Economics is not hard - Part I: Don’t let professional economists tell you otherwise

[MarkL]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

It's OK now and then to raise a point of disagreement. But do so a bit gently, and let it rest if apparently the point is not going to be resolved.

Oh, sure glad that "now and then" I can disagree. Not so sure I'm good at doing so "gently" although I agree I should do so without being unusually insulting or derogatory.

I'm pretty sure these "inflation/deflation issues" are never going to be resolved as time perpetually marches on and people will always disagree. In addition this is one of the defining questions of this entire website... even EJ continually (for years now) has been discussing and refining this point. To ask me or anyone to set the issue aside, is to ask us to set the site aside!

It seems to me the whole point of this website is to have these back and forth discussions. I hope the point of the site is not to just have a love-fest for EJ and Ka-Poom without serious conflicting vigorous discourse.

[jk]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

I hope the point of the site is not to just have a love-fest for EJ and Ka-Poom without serious conflicting vigorous discourse.

i hope the point of the site is to develop new insights into the economy and financial system as they unfold and not to endlessly recapitulate old discussions.

fred, i think this ONCE AGAIN speaks to the need for a FAQ's page, with - at a minimum- pointers to the relevant articles from the past. then, when a newcomer raises the same old question for the umpteenth time, you can just say, "see faq #13" and the rest of us can move on.

[metalman]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

Alright, point taken. I had thought this forum was more like a traditional Roman forum where people wanted and encouraged discussion to test, refine, and challenge their views. But if this forum is more akin to a restaurant where people just want to enjoy a good meal in polite company, I can respect that. Here I thought I was being thought provoking, and it sounds like I was just coming off as the annoying kid who won't shut up.

On the subject of doubt, my personal opinion is that doubt and conclusions are not mutually exclusive. I try to cast doubt on my assumptions to test them so that I can come to a robust conclusion, and even then try to question (doubt) those conclusions every now and again so they don't get stale. I posted recently that I just read "The Black Swan" by Nicholas Nasim Taleb. He has a similar viewpoint and I agreed with his message, but he sure comes across as an arrogant SOB. Maybe skepticism is a socially awkward state of mind.

Anyway, on to shutting up.

if you're looking for a roman forum where people want & are encouraged to discuss, test, refine, and challenge their views... you came to the right place. shit, there's a whole thread on deflation here that oppose ej's view & it's damn popular...

• Replies: 1,063
• Views: 33,160

dissent is encouraged. but rehashing established fact over & over is not.

if you want to make the point that annual % cpi is lower now than before the recession, you need a chart like this...



ej's recent short term disinflation forecast jives... the fed's bitching about deflation & has the charts & graphs to 'prove' it! we all need to prepare for the next trick in the bag o tricks the fed has to stop it.

reflation... buy on rumor, sell on fact.

fed deflation talk = impending reflation = rise in gold

[MarkL]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

Boy Fred, you're sure disappointing me here. You're normally spot on in my experience.

RDRees said "The facts are that both PPI and CPI are lower now than they were two years ago."
You said "This assertion is simply false, wrong, incorrect, and not true..."
You called out this exact quote and made this exact response despite the fact that your own charts supported RDRees's answer.

You then went on to say his unwillingness to accept "facts" was trolling and said "we do not tolerate it" effectively threatening to use moderator power.

In your second post you acknowledged RDRees was right on this specific point, but then instead of going to the root of the discrepancy, time frame, you instead went on to state that:
"Today inflation is rising steadily... ...To deny it is to deny obvious facts."
"...I'm expected to ban trolls without ceremony for this reason, and do."

Fred!! Where is your normal dispassionate analysis?! It can certainly be argued depending on time frame selected that EITHER inflation has occured, deflation has occurred, and that prices have been flat over the last 1-3 years! You can make that GRAY area on your chart other sizes and have a descending line or a flat line. LOOK AT IT! I personally think your conclusion is the right one when considering the big picture and agree that RDRees is looking at timeframes that are too short. But I can acknowledge the ability to draw different conclusions and draw different angled lines based on time frames!

I have no problems with the second discourse... or you making that first error. But effectively threatening to ban somebody twice, first accusing them of being wrong when they weren't, and second simply because they interpret facts differently, is in my opinion, a misuse of moderator power.

[MarkL]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

Great post Metalman. Thanks for supporting what is for me, the second most valuable contribution of iTulip. Intelligent back and forth! EJ's posts, are of course, the first!

[cindykimlisa]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

A little help with the inflation - deflation issue: timing and discounts is important.

I buy lots of clothes from JC Penny and Macy's

5 years ago J C Penny used to have realistic prices for shirts and sometimes had a real sale. If you shop at Macy's this analysis also applies to them.

Today a shirt that is worth say $25 for example is priced on the table at $50.00 or way over priced from what it should be. A few years ago that same shirt might have been $35 so it looks like by the price we have seen some real inflation there, but in reality that is not true. Because if you look at the paper every Sunday you see Pennys has a 20% sale every week and a bonus coupon. And when that sale is not ongoing they have a buy one get one at 50% off sale in the store. So you really end up most days paying about the same as you did for a shirt a few years ago or $35.

However, there is much more to the Game. If you buy the shirt at the beginning of the season then you might pay the highly inflated price and on a very bad day you might miss all the sales and pay retail of $50 -- very inflated. In the middle of the season you are going to get %25 or more off retail on most days - Maybe inflation or disinflation. Towards the end of the season you can get as much as %80 off retail - perhaps some might say deflation. I make the majority of my purchases at 80% off.

In this example the person who pays retail or list in slammed by Hyper inflation. The person who gets it on sale pays something like disinflation and with a coupon gets deflation. And the person who waits til the end of the season pays Hyper deflation -- off of the previous and current years hyperinflated retail prices.

So there will be no misunderstandings there are some quality issues here: some of the clothes are less in quality but some are of fine quality. I just bought a pinstripe $400 American Eagle suit of excellent quality at %75 off Hyper inflated retail.
I got a nice $300 suit priced at retail of $400 for about $100. Last year at the same time I might have gotten a similar suit for about $90 at 75% off. Is that Inflation, Deflation, Disinflation. I think I know but I am not going too argue about it til the cows come home.

On another note 10 years ago my spouse did all the grocery shopping at my house and now I do it all. My spouse spent $ 500 a month and ten years later I spend about $350 for about the same type food purchases. Is that inflation, deflation, disinflation, stagflation or something else. Answer: Some of all of the above on a microeconomic theory basis: this is combined with prudence and good shopping habits along with timing of purchases.


Cindy

[we_are_toast]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

A little help with the inflation - deflation issue: timing and discounts is important.

I buy lots of clothes from JC Penny and Macy's

5 years ago J C Penny used to have realistic prices for shirts and sometimes had a real sale. If you shop at Macy's this analysis also applies to them.

Today a shirt that is worth say $25 for example is priced on the table at $50.00 or way over priced from what it should be. A few years ago that same shirt might have been $35 so it looks like by the price we have seen some real inflation there, but in reality that is not true. Because if you look at the paper every Sunday you see Pennys has a 20% sale every week and a bonus coupon. And when that sale is not ongoing they have a buy one get one at 50% off sale in the store. So you really end up most days paying about the same as you did for a shirt a few years ago or $35.

However, there is much more to the Game. If you buy the shirt at the beginning of the season then you might pay the highly inflated price and on a very bad day you might miss all the sales and pay retail of $50 -- very inflated. In the middle of the season you are going to get %25 or more off retail on most days - Maybe inflation or disinflation. Towards the end of the season you can get as much as %80 off retail - perhaps some might say deflation. I make the majority of my purchases at 80% off.

In this example the person who pays retail or list in slammed by Hyper inflation. The person who gets it on sale pays something like disinflation and with a coupon gets deflation. And the person who waits til the end of the season pays Hyper deflation -- off of the previous and current years hyperinflated retail prices.

So there will be no misunderstandings there are some quality issues here: some of the clothes are less in quality but some are of fine quality. I just bought a pinstripe $400 American Eagle suit of excellent quality at %75 off Hyper inflated retail.
I got a nice $300 suit priced at retail of $400 for about $100. Last year at the same time I might have gotten a similar suit for about $90 at 75% off. Is that Inflation, Deflation, Disinflation. I think I know but I am not going too argue about it til the cows come home.

On another note 10 years ago my spouse did all the grocery shopping at my house and now I do it all. My spouse spent $ 500 a month and ten years later I spend about $350 for about the same type food purchases. Is that inflation, deflation, disinflation, stagflation or something else. Answer: Some of all of the above on a microeconomic theory basis: this is combined with prudence and good shopping habits along with timing of purchases.


Cindy

I think you've introduced some pretty interesting concepts here, the most interesting being the impact of gender on inflation and disinflation.

I assure you, for a male going into Penny's or Macey's, the top priority will be to get out as quickly as possible so you can go to a sporting event or watch a sporting event on TV. For a female, the act of shopping is in itself one of the most competitive sporting events one could conceive of.

So having males do the shopping could very well lead to an inflationary environment as they probably will pay the higher price just so they can get out. Having females do the shopping could lead to a deflationary environment as they shop for the best bargains.

If we are slipping into disinflation, maybe the FOMC will release a statement requesting congress to pass legislation requiring males to do the shopping. The opposite if we see inflation on the horizon.

OTOH: Of course many males would say to themselves, why do I need a $400 suit when these blue jeans and this T-shirt fit me just fine?! The heck with the suit, I'm going fishing instead. This could very well lead to a deflation spiral if the fishing is going very well. If the stores start putting everything on sale, and the females do all the shopping, it might not lead to inflation, but it probably would lead to another credit bubble as credit cards get maxed out, and too much fishing and not enough working would eventually lead to another debt crises.

This certainly adds to the complexity of the inflation/deflation debate.

[dummass]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

too much fishing and not enough working would eventually lead to another debt crises.

I share your concerns toast. This is some of the most disturbing economic analysis I have read in some time. If you don't mind me finishing your thoughts, how much worse will the economy get when these guys (fishermen) realize that can eat the fish? What if they stop buying food? We are on dangerous ground here, toast.

[Brooks Gracie]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

Eric, I have known you for a long time, and spoken with you about economic issues while at Osborn Capital at least once a week. But I still cannot see the inflation coming--entirely based on political issues. The members of the Fed are elected by regional banks--who love deflation; they get paid back in more valuable dollars. Congress is owned by multi-nationals who outsource jobs and leave American "service workers" or unemployed to fend for themselves, offshoring labor. This cannot change without a revolution, and Americans are too uneducated, divided and deluded by MSM to initiate a change.

Protectionist legislation is not even on the table--though it is the only way to increase America's competitiveness--multinationals control Congress. Congress cannot even get a decent stimulus plan to spur demand. With ZIRP, the Fed is helpless anyway. Tax cuts for the wealthy merely moves money from one speculator to another, or otherwise overseas. When was the last time you saw a super-wealthy create a start-up?

Education debt is a ticking time-bomb, with graduates having no hope whatsoever of getting a job that can repay their borrowings--and it is non-dischargeable, following one to his grave. I think that if a real revolution is going to arise, it will be initiated by the young who are having their Burger King wages garnished by Sally Mae. All for having the ambition and dream to finish college.

I have no hope whatsoever until we return to Depression era tent cities outside of Congress and the White House overflowing with rowdy crowds.

[LargoWinch]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

Eric, I have known you for a long time, and spoken with you about economic issues while at Osborn Capital at least once a week. But I still cannot see the inflation coming--entirely based on political issues. The members of the Fed are elected by regional banks--who love deflation; they get paid back in more valuable dollars. Congress is owned by multi-nationals who outsource jobs and leave American "service workers" or unemployed to fend for themselves, offshoring labor. This cannot change without a revolution, and Americans are too uneducated, divided and deluded by MSM to initiate a change.

Protectionist legislation is not even on the table--though it is the only way to increase America's competitiveness--multinationals control Congress. Congress cannot even get a decent stimulus plan to spur demand. With ZIRP, the Fed is helpless anyway. Tax cuts for the wealthy merely moves money from one speculator to another, or otherwise overseas. When was the last time you saw a super-wealthy create a start-up?

Education debt is a ticking time-bomb, with graduates having no hope whatsoever of getting a job that can repay their borrowings--and it is non-dischargeable, following one to his grave. I think that if a real revolution is going to arise, it will be initiated by the young who are having their Burger King wages garnished by Sally Mae. All for having the ambition and dream to finish college.

I have no hope whatsoever until we return to Depression era tent cities outside of Congress and the White House overflowing with rowdy crowds.

That is quite a profound statement Brooks Gracie.

However - and sadly- since inflation hurt the poor in a disproportionate fashion, I believe that is what awaits.

[jk]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

in 1981 long rates were over 15% because no one believed in the fed's determination and ability to kill inflation.
in 2010 long rates are below 4% because no believes in the fed's determination and ability to kill deflation.

[Jim Nickerson]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

in 1981 long rates were over 15% because no one believed in the fed's determination and ability to kill inflation.
in 2010 long rates are below 4% because no believes in the fed's determination and ability to kill deflation.

Now, jk, don't you truly, and I mean sincerely, know and believe that Bernanke knows how not to allow deflation to occur here. What I read about him and his knowledge leads me to believe it (deflation) CANNOT occur here if one believes the spiel. My personal feeling, from a point of no serious knowledge about any of this stuff, is that the problems with the unwinding of the massive debts is bigger than Bernanke and bigger than the Fed. I just hope I live long enough to develop some real sense of how this ultimately resolves.

About your comment, Bernanke may be "determined" and I suppose might actually have the "ability" to produce inflation, but it supposedly may be political concerns, forces, influence that keep him from doing his "magic."

[EJ]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

Eric, I have known you for a long time, and spoken with you about economic issues while at Osborn Capital at least once a week. But I still cannot see the inflation coming--entirely based on political issues. The members of the Fed are elected by regional banks--who love deflation; they get paid back in more valuable dollars. Congress is owned by multi-nationals who outsource jobs and leave American "service workers" or unemployed to fend for themselves, offshoring labor. This cannot change without a revolution, and Americans are too uneducated, divided and deluded by MSM to initiate a change.

Protectionist legislation is not even on the table--though it is the only way to increase America's competitiveness--multinationals control Congress. Congress cannot even get a decent stimulus plan to spur demand. With ZIRP, the Fed is helpless anyway. Tax cuts for the wealthy merely moves money from one speculator to another, or otherwise overseas. When was the last time you saw a super-wealthy create a start-up?

Education debt is a ticking time-bomb, with graduates having no hope whatsoever of getting a job that can repay their borrowings--and it is non-dischargeable, following one to his grave. I think that if a real revolution is going to arise, it will be initiated by the young who are having their Burger King wages garnished by Sally Mae. All for having the ambition and dream to finish college.

I have no hope whatsoever until we return to Depression era tent cities outside of Congress and the White House overflowing with rowdy crowds.

I have argued with the deflationists over the years that government can prevent deflation spirals with reflation based on currency depreciation and extreme double entry bookkeeping, which forecasts have proved accurate, but have never asserted that governments can ably negotiate the ugly terrain between asset price deflation and commodity and wage price inflation that results from said reflation.

Should the Fed raise rates now? Of course. Can the Fed raise rates? No.

Credit bubble fuel level: Near Empty


Credit demand? Still falling.

So how can the Fed prevent commodity and wage price inflation in the Productive Economy without crashing the FIRE Economy? It can't.

[LargoWinch]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

in 1981 long rates were over 15% because no one believed in the fed's determination and ability to kill inflation.
in 2010 long rates are below 4% because no believes in the fed's determination and ability to kill deflation.

Yes, and the market is wrong.

The deflationists view is that credit contraction leads to deflation. That is pure nonsense as credit is not money (Jesse's calls it "vapor"). Once the CBs are done with their "we-prevent-asset-deflation-at-all-cost" experiment, a zero (or two, or three...) will need to be added to virtually all paper bills around the world.

[ThePythonicCow]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

The deflationists view is that credit contraction leads to deflation. That is pure nonsense as credit is not money

True, credit is not money. But in a debt-based monetary system, lending is how we create money. We're lending less, and shadowstats.com M3 is down.