Quote from Ed Breen:
Misthos, the process of inflation or deflation are in actuality entirely monetary. To understand them any other way is to conflate an overarching process with all the noise of idex price behavior.
Price change and inflation are different things. Price change is always taking place as you document to some degree in your last post, but these changes that arise from some technological discovery or supply demand imbalance always revert to the mean...albiet after some time and with some economic dislocation. Inflation or deflation on the other hand changes the mean that prices revert to over time.
Index measures are always reflecting the noise and prior monetary mistakes of the past, even conflicting mistakes, so that the index is rough indicator that does not accurately reflect what is happening currently. You have to look at both the index and the bond rates and the commodity prices discounted by long moving averages to sift through the noise and begin to see the trend as inflation or deflation.
To make such a change there has to be change in expectation about the future...about the likely future price of assets...and this expectation must rise to a consensus among individual economic actors. This is completely different than issues of supply/demand imbalance or technology advancing which would effect individual goods or sets of goods or in the extreme a sector or even a fundamental price element such as energy. Inflation requies an expectation of inflation by a consensus of economic actors such that they negotiate all long term contracts based on that new expectation...Do you see the difference, even a supply demand imbalance in oil will not effect the price of all things and it would be brought back into balance over time. The revealed truth of Moore's law does not change expectations about how to negotiate your next labor contract or long term lease.
Ed, as you may have noticed, I'm not much for conventional thinking here - and I lean towards the Austrian School.
Yes, if you look at QTM, then inflation is monetary. And in a prior thread you mentioned hitting one target with two opposing arrows as a characterization of what I wrote.
"The use of quantity of money as a target has not been a success... 'I'm not sure I would as of today push it as hard as I once did."
- Milton Friedman
As I said in my prior post - Economists, and Central Bankers in particular, have a linear, sterile view of the world. They are clueless, and when successful, disingenious about how they arrived at their "success."
I'm looking at price inflation/deflation, as well as monetary inflation at the same time. I thought I was pretty clear. Assets in my scenario benefitted from monetary inflation, and tech progress contributed to price deflation. So yes, you can have both - you can have monetary inflation and price deflation and vice versa. If we used pre 1982 metrics, then both unemployment and inflation would look entirely different, and we would likely call what we are experiencing a depression - due to high, double digit unemployment.
You seem to me to adhere to rules of economic theory (I guess a strict constructionist, black letter law type) - even when they have been politically manipulated, or changed to support a defunct theory.
And my point in bringing up tech/productivity progress is to show how politicians and central bankers distort the economy by using these "convenient accidents of history."
Will those prices, as you say, "revert to the mean?" Well, I remember once reading that as a percentage of one's salary, food costs these past 40 years are much lower than all of history. Farming was a brutal endeavor, but with the technological advances the past century and more significantly, the past 40 years... the world's population has skyrocketed. Interesting to note that central banking has also "thrived" in prominence during the era of technological progress and cheap, if not practically free energy.
A few other points - unionization is pretty much dead today if compared to its state decades ago. Unions were a de facto transmission mechanism for inflation. That is not the case today. And also keep in mind the "exorbitant privilege" enjoyed by nations, particularly the US, whose currency is held in reserves by others. One can "export" their inflation as well.
One could say that it is very difficult to hit a target if exogenous factors keep that target moving faster than the arrow.
My conclusion remains. Central banking detrimentally distorts economies, gets credit where none is due, and is the source of the worst business cycles and economic dislocations in history, barring natural disasters.
This 40 year old global fiat experiment will come to an end. By design or default, it will terminate. Hopefully by design. By default, to me, would mean the Keynesian Monetarists do not relinquish the steering wheel to a sound currency to the point of currency, and then economic catastrophe. Have they not hit enough icebergs? How much more damage can we sustain before the whole thing sinks? They are madmen clinging to catastrophic theories.
