site banner
PaperclipPerfector  1yr ago (text post)   32489 thread views

Culture War Roundup for the week of May 1, 2023

This weekly roundup thread is intended for all culture war posts. 'Culture war' is vaguely defined, but it basically means controversial issues that fall along set tribal lines. Arguments over culture war issues generate a lot of heat and little light, and few deeply entrenched people ever change their minds. This thread is for voicing opinions and analyzing the state of the discussion while trying to optimize for light over heat.

Optimistically, we think that engaging with people you disagree with is worth your time, and so is being nice! Pessimistically, there are many dynamics that can lead discussions on Culture War topics to become unproductive. There's a human tendency to divide along tribal lines, praising your ingroup and vilifying your outgroup - and if you think you find it easy to criticize your ingroup, then it may be that your outgroup is not who you think it is. Extremists with opposing positions can feed off each other, highlighting each other's worst points to justify their own angry rhetoric, which becomes in turn a new example of bad behavior for the other side to highlight.

We would like to avoid these negative dynamics. Accordingly, we ask that you do not use this thread for waging the Culture War. Examples of waging the Culture War:

  • Shaming.

  • Attempting to 'build consensus' or enforce ideological conformity.

  • Making sweeping generalizations to vilify a group you dislike.

  • Recruiting for a cause.

  • Posting links that could be summarized as 'Boo outgroup!' Basically, if your content is 'Can you believe what Those People did this week?' then you should either refrain from posting, or do some very patient work to contextualize and/or steel-man the relevant viewpoint.

In general, you should argue to understand, not to win. This thread is not territory to be claimed by one group or another; indeed, the aim is to have many different viewpoints represented here. Thus, we also ask that you follow some guidelines:

  • Speak plainly. Avoid sarcasm and mockery. When disagreeing with someone, state your objections explicitly.

  • Be as precise and charitable as you can. Don't paraphrase unflatteringly.

  • Don't imply that someone said something they did not say, even if you think it follows from what they said.

  • Write like everyone is reading and you want them to be included in the discussion.

On an ad hoc basis, the mods will try to compile a list of the best posts/comments from the previous week, posted in Quality Contribution threads and archived at /r/TheThread. You may nominate a comment for this list by clicking on 'report' at the bottom of the post and typing 'Actually a quality contribution' as the report reason.

9
Top Bottom Old Controversial Comments
Jump in the discussion.

No email address required.

Does anyone think that the current massively inflated prices will ever fall? I'm still so pissed off about it, a year later. Due to the fact that much of my income is based on the company's stock, which massively fell the same time inflation went nuts, I make less money now than I did a few years ago, despite having been promoted and working harder than ever. Couple that with inflation making my money worth less, and it's a wonder I can afford any non-essential spending at all. Every single good that I buy has increased in price by very noticable amounts. Generally, many people may not have the same problem as me, where their income is based on stock, but still, most people's cost of living has greatly increased and their income has stayed the same. Prices have been so out of control lately.

Is it just the Russia-Ukraine war that's keeping prices so high, or is it more than that, like aftershock from the pandemic, lockdowns, and COVID relief spending upending the economy? What's the best to hope for? If the war ends, is all we have to look forward to a reduction in inflation, meaning that prices will stop going up? Or is deflation a possibility, to bring prices back down to previous levels? I know close to nothing about econ, but I always hear deflation talked about as if it's this terrible thing. I don't really know why, I guess just because it destabilizes the market, and makes outstanding debts larger. To me right now, my dollar being worth more sounds great. Is deflation immediately following inflation a bad thing if it just brings prices back to previous levels?

No. Prices will never fall, wages will never grow (without changing the capitialist millue we all live in.)

If you work for wages you are a sucker; if your portfolio can be damaged by one stock falling you are a sucker.

Quit trying to make money by taking risks or making things and start renting shit as quick as you can; become the parasite before you are infested.

I know close to nothing about econ,

The day I learned how the economy worked is the day I stopped improving my productivity by my own accord. The economic system is thoroughly rigged. With luck and grit you can escape but if you are unlucky none of your hard work will matter. I just stopped playing the game and do as I'm told instead.

Please elaborate on why you've stopped improving your productivity?

I've decided long ago that I don't really have the temperament for entrepreneurship, so my only hope is constantly improving myself and chasing these promotions/job switches.

I'll undelete my comment and I was in a slightly bad mood as I wrote it. But the wording is important, by my own accord. i.e. my productivity is improving for work and so on I just don't use my free time to make myself more produtive(I have hobbies that doesn't involve work, like sitting here and commenting occasionally). Well the reason is because of the concept the market for lemons. There is a simple description of it but the most succint way of explaining it is that information asymmetry leads that things priced lower in the market because the buyer can't valuate it properly. There is also a nasty effect that information assymetry is used to suppress your wage and turning a blind eye to information that would give a reason to price it accurately. It is the direct and local effect why my choice of trying to have a life outside of work like most people. I just discovered that I was priced the same as the guy that produced fast and sloppy work and was considered "more productive" even though the error accumulation made our productivity equal. This was almost two decades ago I came to the conclusion. An ambitious former colleague of mine came with a story last month: a performance review of "exceed expectation" didn't lead to a wage increase because there wasn't "development potential". This is constant and reinforcing my belief that I made the right choice 20 years ago.

And even looking at the macro economic perspective. No one is getting their fair share of productivity increases since the 1970:s ... the numbers are clear regular wage workers has hade a smaller real wage growth compared to the increase of productivity.. And that gap has been compensated with easy cheap credit deregulated to the point of threatening a systemic collapse 2008 - 2009. And as soon as people caught on to this the protests were derailed by a culture war.

Edit: lets add another source that is not clearly left-leaning : https://www.oecd.org/economy/decoupling-of-wages-from-productivity/

On the first few reads I'm inclined to agree with your assessment. I will delve deeper later. This however is not good, speaking as someone who is about to join the corporate world.

What would you say about the strategy of simply trying to be lucky for the rest of your life? And why have you (seemingly) given up on getting lucky?

I'm fortunate and I'm lucky to have job that I consider "fulfilling". I just stopped chasing productivity to make myself a better worker, not that I don't want to become better to feel good about what I do. The thing here is that what I've given up on is very specific, I've stopped chasing productivity for my employers and starting to do stuff that I find interesting and where I can feel that I have mastery. Everything I do it is for me. I made move in my career to have a more general so I can be hired by a broader set of companies than doing hyperspecialized stuff that is only applicable for my employer and their competitors. Because of you becoming a better worker is benefitting your employer more than it benefits you. You'll just get more work.

Deflation can lead to what's called a deflationary spiral, essentially a reverse bubble: https://en.wikipedia.org/wiki/Deflation#Deflationary_spiral

Essentially, if you expect your money to be worth more in the future, than you won't spend it now. This is a reduction in demand, which reduces prices--which further leads to faster deflation. You won't invest it, either: You can risklessly make money by putting cash under your mattress. This has a similar effect, and also reduces future real productive capacity. It can even lead to bank runs, as mentioned in the wikipedia article, since there's no reason to have your money in the bank.

It's very, very hard to flip from deflation (prices falling) back to inflation (see Japan for the last 33 years). So approximately zero central banks will allow any amount of deflation without drastic actions. Prices are never coming down.

Does that mean buying yen is a good investment?

No, because interest rates usually offset any gains you would get from deflation, maybe 30 years ago when expectations were moving.

For various reasons, mainstream economics focuses on keeping inflation at a low rate, rather than trying to deflate back to some specific price point. It is more likely that this will be resolved through wages growing and catching up with prices.

I know close to nothing about econ, but I always hear deflation talked about as if it's this terrible thing.

My layman's understanding is that deflation is considered very bad because it often goes hand in hand with economic contraction or recession.

My understanding is that deflation causes perverse incentives for businesses to not spend money (since investing in doing nothing now has returns).

This is bad for the economy, which requires continual activity to work. Slowdoans cause further slowdown, which compounds unto itself

Yeah, and it discourages consumer spending on big-ticket items, since consumers will wait until prices fall. Which leads to layoffs as inventories stay high. And layoffs further depress demand, etc.

it discourages consumer spending on big-ticket items, since consumers will wait until prices fall

The expectation of falling prices in the future discourages consumer spending on an item, but this is not absolute. And if a price is falling in the present, then that increase consumer spending. How these things work out depends on time preference, expectations etc.

There have also been periods of deflation without layoffs. The mistake people often make is to conflate deflation caused by falling nominal incomes (demand-led deflation) with deflation caused by rising production (supply-led deflation). The latter is not necessarily a problem.

The expectation of falling prices in the future discourages consumer spending on an item, but this is not absolute

Right. It is not absolute. That's what I meant when I said it discourages consumer spending on big ticket items. And of course it depends on how long deflation lasts.

The point is not that deflation will absolutely cause problems, but rather that deflation is very dangerous.

Yes, I think we more or less agree.

It can be helpful to think in terms of real interest rates rather than prices. Deflation lowers the real interest rate, and thus lowers the opportunity cost of (safe) saving over consumption. If the deflation is caused by a squeeze in demand, then it tends to cause an increased burden on borrowers, who must now pay back more (in real terms) with less. If the deflation is caused by rising supply, then the burden on borrowers rises, but so (on average) does their incomes.

Deflation in the near future, which I think is much more likely than people think (look at recent money supply growth) would be demand-driven, and potentially disastrous in the same way as the 2008-2009 deflation in the US.

Does anyone think that the current massively inflated prices will ever fall?

No, over many decades now the target of central banks is to keep low inflation nominally at but bellow 2% a year, it is in their explicit target. The reason has to do with problems for companies with deflation as they cannot cope with wages, the famous nominal wage rigidity graph. People hate wage cuts plus there are real costs associated with that such as menu costs (these are there even with high inflation). It is easier for economy to have low inflation so that when your wage does not adjust it will fall a little bit in real terms.

Now the inflation can be caused by two main effects: supply side and demand side. For extreme supply side issues imagine situation in Warsaw Ghetto during WW2 where people did not have access to basic things like bread, and they were forced to buy supplies from corrupt German soldiers for stashed jewelry and so forth. Demand side means just printing a lot of money like in Zimbabwe. In reality these two phenomenons are often linked - for instance in Zimbabwe the nationalization of agricultural land led to mass crop failures which increased the price of food, which the inept government decided to solve by printing more money in death spiral.

Now I am no expert, but the current issues are to large extend driven by "supply" issues. COVID had shown that relying on certain global supply chains specifically in China are not reliable so many companies are in the middle of restructuring this. There was also massive change in consumer behavior, we saw more online purchases but there is also huge shift toward remote work. This is huge shift in what is demanded and what is not. Ruso-Ukrainian war had real impact on food market, this then has more second degree effects - in some poor countries people use their budget now almost exclusively on food, so there is nothing more to spare on other goods and services. We see uneven effect with food un USA increasing 10% and 11% in 2021 and 2022 which is higher than other goods.

I think there probably is a way to provide substantially cheaper goods and some services by consolidating retailers, wholesalers and domestic logistics into not-for-profit cooperatives who sell staple goods on an annual subscription model, and who use automation wherever they can. Currently, this entity would have to socially reward (exploit?) many intense thinking and working eccentric people who choose to perform free labor instead of pure compensation.

I think our supply chains are so efficient that their isn't much slack for this nonprofit coop to cut. Grocery stores have profit margins around 1 or 2%.

Wouldn't these non-profits quickly fall into the same morass as existing non-profits and government bureaus? Eventually, all the consumer surplus created would be sucked up by waste, especially in the form of excess compensation.

Witness, for example, the stupendous growth in Wikipedia's budget:

https://en.wikipedia.org/wiki/Wikipedia:Fundraising_statistics

Staple foods are pretty cheap already. If you buy rice at $19/8kg (found at Costco.ca), it would cost $484.29 to eat 2000 calories of it every day for a year. Basic pasta is about 1.5x the cost, and ground beef ($5/lb=1000calories) or frozen veggies ($2.7/kg=588 calories) is ~7.5x. A basic diet of 50% starches, 25% meat, 25% vegetables would be just under $2000/year at my current grocery store prices, or roughly half of the Canadian average. There's not a lot of room to go cheaper than that.

Comparing 2008 and 2020 it seems like there's a clear policy choice whether an economic shock shows up as inflation or unemployment. In 2008 the bottom of the labor market took a massive hit, but people who kept their jobs could pick up assets cheap. In 2020 massive stimulus has kept the bottom decile of the labor market up and kept unemployment quite low, it created a surge in asset prices and has driven down real income for the top decile.

There's a top bottom trade off but it also seems like we should try really hard to do the right amount of stimulus. The deficit panic post-2008 kept the economy way under-stimulated, and the second round of COVID stimulus was probably way too much. There's also a lot of partisan politics that get in the way, Republicans really didn't want Obama to be able to stimulate. Biden campaigned on a bunch of stimulus because the Democrat can't do less stimulus than Trump. Some sort of pre-commitment to automatic stabilizers pegged to the unemployment rate seems ideal.

Is it just the Russia-Ukraine war that's keeping prices so high, or is it more than that, like aftershock from the pandemic, lockdowns, and COVID relief spending upending the economy? What's the best to hope for? If the war ends, is all we have to look forward to a reduction in inflation, meaning that prices will stop going up? Or is deflation a possibility, to bring prices back down to previous levels?

No. Oil prices are well below the start of the war. $69 now vs $90 in jan 2022, and inflation began to pick up in early 2021, a year before the invasion. The economy recovered too fast and sudden after covid. You have to remember in April-may 2020 it seemed like the end of the world...like 2008 crisis all over again + virus. The S&P 500 had lost a quarter of its value in three weeks, more than even after collapse of Lehman. And then in a heartbeat things went into crazy overdrive, with the nasdaq and S&P 500 doubling off lows in a little under 18 months. At the flip of the switch from dire straits to biggest asset boom ever. So nothing could keep up, such as supply chain, because the expectation was a long crisis, and supply had adjusted accordingly. We're still in the cooling off period. Even after factoring inflation, the S&P 500, Nasdaq still have real gains from Jan 2020. Maybe blame the fed for waiting too long to raise rates. Maybe blame Congress for not raising taxes. Some blame the stimulus, but I don't think this was it. The stimulus checks were small and a good chunk of it saved or used to pay down existing debts, yet it was expensive consumer discretionary items and brands that really did well post-Covid (it's not like a $1500 check is make or break when it comes to buying a $70k lifted truck or a $300k home remodeling).

But either either rate hikes or tax increases would still make people poorer, but through deflation instead of inflation. Given that recessions are always bad for incumbents, the political incentives are aligned in such a way as to promote short term gain until out of office, and then have the successor clean up the mess. Sacrificing home equity and high stock prices for cheaper groceries is not a good tradeoff if you already have enough to afford essentials.

but I always hear deflation talked about as if it's this terrible thing.

It all depends who you are. if you want to buy a home and have cash saved up, deflation is good. If you locked in low rate, then inflation is good.

I'm not sure how the answer isn't soaring corporate profits. Yea, the government is printing bullshit amounts of money for bullshit things, but corpo profits are higher every year.

The rich are eating us instead of the other way around.

Do I want deflation? Yes - eggs should be cheap. Bread should be cheap. Celery should be cheap. Apples should be cheap.

Do I want rent control? No ... ... But! We should be making way more money than compared to the increase in rent. I don't know the answer - the free market is kaput and I still fear the government more than corporations but it's getting close.

The American dream is done for who the American dream was supposed to be for in the first place. I'm glad IT workers are doing great, but fuck them, no offense I know a ton of them and they're fantastic people, but fuck them - the rest of us are being left behind.

This sounds like Elizabeth Warren style economic theory where greed explains everything we do not like.

But that would require greed to be a variable that just happens to line up with other economic indicators that are more plausible all on their own, and would entail that when the economy produces results we like it is because the hearts of the corporate grinches grew larger.

By my reading, grocery store profits simply aren't high enough to account for the differences in prices.

From here, Canada's top three grocers went from $25.13B -> $26.54B (+$1.32B) in combined revenue, while total profits went from $0.883B -> $1.0195B (+$0.1365B). Increases in profit accounting for 9.7% of the increase in revenue did raise the profit margin from 3.51% to 3.84%, but that's hardly problematic IMO.

Exactly. Grocery stores don't make vast profits. The market is very competitive, and even if they chose to run with no profit at all, it would only shave a few percent off your bill.

Do I want rent control? No ... ... But! We should be making way more money than compared to the increase in rent. I don't know the answer - the free market is kaput and I still fear the government more than corporations but it's getting close.

Rent has always been a bad deal. It has to be or else there would be no reason to buy a home. And landlords have to charge a lot to recoup costs and deadbeats. The higher upfront cost of home ownership is offset by saving money in longer run.

This is only an explanation if you believe corporations weren’t doing their best to maximize profits before. Do any of these soaring profit figures factor in inflation?

I'm not sure how the answer isn't soaring corporate profits.

If corporations could maximize their profits at their leisure with simple policy changes, it's awful convenient timing that they started right around when Covid hit, isn't it?

And let's ignore all the companies going under/declaring bankruptcy:

https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/us-corporate-bankruptcies-end-2020-at-10-year-high-amid-covid-19-pandemic-61973656

https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/us-corporate-bankruptcy-filings-hit-12-year-high-in-first-2-months-of-2023-74567693

Does that seem like maybe the causal arrow doesn't point the way you're implying?

The whole "corporate greed" explanation doesn't work because corporate greed has been a constant for decades, and massive inflation is more transitory and recent.

We need to examine what changed.

I would also note that there may be some weird timing effects, too. I've heard through the grapevine about companies who are doing major layoffs while also being about to post some record annual profit numbers. The profit numbers are heavily influenced by things that happened early in their fiscal year, but their projections for the next 6mo-1yr are bad (thus the layoffs).

Well that and that many clearly, CLEARLY overhired during a stimulus period.

So the layoffs were inevitable as they adjusted to reasonable levels, but their projections for the next year are also going to factor in to how sharp the layoffs are.

In my view, they hired indiscriminately in hopes of capturing and identifying some valuable employees that they would attempt to keep in the long term when revenues were down.

Are any of those corporations the companies that actually matter, though? Certainly not any Fortune 500 biz, I bet.

You tell me.

https://archive.is/otz2K

It sure seems like a particular kind of company is seeing record profits while many others (e.g., airlines) are struggling mightily.

This only applies to the US, which can create wealth seemingly ex nihilo. other countries print tons of money or embark on monetary easing and either nothing happens , or their currency crashes = loss of wealth, negative real growth, etc. Keynesianism only works in the US it would seem, and Robert Barro is right everywhere else, particularly emerging economies.

If I have a fixed long term contract to sell oil at $X and there's suddenly inflation, am I not equally screwed? There's a danger in the stability of fixed long term contracts going both ways.

Say the price of energy fell, that would cause deflation. Energy is used to make nearly everything and run every business. Why should energy getting cheaper be bad? That would be a good thing, lower costs for everyone, more money to buy other things, more production! Machinery should be improving, we should have widgets that can make more steel or cars with fewer inputs.

Investopedia suggests that deflation is bad in so far as it pops bubbles:

However, under certain circumstances, rapid deflation can be associated with a short-term contraction of economic activity. In general, this can occur when an economy is heavily laden with debt and dependent on the continuous expansion of the supply of credit to inflate asset prices by financing speculative investment, and subsequently when the volume of credit contracts, asset prices fall, and speculative over-investments are liquidated.

That might be bad for those flying high on printed money but it's not necessarily bad for the economy in the long term. Deflation as a result of Depression is another matter. Putting deflation to one side, we can see how people might pull out from investments if the economy is crashing, worsening the crash. But if deflation comes as a result of rising productivity, the economy should be growing and there shouldn't be a problem.

Through a more conspiratorial lens, the power of central banks is that they print money. The more money they print (up to a point) the more power they have. When they print money, they redistribute wealth from productive industries and savers to their buddies in the government and financial sector. If the money supply needs to grow, there should be fair rules about how it expands and a cost for expansion. Either dig out gold from the ground or mine bitcoin or whatever, just don't have a system where a single well-connected body can print as much as they like arbitrarily.

Deflation is good actually, as long as it's from increased productivity, not a giant fall in demand due to the collapse of an asset bubble, which are usually propped up by reckless monetary policy.

Through a more conspiratorial lens, the power of central banks is that they print money. The more money they print (up to a point) the more power they have.

Central banks exercise power through monetary policy (which, btw, is a lot more than "printing money"). They exercise that power when they decrease the money supply as well as when they increase it. So it is false to say that the more money they print, the more power they have.

When they print money, they redistribute wealth from productive industries and savers to their buddies in the government and financial sector

The exact opposite is true. Increasing the money supply causes inflation, which harms lenders, including banks, by reducing the real value of outstanding loans. If anything, central banks have a bias towards keeping the money supply low, not high.

Over the last 20 years, the money supply in the US has gone up enormously, whether that's M1, M2 or M0. Money has clearly been printed and in great amounts: https://tradingeconomics.com/united-states/money-supply-m0

Increasing the money supply causes inflation, which harms lenders

Consumers are hurt the most. Those who control assets (the financial sector, amongst others) benefit.

  1. I don't know why you are saying things like "money has clearly been printed ... in great amounts" given that coins and currency make up a tiny percentage of the money supply.

  2. In any healthy, growing economy, of course money supply is going to grow, because in a healthy, growing economy businesses borrow and invest at high rates, and borrowing money creates money. Thus, the fact that the money supply has grown says nothing about Fed policy, esp since all that growth came while inflation was (around 2 percent across that 20 year period)[https://www.usinflationcalculator.com/inflation/historical-inflation-rates/]. And, of course, as soon at inflation accelerated, the Fed started taking steps to reduce the money supply. Clearly, the claim that central banks always increase the money supply in order to enhance their power is wrong.

  3. Just because consumers are hurt by inflation (and of course any consumer with a fixed rate mortgage is helped, at least in part) does not mean that the financial sector is helped.

Central banks have a long history of prioritizing fighting inflation over fighting unemployment and they would not do so if inflation is good for their "friends".

That’s why you hedge against inflation and hedge against forex as routine business practice. Even medium sized businesses do this because it enables financial planning. It’s insurance, but for money.

there are few good hedges except maybe a long-term fixed rate mortgage. You want to take out a lot of debt if you think inflation will rise. Cash, ironically, is a good hedge, only because other assets tend to do worse or low correlation. In the longer-run cash does worse for obvious reasons, but short-term it is the best hedge.

Moreover you're always better off not consuming now and waiting for later when your money goes further.

Whatever happened to economists discounting future value? Many people are riddled with debt because they absolutely need the latest Iphone or a shiny new car. Why would they consume less and hoard money if products were going to get slightly cheaper next year? We do not have a problem with people hoarding money, quite the opposite. And why hasn't this happened in electronics, where the price of memory or processing power falls very rapidly? People have things they want to do now and they'll pay money to do it now.

so a business needs to show exceptional profit potential to find investors

They just need to promise any level of profit. A profit in a deflating currency includes the profit plus the deflation. The issue is deflation in a recession, only then do you have problems.

a crash in debt-dependent areas like housing and other big ticket items

It used to be that you didn't need to take on 30 or 40 year loans for the privilege of one day owning a house. It's good when products people need like energy, food and housing are cheap. Turning them into a debt-ridden investment product is harmful for most, beneficial to few.

To expand, the central bank prints money to buy government bonds, driving down the prevailing interest rate to a specific target.

The gains of low interest rates are passed on first to banks and well-connected investors who can tap into that low-interest capital. For much of the last decade we had a wide range of totally unprofitable companies backed up by cheap money, immense amounts of speculation. Or it goes directly to the irresponsible bankers who mismanage customer deposits and lose it in these great big bubbles. The bubble-bailout economy privatizes gains and socialize losses. And why should the government know what a good interest rate should be anyway? They routinely get it wrong, fuelling bubbles and then popping them.

To contract, the central bank sells government bonds it owns, driving up prevailing rates to a specific target,

How is this going to work when our economies are drenched in debt that we encouraged with constant inflation? Raising interest rates means imposing more stress on a fragile housing market (effectively raising the price of houses still further by increasing repayments), reducing the value of houses (since we made them into investment products that are bought and sold with borrowed money), lowering demand and costing governments more in interest on the absurd amounts of money they've borrowed.

Many people are riddled with debt because they absolutely need the latest Iphone or a shiny new car. Why would they consume less and hoard money if products were going to get slightly cheaper next year?

Not everyone behaves the same way, but even your average middle-class would-be homebuyer is probably capable of realizing what deflation means for their mortgage, to say nothing of the huge amounts of capital controlled by profit-maximizing institutions and their legions of finance professionals. The latter are certainly capable of doing basic arithmetic.

They just need to promise any level of profit. A profit in a deflating currency includes the profit plus the deflation.

The problem is it also includes the risk of failure and, most likely, the inability to redirect your investment. Sitting on cash during deflation is close to risk-free and is completely liquid.

It used to be that you didn't need to take on 30 or 40 year loans for the privilege of one day owning a house. It's good when products people need like energy, food and housing are cheap. Turning them into a debt-ridden investment product is harmful for most, beneficial to few.

I agree, but discouraging anyone from ever taking on debt using deflation isn't the way to solve this--improving housing supply is.

The bubble-bailout economy privatizes gains and socialize losses. And why should the government know what a good interest rate should be anyway? They routinely get it wrong, fuelling bubbles and then popping them.

This is a valid argument IMO, but it's an argument for not having government run the currency at all, not for deflation.

(effectively raising the price of houses still further by increasing repayments), reducing the value of houses (since we made them into investment products that are bought and sold with borrowed money), lowering demand and costing governments more in interest on the absurd amounts of money they've borrowed.

How can the price of houses go up while their value goes down? The housing and mortgage market is fairly broken, but as above this is a housing supply issue more than a monetary policy one. You mentioned above that things like food should be cheap--the same is true of housing, but we've been pretending it's an "investment" rather than a consumable good. No monetary policy will fix these issues.

Whatever happened to economists discounting future value? Many people are riddled with debt because they absolutely need the latest Iphone or a shiny new car. Why would they consume less and hoard money if products were going to get slightly cheaper next year?

First off, these people aren't buying anything like that on credit during a deflationary spiral because the banks are worried enough that they'll be able to pay off their existing debt (which is worth more now) let alone buy something now that's going to be worth less in a year. In a recession, luxuries and positional goods are usually the first sectors to take a hit. Second, this kind of spending has a relatively small impact on the economy at large. A bunch of idiots buying iPhones they can't afford is a drop in the bucket compared with a business that cuts back on purchasing after the financial people tell them that they can save 5% if they can hold out another 6 months, which they can because nobody is ordering anything anyway.

And why hasn't this happened in electronics, where the price of memory or processing power falls very rapidly?

Because that's the result of increasing productivity and not of processing power. If the price falls because the company is able to produce it for a lower cost and passes on the savings in a competitive market it's much different than if the company is forced to sell the product for below cost because the market is unwilling to pay the price the company anticipated due to a drop in the money supply.

The issue is deflation in a recession, only then do you have problems.

Any significant deflation almost always accompanies a recession. We had slight deflation around 2015 but few people noticed. If we had the kind you could notice we'd be in a recession. When prices go down companies can't get as much money for what they sell. Some companies may be able to hang in there as normal but others are going to be more sensitive to the market and will have to cut fixed costs somewhere. If the company has debt that's a fixed cost that's not easy to get rid of. It's much easier to either cut pay or, more likely, lay people off. And layoffs and pay cuts across wide swaths of the economy mean that consumers can't afford to buy goods and services, which means further price decreases, and the spiral continues. SOme companies go out of business entirely, and accordingly, fewer people are willing to invest because the risk is too high. Hence, companies that are in trouble can't find investment capital to stay afloat and are more likely to fail. The cycle only ends after a bottoming out period, or with significant financial stimulus that may or may not be effective. Inflationary price increases are tough for consumers to swallow but they generally don't come with the knock-on effects of unemployment so the Fed tends to err on the side of a little inflation.

Hahahhh I feel your pain. I finally started making consistent decent money post-Covid and when I went to look at buying some of the luxury items I'd been looking forward to owning someday, I got massive sticker shock. I understand that prices tend to rise over time but one doesn't expect to see them DOUBLE, in some cases, over a mere three years.

Also, inflation 'rewards' people who took on lots of debt by devaluing said debt so I feel emphatically annoyed for taking pains to save/invest as much money as I reasonably could during the uncertainty of Covid times, when it seems like I should have racked up debt while interest rates were low. Although if recession hits that saved wealth might come in handy.

Honestly, I think the major factor currently pushing prices up aside from Covid spending is the ongoing labor shortage. Because whenever I go to price services the labor costs seem to be a driving factor in the price. Any construction job, food prep, or 'unskilled' labor (like lawn care or pool cleaning!) is just ridiculously expensive. Likewise, so many industries seem to be bogged down due to difficulty hiring enough people to fully staff up.

The inability to hire enough people to do the necessary work is going to have run-on impacts due to the drag on productivity. This ALSO creates upward pressure on wages but when there's literally not enough workers it puts a hard cap on economic activity.

Amazing to think that "FIGHT FOR FIFTEEN!" was a lefty mantra for raising minimum wage to a 'livable' level, then events transpired that made $15/hr pretty fucking standard in most areas as large companies get more desperate to hire.

The labor shortage was probably inevitable from generational effects.

That's my understanding, Covid just moved that timeline forward, a lot of people retired earlier than they might have, a lot died, etc.

Which is to say, no, the prices won't come down without some other large pressure coming into play.

Supply chain issues from covid lockdowns are (vague guess informed by a few papers) mostly gone by now. Inflation from stimulus or pandemic checks ... isn't going to go away, the money's still there.

That said ... assuming production stays constant, all the pandemic money has to go somewhere, all the extra revenue corporations get from increased prices has to go somewhere. Because "the capitalists are using inflation as an excuse to jack up profits!!" isn't true, that money will eventually translate to increased wages. But institutions are slow and transaction costs aren't zero, so wage increases will be slow and occur at uneven times. And that's already been happening. Inflation at a single time devalues your past dollars, but it can't simultaneously devalue everyone's future income -if we imagine future production is fixed and then distributed, all the 'value' is still there and will go somewhere. Intentional deflation probably isn't worth it for reasons others describe below.

Does anyone think that the current massively inflated prices will ever fall?

Prices/Cthuhlu only swim-up. The discussion around inflation in recent years is about how quickly prices increase—that is, the flow rather than the stock, the velocity rather than the position. In countries like the US, the annual price increase has generally been between 2 and 3%. Deflation (prices falling) is rare.

Due to the fact that much of my income is based on the company's stock

Hence why employees, especially start-up employees—if they can—should diversify their stock-compensation as soon as possible. Diversification is the only free lunch. You do not want to get diluted out much less end up holding the bag.

Hence why employees, especially start-up employees—if they can—should diversify their stock-compensation as soon as possible. Diversification is the only free lunch. You do not want to get diluted out much less end up holding the bag.

Oh, believe me, I do. At every vest, I immediate sell all of it, and then use it to buy index funds. The problem is that my company never gives in-year stock grants, so I'm vesting what I earned last year, which is now worth peanuts.

Inflation generally can't be undone. It can be slowed down, but trust me, you don't want deflation. Great depression 2.0 is a best case scenario of what that looks like.

And as far as what caused inflation, it was covid spending. Covid responses cost as much as a major war and were paid for through moneyprinting. This was completely retarded and we should have let her rip, but we didn't and now we're stuck with it. We are probably on, not a best case scenario with regards to inflation, but close enough to one.

Inflation generally can't be undone. It can be slowed down, but trust me, you don't want deflation. Great depression 2.0 is a best case scenario of what that looks like.

This depends on the cause of deflation. Deflation as a result of contractionary monetary policy sucks, like the Great Depression. With mild deflation caused by steady growth in spending + rapid GDP growth, the story is different:

https://iea.org.uk/publications/research/less-zero

Is it just the Russia-Ukraine war that's keeping prices so high, or is it more than that, like aftershock from the pandemic, lockdowns, and COVID relief spending upending the economy?

The war is bullshit copium propaganda. It's honestly pathetic to see it peddled as a reason by the MSM. Printing and then punching out trillions of dollars in stimmy as a bandaid for locking people in their houses is the primary reason for it and it's not even close.

I share your feeling of busting my ass super hard and treading water. My net worth went up $800 last calendar year despite making a great salary and making the correct financial moves (and of course that $800 was comparatively worthless to what it was a few years ago).

As a rule of thumb, prices don't go down. Inflation is caused by an increase in the money supply. In this case it's caused by the fact that a number of major governments decided to spend several years printing money like there was no tomorrow, and then tomorrow came. The only way to undo that would be to round up all the money they printed and destroy it. They would never do that, so it won't happen.

If inflation stabilizes, wages might eventually rise to match prices.

Inflation is caused by an increase in the money supply. In this case it's caused by the fact that a number of major governments decided to spend several years printing money like there was no tomorrow, and then tomorrow came.　The only way to undo that would be to round up all the money they printed and destroy it.

MV = PQ

Possible explanations for inflation include money supply growing, the number of exchanges increasing, and/or the economy shrinking. If the money supply increases apace with the economy, no inflation will occur. If the money supply increases slower than the economy grows, deflation will occur. And "money supply" includes not only greenbacks, but money lent into existance via fractional reserve banking.

You are correct that the fed will not allow this to happen, but it's not because they'd have to physically round up and destroy greenbacks to cause deflation.

Inflation is caused by an increase in the money supply. In this case it's caused by the fact that a number of major governments decided to spend several years printing money like there was no tomorrow, and then tomorrow came.

I agree that's a likely culprit, and I hated the crazy COVID spending, but is it the only culprit? Prices went up around the Russia war, and everyone said that much of the price rise was due to supply chain problems. Like, because gas was so much pricier, it impacted every good that requires gas to transport. Couldn't that cause massive price increases irrespective of how much money supply there is?

Money supply went nearly vertical during Covid, increasing by about 30%: https://fred.stlouisfed.org/series/M2SL

Things like covid and the Russia-Ukraine war probably slowed the US's return to its long-term trend of production, and thus had some effect on inflation. However, you can explain the vast majority of inflation (as well as the slowdown right now) by what happened to the money supply:

https://centerforfinancialstability.org/amfm_data.php

Prices went up around the Russia war

I think the war was less of a cause and more of an effect. Putin chose to invade when he did because he knew the economic conditions would make it harder for the West to impose sanctions. The war did raise energy prices, but when people say things like "supply chain issues", they mean, "Manufacturer X, the world's only producer of component A, has a 6-month order backlog because of lockdowns etc. Manufacturer Y cannot produce component B without component A. Ford needs component B to make F-150s. -> Your local dealership cannot get F-150s and is selling the ones they still have for $10,000 above sticker price."

Deflation does solve price rises, but we haven't had it for so long that you've forgotten how bad it is.

The most famous deflationary crisis was of course the Great Depression. Imagine unemployment hitting record highs, nobody being able to find a place in society because investment has been so heavily discouraged that holding assets is the only rational thing to do. And nobody is starting any businesses.

Oh sure prices will be low, but you won't have any money to buy. I would predict a sharp rise in crime too. Idle hands and all that.

Classically, there are only two ways of lowering prices.

Increasing supply, which is only possible through productivity increases and out of question for energy and all it's derivatives at the moment.

Or lowering demand, which means reducing the amount of things people consume or reducing the people, one way or the other.

Monetarist takes on it revolve around the size of the money supply, and reducing it in this case, by a sharp rise in taxes and all other mechanisms that allow the government to take money out of circulation. So austerity pretty much, more taxes, less services.

The current approach by the Fed (and therefore everyone) is to raise interest rates, thereby discouraging monetary creation and hope that we can return to the more reasonable 2% inflation rate and hope that the best part of the price increases doesn't "stick".

But nobody sane would ever advocate for sustained deflation because it's politically untenable, especially in a nominal democracy.

Tax hikes and austerity are a political loser, hence why they are so uncommon or limited

What is this place?

This website is a place for people who want to move past shady thinking and test their ideas in a court of people who don't all share the same biases. Our goal is to optimize for light, not heat; this is a group effort, and all commentators are asked to do their part.

The weekly Culture War threads host the most controversial topics and are the most visible aspect of The Motte. However, many other topics are appropriate here. We encourage people to post anything related to science, politics, or philosophy; if in doubt, post!

Check out The Vault for an archive of old quality posts. You are encouraged to crosspost these elsewhere.


Why are you called The Motte?

A motte is a stone keep on a raised earthwork common in early medieval fortifications. More pertinently, it's an element in a rhetorical move called a "Motte-and-Bailey", originally identified by philosopher Nicholas Shackel. It describes the tendency in discourse for people to move from a controversial but high value claim to a defensible but less exciting one upon any resistance to the former. He likens this to the medieval fortification, where a desirable land (the bailey) is abandoned when in danger for the more easily defended motte. In Shackel's words, "The Motte represents the defensible but undesired propositions to which one retreats when hard pressed."

On The Motte, always attempt to remain inside your defensible territory, even if you are not being pressed.


New post guidelines

If you're posting something that isn't related to the culture war, we encourage you to post a thread for it. A submission statement is highly appreciated, but isn't necessary for text posts or links to largely-text posts such as blogs or news articles; if we're unsure of the value of your post, we might remove it until you add a submission statement. A submission statement is required for non-text sources (videos, podcasts, images).

Culture war posts go in the culture war thread; all links must either include a submission statement or significant commentary. Bare links without those will be removed.

If in doubt, please post it!


Rules


Recommended Posts And Communities

Recommended Realtime Chats