M
morganist
read my posts then.
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read my posts then.
Back off, Mary.
Quote from morganist:
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.
You're discussing two separate things.
#1 The existence of cost-push, or supply shock inflation, as addressed in your OP and title. To which I affirmed yes.
#2 The inadequacies of the contemporary definition of inflation which excludes food and energy and incorporates hedonics - largely supply-side factors - which contribute overwhelming to street-level inflation. This point was elucidated later in the thread and I never read it. Hence, why I didn't respond. But, yes, contemporary measures of inflation are bullshit, and designed to benefit debtors of fixed-income securities/commitments (ie Government), and maximize economic output by keeping wage-push inflation from taking root. By keeping joe sixpack ignorant as to real inflation, Blue Collar American can't demand raises en masse and curb output. The inflation reporting game is really a white-wash for artificially low rates. The FED buys an ever growing majority of debt to suppress rates which fuels an explosion of debt products/securities (Bankers/IB's love it), finance mountains of Government pork (Government loves it). Then when its time to "pay the piper" via honest reporting, they pretend inflation never happened so the Government ponies up half what it should in fixed-income/weflare/SS. Business owners love it because clueless employees never catch on and demand raises. Its a rigged game, and always has been. The rich sticking the poor.
Believe it or not, Morganist, us ET old schoolers have kicked around this topic at least 20 times in the past 5 years. You're not broaching anything new or "revolutionary."
M
morganist
Quote from achilles28:
You're discussing two separate things.
#1 The existence of cost-push, or supply shock inflation, as addressed in your OP and title. To which I affirmed yes.
#2 The inadequacies of the contemporary definition of inflation which excludes food and energy and incorporates hedonics - largely supply-side factors - which contribute overwhelming to street-level inflation. This point was elucidated later in the thread and I never read it. Hence, why I didn't respond. But, yes, contemporary measures of inflation are bullshit, and designed to benefit debtors of fixed-income securities/commitments (ie Government), and maximize economic output by keeping wage-push inflation from taking root. By keeping joe sixpack ignorant as to real inflation, Blue Collar American can't demand raises en masse and curb output. The inflation reporting game is really a white-wash for artificially low rates. The FED buys an ever growing majority of debt to suppress rates which fuels an explosion of debt products/securities (Bankers/IB's love it), finance mountains of Government pork (Government loves it). Then when its time to "pay the piper" via honest reporting, they pretend inflation never happened so the Government ponies up half what it should in fixed-income/weflare/SS. Business owners love it because clueless employees never catch on and demand raises. Its a rigged game, and always has been. The rich sticking the poor.
Believe it or not, Morganist, us ET old schoolers have kicked around this topic at least 20 times in the past 5 years. You're not broaching anything new or "revolutionary."
so you admit that i do understand eco 101 and more then. because that was quite insulting. an apology would be nice. to get the ball rolling i will apologise to you. i am sorry for insulting you it was a retaliation because you claimed i was a novice, when you had not read my previous posts.
anyway my point being that there are a lot of macro economist that do believe the current inflation bs.
although you and others here may understand that problem as do i. you may also of debated it before. however have you ever been in a position where you could influence politicians who believe the monetarist definition of inflation. i am guessing not.
i am in that position.
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?
There's not much to cover that I haven't already addressed.
Bernacke refers to inflation as fluctuations in price level. This is the Keynesian definition and a far better metric than, as you contend, money supply data used by the Monetarists. I would argue its more Austrians who rigidly define inflation via money supply measures.
If a basket of regular goods were tracked - weighted in proportion to the budget of an "Average" household, on an "Average" income - yes, monitoring price level fluctuations is a much better tool.
The problem is modern economics pollutes good data with bad to serve Agendas. This alludes to what Pascal said earlier in the thread and why academic debates are often fruitless because intervention, obfuscation and false reporting make it hard to discern the finer details, even with slam-dunk theory.
Quote from morganist:
so you admit that i do understand eco 101 and more then. because that was quite insulting. an apology would be nice. to get the ball rolling i will apologise to you. i am sorry for insulting you it was a retaliation because you claimed i was a novice, when you had not read my previous posts.
anyway my point being that there are a lot of macro economist that do believe the current inflation bs.
although you and others here may understand that problem as do i. you may also of debated it before. however have you ever been in a position where you could influence politicians who believe the monetarist definition of inflation. i am guessing not.
i am in that position.
Fair enough. I'm sorry for being rude, too.
Where do you live?
M
morganist
Quote from achilles28:
Fair enough. I'm sorry for being rude, too.
Where do you live?
thank you. to be fair it can get confusing when arguments show on different pages. so i understand why people don't read all posts.
i live in england in the south near london. i don't have any influence in america (yet). i have the ear of some one in most political parties here. i also had a taxation model sent to the ministry of finance in prague. although to my knowledge they did not adopt it. but at least the ambassador in england was impressed enough to pass it on. i have influence in other institutions too. the point is i do get listened to from time to time. but in general most politicians are ignorant. the reason i posted this thread was because i had a meeting with a top macroeconomist who as soon as i said cost push inflation pretty much stopped listening to me. it is his position that it does not exist, he is a rational expectations economist. unfortunately i might have to debate with him and have to prove him wrong to get anywhere.
one thing you will learn is that for anything to change you have to disprove monetarism. all of the think tanks, most politicians and most institutions think it is perfect model. things will not change unless it is disproved. some are switching to the austrian school of economics however, my fear is they will use the same inflation measurement monetarism did for the reasons you stated. i don't know if the politicians are trying to cover stuff up or not with that measure. what i do know is that they are woefully ignorant.
anyway thank you for your post.
From http://www.thegoldstandardnow.org/featured-articles/112-jp-morgan-to-accept-gold-as-collateral
J.P. Morgan to Accept Gold as Collateral
Gold hasn't reinvented itself as a currency yet. But it is getting closer.
J.P. Morgan Chase & Co. said it will allow clients to use the metal as collateral in some transactions. For example, a hedge fund wanting to borrow money for a short period can put up gold as collateral and use the borrowings to invest elsewhere, betting on making a better return. Typically, banks accept only Treasury bonds and stocks in such agreements.
By making the announcement, J.P. Morgan is effectively saying gold is as rock solid an investment as triple-A rated Treasurys, adding to a movement that places gold at the top tier of asset classes. It also is trying to capitalize on all the gold now owned by hedge funds and private investors that is sitting idle in warehouses.
J.P. Morgan to Accept Gold as Collateral
Gold hasn't reinvented itself as a currency yet. But it is getting closer.
J.P. Morgan Chase & Co. said it will allow clients to use the metal as collateral in some transactions. For example, a hedge fund wanting to borrow money for a short period can put up gold as collateral and use the borrowings to invest elsewhere, betting on making a better return. Typically, banks accept only Treasury bonds and stocks in such agreements.
By making the announcement, J.P. Morgan is effectively saying gold is as rock solid an investment as triple-A rated Treasurys, adding to a movement that places gold at the top tier of asset classes. It also is trying to capitalize on all the gold now owned by hedge funds and private investors that is sitting idle in warehouses.