PPI Whopper

[WDCRob]

Re: PPI Whopper

But that would argue for a policy of stable prices - which in a growing economy would require additional money supply. Right?

I'm trying to square that with Finster's position that any increase in money is inflation, and inflation is universally bad. At least that's how I read his comments.

Where's my disconnect here?

[bart]

Re: PPI Whopper

But the way you define it matters a lot, doesn't it?

And if it's defined by prices, you're saying that there IS such a thing as real and nominal inflation. Since you could have an increase in money supply that doesn't translate to prices (if it matches GDP) - nominal inflation, offset by GDP. Hopefully that concept makes sense - I suspect I'm not using the right language here.

IIRC, Finster says that any increase in the money supply is by definition inflation. Which would be reflected in a growing economy by prices remaining stable instead of falling. I think.

So...why is it that price increases not related to demand are bad, but prices dropping for reasons not related to demand are not similarly undesirable? Both would serve to confound economic decision-making wouldn't they?

Methinks you very much proved my point about how the various terms are defined and used being primary.

I don't recall the iTulip preferred inflation definition, but my simple preferred one is inflation is more money than goods. It tracks well with your comment about money supply growing to match GDP growth, assuming I'm tracking with your views.
Finster is likely using a different definition when he noted that any increase in money supply is inflation.
Inflation is just inflation, however its defined. If inflation or deflation of any amount exists, then there's a difference between nominal and real GDP - otherwise, nominal = real.

As far as the increases and decreases point, it depends on who you are whether they're good or bad... and we can also get far afield into various elements of sociology or even philosophy too. From a very general view, prices decreasing are good for consumers and bad for producers of goods and services, especially those who are leveraged.

From a much broader view, being confounded or partially confused in the whole economics area can be caused by a failure to have one unchanging item on and around which everything else can be oriented... and one of my own stable datums is literally the definition of inflation noted above. It's far from perfect and is also incomplete in the sense that its overly simplified, etc.... but it also works for me... and hopefully I'm not coming across as pandering or being too didactic or whatever.

[WDCRob]

Re: PPI Whopper

Not at all Bart. Much appreciated.

I had a feeling we were headed into areas of faith and philosophy pretty quickly, but at least now I (more or less) understand what (some of) the questions really are.

[Guest]

Re: PPI Whopper

WDCRob -

Also, what about the fact that the traditional exercise of inflation can proceed apace for entire decades, even two decades ina row, with money supply expanding vigorously, yet in an environment of falling commodity prices and fallling gold? Sure, it builds up latent inflationary potential, but does not translate directly into the same rampant inflation as occurs during one of the commodity up-cycles?

This was the case from 1980 onwards till 2000 (very roughly) and I note one peculiarity of that twenty years was an environment of falling oil prices as well as all other commodity prices. I'm aware that monetary aggregate growth relative to real GDP growth was far more moderate than in the 1970's and the present, but it could certainly be described still in these two decades as massive overexpansion of the senior currency's monetary supply.

So the text book Misesian definition of inflation, can carry on robustly for decades - issuance of lots of new monetary aggregate - without the serious inflation even stirring. But then when serious abuse of currency really goes into overdrive that inflation not only wakes up "with a twenty year lag to the monetary causes" but suddenly I note we begin to impute the monetary issuance also as 90%+ the cause of inflating assets (this part I grasp more readily), or of soaring commodity prices.

I know the monetary abuse is a big part, but I don't believe the real world components of commodity inflation are relegated to 20% or less.

I'm not refuting Misesian orthodoxy on the origins of inflation. That would be foolish as the theory is far more deeply studied than my short superficial comments can hope to do justice to - but there are such things as extraneous external corrolaries, such as the fall of the Soviet bloc and the freeing of a few hundred million people in that bloc to commence a 50 year delayed capitalist growth phase, and then the concomitant emergence of another 3 billion consumers in the BRIC and related nations pursuing the identical trajectory.

When you see all of these occur simultaneously, within the space of approximately one decade, and and you note it's only THEN that we see the inflationary effects of all that monetary abuse begin to manifest sharply in commodities, oil, CPI, etc, it plants the seeds of a healthy skepticism that the monetary aggregates alone are what is determining the starts and the ends of such inflationary cycles.

I think it's highly plausible that those very large demographic and industrialising events were at least one of the primary causes of actually starting the present classic inflationary cycle, as the abuse of currency alone, in the absence of those factors, apparently did not produce that cycle change for twenty long years previously. This linkage is why I distrust the thesis that inflation is "purely" a monetary phenomenon.

It's understood that inflation cannot exist without overissuance of money, but in the complex world of "stuff", a host of real world events can (and quite rationally it seems also should) play a large part in whether manifest inflation in goods and commodities prices kicks off or not. Example is China, who in the first half of this decade put a huge damper on the strong underlying inflation of fiat money, by being the cheapest factory floor to the world. Similarly the increase or diminution, of demographics, industrial growth trends, or resource depletion - all 'real world" inputs on a global scale (i.e. "large" and "widespread" inputs) can exert significant influence upon conventional fiat currency abuse's normal results.

It seems plausible to me at any rate that currency abuse must exist in a dynamic ("two way street") relationship with unfolding large real events on the ground in societies, which can act as "start" and "end" triggers.

Factors triggering manifest inflation could be such endogenous events as war, demographics, the presence of sharply rising industrialisation growth or more static industrial growth, and even now "depletion" the new kid on the block. Why the heck not? Therefore shouldn't we at least hesitate, with the thesis that all the inflation going on is due purely to money aggregates? ... I may be completely off base, but I have a lingering skepticism that the monetary component alone is capable of causing the starts and ends of secular inflationary cycles.

[bart]

Re: PPI Whopper

Not at all Bart. Much appreciated.

I had a feeling we were headed into areas of faith and philosophy pretty quickly, but at least now I (more or less) understand what (some of) the questions really are.

Cool, glad I was able to shine a little light. Having an idea of what the right questions are puts you in the upper 10% in my opinion.

The whole economics area is only second in difficulty of understanding to the opposite sex... ;)

[Finster]

Re: PPI Whopper

Finster, is 10% nominal growth and a 10% increase in money/credit equal to 0% inflation, or 10%? i.e. can inflation be measured independent of GDP, or is there a nominal inflation and a real inflation as well?

It depends on the particular definition of inflation you're considering. The term inflation is used both to describe the creation of money and credit and the depreciation of the currency that results.

Think of it this way. Suppose you live in a small town. There is a certain amount of real stuff that can be bought with your money. A certain number of houses, a certain number of cars on the dealer's lots, a certain amount of groceries on the store shelves. And suppose there are a certain number of dollars in people's accounts with which to buy the stuff. You would expect prices to be essentially stable, right?

But suppose your next door neighbor sets up a printing press in his basement. He starts turning out twenties, fifties, hundreds, etceteras by the bushel. He starts buying groceries with them. Then cars. Then houses. Since there are no new groceries, cars, or houses produced as a result, they start to become more scarce from the point of view of the other townspeople. They go to the grocery store and find less stuff on the shelves. They go to the car lot and find the dealer won't negotiate with them. Why should he, since he sell as many cars as wishes without having to. Moreover, his accounts are bursting with all the new dollars he's getting, so he can buy more groceries, too. The guy across the street who wants to sell his house finds that your neighbor and car dealer are submitting competing bids for his house, and it ultimately sells for 50% more than he paid for it. As all this new money filters through our little economy prices rise. There is still just the same number of cars, houses, groceries, etceteras, but a lot more money. So it takes a lot more of this money to buy the same amount of stuff. And it's not that the stuff itself is magically more valuable that it was before, it's that the money is worth less. There is no new value, just value transferred from your accounts to those of your neighbor.

That's inflation.

[Spartacus]

Re: PPI Whopper

I've been harping on this for a long time
http://itulip.com/forums/showthread....1267#post21267

The confusion will just continue.

email this to FRED, suggest an iTulip glossary/suggested usage. We just ban the words inflation and deflation

or a FAQ

Methinks you very much proved my point about how the various terms are defined and used being primary.

I don't recall the iTulip preferred inflation definition, but my simple preferred one is inflation is more money than goods. It tracks well with your comment about money supply growing to match GDP growth, assuming I'm tracking with your views.
Finster is likely using a different definition when he noted that any increase in money supply is inflation.
Inflation is just inflation, however its defined. If inflation or deflation of any amount exists, then there's a difference between nominal and real GDP - otherwise, nominal = real.

As far as the increases and decreases point, it depends on who you are whether they're good or bad... and we can also get far afield into various elements of sociology or even philosophy too. From a very general view, prices decreasing are good for consumers and bad for producers of goods and services, especially those who are leveraged.

From a much broader view, being confounded or partially confused in the whole economics area can be caused by a failure to have one unchanging item on and around which everything else can be oriented... and one of my own stable datums is literally the definition of inflation noted above. It's far from perfect and is also incomplete in the sense that its overly simplified, etc.... but it also works for me... and hopefully I'm not coming across as pandering or being too didactic or whatever.

[WDCRob]

Re: PPI Whopper

lol ... Lukester I actually follwed most of that, but you're giving me too much credit when you talk about different theorists.

FWIW, one of the things that's occurred to me from being here (in general, not just this discussion) is that our timeframe (humans) is too short when we're looking at all this stuff. That was one of the central appeals of reading EJ when I first came here - he's looking at things with a decade+ perspective. Not usually months or years.

[WDCRob]

Re: PPI Whopper

It depends on the particular definition of inflation you're considering. The term inflation is used both to describe the creation of money and credit and the depreciation of the currency that results.

The first is what I've been calling 'nominal inflation,' the second is 'real inflation.'

I humbly suggest that we adopt these terms to avoid confusion in the future. ;)

[Guest]

Re: PPI Whopper

WDCRob -

Please don't be deterred from considering my suggestion, notwithstanding the use of the word "theorist". :rolleyes:

Firstly, I'm every bit as much a layman as you, and secondly, what I'm saying is actually extremely simple, common sense stuff. Waves of paper money alone cannot kick of or end large inflationary cycles - you have to look at large real world conditions as well - if those large conditions don't exist (i.e. 20 years of underinvestment in mining, just for starters) the "inflating commodity stuff" component of what we see as fiat currency produced inflation cannot actually kick off in large terms.

That's a layman's observation, but I think we can table such an observation even as laymen, because it falls back so directly upon mere common sense. A ton of funny money won't goose internationally consumed commodities prices all by itself, unless and until all the consumers scattered all over the globe in many vastly different economic spheres decide they all really need those commodities roughly at the same time.

I may be completely wrong, but at the moment that's what I think (I'm stubborn).

And your comment about our time frame being too short to often grasp the bigger picture is spot on. That is also precisely why I became interested to read Janszen.

FWIW, one of the things that's occurred to me from being here (in general, not just this discussion) is that our timeframe (humans) is too short when we're looking at all this stuff.

[bart]

Re: PPI Whopper

I've been harping on this for a long time
http://itulip.com/forums/showthread....1267#post21267

The confusion will just continue.

email this to FRED, suggest an iTulip glossary/suggested usage. We just ban the words inflation and deflation

or a FAQ

I know there is an iTulip glossary somewhere, but I couldn't find it and hadn't bookmarked it either.

Chalk me up for another senior moment. Hopefully someone has the link... and I also won't hold my breath on virtually any inflation definition not generating a lot of posts too.

[Finster]

Re: PPI Whopper

lol ... Lukester I actually follwed most of that, but you're giving me too much credit when you talk about different theorists...

Sad, isn't it? Lukester used to be a real, down-to-earth, regular guy ... until he started reading a lot of Flow5 ...

;)

[bart]

Re: PPI Whopper

Sad, isn't it? Lukester used to be a real, down-to-earth, regular guy ... until he started reading a lot of Flow5 ...

;)

And he's called "Global Guerrilla Stocks Master" too... I wonder if he has positions in CHE? ;)

[Finster]

Re: PPI Whopper

Methinks you very much proved my point about how the various terms are defined and used being primary.

I don't recall the iTulip preferred inflation definition, but my simple preferred one is inflation is more money than goods. It tracks well with your comment about money supply growing to match GDP growth, assuming I'm tracking with your views.
Finster is likely using a different definition when he noted that any increase in money supply is inflation.
Inflation is just inflation, however its defined. If inflation or deflation of any amount exists, then there's a difference between nominal and real GDP - otherwise, nominal = real.
...

It's worth noting here that this doesn't mean one definition is wrong and another right. Words often have more than one correct meaning. Take the word "saw", for instance. You could say "I saw your wife the other day.", or "I saw your wife in half." with equal validity. Depending on, of course, what you did with my wife ....

So we have some ambiguity when we talk about inflation or deflation. Often the context will make it clear what we mean, other times it won't. We just need to be aware of those multiple meanings and take care to be specific when our point relies on a particular one.

Clearly, when I say any increase in money supply is inflation, I'm using a particular meaning. And in this case, it's vital to not only consider whether there has been an increase in money supply, but who did the increasing or who got the increase. Consider the example I gave above where one guy was printing it up in his basement. This kind of inflation is normally considered a criminal act. His increased purchasing power comes at the expense of everyone else's, presumably without their knowledge or their permission.

In contrast, suppose for the sake of illustration that some neutral entity printed up the extra money, and distributed the increase to everyone in direct proportion to the money they already had. If, say, there were a total of $10,000,000 in town, and the increase was $1,000,000 (10%), then if Bart had $10,000 in his account, now he suddenly has $11,000. If WDC has $20,000 in his account, he now has $22,000 and if Lukester has $30,000, he now has $33,000. (Okay, not realistic since we know Bart has waaay more money than anyone else in town, but bear with me ...). In this case, there was inflation, all right, but there was no surreptitious, involuntary transfer of wealth from one party to another party. All else being equal, everybody is left right where they started. No one is better or worse off; each has 10% more dollars, and ultimately everything costs 10% more dollars.

Now let's add some food for thought. Which kind of inflation do you think is the kind we get? If money supply is increased, is that increase distributed evenly, or do certain favored parties ... uhmm ... stand in line of ahead of others?

[Guest]

Re: PPI Whopper

Bart -

Actually it was that FRED BOT character who gave me that name. They can call me 'Donkey's Rear End' and maybe that would be a better moniker (although unfortunately I'm hardly a poster child for the Democratic party who's mascot that appears to be). However a Donkey's wooden headed recalcitrance might be a good character fit for me.

As for the Finster - well it's great to see him back here posting! So I don't have to rely solely on the Bart to contribute all the pithy comments.