these volatile elements in a sane manner, which allows for sustained increases (or decreases) to register while smoothing the wide swings.
Paul Krugman just wrote about this today: https://paulkrugman.substack.com/p/revenge-of-the-black-zero
Krugman has repeatedly been very bad at predicting inflation in recent years. https://www.businessinsider.com/paul-krugman-inflation-chart...
https://www.nytimes.com/2022/07/21/opinion/paul-krugman-infl...
Which is fine, just look at the relevant charts that discuss inflation vs trade/ manufacturing deficits.
It baffles me why an economist constantly making wrong predictions “is fine”. If their analysis leads to incorrect outcomes, what use is it? I think if you are good, you’re a trader and told to keep your mouth shut and make money. If you’re bad but well connected, it seems you become a professor or public figure/speaker.
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.
Well, for one, you have to establish that he is constantly wrong without any reflection on his decisions? Do you have numbers showing how often he is wrong?
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.
If they have a lot of failures, then their credibility wanes accordingly.
Sometimes? I'd be interested in a study on this, but it really seems that things are unsurprisingly more complicated?
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?
The Law of Supply and Demand is complicated, just like the Law of Gravity is. But it holds, regardless.
Supply and Demand has to largely take into effect the impacts of marketing. And, not shockingly, we go out of our way to not directly use supply/demand in some markets. (In particular, I'm looking at concert tickets. Scalping is a direct consequence of this law, yet we go through great efforts to reduce its impact.)
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.
> If they have a lot of failures, then their credibility wanes accordingly.
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...
Any economic theory that claims one can print money and spend it without inflation is another "free lunch", and their ain't no such thing as a free lunch. It doesn't matter how much wants to believe it is free.
See the graphs I posted links to.
Paul Krugman is an establishment hack who is always wrong, especially about inflation. The odds are that nothing will stop this inflation but at least cutting spending is a step in the right direction. It is overwhelmingly caused by government spending outrunning actual economic production.
Meanwhile other nations, regardless of their debt load, have also experienced high inflation... hmm...
It's not the debt load, it's the deficit.
So we would expect to find a strong correlation between how much of deficit a country runs vs how much inflation it’s seen over recent years, right? Now I’m not an economist, but that doesn’t seem to be there. Not that I’ve come across anyway.
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.
I twice posted links to the graphs showing the strong correlation.
Walter getting down votes but this is orthodox economics; fiscal expansion is inflationary, contraction is deflationary.
What will actually happen to the deficit is anyone's guess.
It's also strongly backed up by the historical record of deficits and inflation. Even the Romans had inflation when they debased their coinage.
Fiscal expansion and monetary expansion are different things, though. As are "real shocks" like COVID and the Ukraine war.
> https://epicforamerica.org
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:
* https://en.wikipedia.org/wiki/Project_2025
There was zero net inflation in the century prior to 1914. But persistent inflation ever since.
What changed in 1914? Persistent deficits.
Now analyze periods of deflation during those hundred years.
Spoiler alert: they were bad.
No net inflation.
> There was zero net inflation in the century prior to 1914. But persistent inflation ever since.
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.
The creation of the federal reserve December 23, 1913
You are 100% right of course. Inflation is a monetary phenomenon. The money comes from our government spending on credit. There are lots of people on here drinking the Kool-Aid on this topic. There's no easy solution to the problem, and it is very hard to get the indoctrinated to understand where the problem truly lies.
> it is very hard to get the indoctrinated to understand where the problem truly lies
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
> There won't be progress on inflation until after the deficit comes down.
> […] 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.
> * When more money chases the same basket of goods and services, the money loses value (which is what inflation is).*
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.
> Japan
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.
Get started then https://www.treasurydirect.gov/government/public-debt-report...
Don't just put other people's money where your mouth is