cost push inflation.

  • Thread starter Thread starter morganist
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Agree, these things are becoming increasingly more complex in today's global political economy.

There's an interesting article that I remember reading about this which, essentially, suggests that the job of central bank is hopeless, almost by definition. The idea is that according to Ashby's Law (aka Law of Requisite Variety) the regulator of a given system has to be at least as complex as the system itself to achieve control. Needless to say, there's abundant evidence (not obvious) to suggest that, for example, the Fed's mechanism of regulating the economy has nowhere near the complexity of the economy itself. This may account for the problems we find ourselves in now and also might suggest that the Fed's mission is inherently futile.

However, these are all theories and there doesn't seem to be an alternative. A bird in hand and all that...
 
Quote from Smart Money:


But "cost push" inflation, is actually stagflation. Like if the price of oil goes up, product manufacturers dependent on it must raise their prices to cover costs. The consumer is "pushed" into paying higher prices.

SM
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That stagflation concept is the only valuable item here.

This happens because the real cost of a particular resource has risen. Many things could cause this to happen.

Only resource depletion, reduction in quality and reduction in output pose a real threat to markets and economies.

It should be during this times that we would have real economic crisis, not finance (fictitious) crisis.

Think of oil.
 
Quote from RiceRocket:

Inflation/deflation of any asset is directly controlled by the availability of credit for that asset. The money supply itself is not the originator of inflation. Maybe in a non-credit based monetary system, but not in this world.

The amount of leverage available to purchase an asset lures speculative behavior, which allows for asset bubbles. Given enough time, with high leverage ratios, and low cost of the credit, inflation will emerge.

In the case of the current US financial system, banks had 30 to 1 leverage, which collapsed the US economy when the rug was pulled out by foreign investors. This collapsed almost every asset bubble within the economy. The federal reserve came in and supported asset prices by providing credit to banks for free essentially. The resulting actions have reflated paper assets within the economy.

Once the banks have recovered all their losses from this new free credit, they will begin to lend to the real economy, to reflate the real economy's asset prices.

But as of this moment, we have only seen paper assets rising, with massive deleveraging still happening.
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Not really my friend. I believe morganist provided you with a good explanation.
 
Quote from achilles28:

Lol!!

Crack a textbook, friend...
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A textbook he says...........it seems you are only able to crack textbooks.................would you dare to write your own textbook???

Go outside the box if you wanna learn more. I already got plenty of useless textbooks.
 
Quote from achilles28:

This is all macro 101.



Look up supply and demand curves under neo-classical on wiki, if interested. Or, better yet, buy a macro 101 book from a good university book store and read the whole thing, cover to cover.
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See?? You just got ECO-101.

I already passed ECO-610. I am now in the proses of learning about more logical economics, like mises and friedman. I am sick of math being called economics and the stupid scientific method.
 
Quote from Martinghoul:

Agree, these things are becoming increasingly more complex in today's global political economy.

There's an interesting article that I remember reading about this which, essentially, suggests that the job of central bank is hopeless, almost by definition. The idea is that according to Ashby's Law (aka Law of Requisite Variety) the regulator of a given system has to be at least as complex as the system itself to achieve control. Needless to say, there's abundant evidence (not obvious) to suggest that, for example, the Fed's mechanism of regulating the economy has nowhere near the complexity of the economy itself. This may account for the problems we find ourselves in now and also might suggest that the Fed's mission is inherently futile.

However, these are all theories and there doesn't seem to be an alternative. A bird in hand and all that...
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The world, specially the United States of America, were able to do business and economies grew without the mighty watch of central banks.

The macro concept was born out mediocre people like Keynes who wanted to simplified things for themselves.

IT IS GOOD TO PLAY "COMMUNIST" WITHOUT BEING ONE"

Yet they dont learn. Cuba, USSR, China, Korea..............speak from themselves.
 
Quote from achilles28:

This is all macro 101.

The convexity and shape of the demand and supply curves are defined by theory of credit and supply.

A shift in the demand curve rightward (from increased credit - lower rates etc), creates a new equilibrium point for national income (higher) AND price level (higher = inflation). Why price level? Producers employ furloughed, higher-cost equipment to meet demand and use overtime, primarily (capital and labor).

These are primary affects from a demand-side shift.

The confusion here surrounds what constitutes supply-side effects from a demand shift and what constitutes supply-side effects from a supply side shift.

Supply side shifts are otherwise coined supply SHOCKS, when labor, capital, or notably energy, go through the roof for some exogenous reason (war, embargo, shortage) other than credit and devaluation.

Whats difficult to tease apart is the dynamic between demand-side only shifts that eventually lead to a supply shift (mini shock) rightward. As huge liquidity pushes demand and producers strain to meet output, those producers increased finished goods cost become a NEW FACTOR INPUT COST for the next chink down the chain (manufacturer), and a right-ward shift does occur.

Look up supply and demand curves under neo-classical on wiki, if interested. Or, better yet, buy a macro 101 book from a good university book store and read the whole thing, cover to cover.
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this is whole point i was making. i am fully aware of the basic eco 101 textbook answer but is the textbook correct. if you read my previous posts you will see that i state that there are two different definitions of inflation (probably more) with keynes and the monetarists. my point is that the monetarist explanation of inflation to not allow for full appreciation of the cost of living is not sufficient. it defeats the point of the inflation measurement which was originally used to measure the cost of living in a consistent manner to see whether conditions were adequate.

i fully understand that a supply shock is different from a monetary alteration i explained that in some detail if you read pages 2, 3, 4 you will see that. the point i make is that the supply aspects are not taken into consideration in the monetarist inflation figure, which defeats the point as they have an impact on the standard of living of people and the whole point of measurements is to gauge the living standard.

an example of how this affects the real world by denying the inflation figures of the supply side aspects the interest rate which is closely linked to inflation is not set at a level of sufficient return. effectively people will not be sufficiently reimbursed through saving in relation to the full devaluation of the currency as not ALL of the aspects that affect the cost and as a result the standard of living are included.

i would like to say again i fully understand all economic perspectives of inflation. the point i make is that the monetarist definition fails to meet the need of the society. this is not so much a debate on definition or understanding but on whether the terminology and practices are useful.

i would appreciate it if you would read the second page onwards of this thread. where i give a better explanation of debate and monetarist school of thought than you did.
 
Quote from morganist:

i am glad i got so many responses to this thread and that it is a divided response.

i would say from reading the comments though that although i understand the points made that inflation is purely related to money supply this is something that you have to take into consideration.

when the money supply changes yes it has an affect on the purchasing power of the currency namely deflation or inflation. the point made that a reduction in the amount supplied impacts on the ratio between goods and money supply is important. although it is due to supply and demand it in it self makes certain goods or the overall cost of goods more expensive. so although it is not necessarily what the current macroeconomic perspective would consider to be inflation it will have an affect on the affordability of goods that people can purchase.

this relative affordability is something that affects peoples lives and has to be recorded so whether it is inflation (a price rise due to money supply increase) or whether it is simply a shortage in the supply of the goods it has to be acknowledged as it has an impact on peoples lives. as it means that goods are less available to people and more of the currency has to be expended to attain the same number of goods than before the supply shift it has to be acknowledged as a form of inflation even if it is not technically inflation as it has an impact on the purchasing power of people in society. the whole purpose of the inflation measurement is to see how it affects people lives through the goods that they can purchase.

i will make one final comment. the concept of cost push inflation was devised by keynes who set the inflation rate as a way of measuring the availability of resources people could purchase with their income. the monetarists do not see the supply of a good as inflation not because it is not something that impacts on peoples lives but because they believe it to be related to money supply, which in its own way is correct. it is as a result of supply shifts not the alteration of money supply.

my point being neither is incorrect they are simply different definitions of the term inflation. the keynesian definition is related to the purchasing power of individuals relating to the affect supply of goods and the money supply has on peoples lives. the monetarists on the other hand believe inflation is merely the quantity of the money supply and reductions in the availability of goods supplied is a supply shift and if it impacts on peoples lives it should not be considered a form of inflation.

my view is that the keynesian definition of inflation although not necessarily the correct understanding is the more useful in providing standard of living, which is in my opinion the reason the inflation figures are collected. i will continue to use the term cost push inflation even if it not correct because it is a way that something that impacts on peoples lives can be described and should be recognised.

is that a good answer?
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this was my post on page 2. note how i explain what you did and went further by stating that although i appreciate the logic behind the monetarist perspective i feel that it does not meet the requirement of society.

my understanding is not limited to eco 101 nor is anyone else here we understand it. the point is, is the monetarist definition actually useful.

you have completely missed point of the argument.
 
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