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naraburns  nihil supernum  1yr ago (text post)   30927 thread views

Culture War Roundup for the week of November 7, 2022

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

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

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

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

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

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

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

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

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

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

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

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

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

I don’t buy it.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

How exactly is this different from just raising taxes?

It's faster and you burn the proceeds so there's no chance they get back into the economy through government spending.

But yes you could very well replicate this using taxes and the national money hole.

Taxes go into the government coffers and then get spent, creating welfare dependents.

Simply burning the money is much better, as that doesn't create a class of welfare dependents.

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

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

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