Inflation supports economic growth. Prove otherwise in this thread!

[theonewhowaskazu]

Inflation drives debt, and create long term bubbles. Deflation drives savings, and investment.

You got it backwards.  Inflation & deflation don't drive anything they are symptoms of the economy.  Booms & busts happen as business cycles.

The question is how do you deal w inflation & deflation?

... you're playing at semantics. You reiterated what I said. One "deals with" inflation by going in to debt. You "deal with" deflation by saving. When any entity holds the keys to the printing press of a fiat currency, inflation is the cause. Inflation is the increase in the monetary base. Devaluation of the unit of currency is the symptom.

Its not semantics.   Market forces are very difficult to manipulate.   Inflation/ deflation are measurements.   They are symptoms not causes.

Saving or spending can be reactive.  But how do you mandate that?   Can't force people to save or spend if they don't want to.   The only thing the Fed can do is raise/lower interest rates.  Govt can save or spend if Congress approves budget

Look up "semantics".

I didn't say anything about forcing behavior. I said individuals deal with inflation by taking on debt. Look how many people take out long term debt in bitcoin? No one that expects to pay it back!

The Fed does more than just manipulate interest rates. They buy debt that no one would, for prices that no one would pay. That's equivalent to printing money and distributing it to banks. That is direct inflation of the monetary base. The devaluation of currency is the symptom. The inflation is the cause. The last audit also showed huge loans to many well connected banks without repayment. More direct inflation. Even if there ever is a repayment, any loan the Fed creates is inflation. The deflation comes when it's repaid.

Buying bitcoin =/= taking out long term debt.  Taking on debt means borrowing

The Fed has been doing QE for a while.  Last time I check no inflation.  They want inflation but its just not happening

You have so little understanding of economics.  Your theoretical basis is wrong and you ignore what is actually happening in reality.  They can print as money as they want but if the money is stuck in the financial sector and never reaches the real economy then no inflation is going to happen.

There has been little/no inflation throughout QE because the economy was so bad that without QE there would likely have been deflation (negative inflation), so QE did in effect did raise the inflation rate.

Incorrect. There has been little or no inflation throughout QE because QE has made interest rates so low that lending doesn't make sense for financial institutions. You'll notice that in supposedly riskless environments such as the treasury market or excess reserves at the fed, there has been significant "loan growth" (if you can call it that) and inflation.

I agree and I will add to this,  that there are a lack of borrowers.   After bubble burst,  the private sector face uncertainty so that last thing they want to do is borrow.   They're too concerned about paying down balance sheet

This is also true, but the primary problem is that there are a lack of lenders, as shown by the fact that there's a huge shortage banks willing to offer mortgages to the average american. Businesses don't want to borrow, but consumers do and can't get it. Maybe if the consumers could get it, and the threat of a rate spike wasn't always on the horizon, businesses would be more encouraged to borrow?

[twiifm]

"Let me guess.. You are an Anarcho-Capitalist who reads Rothbard or learned economics from Stefan Molyneux.  Roll Eyes"

I prefer that to be a mystery. The dicussion should be over my arguments (and yours).

Ok its hard not to make that assumption because every you post sounds like it comes straight from some AnCap handbook.

Back to the argument of "if inflation can be measured using indexes like CPI or GDP".  I say yes.  But the models do get revised.  The most accepted model comes from Bureau of Labor & Statistics

You think if the stats come from World Bank or BLS then its bunk because you don't "trust" these organizations due to personal politics.  My argument is that they're data is academic and even though BLS is a govt agency.  Doesn't imply that they do these studies w bias.  They are professional economists & statisticians so their interest would be academic not partisan.  Heres a paper where they explain how CPI is calculated if you care to read

http://www.bls.gov/opub/mlr/2008/08/art1full.pdf

Furthermore, World Bank is not a political organization so why would they publish false data?  What is the motive?  Because they are "banksters" out to get the little guy?

Shadowstats has been debunked by a lot of economist bloggers so I dont need to argue why its bunk.  It would take a tl;dr post.  You can google it and decide yourself.  But nobody in the economics profession quote shadowstats data.

So I ask you what is more likely?  Using Occums Razor..  Is shadowstats correct or the rest of the world correct?  

[twiifm]

Inflation drives debt, and create long term bubbles. Deflation drives savings, and investment.

You got it backwards.  Inflation & deflation don't drive anything they are symptoms of the economy.  Booms & busts happen as business cycles.

The question is how do you deal w inflation & deflation?

... you're playing at semantics. You reiterated what I said. One "deals with" inflation by going in to debt. You "deal with" deflation by saving. When any entity holds the keys to the printing press of a fiat currency, inflation is the cause. Inflation is the increase in the monetary base. Devaluation of the unit of currency is the symptom.

Its not semantics.   Market forces are very difficult to manipulate.   Inflation/ deflation are measurements.   They are symptoms not causes.

Saving or spending can be reactive.  But how do you mandate that?   Can't force people to save or spend if they don't want to.   The only thing the Fed can do is raise/lower interest rates.  Govt can save or spend if Congress approves budget

Look up "semantics".

I didn't say anything about forcing behavior. I said individuals deal with inflation by taking on debt. Look how many people take out long term debt in bitcoin? No one that expects to pay it back!

The Fed does more than just manipulate interest rates. They buy debt that no one would, for prices that no one would pay. That's equivalent to printing money and distributing it to banks. That is direct inflation of the monetary base. The devaluation of currency is the symptom. The inflation is the cause. The last audit also showed huge loans to many well connected banks without repayment. More direct inflation. Even if there ever is a repayment, any loan the Fed creates is inflation. The deflation comes when it's repaid.

Buying bitcoin =/= taking out long term debt.  Taking on debt means borrowing

The Fed has been doing QE for a while.  Last time I check no inflation.  They want inflation but its just not happening

You have so little understanding of economics.  Your theoretical basis is wrong and you ignore what is actually happening in reality.  They can print as money as they want but if the money is stuck in the financial sector and never reaches the real economy then no inflation is going to happen.

There has been little/no inflation throughout QE because the economy was so bad that without QE there would likely have been deflation (negative inflation), so QE did in effect did raise the inflation rate.

Incorrect. There has been little or no inflation throughout QE because QE has made interest rates so low that lending doesn't make sense for financial institutions. You'll notice that in supposedly riskless environments such as the treasury market or excess reserves at the fed, there has been significant "loan growth" (if you can call it that) and inflation.

I agree and I will add to this,  that there are a lack of borrowers.   After bubble burst,  the private sector face uncertainty so that last thing they want to do is borrow.   They're too concerned about paying down balance sheet

This is also true, but the primary problem is that there are a lack of lenders, as shown by the fact that there's a huge shortage banks willing to offer mortgages to the average american. Businesses don't want to borrow, but consumers do and can't get it. Maybe if the consumers could get it, and the threat of a rate spike wasn't always on the horizon, businesses would be more encouraged to borrow?

Mortgages are harder to get now than pre bubble.  Pre bubble there was deregulation that led to sub-prime lending.  Banks got burned by that so they're cutting back on mortgages.  I had problems proving my income (self employed) when I wanted to refinance my mortgage.  But bank extended my business credit no problem. 

Also, because of financialization of economy, a lot of finance is in the shadow bank industry.  So for example swaps on bitfinex is shadow banking.  So even when QE gets injected into the banking system the money gets routed to speculative activity and not routed to the "real economy".  Lending does occur but not for startup or job creation.  This is one reason why stock market has had bull run

[GangkisKhan]

Mortgages are harder to get now than pre bubble.  Pre bubble there was deregulation that led to sub-prime lending.  Banks got burned by that so they're cutting back on mortgages.  I had problems proving my income (self employed) when I wanted to refinance my mortgage.  But bank extended my business credit no problem. 

Also, because of financialization of economy, a lot of finance is in the shadow bank industry.  So for example swaps on bitfinex is shadow banking.  So even when QE gets injected into the banking system the money gets routed to speculative activity and not routed to the "real economy".  Lending does occur but not for startup or job creation.  This is one reason why stock market has had bull run

Printed money usually end up in financial asset than productive usage.

[Erdogan]

"Let me guess.. You are an Anarcho-Capitalist who reads Rothbard or learned economics from Stefan Molyneux.  Roll Eyes"

I prefer that to be a mystery. The dicussion should be over my arguments (and yours).

Ok its hard not to make that assumption because every you post sounds like it comes straight from some AnCap handbook.

Back to the argument of "if inflation can be measured using indexes like CPI or GDP".  I say yes.  But the models do get revised.  The most accepted model comes from Bureau of Labor & Statistics

You think if the stats come from World Bank or BLS then its bunk because you don't "trust" these organizations due to personal politics.  My argument is that they're data is academic and even though BLS is a govt agency.  Doesn't imply that they do these studies w bias.  They are professional economists & statisticians so their interest would be academic not partisan.  Heres a paper where they explain how CPI is calculated if you care to read

http://www.bls.gov/opub/mlr/2008/08/art1full.pdf

Furthermore, World Bank is not a political organization so why would they publish false data?  What is the motive?  Because they are "banksters" out to get the little guy?

Shadowstats has been debunked by a lot of economist bloggers so I dont need to argue why its bunk.  It would take a tl;dr post.  You can google it and decide yourself.  But nobody in the economics profession quote shadowstats data.

So I ask you what is more likely?  Using Occums Razor..  Is shadowstats correct or the rest of the world correct?  

I would say shadowstats is not correct in estimating inflation (in general price level), because changes in measurement (for instance changing the content in the shoppers basket) is necessary over time. You can not take a basket from forty years ago and apply it now, the product sortiment is not according to the preferences of todays consumers.

On the other hand, removing articles on the grounds that they show price volatility, is also incorrect and in fact absurd. If you want to measure the variation of price level, you can not take out the components that change.

The current consumer price index preferred by the Fed as the most relevant, is wrong, because it excludes products essential to consumers and is a large part of the total consumption. Food and energy - that must be close to half of the consumption for many consumers.

Then there is the fact that the composition of the reference never fits all consumers. The composition is different for each consumer, and varies greatly.

Then again there is some indexes (chained) that continually adjusts the basket based on the prices. It gives a lower number-

Then in some countries, price level abroad is included, the idea is that the consumer is on vacation abroad sometimes.

Adding this confusion together, and knowing that the resulting index number has profound consequences for the liabilities of the government, the suspicion is that a low number is preferred.

A fundamental question in relation to the value of money, is that you have to include more than the most common consumer goods, you need to take price of capital goods into account also.

The measurements of gross domestic product and money velocity have exactly the same fundamental problems.

That is a bouquet of reasons to say that fundamentally, it is not computable. It is possibe to measure and compute numbers, but standard economics of today is poisoned by numbers. And look at the research reports of today - differential equations and third root and whatever - when you start out with badly defined and fundamentally unmeasurable parameters, that is just hogwash.

Austrian economy does not try to compute these things, but rather start out from some axioms relation to individual's actions of choice, and builds upon that with logic. That is why I like it.

[DannyElfman]

Also, because of financialization of economy, a lot of finance is in the shadow bank industry.  So for example swaps on bitfinex is shadow banking.  So even when QE gets injected into the banking system the money gets routed to speculative activity and not routed to the "real economy".  Lending does occur but not for startup or job creation.  This is one reason why stock market has had bull run

This type of activity is the result of people moving down both the risk curve and the time to maturity curve. In other words people are taking more risks with their capital, which leads to higher asset prices, which leads to people feeling like they have more money, which hopefully leads to people spending more money, thus stimulating the economy.

I would certainly agree that people are taking on more risk as a result of QE, and asset prices certainly have gone up significantly, but it does not appear that people are spending more money as a result of this newly created wealth.

[twiifm]

The current consumer price index preferred by the Fed as the most relevant, is wrong, because it excludes products essential to consumers and is a large part of the total consumption. Food and energy - that must be close to half of the consumption for many consumers.

Say what?  Did you even read that article I posted?

http://www.bls.gov/opub/mlr/2008/08/art1full.pdf

[twiifm]

This type of activity is the result of people moving down both the risk curve and the time to maturity curve. In other words people are taking more risks with their capital, which leads to higher asset prices, which leads to people feeling like they have more money, which hopefully leads to people spending more money, thus stimulating the economy.

The issue w this logic is that investors are a small % of the population and they can't consume for everyone.  This is why we need more jobs.  We need more middle class consumers then the top 1% buying fancy toys (although they contribute by buying expensive things)

Even if top 1% owns 50% of wealth they cannot possibly consume 50% of the goods

[molecular]

It just occurred to me that something very important is missing from this thread.

Define economic growth.

Excellent point.

Also: define inflation (there's monetary inflation and price inflation)

[twiifm]

It just occurred to me that something very important is missing from this thread.

Define economic growth.

Excellent point.

Also: define inflation (there's monetary inflation and price inflation)

Growth is usually measured by GDP

And inflation measured by CPI and PPI

[Ibian]

It just occurred to me that something very important is missing from this thread.

Define economic growth.

Excellent point.

Also: define inflation (there's monetary inflation and price inflation)

Growth is usually measured by GDP

And inflation measured by CPI and PPI

Correct GDP for inflation. What do the last hundred years look like? Also compare purchasing power of the average household, also corrected for inflation.

[Este Nuno]

It just occurred to me that something very important is missing from this thread.

Define economic growth.

Excellent point.

Also: define inflation (there's monetary inflation and price inflation)

Growth is usually measured by GDP

And inflation measured by CPI and PPI

How reliable do people here think those numbers are? The ones used by academic economists.

[CoinDiver]

Really shadowstats?   Thats where you got your numbers from?  Oh lord 

You forgot to insert an argument.

He doesn't have one. He seems to regurgitate talking points from MSNBC, and has little understanding.

Ha ha wrong.  I don't follow mainstream economics.  I follow heterodox economics & MMT.   No need for me to argue shadowstats.  Just google "shadowsats debunked" and you will find many examples of why its shit

I googled "heterodox economics debunked"... that what you said right? Came up with "a heterodox economist nowadays could be defined as ‘somebody who aims for cheap applause from economically illiterate Guardian readers’"

What should we google next? "Gravity debunked", "round earth debunked"?

Occam's razor says the central bank has both the incentive and the power to skew inflation figures.

[twiifm]

Really shadowstats?   Thats where you got your numbers from?  Oh lord 

You forgot to insert an argument.

He doesn't have one. He seems to regurgitate talking points from MSNBC, and has little understanding.

Ha ha wrong.  I don't follow mainstream economics.  I follow heterodox economics & MMT.   No need for me to argue shadowstats.  Just google "shadowsats debunked" and you will find many examples of why its shit

I googled "heterodox economics debunked"... that what you said right? Came up with "a heterodox economist nowadays could be defined as ‘somebody who aims for cheap applause from economically illiterate Guardian readers’"

What should we google next? "Gravity debunked", "round earth debunked"?

Occam's razor says the central bank has both the incentive and the power to skew inflation figures.

yeah right I googled that and I found no such thing except one smarmy article that doesn't debunk anything.  Its just an ad hominem article.  Different schools of economics debate each other all the time but post-Keynsian are still from academia and someone like Minksy is getting very influential now that his work theorize why crisis occurs. 

Gravity & round earth are also accepted by academia.  You know whats NOT?  shadowstats & Stefan Molyneux & Rothbard.  They're considered fringe (as in lunatic)

I guess you don't understand Occum's Razor either. 

[Erdogan]

The current consumer price index preferred by the Fed as the most relevant, is wrong, because it excludes products essential to consumers and is a large part of the total consumption. Food and energy - that must be close to half of the consumption for many consumers.

Say what?  Did you even read that article I posted?

http://www.bls.gov/opub/mlr/2008/08/art1full.pdf

Does it matter. Well here is a proof: The government supplies several different indexes for consumer prices. At best, only one can describe the general consumer price level. Plus, the indexes are tuned, so at one time is defined in one way, another time it is defined another way. So there can be no accurate index.

What there can be, is a number called CPI, measured at one of the specified methods. That number can be interesting to look at, that is why they make it.

Still, the general price level for consumer prices can fundamentally not be measured. I do not think the Serious Economist disagrees on this, it is more a consideration of how important it is.

Anyway, how do they ask to find the component parameters? Do they ask someone in the rockies what he sold his horse to his neighbour for? Why not? Why would anyone care, are horses in the CPI?

[twiifm]

The current consumer price index preferred by the Fed as the most relevant, is wrong, because it excludes products essential to consumers and is a large part of the total consumption. Food and energy - that must be close to half of the consumption for many consumers.

Say what?  Did you even read that article I posted?

http://www.bls.gov/opub/mlr/2008/08/art1full.pdf

Does it matter. Well here is a proof: The government supplies several different indexes for consumer prices. At best, only one can describe the general consumer price level. Plus, the indexes are tuned, so at one time is defined in one way, another time it is defined another way. So there can be no accurate index.

What there can be, is a number called CPI, measured at one of the specified methods. That number can be interesting to look at, that is why they make it.

Still, the general price level for consumer prices can fundamentally not be measured. I do not think the Serious Economist disagrees on this, it is more a consideration of how important it is.

Anyway, how do they ask to find the component parameters? Do they ask someone in the rockies what he sold his horse to his neighbour for? Why not? Why would anyone care, are horses in the CPI?

According to that article they poll a basket of goods.  And log the statistics based on that polling.  The basket of goods is chosen to represent a cross section of consumer goods from different regions .  There is a CPI-U and CPI-W to reflect the different lifestyles of urban vs non-urban dwellers.  Its similar to how the Census Bureau poll data

Just read the article.  Its pretty interesting

[Harley997]

It just occurred to me that something very important is missing from this thread.

Define economic growth.

Excellent point.

Also: define inflation (there's monetary inflation and price inflation)

Growth is usually measured by GDP

And inflation measured by CPI and PPI

Correct GDP for inflation. What do the last hundred years look like? Also compare purchasing power of the average household, also corrected for inflation.

The GDP numbers would show slower growth, but it would still show growth. Purchasing power has also increased, although the amount of the increase would be underreported as our standard of living has increased a lot.

[GangkisKhan]

It just occurred to me that something very important is missing from this thread.

Define economic growth.

Excellent point.

Also: define inflation (there's monetary inflation and price inflation)

Growth is usually measured by GDP

And inflation measured by CPI and PPI

How reliable do people here think those numbers are? The ones used by academic economists.

Measuring anything isn't really that simple. On top of it, government official has the tendency to make themselves look good by publishing good number.

[Ibian]

It just occurred to me that something very important is missing from this thread.

Define economic growth.

Excellent point.

Also: define inflation (there's monetary inflation and price inflation)

Growth is usually measured by GDP

And inflation measured by CPI and PPI

Correct GDP for inflation. What do the last hundred years look like? Also compare purchasing power of the average household, also corrected for inflation.

The GDP numbers would show slower growth, but it would still show growth. Purchasing power has also increased, although the amount of the increase would be underreported as our standard of living has increased a lot.

The average house used to cost two yearly salaries. This is no longer the case. Same for most other stuff.

As for re: academics: nobody who care about their personal financial future takes them seriously. Look at what is, not what you are told there is.

[Miz4r]

Inflation supports debt growth, which gives the illusion of economic growth but in reality it sucks the wealth out of the poor and middle class and gives it to the rich who put their wealth in assets and loans to the poor who pay them interest. It's a vicious cycle, but it goes so slowly that not many people actually notice what's going on until it's too late. Like a frog sitting in water that slowly heats up and starts to boil.

Inflation and deflation, if happening naturally, would just be an equilibrium finder for the market. It should not be an instrument or requirement for economic growth.