I've wondered what the effect our modern digital economy has had on consumer price inflation.
Normally, an increase in money supply would cause consumer goods to increase in price, since more people are able to buy them and there is a limit on how much of any particular physical good is available.
This isn't the case, however, for digital goods. If there are suddenly 100 million new people who want to buy a Netflix subscription, it isn't like we are going to see the price of a Netflix subscription go up because there isn't enough Netflix to go around. The marginal cost for a new subscriber is practically zero, so there should be no price increase caused by a shortage.
It would be easy to see that inflation would be essentially zero if ALL goods people wanted to buy were digital ones... no amount of demand can eat up the supply, since supply is practically infinite.
Of course, in the real world, some goods are digital and some are physical. If you gave everyone $5000, some of that would go to Netflix subscriptions, which wouldn't effect consumer prices, and some would go to buying TVs to play Netflix on, which WOULD cause inflation.
I am curious how much of our current "low inflation even with an increasing money supply" is caused by our increasing spending on non-exclusionary goods.
>The marginal cost for a new subscriber is practically zero, so there should be no price increase caused by a shortage.
Yeah, I don't think that that argument works at all. The price does not increase due to "shortage", it increases due to an increase in consumers' willingness to pay. Going by the Netflix example, if Netflix realizes that not too many people will cancel their subscriptions if they were to increase the price by, say, 1 dollar, they would certainly increase the price.
Consumers' WTP is the reason why digital goods are priced differently in different markets. Many digital goods are sold for much cheaper in India compared to developed countries because the Indian market is much more price sensitive. For instance, Netflix costs only about half as much in India as it does in America.
It's also debatable that there are no costs associated with digital goods. If suddenly Netflix had a surge in subscribers and they doubled them over a short period of time, they'd have to invest in infrastructure to support the extra demand. That would cost them in hardware and human resoursces to handle the extra demand. But yeah, digital services have a better situation at meeting demand than physical goods of which, after the produced amount sells out, you have to wait for more to be manufactured, delivered, etc.
But the surge in revenue from doubling subscribers would (way) more than cover any costs in infrastructure spending. This would not drive any increase in subscription cost, which is purely governed by the competition and content acquisition costs, paired with whatever magic number the major investors/board decides is an acceptable profit margin.
A doubling in subscribers might need a trippling in customer service agents (especially if the new customers are not as good at tech and need more help, which goes along with being a late adopter or if the service quality drops because of the presumed doubled usage, and there's more service requests as a result).
If the doubled subscribers requires doubling the number of Netflix OpenConnect CDN boxes, that would mean current capex, and while the additional revenue might eventually pay for it, there might need to be borrowing costs to get the equipment sooner rather than later. Also, right now is a tricky time to get lots more hardware, so a 2021 node might cost more than a 2020 node, even if they have the same capacity.
All that said, without looking at their investor reports, I suspect they have some margin and cash on hand to make things work and mostly profit. They probably also have a target for spare CDN node capacity, because there's some pretty high variability of peak load on new releases and ISP install lead time can be super long. Also, they do a lot of efficiency work to make sure they can push as much traffic as possible from their nodes.
The infrastructure is physical though, and thus is of limited supply. If you really had to double your capacity quickly, you'd have to take the computing power from someone else, at a cost.
Every digital value chain ends up on something physical.
You have never tried to dig a new or more cables under the sidewalk or into the ocean, do you? What you kids think is "free" is in fact heavily subsidized by other people's money.
That’s an odd way to say India is way poorer, and there’s no way the avg Indian can afford to pay a US price for Netflix. People being price sensitive is only an additive effect on top of that.
It might sound an odd way to phrase things, but it was both more fine-grained and more meaningful than your rephrasing.
The average Indian earns less than 4 dollars a day. The average Indian still buys their shampoo in little 5ml sachets that cost 2cents because they can't afford the full bottle even though buying the full bottle would be cheaper in the long run. So, the average Indian definitely can't afford to pay the Indian price for Netflix either.
The average Indian is not the target market of Netflix or of any Internet business. All the talk of India being a market of a billion users is nonsense. Only the top 5 percent, maybe 10, of people in India have the disposable income for them to be a potential target customer for most businesses. For all intents and purposes, India is a market of ~50-100 million customers.
When I say that the Indian market is much more price sensitive, I am talking about this group of people, not the average Indian. The reason Netflix is priced half of what it is in the US is because this group of people are willing to pay that much for Netflix. The average Indian is simply not a relevant concern.
I wonder how that compares to the financial demographics of China? I had the impression they were bringing more citizens up into the lower-middle class, but I might have just uncritically accepted some spin.
It is not just about being "poorer", people in developing countries are indeed more price sensitive about technology services. They do not perceive the "value" of the product same as the west does.
The issue with the WTP argument is that Netflix isn't a singular good - there are many replacement goods (Hulu, Disney+, Prime Video) that push down the price via competition. The lack of raw materials makes this competition especially good at keeping prices low.
Now, if the oligopoly within video services (or anywhere else) would conspire to raise prices together - that'd be a different story. We've seen this in other digital goods. The Apple and Google anti-poaching agreements come to mind.
I disagree. I don't think that different streaming services are replacements of each other. It is inaccurate to think of them as mere "video services" (if they were even Youtube would a substitute which it clearly isn't). Their value is in the exclusive rights they have secured for different content. If a streaming service has an exclusive deal with any one of your favorite shows, you are pretty much going to have to buy it.
Speaking for myself, I have bought the subscription of at least four video services in India.
It takes time to produce physical widgets to meet demand, for manufacturers to scale, and then start benefiting from economies of scale.
With Netflix, a million people can sign up immediately, supply adjusts instantly and economy of scale is locked in earlier.
For digital goods you also have huge companies investing for the future. Your local hardware store need to continue to make a profit, whereas Amazon can absorb or push back on cost pressures for much longer.
I agree with OP that this must put upwards pressure on inflation of physical goods even if it’s a medium term thing.
There is much less ingredients in digital products that can be a shortage to give away more digital products. Compared to physical ones where capacities are much more expensive compared to the price of the product, I think the parent comment is basically right.
Of course there is chipageddon now, nothing is without physical. The point is the IP and customer service are the major cost drivers, not the property, the assembly line and the workers.
One more thing is also true: you can scale up/down really fast these days and for a fact at least this won't change your price as even your scale-down risks/impacts are much lower.
>Normally, an increase in money supply would cause consumer goods to increase in price, since more people are able to buy them
Not if the increase in money supply goes from the banks to the already wealthy (as cheap loans), which don't use the extra money to consume, but to invest, buy land, and fund small-competition-crushing rent-seeking endeavours.
Then the money supply increases, consumer goods remain more or less the same price, but some stuff like rent goes up.
2008 (or rather, the lead-in to 2008) was a different case.
In that case the lenders were the ones who were the problem, and the borrowers were indeed using the money as disposable income (well, at least, to buy a home and other consumer goods on credit).
Whereas today the money goes from the printers to the rich people - not the common folk.
>I am curious how much of our current "low inflation even with an increasing money supply" is caused by our increasing spending on non-exclusionary goods.
Not much? Based on the CPI weights given by the BLS[1] at least 82.238% of the CPI is from non digital goods. This is based on summing up the top level categories which are definitely not digital, ie. Food and beverages, Housing, Apparel, Transportation, Medical care. If you drill down into the remaining categories (Education and communication, Recreation, Other goods and services) and eliminate non-digital goods from there you can probably get that percentage even higher.
Yeah, that doesn't say how much of actual consumer spending goes into the goods that are included in the CPI. Even if the CPI were based 100% on non-digital goods, the percentage of purchases that go towards CPI goods could be falling.
Perhaps, but how much of a difference can that make? It's hard to imagine many people spending $100+ on new SaaS/digital goods because of the pandemic.
> Normally, an increase in money supply would cause consumer goods to increase in price, since more people are able to buy them
This isn't actually true, though it's a widespread belief (quite a number of pundits kept making incorrect predictions after the global financial crisis).
Where the logic goes wrong is that an increase in money supply doesn't automatically translate into higher disposable incomes. (And higher disposable incomes don't automatically translate to higher effective demand, though in practice they usually do if you the increase in income isn't extremely unequally distributed.)
You are right, not all money supply increases are equal. However, I have thought about this more in the context of proposals around UBI or other wealth redistribution ideas. The common complaint about them is around just what you talk about, that distributing wealth to poor people will increase disposable income and cause inflation from not being able to keep up with increased demand.
I wonder how much of that is true in our modern economy. Between our incredible latent productive capacity and the sizable chunk of our economy that consists of non-rivalrous goods, I wonder how much of the increased demand we could absorb without causing inflation to rise substantially. For example, how much would food prices go up if poor people had more money? We can produce a lot of food, and the demand for additional food is not limitless. Some of that money would go towards digital goods like Netflix and video games and other digital goods, which are non-rivalrous.
Of course it would have an effect on inflation, but I am just wondering how much.
Proclamations of certainty around UBI are common, but the only intellectually honest position is that we simply do not have enough empirical data to tell with a useful level of confidence how a UBI would affect inflation.
Also, I believe that the only way to collect that empirical data is to implement a UBI at a sufficiently large scale and see what happens.
There really is no reason why you wouldn’t be able to pair government intervention on the demand side (i.e. UBI) with government intervention on the supply side. Simply introduce quotas about supply (e.g. that shops cannot throw away more than 1% of the food they sell), and/or limits on non-productive assets (e.g. freeze rents & Netflix subscription). I’m sure there are many smarter interventions than I was able to come up in 30 seconds as wel.
I've spent a lot of time in volunteering for the food bank in my area and the local grocery stores generally give food away right before it goes bad. They're already incentivized to do this because we give them tax write-offs.
Welcome to the Soviet Union! They tried exactly that and failed spectacularly at it. Centrally planned economy simply does not work, it's a law of nature.
We are entering a Post Scarcity Economy. A lot of fiction books write about how this plays out. Regardless of what happens a lot of economic theory becomes less relevant.
It’s just the opposite. The essential goods needed for survival: shelter is becoming more and more Scarce. 34% of millennials can’t even afford their own shelter anymore and are forced to live with parents. Those who can live by themselves are paying over 40% of their income on shelter. There’s been a pretty dramatic drop in living standards here in the US over the last several decades
The fact that we can now afford ever more borderline useless apps, clothes and electronic gadgets doesn’t help much
Housing prices are not driven by scarcity, they are driven by financialization of our economy.
There are multiple cities in England where population has decreased but house prices increased. During lockdown 700k people left London, but house prices kept going up.
The Midwest US can assure you that they've definitely already tried this. We're literally mowing down every cornfield for housing here (I'm typing this from a neighborhood with thousands of units, 90% of all buildings here were built after 2012). It never works, prices are still at an all-time high, even for units on the market 6+ months or longer.
"Just building more" alone isn't ever going to lower prices enough to make housing affordable for most, no matter how many more units you build.
You have to decommoditize housing, or stop force-preventing natural depreciation, or at least put ownership caps on it, or some other thing in addition to the construction.
You can't say it never works because your definition of "works" is completely off base.
The population is continuously growing. We must build housing as fast as it grows to just maintain parity, and even faster to reduce prices.
Saying building new houses doesn't work to lower prices is like being in a boat taking on water and after throwing a couple buckets of water overboard saying "bailing out water doesn't work" because there's still water in the boat.
Unless you ban immigration and babies, you have to build strictly faster than new people arrive. Wealthily people with multiple houses are not the driving problem behind housing shortages.
People can afford a higher price at a lower interest rate, but in aggregate they're getting just as much house for their money. Why is that bad? Perhaps because prices will collapse later when interest rates rise? It doesn't seem like an affordability problem exactly.
- A bunch are staying un-bought and remain empty. (The bottom of the market is closing in hours, the top of the market is sitting for months)
- A bunch are technically getting occupied, but buyers are having to go way beyond their means to get them. (2008-style, except it's not their fault, you have to live somewhere or die, and you can't manufacture used housing, so it's hard to fault them for taking on risky mortgages. There simply isn't cheaper options)
- A bunch are getting bought and turned into luxury rentals, and those rentals are getting occupied. (This might seem like a win, since the end result is people-in-housing, which should be a good thing. But forcing people into unaffordable rental rates permanently hollows out those people's finances, it's super unhealthy unsustainable housing strategy)
- A handful are getting bought and getting turned into illegal unlicensed hotels. (Permanent "Air-BnB-s").
- A bunch are getting bought and stay empty. (According to local realtors, "second-home" purchases are up 300% since 2019. Generally, this is wealthy or upper-middle-class coastal urbanites realizing the currency conversion between the coasts and the midwest, and using that to their advantage)
Individually none of these are the worst thing or the primary culprit. But added all together, it means that "real people buying houses to sustainably live in", is the least likely scenario for any given home on the market right now here. "Demand" is super high, but most of the "Demand" is kind of fake-demand (demand from finance, demand from investment, demand for vacation -- but not demand for housing to house people).
> Where are all the people coming from?
They aren't coming. House prices are up 250% this decade, but we've only got a ~1.5% YoY population growth rate (for our city) and a 1% population loss YoY (for our state). We aren't a major city, and we've built more new housing units than had actual new population for 5 years straight now.
But isn't this creating a house of cards? Or are we heading towards China, where there are in many cases more apartments than people and yet prices have never fallen in the last three decades.
If a large fraction of the dwellings are truly unoccupied then it is a bubble plain and simple.
If it's just a matter of out-of-state money willing to pay a high price to own houses that they can then rent out for a high price after cornering the market, then it's less clear.
Housing supply hasn’t decreased in london, but demand has.
Housing costs are driven by what people will pay, which is driven by salary, there’s always an option to not pay for housing in london - housing in Stoke is cheap, and not much further commute from Bloomsbury than say surbiton. Places like Luton are cheap and are a very respectable commuting distance, but people will pay far more for a house in Hackney
What people will pay is not driven by salaries, it is driven by how much bank will lend.
If tomorrow the banks offer a 1000-year loan you can pass on to your children, people will take it and single-bedroom apartments will cost 50 million plus.
California has a lot of cities with 70%+ single family zoning and housing prices are exploding there in terms of monthly payments for mortgages or renting.
I'm not convinced that there's been a dramatic drop in living standards in the US over the last several decades (or that, where there has been, it's not mainly a matter of individual choice).
Think about life in the USA 70 years ago:
Do we think that much fewer than 34% of 20-to-30-year-olds lived in multigenerational households? The average square-footage of new homes more than doubled between 1970 and 2015.
Certainly people spend far more on healthcare, education, and transportation now than then. But aren't those goods and services that were simply not available at all to a large fraction of the populace? 10% rather than 30% of people went to college. Most conditions for which people seek medical treatment now probably went untreated.
So many people in 1950 eked out their existences living in a multigenerational house with a single bathroom and no car. Never traveling out of state or experiencing middle-class city culture. Walking a mile to work or performing farm labor more than 8 hours a day. The world is very different today, but it's not at all clear to me that living a comparable lifestyle is not an option for most people today.
If you believe that post scarcity is possible at all, you might consider that space colonization is also possible, but that brings about new significant requirements and needs that our economy will have to meet. Personally I think our civilization's ambition needs to expand so that happens. If we are still putting the "American Dream" as a goal when that can be built and satisfied cheaply by automation, then our goals need to change. A post scarcity economy would be able to meet today's American Dream easily and with little trouble, and yet we can't shake the mindset that you have to earn it because that makes it mean more or something.
Oh I'm not saying we force people to do space jobs or livings, only that it should wayyyyy more accessible and common than it currently is and certain sectors of the economy will need to support that. It gives us more of what we can't realistically create on Earth, which is more land.
The American dream is a challenge for people now. If we advance to where it's no longer a challenge because the pieces of that are plentiful and cheap and is given to everyone by virtue of existing, then we need a higher challenge because we've essentially "solved survival on Earth" and must now expand. IMO it's way better than just becoming an economy that focuses on producing luxuries or inventing new financial gadgets.
>Post-scarcity does not mean that scarcity has been eliminated for all goods and services, but that all people can easily have their basic survival needs met along with some significant proportion of their desires for goods and services
The premise for the linked paper, "The Post-Scarcity World of 2050-2075", that "This convergence of peaking production is likely to lead to an age of scarcity. And yet that age of scarcity is unlikely to herald the end of the world. So what lies beyond scarcity?" makes no sense to me, although I have yet to read the whole paper.
Like, yes, we are depleting the Earth of its resources, leading to scarcity, but then that will end because the Earth will be out of resources, therefore we are post-scarcity and everything is free or nearly so? No sense whatsoever.
I think I can guess what the paper is about, that technology is going to develop that will save us from exhausting resources, but we're already inching pretty damn close to various tipping points that will lead to some really terrible things happening with various ecosystems and things are going to have to get a whole lot worse (and a lot of people are going to die) before we even can attempt to go back to some sort of eventual equilibrium. And tech is nowhere close enough to saving us from a good chunk of it.
So yeah, I guess there could be a 'Post-Scarcity World', but only for the fraction of life that will survive to see it (maybe none of that life being human at the rate things are going).
What I will write probably wont be a popular opinion, but I completly disagree that we enter post scarcity.
Post scarcity perhaps exists in some richest parts of selected countries (California? Hamburg?), but even in those places it is often just an illusion. Roads still have potholes and there are homeless on streets. Schools still struggle with supplies. There are also people who work, but whose work does not allow them to get a real place to live, or health services. Then there are other things that are difficult to measure: for example overworking, or drug addiction, which perhaps dont mean scarcity of goods, but seem to be connected with scarcity of services or scarcity of quality of life.
People from the rich countries consume more natural resources than the few billion in developing, or third world countries. What happens now is already completely unsustainable and causes multiple problems: global warming, loss of natural habitats, dying species...
There are billions of people in Africa or India, who dont consume even 10% of the resources that an average American consumes - but they sure as hell would prefer to get to that level.
I imagine that it is easy to make comments about post scarcity when you live in some mega-rich bubble in California, but this is not true even for USA, not to mention the rest of the world.
People in poor countries dont have cars YET and they sure want to drive those big trucks that drink a lot of fuel per mile. But where will this fuel come from? And where does the CO2 go?
And in my opinion inflation is a result of incompetence, of planned policy by central banks to make the rich richer, while the rest to gets poorer. As much as I dont like bitcoin (multiple reasons, economical, unsustainable in real use..), it is right with one thing: the supply is known in advance and finite. We currently live in a time where money is printed out of thin air to save the too-big-to-fail banks and to pump the stockmarket prices, so rich dont lose anything. All of this at the expense of the middle class. The poor already dont have anything. And the middle class is shrinking: from one side those are the only ones who pay taxes, from other, those are the only ones who dont have real tools to defend against inflation.
I mean, of course you will write that one can gamble on the stockmarket, but weren't saving accounts supposed to be the thing for those who are risk averse? I mean, if someone from middle class gambles and loses you will write that it is their own fault. If they dont gamble - and put money on a savings account (so lose money) - also their own fault.
Currently the central banks create inflation higher than interest on saving accounts, what in my opinion is a very big problem. Since the central banks entered the cycle of bailing out bubbles, more and more money will be created: new and new bubbles will have to be bailed out.. and as I said, at expense of the middle class. Who just get screwed by inflation.
>And in my opinion inflation is a result of incompetence, of planned policy by central banks to make the rich richer, while the rest to gets poorer.
You got this backwards. The central bank is planning to make the poor richer, but as a result of incompetence inflation never hit the 2% target. If the central bank did nothing things could be even worse than they already are.
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>Normally, an increase in money supply would cause consumer goods to increase in price, since more people are able to buy them and there is a limit on how much of any particular physical good is available.
Computers and other electronics are cheaper than ever on a real and absolute basis despite increased demand and increased money supply
This is a great example, because if Apple had launched the iPhone SE in 2015 at $10,000 alongside their $199 6S, it would have bounced like a bad joke, and probably only a few wealthy people would have bought them.
So in one sense, yes, tech has gotten cheaper, but in another sense there's a limit to how much deflation can really be stated because you can't say someone buying a new iPhone in 2020 is saving $9000 relative to what they would have spent five years prior. They wouldn't have spent it.
There's also a recent inflationary trend in tech, in that old computers actually slow down due to the growing CPU/memory demands of software and web apps to deliver more or less equivalent value to what they used to.
Yes, but so what? My current iPhone now devotes trillions of potentially-useful cycles to NOPs or processor sleep cycles. Does this mean that $32m of actual value is being created for me?
That’s key, people are spending more on mobile phones now than they were a decade ago. The benefit they get is difficult to quantify on an individual basis, certainly the difference between a phone from 5 years ago have very little difference than one from today, better camera perhaps, but how many people who bought a separate camera in 2016 don’t bother now.
A Netflix subscription buys actors, directors, writers, editors, cameras, microphones, lights, clipboards, trucks, sound stages, hair & makeup, trailers, set decoration, tape, clapper boards, generators, radios, VFX render hours, insurance premiums, producers’ risk, and all the other accoutrements of film and TV production.
There’s a lot of accounting and financial engineering and temporal shifting going on under the hood but ultimately you are paying for real things.
Right, but I was talking about the MARGINAL cost per subscriber... those costs you mentioned are fixed costs, and they are the same whether Netflix has one subscriber or a billion.
The marginal cost per additional subscriber is basically bandwidth, which is pennies.
The system incurs those fixed costs based on how it anticipates they will pay off. With more money chasing content, the system will find it profitable to green-light more scripts at higher production values. But ultimately everybody’s favorite sound mixer has only two ears.
You can see this in football. In the U.K. satelite TV massively increased the market - no longer were people spending £30 a game to watch at a stadium with a capacity of 30k, they were spending £10 a game to watch on tv with a capacity of millions.
This extra cash poured into the salaries of the footballers in the top division, salary’s doubling every 4 or so years for a sustained period.
The money didn’t trickle down to lower divisions or youth training or on site staff.
We still have to pay for food, shelter, transportation, clothing, and other physical things.
Our inner world is richer, and we consume non-decreasing goods. But everything is tied to something in the physical world, even if it's the hardware and energy running it.
Right, which is why the "100% digital" world was just a thought experiment.... we don't live in that world, but we do live in a world where an increasing percentage of our money is spent on non-exclusionary goods.... that has to have an effect on inflation.
Digital goods prices won't increase due to demand necessarily. Those prices will rise because electricity, rent, and all the other overhead line items increase. Those increases get passed to the customer, who is going to be hit with increased prices for the necessities of life - food, water, housing.
Digital goods do nothing to support human life - food, water, housing. Sure you can buy things online, but you can buy those things at brick and mortar stores. In turn, gas prices will rise to the point where delivery services become unviable.
Inflation touches the entire chain whether the product is digital or otherwise.
Also the marginal cost for Macdonals to serve one more hamburger is also very low. And anything that is automated has very small marginal cost, which is most stuff now a day. If you want to measure inflation, check how much it cost to hire a plumber. And craftsman likes to charge even numbers, so they will jump from $100/hour to $200/hour (rather then from 100 to 110)
The better way to think about this is how much a CPU costs.
To build a modern CPU takes a factory and supply chain that costs multiple billions of dollars. It is a piece of cutting edge technology, sitting at the pinnacle of human engineering achievement. No matter how you rich you get individually, it's not actually possible to through individual effort to buy a CPU which is substantially better then the same thing any consumer can buy.
...so as a result, we sell them to everyone for less then cost of a few weeks groceries.
These organizations would be expected to have some marginal cost increases from running data centers and physical hardware cost increases and they would calculate passing these on to consumers. Or as an excuse to. But I guess that is covered by your example and understanding that their physical costs being non-digital goods. So, fun thought exercise.
Yeah, that is why I intentionally said "practically zero" instead of actually zero, because there are some marginal costs. They are just orders of magnitude less than what they are for physical goods.
But yeah, I am just curious how that math all works out on a macro scale.
This is a good point, and there is also no finite limit which is what typically makes the supply and demand machine go brrrrrrrr.
Netflix pays some % of their monthly subscription fee for servers. The amount really doesn't matter, and they can add the entire planet as subscribers before running out of servers so the supply is infinite for all practical purposes.
Inflation means consumer's purchasing power remains the same, regardless of money supply. Therefore in an inflated economy people won't have the extra money now to subscribe to Netflix as they still are struggling to make ends meet even with the extra money, as everything else has increased in price proportional to his income increase.
> The marginal cost for a new subscriber is practically zero, so there should be no price increase caused by a shortage.
Digital goods aren’t priced at marginal cost. By your logic not only an increase in money supply would have no effect on the price of digital goods, but the price of digital goods should be 0 before and after the increase.
> This isn't the case, however, for digital goods. If there are suddenly 100 million new people who want to buy a Netflix subscription, it isn't like we are going to see the price of a Netflix subscription go up because there isn't enough Netflix to go around.
Good point but you have to think that if there’s lot of demand for Netflix which means Netflix has lot of hit shows. Say their hit percentage is 10% (which is very high). Which means they have to make more and more shows to provide that number of hits to sustain so much demand. Which means more expenses, which puts pressure on them to increase the price of subscription. Which also means actors, story writers etc can charge more (as they are only a finite number of good actors etc)
> Which means they have to make more and more shows to provide that number of hits to sustain so much demand
That's a fixed overhead, because the hit shows costs the same if there is 10 million subscribers, or 100 million subscribers. Netflix doesn't not need to have 10x the number of hit shows to serve 10x the number of subscribers!
I spend fifty times more on real goods each month than digital goods. So while it's fascinating to think about, and it makes quite a lot of sense, it's a rounding error still.
Worth noting that digital goods, almost all that I can think of, are entirely nonessential. They will be the first things cut if a household budget gets tight.
Inflation is not always in relation directly to the price.
For example, if Netflix is able to get 10,000,000 new subscribers. It receives $100,000,000.
It can now spend $50,000,000 on new infrastructure, which will make the price rise.
Netflix can also hire for $50,000,000, which creates jobs that otherwise wouldn't exist. Those new employees, working for that new currency will spend their salaries, rising the prices.
but those $50 million of subscription revenue means there's $50 million less spent on something else. And those $50 million paid to employees are for producing value for netflix (presumably, more than $50 millions worth).
So no, this will not increase inflation. The goods produced matches the money spent, so demand and supply continue to match up.
Inflation would occur if production ceases, but demand continues to remain the same (or higher).
I forgot to specify that the 100 million is entirely printed money.
Whatever the way you see it, that 100 million of buying power should not exist and eventually ends up lifting the prices of normal goods just with the economic activity it generates.
i mean, if you claim that $100 million was printed, then regardless of whether it's netflix or something else, it may increase inflation.
But the thing is, there hasn't been that much money printed by the FEDs or the US gov't. The stimulus cheques are not money printing, but money borrowing - a major difference. Borrowed money needs to be paid back, and so there may be temporary inflation caused by said stimulus, but it's clawed back in the future when the stimulus' effect has worked!
"Borrowed money" is wrong term here. Yes, officially US government is borrowing it, but it is borrowing from FED which does not really have the money.
Imagine this: you need $100k so you come to me, and I write you a check. BUT: you're not allowed to cash that check. Instead you use it as collateral for a $100k bank loan. But the bank is not allowed to cash my check either, it can only put it into safety deposit box. And if you default on your loan bank will put that check on auction. So, time flies an no one ever tries to cash my check. And if they ever tried they would find that I never had that $100k in my account in the first place. I "printed" that money when I wrote the check. That's how "borrowing" between FED and Government works, and that's why it is money printing. FED is bluffing about having all that money, but no one is legally allowed to call their bluff.
Also: no, those loans will never be repaid. With Modern Monetary Theory debt can only increase in nominal value, until US follows the trajectory of Venezuela, becoming a failed state with hyperinflation.
The digital version of goods indirectly does cause inflation.
When you have a surge of users and you got more servers in aws, EC2 prices increase for the on-demand instances , aws buys more servers , the more customers it gets , which means more metal excavation , more semiconductors , more minerals , more trucks to move these things , more fuel to move the trucks , it goes on and on.
Also money gets turned into profit , which is then paid to employees , executives , founders.
Who then go on to pay into other items that are non digital (houses , cars , premium cereals lol), which then do cause inflation.
Until all goods are digital , every digital product still indirectly causes inflation using its non digital items , because all of em are transactions between humans.
And all goods can never be digital , because you still need non digital items to run the digital goods on.
> The marginal cost for a new subscriber is practically zero, so there should be no price increase caused by a shortage.
This is true in a vacuum. With a bigger customer base a company will need to invest more in support. Also, in the case of Netflix, they need to invest more in sourcing content to cater to the now increasingly varied demands of their customers or else they'll lose them to competition who might also be offering their products at the same rate.
> “The river, which runs and winds about in its bed, will not flow with double the speed when the amount of water is doubled.”
> Inflation is not simply an average rise in prices. Prices do not rise proportionally or simultaneously. This results in arbitrary benefit to some who have not created any economic value and detriment to others who have not destroyed anything of economic value by destroying savings for example. This is the Cantillion effect.
Got to add that almost all physical goods are part software these days. In a way, everything becomes software. And fixed costs to create something and put it into the market are huge and tend to grow, but manufacturing unit costs are low and tend to fall.... So this observation applies to most physical goods just as it does to digital ones!
> If there are suddenly 100 million new people who want to buy a Netflix subscription, it isn't like we are going to see the price of a Netflix subscription go up because there isn't enough Netflix to go around.
No, it would go up because they would make more profits with fewer subscribers and a higher margin.
Fixed costs stay the same no matter the subscriber count, this would allow Netflix to lower the price, while maintaining the same profits. In reality, they would likely keep the price the same and increase their margins without charging more.
Businesses charge what customers are willing to pay. If they have more money, they are willing to pay more. Competitiuis the countervailing force, but Netflix has exclusives and serials and network effects (fandoms and friends)
Sure, but that doesn't say anything about inflation.
The standard formula for profit is (units sold * price per unit) - (fixed costs + marginal costs * units sold).... Netflix, like every other company, wants to maximize that profit.
For most non-digital companies, the marginal cost is significant, and follows a u-shaped curve... at first, marginal costs decrease as you sell more units, since you can get intermediate goods for cheaper prices as you buy in bulk. At a certain point, however, the marginal price starts increasing again as you start to hit various bottlenecks and intermediate goods start becoming more expensive as you consume all the easy to produce supply. In other words, you can't scale linearly.
Digital goods have a much flatter uptick on that marginal cost graph, and I am very curious what that means at the macro economic level.
It means that in your formula, the (units sold * price per unit) term dominates the profit formula. So, the price is mostly determined by the consumer's willing to pay.
If you permit me to be terribly econ 101 about this, if netflix had a perfectly elastic supply curve (because the marginal cost of an extra netflix subscriber is fixed and doesn't increase with high numbers of subscribers) then an increase in demand would lead to an increase in quantity supplied but not an increase in price.
If you're going to be "terribly econ 101", note that Netflix is not in a perfectly competitive market and almost certainly encounters a downward sloping demand curve... and that its maximum profit point is not going to be at the point where the most units are supplied and may indeed shift as the demand curve shifts.
Many people speak with great confidence about inflation, the money supply and "econ 101". Most of those with the greatest confidence in their own knowledge are not familiar with the fundamental equation of exchange, MV=PQ.
Here, M is the money supply, V is the velocity of money, P is the price level, and Q is the real quantity of goods and services.
It's easy to see that if M increases and Q increases the same amount, then if V is constant, P will also hold constant.
Or if Q is constant and a decrease in V offsets the increase in M, P will again hold constant.
Increasing the money supply by printing money does not automatically cause prices to increase, because there are other variables in the equation.
Thanks, and I understand that... but I feel like you don't understand the context of my reply.
Mr. Beer above stated that an increase in demand for Netflix would not increase the market price of Netflix. But because Netflix is a quasi-monopoly, they would be likely to increase prices to find the new equilibrium maximum profit point.
That is, he made a microeconomic argument which was invalid-- arguing that because Netflix's marginal cost is low the price elasticity of the product they supply must necessarily be low-- but this is not necessarily true. Netflix has some degree of pricing power.
I made no macroeconomic argument, and.. while I agree with your macroeconomic assertions... increasing the supply of money still increases inflationary pressures. If you're facing massive deflationary headwinds because of slowing velocity of money, sure, it may not be enough to cause inflation or even entirely prevent deflation, but it still is net inflationary.
My reading of GPs comment was more about the cause and effect of any corresponding price increase, not whether Netflix would actually increase their price in this scenario.
For a physical good, if you have a surge in demand as more people can afford you're product you start running into supply issues. This will likely result directly in a price increase as you can't increase profit by just selling more when you don't have anymore to sell.
In the example of netflix, the supply issue almost completly disappears. They don't HAVE to increase the price to increase their profit. Yes Netflix may decide that with the flood of new customers they can put the price up and maintain or increase their profit.
The point I think that is being made is that their isn't a physical supply issue in effect "forcing" them to increase the price. They are doing it because they want to, not because they need to.
Sure, there's no "force" to increase the price. But finance and marketing wonks read books like "Pricing and Revenue Optimization", and seeing a big upswell in demand are tempted to do the math again and see what the new maximum profit point is if they have pricing power.
>But because Netflix is a quasi-monopoly, they would be likely to increase prices to find the new equilibrium maximum profit point.
That's the thing though, if they have a perfectly horizontal supply curve, then the maximum profit point would move horizontally but not vertically, and price would not increase. This sort of analysis is surely too simplistic, but that's the model.
Yeah, but that is redirecting the focus away from the major problem that we face in practice, which is that M doubles and the money gets given to people who didn't earn it. To add insult to injury, they are also usually wealthy and taking extreme risks that destroy value.
It doesn't matter if prices double, remain constant or halve. It matters is people can afford more, the same or less stuff. At the moment, the rapid pace of technological advancement means most people should be able to afford much more and they can't because of the incessant money creation being done by people in charge of the system.
It isn't "given" though, it's loaned, or used to purchase an asset (generally a government bond which the government is obliged to pay the holder coupon payments on in future if the holder doesn't sell)
Slightly off topic, but talking about absolute price levels does not make much sense to me. Let's say V goes down, because consumers have discovered the value of thrift and are storing cash under their mattresses. Prices then should come down, to reflect the new economic reality, send signals to decrease production etc.
Then, if money is unexpectedly debased, absolute price levels may not change, but they would go up relative to where they should have been. Contracts still end up being distorted. People with cash under their mattresses still end up with their holdings devalued.
I wonder, if one had the task of building an economic system from scratch, if they would come up with the current system or with something else. The current system seems like a mess of patches upon patches, many heuristics, and is not very philosophically sound.
Actually no, even if they face a downward sloping demand curve (which everyone does but I know what you mean) if their supply curve is perfectly horizontal (infinite elasticity) then an increase in demand would still hold price steady and see only an increase in quantity supplied.
"If they have more money, they are willing to pay more."
That's like totally wrong. Goods provide some value to the customer, and that determines what they are willing to pay for it. If I wake up a millionaire tomorrow, that doesn't mean I am suddenly willing to spend $500 the same haircut that was $50 yesterday.
> Goods provide some value to the customer, and that determines what they are willing to pay for it
Very often customers will pay twice as much or more for the same or equivalent good that delivers the same value, you're local grocery store will show some examples. People will often pay 5x more for brand name items over white label ones. Stores will very regularly discount some items to take advantage of price discrimination, people not paying attention to specials are effectively paying twice as much for the exact same items. If you go to a different grocery store in a wealthier/poorer area you'll see the exact same items at different price points. These are all ways companies will maximize profits because people willingly pay more for the same items.
Once you are a millionaire for a few years your brain requires itself around value of time.
I’m not a millionaire but I’m certainly well off, and I just happily overpaid for lumber for a project. At prices that three years ago would have made me cancel the project. Not because I couldn’t afford it but because the perceived value wasn’t worth the price.
Some personal anecdotes. I grew up during the hyperinflation days in Brazil (80s, early 90s): talking about 60% a month.
People would get their salary and run to the supermarket and buy everything they needed for the month, because if they waited a single day the prices would have changed. A lot of people internalized that habit and still do that nowadays (not in the sense of running to the supermarket, but buying a lot for the whole month).
This was before barcodes, and every item had a price label on it. Supermarkets had people employed full time just to be remarking the items. I remember running to pick up an item on one end of a shelf while the employee was remarking the items coming from the other end, so you could buy the item at yesterday's price.
I lived through 6 currency changes. Usually when prices started being in the scale of millions, the government would announce that in a very short period (sometimes that being next week), there was a new currency with a new name and 1000 OLD = 1 NEW. Until the government could replace all existing bills, the old bills would be accepted as if they were the new bills (at 1/1000 of the face value, of course). Old bills passing through the banking system would be stamped with the name of the new currency and the new value before being put back into circulation.
Contracts like rentals were all indexed: there was a clause saying the price would be corrected every month using the official index that tracked the inflation. Or were pegged to the dollar. This by itself fed into the positive feedback loop that was perpetuating the hyperinflation.
The government tried some bizarre measures to tame inflation. Often they would try freezing all prices, but that was never sustainable for long. The craziest one was probably in 1990 when the government simply froze 80% of everybody's money in the bank for 18 months to reduce the amount of money in the economy. This was a total disaster and even caused many suicides.
In 1994 hyperinflation was finally tamed when the current currency, Real, was introduced. It was the culmination of an ingenious plan that actually worked.
I’d love to hear more about why the real was successful. Wikipedia makes it sound like it was just luck that Brazil had positive trade balance in the years following its introduction.
Economics is not a subject that I can say that I know anything about, so this is my completely subjective interpretation.
I think the problem was that Brazil got into a positive feedback loop, and we had what Wikipedia calls "inertial inflation" [1]. We got this going for so long that everybody internalized the inflation, and expected it, and behaved as it was a foregone conclusion that there was going to be inflation next month. So it became a self-fulfilling prophecy.
I see the plan ("Plano Real" [2]) to break it as a social engineering hack. They realized, after so many failed attempts, that in order to succeed you had to change people's minds and make them see the price of goods/services/contracts as stable, which would also change their habits and expectations. Remember there was a generation of people, including myself, who lived their entire lives under high inflation so they didn't know anything else.
So what the government did was to create an index, called URV ("unidade real the valor" = "real value unit"), and mandated that all salaries/prices/contracts/etc. should be indexed against this particular index (and not any other index, or the dollar). Everything should be advertised in URVs. The government would publish, every day, the "price" of 1 URV in what it was the currency back then (cruzeiros reais). So when money actually changed hands, you would pay in cruzeiros reais the quoted amount of URVs using that day's URV price. The URV was roughly tracking the USD, which gave confidence to everybody that the index was "fair" and not losing value.
This went on for a year. And it actually worked: everybody started thinking in URVs instead of cruzeiros reais. All prices became stable in URVs. And then in 1994 they introduced a new currency, the real, where 1 real = price of 1 URV. And inflation suddenly dropped from ~50% a month to ~2% a month. Still high but a miracle to us compared to how it was before. (Eventually it dropped to less than 10% a year.)
So they basically "de-indexed" the economy (and people's minds), killing the positive feedback loop and the hyper-inflation. This was such a life-changer for Brazilians that the economy minister during Plano Real, Fernando Henrique Cardoso (the public face of this plan, even though he wasn't the author), ended up being the next president.
There are a few articles that may be a good summary as well: [3][4]
why didn't everybody switch simply to USD? That's some hard cash that doesn't care about some petty Brazil's issues. Anything local in such a situation, no matter how well designed or intended, would be suspicious to me.
I did not live in Brazil, but the government sharply increased interest rates and reduced public expenses with the introduction of the real. Those actions are deflationary.
There was an official index, named "correção monetária" (literally: "monetary correction"), which was basically tracking the inflation index. Everybody's salary and the amount of money in the savings accounts had to be increased every month by this index. The idea was that you didn't lose money because it would be corrected every month. At least if you assume that the official inflation numbers were accurate.
But the moment you had money in hand, you had to spend it as soon as possible or soon it would be worth nothing.
College, transportation and housing are all pretty high overall, but the healthcare share is just stunning. If we were looking at dramatically better outcomes or services, fine. Unfortunately, doctors get to see patients for less and less time, billing is going up and you don’t really see anything in return. Most other developed nations put a stop to this a long time ago…
>Cass calls this calculation the Cost-of-Thriving Index. It measures the median male annual salary against four major household expenditures:
> • Housing, defined as the annual rent for a three-bedroom house in the 40th percentile of the local housing market.
> • Health care, defined as the annual premium on a typical family health insurance policy.
> • Transportation, defined as the average cost of owning and operating a car driven 15,000 miles per year.
> • Education, defined as the average cost of tuition, fees, and room and board at a four-year public college.
Why is education being overweight by a factor of several times? The other items are the annual cost of expenses that you incur annually. But education is only incurred 4 years out of the 80 years you're alive. Giving them the same weight as the other items is ridiculously misleading.
Source: The COTI uses the federal National Center
for Education Statistics estimate for total tuition, fees,
room, and board at a four-year public institution. 67
Rationale: Two children pursuing four-year degrees
would require a combined 16 semesters of college, so a
household preparing for those costs would need to save
roughly one semester’s worth of cost per year before the
children reached college age. (While the savings might
ideally earn a positive return in the interim, that return
would need to be quite strong just to keep pace with the
rate of increase in tuition over the same period.)
The one-semester estimate may overstate costs in some
respects—for instance, a family would likely have 20 or
more years between the birth of a first child and the
college graduation of a second. And in practice, many
children do not ultimately attend college (though a
small and, it seems likely in recent decades, declining
share has chosen from a young age not to consider that
path). But it also understates costs by considering only
public college costs; private college costs are more than
twice as high.68 Note also that the cost of public college
tuition already incorporates the substantial public
subsidy provided by the state government.
> > • Education, defined as the average cost of tuition, fees, and room and board at a four-year public college.
> What is education being overweight by a factor of several times? The other items are the annual cost of expenses that you incur every year. But education is only incurred 4 years out of the 80 years you're alive. Giving them the same weight as the other items is ridiculously misleading.
That is strange. Education is also an oddly priced expenditure because the nameplate tuition is not the price paid by most students. It would be a lot better to use the the net price, which is much lower, but is harder to collect.
In the Roman Empire, people lived 30 years and died. Most were illiterate. As a society develops, and has more excess resources, allocating more and more of those resources on keeping people alive, healthy, and educated seems reasonable.
What's missing from the charts is quality. We spend a lot on healthcare, but we also now have multi-million-dollar MRIs machines and similar magic.
Germans must do without those fancy MRI machines after all... oh wait they have those two. So what’s the catch? Maybe they have fewer people covered? No, not that either:
> Despite spending less per capita, Germany still manages to cover 100% of its population. In the United States, about 8.8% of the population remains uninsured, which equates to about 28 million people. Even more people are underinsured.
What they have less off is overhead. They do have a shortage of doctors, but not due to costs of becoming one - education is either free or nearly free (especially by US standards).
> Tuition loans of over $200,000 are not uncommon for students in the US after graduating from medical schools, which are often private institutions. In Germany, however, the vast majority of medical universities are tax-funded and, for this reason, free of tuition.
Source: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5617919/
So we probably have more than enough money in the system already to treat every single one of US citizen, maintain great care and not close local hospitals, but we are too busy allowing profits and helping doctors pay back mega education loans.
I don't believe your number. Citation required. And I'm serious about that. I'm sure it's possible to get that number somehow, but the devil is in the details.
Do you factor in:
- Famines?
- Wars?
- Being killed by bandits?
- Are you talking about the city of Rome? Italy? Gaul?
- Just rich people, or do you include folks like slaves?
- Etc.
If you're going to accuse me of giving bad information, you'll need to provide better information. And from there, you need to count on dubious records. I took my number from Crash Course history (the unit on the middle ages), but it meets what I'd previously read across multiple credible sources.
"We have a single papyrus record of 122 individuals listed in a register of taxes. Of these 122, 85 have ages extant. ... only 8 are over the age of 49 years, and only 2 of those are over 54"
"average life expectance at age 15 range from 8.3 to 15.4 years."
Etc. There's a broad set of estimates, but the estimate of 50 years is simply not plausible, unless you're talking about the wealthy elite. Being poor in Rome sucked.
And with Rome, I guess that's usually the case.
I'll mention: For all the talk of infant mortality, most infant deaths in history weren't recorded. The figure everyone tosses around -- 28 years -- sort of already takes that into account.
I've given up on editing bad Wikipedia pages a long time ago.
There was a random process. Plenty of people lived to be 90, and plenty of people died at birth.
The difference was that a random cut could turn into an infection and kill you. Hannibal lost vision in one eye due to an infection. Prior to antibiotics, you never knew if an infection would:
- Pass;
- Disable you; or
- Kill you
Same thing for a lot of other medical issues, as well as non-medical ones (such as a famine, bandits, or a random army passing through).
The problem is not that the share of things like college, housing, and healthcare is high. It's that they have risen much faster than inflation and much faster than median income over the past 40 years. Notice the white space in the chart below "median male income" in 1985 is all gone by the time you get to the right hand side of the chart.
>>Most other developed nations put a stop to this a long time ago…
hmm I wonder if there might be a connection there... as other nation implement price controls a larger part of the R&D and the costs associated with that are born by the US
Further Medicare / medicaid price controls to keep the cost of the entitlement program from going bankrupt has transferred the cost to patients not on those programs
Third leg of this stool is standard of care, American patients have a high exception for standard of care then in
"most other developed" nations where waiting months for a specialist is accepted as normal, or having ward style hospital rooms is normal as well. Where the US we expect must faster treatment times, and semiprivate rooms normally with no more than 2 people to a room, though 4 to a room has become more popular in some regions. This increases costs
I would not call 15% underpayment by 60% customers to be " a modest amount" if a company routinely had to settled 60% of its account payable with a 15% shave those companies would go out of business very quickly
Also in the Hospital context there are other factors that drive up the costs. Keep in mind that about 70-80% of all US Hospitals are non-profit
Most Americans I’ve met who actually had the opportunity to use healthcare services in other developed countries like Canada or the EU say they miss NOTHING from the American healthcare system. So no, the higher cost is serving nobody except lining doctors and Big Pharma’s pockets.
> "most other developed" nations where waiting months for a specialist is accepted as normal
Which are these developed nations? Because to give my annecdotal perspective it isn't the case in Belgium or others that i know of (With minor exceptions like recently where orthodontists couldn't handle anyone but the most urgent due to covid measures and now have a backlog of patients.)
>and semiprivate rooms normally with no more than 2 people to a room, though 4 to a room has become more popular in some regions.
Every bedroom in every hospital i've been to has been double or single though i have no experience on that front in surrounding countries. Most are double with the single ones being for special cases or people willing to dish out or with great insurance.
1. Is that it is just out of control in the US, but there are also some valid reasons, like,
2. Aging population. As people get older, they need more medical care, so an aging population will have higher average healthcare spend than a young population.
3. Advances in healthcare tech. We can treat more things, so there are more things to receive healthcare services for. And we can also treat things for longer, at great expense. Something along the line of: 10 years ago you could live with disease A for 10 years at a cost X. Now you can live for 20 years at cost X^2.
The thing is that these don’t hold up well when compared to other peer nations, especially with the top EU healthcare - per capita spend is double in the US and outcomes are not better (actually worse than some).
The more likely issue are lack of competition and high cost of entry (regulatory and educational). Regulatory you can’t really loosen, as that’s a direct protection for patients. Educational costs for doctors we can absolutely fix.
The lack of competition probably cannot be fixed with the normal “market” approaches because you are not dealing with a rational consumer behavior - when people are sick they are anything but rational. This is where something like a public option health care plan could come in with a strong negotiating position. Unfortunately, there is a good chance politics would prevent that from negotiating as well…
I presume you are in the USA.
I watch and marvel at how the USA has such expensive health care and yet apparently has poorer outcomes than other G10 nations, in aggregate. The NHS in my home country is undergoing privatisation of the more lucrative or self-contained components. But it seems important for other countries to watch and learn from this example because free market economics are so often heralded as a solution to inefficiency, cartels, and high prices. Why healthcare is not as amenable to the benefits of capitalism is no doubt complex, but if I may speculate, I'd suggest that choice is not really a good thing in healthcare. All we want is good care, and we want it quickly and conveniently. Choice is only needed if we are getting poor care. Furthermore, the infrastructure (buildings, equipment, supply chains, specialists) are sufficiently costly that often the market cannot entertain multiple variations. In other words, we can't always have many equally equipped hospitals competing to do the same things.
>>yet apparently has poorer outcomes than other G10 nations
I assume you have data for this? Something more than the flawed infant mortality rate that is often cited but is a very poor judge of a health system in reality?
Something like 5 year cancer survival rates. Time a person waits on Specialist Wait List, the time it takes a person to get a replacement Hip, MIR, or Heart Stent. All of which I believe the US is very high or at the top of those statistics
I note that all your statistics are based on figures that only involve the number of people that successfully obtained healthcare which seems like it's ignoring the possibility that a significant percentage don't have access to those wait lists at all.
If you only let half of your population on the list in the first place, I don't think it's overly shocking that metrics across the board would appear better.
I'd be interested to know the percentage of people in each country that require hip replacements, MIR's or Heart Stents but have no effective chance at even seeking out the preliminary care that would lead to them.
Ok show me the stat that 50% of people that desire healthcare do not have access to it?
Even the most aggressive numbers on uninsured in the use put it about 15% to 20% of the population, no where near the 50% you are claiming in your comment
There was a time in my 20's where I did not have insurance, I still had (and got) care when I needed it. Sure it was expensive but I was never denied services.
Yes you can find stories of people that do not have access to care, and we should do what we can to eliminate those edge cases where there are clearly gaps in the system but paint these edge cases as the rule is just disingenuous at best
> Ok show me the stat that 50% of people that desire healthcare do not have access to it?
That was an example, simplified so as to make the impact more obvious. Take any country on the planet, and look at their healthcare figures - now exclude the poorest 50% of people from accessing the medical system in those countries. Bet the numbers look better now.
> There was a time in my 20's where I did not have insurance, I still had (and got) care when I needed it. Sure it was expensive but I was never denied services.
I'm not sure how relevant personal anecdotes are when you're talking about the healthcare of an entire population. But hey - good work mate.
The US does really well at high end care. It does less well in terms of overall agregate health outcomes. As I recall last time I saw a really good analysis if this posted to HN, You have to take into account a few other risk factors (obesity etc) in addition (to how infant mortality it reported) to get the US health outcomes inline with other developed nation. Even then, the US ends up paying way more to achieve that level of care per capita.
>>You have to take into account a few other risk factors (obesity etc) i
I disagree, we have a free society, and one of my concerns about a government run health care system is that it would allow encroachments upon that freedom. I do not need or want a parent via the government. I neither need nor want the government passing laws to control what food I eat, how much food I eat, or what health choices I make
The questions comes down at that point to if you desire a collectivist authoritarian government, one that "the greater good" (which is subjectively defined) always over rules the individuals rights, or do you want individualism and individual rights to reign supreme over the collective
Oh Jesus fuck, what is it about (some) Americans that makes them so aggressively unable to see beyond their own blinkered horizons? Is it something in the water?
Approximately none of your screed had anything whatsofuckingever to do with reality.
200 to 300 thousand travel to the US for healthcare every year. That's with population of ~30 million. Extremely common.
Which begs the question, why do they travel to the terrible USA, when wonderful social care in Canada is so amazing on paper, with wait lists measured in years?
Getting an accurate portrait of Canada as a whole is very difficult, as healthcare is a provincial responsibility.
As a Canadian however, it would not surprise me if most of the people traveling were upper class people trying to bypass the waiting lists.
You have to understand that this is inevitable as long as our systems don't have the same level of fairness and people are allowed to "choose" their system. Of course privileged people will choose the system that they can benefit from most, whereas unprivileged people cannot afford to choose.
This is not to say that our Canadian healthcare systems are perfect (far from it), but rather that some of them attempt to promote fairness (in service quality and rapidity), thereby negating the greater privilege of wealth relative to less fair systems such as yours.
This practice of healthcare tourism does of course take some pressure off the system for unprivileged people, so it's hard to say it's all bad on the whole. But don't expect the situation to change regardless, as we are also ruled by the wealthy, and they do so like to have freedom of choice.
By the way, the position on the waiting list is often adjusted according to the urgency of one's situation, so people who travel to reduce waiting time would not have been in critical condition on average, not to mention they may simply be traveling to get services that are legislated differently in Canada (as I believe cosmetic surgery can be, depending on the province).
>>By the way, the position on the waiting list is often adjusted according to the urgency of one's situation
This is only technically true, and ignores the fact that many medical procedures that are done when something is not critical means making a full and complete recovery with no life long effects but delaying the treatment while sitting on a wait list until the issue becomes "critical" means the problem may only be able to be partially rectified and the person may suffer from life long effects due to the delay in treatment
At the end of the day government run health systems control costs by limiting the supply and ignoring the demand. This creates an untenable system that can never be "fair" to anyone.
I really liked her article on understanding Japanification, which I probably found linked from HN too. I'd never heard of her before but I immediately added her to my favourites.
While most of the article is good, It's really sad that she apes the old refrain that inflation hurts the poor because they are in debt.
Many of the poor cannot even be in debt because they have no access to the financial system. Those that do, mostly have access to payday lending. It's laughable to hold the opinion that inflation will do anything for someone who owes 10% on top by next month. For the middle class, it's one step up -- credit cards, still laughable to think that a 2% inflation will help out someone with a 15% APR revolving line of credit.
The place where it starts to help is when you have large capital loans on fixed interest like home ownership. But her graphs in the next section relating inflation to wealth gap capture the 1% vs the rest, which is not necessarily a mechanistically informative figure of merit... I'd like to see it where the wealth gap when you draw the line closer to something like the low-interest loan accessibility gap.
I think you are misunderstanding her argument and tbh I don't think anyone makes the claim that inflation hurts the poor because they are in debt. If anything it is the exact opposite. Inflation is a benefit to debtors because they get to pay back principal in devalued currency. That's why a cheap 30 year mortgage is an amazing deal in an inflationary environment
Inflation hurts people who don't have access to debt and who are more dependent on cash and on fixed incomes. This is exactly what Lyn claims here:
> There are, however, some groups in lower income brackets that do poorly in inflationary environments. If someone doesn’t have a lot of money and lives on a fixed income in retirement, they have a lot of vulnerability to inflation. Those sorts of folks should consider owning inflation hedges to protect their lifestyle, if they expect that high levels of inflation have a reasonable probability of occurring.
Holy mistype. In GP post I meant to type "good for the poor because they are in debt", which is what Lyn uncritically forwards in OP as a (to be fair common) argument.
"lower classes also have more debt which gets partially inflated away in inflationary environments, and..."
Also the wealthy benefit greatly from debt-based financial instruments (corporate bonds for the companies they run, leveraged trading, forex, options) even if they aren't in debt personally.
I have a bachelor’s degree in electrical engineering and a master’s degree in engineering management, with a focus on engineering economics and financial modeling. I oversee the finances and day-to-day operations of an engineering facility.
I’ve been performing investment research for over fifteen years in various public and private capacities.
So it is a mixture of education and practical experience. Whether that lends weight to her output is up to the reader.
Because those economists are just as clueless as everyone else. The fact that inflation targets cannot be met by central banks is considered a mystery so far.
What's "gatekeeping" about asking for credentials? Does the fact that she's not an economist also automatically make her an authority on astronomy, medicine, and history, or how does this work...? "No no no, in order to be an authority on astronomy it doesn't help not to be an economist; you need not to be a historian!", or what?
I agree. I made a great bet at the beginning of the pandemic, but then the Fed hurt me with it's quick action. I didn't understand macroeconomics, but Lyn Alden has really helped me understand it better with her long form articles.
I’m not a lawyer or a scholar on these matters, so can you help point me to the Court of Claims you mean? The only one I can find no longer exists:
“The Court of Claims was a federal court that heard claims against the United States government. It was established in 1855, renamed in 1948 to the United States Court of Claims (67 Stat. 226), and abolished in 1982.”
It was an honest question. It didn’t mess up any googling. I just don’t know anything about the particular legal structure/origin/whatever of the court you brought up, and so I had no way to know if the slight difference in name was meaningful or not.
“ The power of technological deflation is important not to overstate, though. In everyday use, the rise of the smart phone displaced a lot of house phones, cameras, video recorders, film, CD players, iPods, beepers, radios, scanners, roadmaps, and many ATMs. They also displaced a big percentage of physical newspapers, calendars, dictionaries, encyclopedias, and books. In more niche areas they displaced some mobile game devices, pocket translators when traveling, compasses, voice recorders, and photo scrapbooks. We folded many of our devices and consumables into one powerful device with dozens of software applications.”
This, and we haven’t even discussed the amazing tech in food production that is getting better daily. (Satellites telling tractors in iowa what to do based on hyper spectral drone flyovers).
I remember our family taking a few years monthly payments to get me encyclopedias, and now we have wiki.
This is true but it is imperative that citizens have a reliable currency to use to do transactions. This is why I think it is imperative that we transition over to cryptocurrencies that are based on strong fundamentals that make money reliable.
Every economy in the world has and will continue to operate with some inflation, taking away an inflationary currency is dangerous and will serve to further entrench the wealth inequality we have seen grow over the past century. Sure crypto is nice because you don't have to trust a central government, but you already are trusting that government with the other 99% parts of life, rendering this sort of moot. In addition, monetary policies in times of crisis would not work in the world of crypto. Sometimes to prevent a total collapse, the fed needs to print some money. Sure it's not the best/most perfect tool, and should be used very sparingly, but to discredit it as unnecessary is a gross misunderstanding of modern monetary theories.
Monetary inflation increases inequality because the well-connected interests (banks, large corporations, governments) have access to the new money first. They have better financing terms. They have special arrangements. They can spend the new money into the economy before general price levels rise.
Asset prices rise as people flee from cash, so those with assets see their wealth outpace those without assets.
Inflationary economies based on debt are inherently levered relative to underlying assets, thus are prone to collapse and require more bailouts.
General price inflation hurts those at the bottom of the economic ladder, since it makes their cost of living rise and prevents them from saving to accumulate capital.
This depends on how the money is distributed - if we have stimulus checks (and eventually everyone has an account at the FED), for example, it's not true that well-connected interests get access to that money first.
I'm honestly tired of waiting for the government to decide to do fiscal stimulus. The US is lucky that they got a competent president. In the EU you're never going to see stimulus checks.
> Every economy in the world has and will continue to operate with some inflation, taking away an inflationary currency is dangerous and will serve to further entrench the wealth inequality...
Patently false statement. The us has had decadal deflationary periods of its history during which it made great technological strides
I get the argument from the fed about hedonic adjustments and increased quality of life, but that's not how people measure their happiness. Subjective happiness is how you're doing relative to those around you. The hedonic adjustments are all about objective quality of life. Sure, my resources in my working class midwest neighborhood would be the envy of Louis XVI's court, but that doesn't matter to me when my neighbor gets a new car.
I wonder how difficult it would be to build a "Subjective Inflation" measure that was useful. Based on category consumption by income quintile you can figure out rough price inflation experienced. With the understanding that happiness is mostly about keeping up with the Joneses you can just assume away the hedonic quality boost and call it "subjective inflation".
The point from the inflation link about not being to eat ipads is critical. Increased resources are definitely nice, but the happiness derived from them is zero-sum, and at the end of the day they're taking more of my income.
This, coupled with the stagnation of median wages, means that:
We're not getting any happier as a cohort, and
The things we consume cost a bigger chunk of our earnings every year
I buy the link's argument that we should expect price inflation. Interestingly, this analysis is done with mostly pre-COVID data. COVID has amplified all these trends leading to price-inflation, and narrowed our demand into fewer goods and services. That further amplifies the inflationary forces that were already gearing up to make the 20's crazy.
Buckle up. There's going to be a lot of people who feel like their quality of life is crashing.
Mentioning M2 without mentioning the accounting change that completely changes the graph starting May 2020 is very odd. Of course the percent change is large when you start measuring a different thing from before.
Are you sure that's correct? If I'm reading the article you linked correctly, they basically decided to count savings accounts as M1 instead of M2. But since M1 is included in M2... this shouldn't change the total value of M2? So all of the increases in M2 were actually due to printing of more money (among other things).
I don't think so. When the pandemic hit, the fed made the reserve ratio 0% for all accounts, so counting savings accounts as M1 wouldn't really change how much money banks could lend. However, even under normal circumstances (transactional accounts have a reserve ratio of 10%, other accounts have a reserve ratio of 0%) counting savings accounts as transactional (M1) would actually increase the reserve requirement for banks, decreasing the amount they could loan and therefore decreasing M2 overall.
Just throwing this in the air: in the 1970, getting off the gold standard made it possible to take much more debt in varied ways. This probably enabled the rich and the corporations to drain a much larger part of the economy for themselves.
Also throwing this in the air: debt might not actually increase productivity unless it's explicitly only used for productive purposes. Even then it seems dubious. The whole argument of using debt to build a business smells funny.
Right now if you look, people who have access to cheap debt, are buying assets with it. A lesser version of this has been probably going on for decades.
"The whole argument of using debt to build a business smells fnny" - so what is the alternative? Do you believe that equity is the only way to finance a business?
Smells funny because it's used to defend so many different pathologies.
Alternatives? Break up big banks that are too big to fail. Build up many small, local banks that actually give a shit about their surrounding community.
> The whole argument of using debt to build a business smells funny.
I think this conflates generally running at a loss with debt, but there is also positive investment.
E.g. Many property developers run on ever increasing debt as they grow, and many of these business do really well. They are using debt to create something of value, sell it and then replay debt.
But if a company is using debt (or equity) to keep growing with overly hopeful future profitability plans, then yeah this is not good.
Both use debt, one is totally normal and common. The other 'smells funny', so I feel it more about the value creation the debt is used for to build the business than the actual debt.
I've been researching this topic independently over the last year and about 70% of what I've researched is presented beautifully within this article. What a great post.
The only thing I would try to add that she left off was just the Fed's power[0] over this entire topic. It's mentioned slightly with interest rates dropping, but they play such a pivotal role, together with the yield curve, that it needs to be mentioned.
The Fed has the power to have a yield curve inversion, which drops the amount of broad money available, which creates a recession, which has people lose their jobs, which depresses CPI inflation. Once the loss of jobs occur, they drop interest rates back to where they were and along we go for another cycle.
That's a weird complaint. What you're essentially saying is that the Fed has the power to both create inflation and reverse it, which is not as impressive as your comment implies.
You're also messing something up. Cycles are not caused by the Fed. They are caused by the cyclical way humans use debt. It's primarily rooted in psychology. People get into debt in times of high consumer confidence and once consumer confidence goes down it becomes obvious that some of these people shouldn't have gotten into debt in the first place and are no longer able to pay their debts back. The Fed drops interest rates so that it becomes easier to pay off bad debt instead of going bankrupt, which increases consumer confidence again.
One problem is that paying a bad debt over a long time frame is still a drag on the economy. It keeps accumulating and the debt burden gets worse over time as more people spend money on debt servicing than consumption, which drags incomes down, which makes the debt problem worse.
I think the generally understood stance from economists is that they fear inflation(despite the well researched article we're responding to that states that we won't see hyper-inflation!) more than they fear recessions, and that no one truly knows whats going on when a yield curve inversion happens and why it creates recessions. It is well established that unemployment and inflation is linked, see the Phillips curve.
In practice, it keeps working so they keep doing it.
> Inflation: During periods of moderate to high inflation, gold and commodities tend to do extremely well. Equities outperform bonds more often than not, but it depends on the type of equities and their starting valuations, and therefore have a huge variance. Real estate does well, mainly because leverage attached to it gets melted away from inflation. Bonds do poorly in inflationary environments.
The article doesn't talk specifically about gold, but I believe it should. From this chart, you can see that gold started an upward trend in price pre-pandemic that peaked in August of last year, and has since declined noticeably:
Gold is supposed to be the canary in the coal mine for inflation. The slightest whiff of inflation is supposed to send the price soaring, usually led by gold mining stocks.
This hasn't happened. As the price of copper, lumber, other base commodities, houses, used cars, and possibly even labor, has surged, gold has barely budged.
What does gold's lackluster performance so far say about the future direction of inflation?
That's the question people worried about (hyper)inflation should be asking themselves.
Many in the gold market claim that the price is being manipulated by central banks, by the paper derivatives market, an other forces.
But it's very hard to believe that literally every other commodity is flying to the moon while gold is stuck in the basement due to "manipulation."
Lyn Alden actually also has one of the best explanations of the price of gold! [1] It is tightly correlated to the broad money supply modified by changes in real rates (10 year - inflation). In August we saw the 10 year rate start rise and gold start falling. Now the 10 year is consolidating while we have inflation: gold prices seem to have finished their consolidation as well and are going up a bit.
Whether it is a good time to buy gold now really depends entirely on what happens with the 10 year treasury rate. With that being said, the movement of the 10 year and gold are slow, so it isn't that hard to exit a position in gold.
Gold went up a lot in 2020. It’s underperformance in the past few months is because Treasury rates ripped higher, which made owning bonds more attractive. However, rates can’t rise much more, or the UD gov’t will be unable to service its debt. Therefore, gold has begun to climb again
Large share of federal government debt is short duration meaning it has to be rolled over at current rates on a regular basis. Rising rates would definitely drive up costs dramatically.
Or... crypto and the commodities have it backward. The gold market is right. Prepare for the opposite of what the media are hyperventilating about now - a ridiculously strong dollar and deflation.
Crypto has provided an alternative to gold. The same printed dollars that would normally go to gold is flowing into crypto. The new generation of gold miners are not mining gold.
That's why gold hasn't risen dramatically. Crypto is absorbing the inflation.
I think that is possible. If you have a good income, then a hedge would be gold and silver. If the dollar gets strong then so does your purchasing power. If not, then gold/silver hedge against that. Of course it also helps to have bought a house when prices were low going back to 2012ish. For some of us, who cares if housing drops 50%
Seems like a solid, albeit somewhat dry explanation of inflation. I love concrete examples of how inflation impacts people’s lives, and there are a few that really helped clarify my understanding of inflation that I like to point others to now.
2. https://slate.com/business/1998/08/baby-sitting-the-economy..... A Paul Krugman Slate article about a 1978 journal article that uses the example of a babysitting coop to illustrate the way that the monetary supply can have ramifications on the real economy.
3. And the Money Kept Rolling In (and Out) https://www.amazon.com/dp/1586483811/ref=cm_sw_r_cp_api_glt_.... A much longer read, but this is book about the economic crisis in Argentina is one of my favorite economics books, and also teaches you a lot about the international monetary system as well.
Krugman's blindness to the patently obvious solution to babysitting coop scrip story is astounding. If anything it belies the Marxist philosophy that an hour of work is an hour of work. It's completely ridiculous that any arbitrary pair of hours should be equivalent to each other. They should not have pegged the currency, and that is the problem. When you think inflation is a hammer and all planned economies are nails, people are gonna get hurt.
The section on owner's equivalent rent (OER) is worth finding in the long article: OER accounts for about 1/3 of the CPI. However, when you view OER in light of the housing bubble around 2006, CPI was negligibly affected.
IMHO, it is a large signal that CPI fails to accurately describe consumer inflation for a large segment of the population.
But in 2008 the housing bubble popped and the prices came back down to 2004 levels.
Wouldn't you say then that the CPI was correct not to adjust too far to account for it?
And if you think housing right now has increased a lot and the CPI isn't taking that into account, perhaps that says something about what is to come....
> Wouldn't you say then that the CPI was correct not to adjust too far to account for it?
My point was it missed the largest housing cost rise in multiple generations, despite housing being ~1/3 of the CPI. That it then also missed the downward correction is just more evidence that the CPI is uncorrelated to housing costs.
I've believed for a bit of time now that the only real reason for the FED to pursue a 2% inflation goal (and I personally believe inflation is far higher than 2%) is to reduce the US's increasing debt burden over time.
If the debt were far lower and more manageable, inflation wouldn't be as necessary a goal as a mechanism to try and reduce its actual value over time.
As this article discusses a bit, inflation is a great way to rob the middle and lower class of value in a way that the upper class is more able to avoid (though not completely) especially due to lack of wage growth at lower levels.
Or perhaps stated in a different context, the target inflation goal might be very different with a much smaller debt.
Now that the US (and many other economies) are addicted to near 0 interest rates, and with all the increased spending (regardless if anyone thinks the spending is "good" or "bad"), I have difficulty seeing how we can dig out of what appears to me as a bit of a hole even with the potential productivity gains the current spending is supposed to spur.
Raise interest rates at this time, and everyone takes a big hit especially as the US is spending a ton more so that's not really an option anytime soon. Keep them low and the only solution to the next economic downturn is to again spend our way out, only furthering the need to keep interest rates close to 0 (making this a bit of a vicious cycle).
No one knows where this ends (I certainly don't and I think any economist who says otherwise is lying whether they know it or not) but the rising cost of the majority of goods that people spend on (health, education, homes and rent) scares me quite a bit as a young adult looking at the next 20 years as I think about wanting to establish my life despite my own luck in having a high paying career in software engineering.
Good article with lots of data. I would like to see data on price increases by category of household expenses broken down by metro region of the US going back 3 or 4 decades.
I feel like nationwide statistics are not very useful once the gap between certain regions gets so wide.
>However, folks who had property with a fixed-rate mortgage going into the 1970s, generally did very well. The house price kept up with inflation, but the mortgage was devalued against inflation, and so home equity went up by quite a bit, along with their wages.
Being a debtor is good when inflation hits, and having an asset that has historically outpaced inflation is doubly good. I believe this is a part of why home prices are rising, people know its going to be a lucrative investment over the coming years, and the downside is minimal at low rates.
Reads like it was written by someone who reads many inflation “truthers,” but is too empirical to believe the hype. Correctly rejects the asset-price inflation theories, which hold that the stock market, Bitcoin, and fine art appreciations are evidence of hidden inflation. Also correctly points out the flaws in CPI, while ignoring the many improved inflation measures, like trimmed mean, the MIT billion price index, or the Fed’s preferred core PCE measure.
> John Williams’ Shadow Stats, for example, calculates that annual price inflation has been around 5-10% for the past decade if it was calculated as it used to be. Interestingly, he has not raised his subscription price for his data at all since at least 2008.
Of course, it's bit of an unfair jab because he might be growing his subscriber base, or isn't getting paying customers but doesn't care.
I have no idea how families that earn less than $100k are saving enough money for healthcare expenses / loss of income in their years between 50 and 65 (or whatever age Medicare will start at in the future).
Unless you have a cushy government job with those benefits or a high paying white collar job, those years are the most likely for you to lose income due to age, health reasons, etc and any new job you get probably won’t have any benefits, or decent ones.
With ACA that’s only really a problem for those just over the income cliff. Health insurance costs after subsidy for most retired folks pulling, say, 50k-60k or so per year from retirement accounts and social security are pretty low.
Social security does not (currently) start until 62 or 63, and that’s with a hefty reduction in benefit. I expect by the time I retire, full benefits won’t be available until 75 or something, and it will be means tested (and/or the value of the benefit decreased via decreasing value of USD).
I do not know what the ACA subsidies are for people, but the ~$17k annual out of pocket maximum is what kills you. A single heart attack or stroke at the end of the year will cost you $34k (assuming you need healthcare in two calendar years today, who knows how much 2 decades in the future).
Plus, of course, surprise bills from out of network providers.
OOP maximums can be the real killer for those with chronic conditions. But at lower to middle income levels even OOP max isn’t always that bad in ACA plans.
OOP max is just a trade off for higher premiums. Either you pay more per month for lower OOP max, or you pay more when the healthcare expenses happens. They’re all actuarially equivalent, per the metal levels of ACA.
If anything, people should chose the high deductible high OOP max HSA plan so you can take advantage of tax benefits.
Interesting, did not know about that. But 250% of federal poverty level is
> For coverage effective in 2021, 250 percent of the federal poverty level in the continental U.S. is $31,900 for a single individual, $54,300 for a family of three, and $87,900 for a family of six. (These amounts are higher in Alaska and Hawaii, since they have higher federal poverty levels).
That’s rough for a household of two, especially if they live in a high tax state.
Since I am a health economist, I can tell you that it is subject to many of the same problems other goods face: prices increase and this is generally observable (though much harder in healthcare than other areas!), while quality improves all the time but measuring quality is quite hard, perhaps also harder than in other classes of goods.
Well, the ECB is also printing, and the overseas cooperation is pretty good. But it's still visible on the currency charts that something is going on. Just go to Trading View and have a look. Also compare when money printing started after the "Rony Crash" in March 2020, and when a lot of stocks, commodities, and not least Bitcoin started mooning like crazy soon after. What you're witnessing is a giant transfer of wealth.
Inflation only improves the balance of trade if we inflate faster than our trading partners. Lately many countries have been engaged in a competitive currency devaluation race to the bottom.
Has anyone seen any study or discussion of inflation arbitrage? Not in the trivial sense of if you predict inflation borrow and invest, but in the case of viewing a country as multiple separate markets and there being inflation differences between them, which in turn means there is opportunity for arbitrage?
It seems to me like a failure to accept that adjacent markets sharing a currency can have different rates of inflation is a large part of why people are so damned bad at understanding and measuring inflation. The article is a good example, every metric and estimate proposed assumes that there is a single inflation rate for the currency. But if you instead thought of it as one good being trades in multiple different market places, then its obvious that there could be differences in price between these markets which traders could exploit. Critically, unless they did so and doing so was a near perfect market, there would effectively be multiple different prices for the commodity and the textbook use of inflation would be such a shitty model as to be near useless. If you instead asked, how many ingots of currencium would I need to buy a bag of other goods, it would be obvious that this would also require a statement of in market A. I doubt the reason this arbitrage opportunity is entirely missed, but it could be that its unusually hard to exploit. However, I suspect it is partly because even among financially literate people, a currency has one rate of inflation is a common idea.
That said, the single market model where currency has a common price provides shitty predictions. For instance, the strongest counter argument against the apparently obvious statement. SNP500 has not increased more in value in 2020 than 2019, its mostly just inflation, is: No metric of inflation say it has been anywhere near 40% in 2020.
However, if we view this as two different markets, A(capital), B(consumer) where the inflation is different for each. Then any metric which is designed to predict inflation assuming its the same in both would by necessity underestimate one and overestimate the other.
The counterargument would be that if this was the case an efficient market would eliminate the arbitrate opportunity. But thats barely true in the most ideal cases, and its easy enough to come up with such arbitrate opportunities.
For instance, we know that historically, whenever there is inflation, stocks respond quickly, but salaries generally lag behind. This is damned near proof of the multi market model on its own, but a model with more parameters always fits the data better. A sufficient, but not necessary proof would be the existence of insurance contracts for and against inflation in another market priced in the same currency. In short, is there a reason that salary futures aren't a thing?
Single internal market inflation would be accounted for up to global inflation by this to some extent, but it does nothing for internal market differences. Even if tolls were entirely removed you would buy your rice at the local market, probably at 40x the international price.
>My base case going forward continues to be that with the combination of sizable broad money supply growth, along with public opinion pushing the pendulum back away from globalization, consumer price inflation is likely to be higher in the 2020s decade than in the 2010s decade.
The biggest news is that Fed changes its inflation targeting goal. It's now average inflation targeting 2.0%. This means that Fed allows inflation run above 2.0% for some time until average matches the goal.
Another type of inflation: relative inflation. This means inflation of the CPI relative to foreign goods and foreign purchasing power. This take into account the strength of the US dollar. The US has low inflation in this regard.Americans have seen their purchasing power surge relative to much of the developing world, which over the past few years have falling currencies.
>> More specifically, the top 1% of households in the United States have $39.4 trillion in assets and less than $0.8 trillion in debts, which gives them a net worth of $38.6 trillion. So, they have a debt/equity ratio of just 2%. Almost their their entire balance sheet consists of assets.
Meanwhile, the bottom 50% of households have $7.6 trillion in assets and $5.1 trillion in debts, resulting in just $2.5 trillion in net worth. So, they have a debt/equity ratio of 200%. Their balance sheets have a lot of debt relative to equity, and almost as much in debt as in assets.
Isn't this statement misleading? I know Jeff Bezos personally doesn't hold any debts but Amazon does. So, if inflation happens, it will indirectly benifit bezos. Hence, Inflation is good for everyone ( Both poor and rich).... Am I missing something?
> If the government and central bank were to create a trillion new dollars and give the 100 richest people in the country an extra $10 billion each with that money, what would they spend it on? All of their physical needs and desires are met many times over already.
Rich people are rich because they invest when they can instead of spending. Poor people spend because they think that's what rich people do and they want to feel rich. Expecting rich people to suddenly behave like poor people makes no sense.
These wealthy people would invest the money, likely by buying up other businesses that didn't get the handout.
Don't make it more complicated than it actually is, or you'll end up like Erasmus Montanus. The causality of hyper-inflation is a pretty simple principle to understand. And the effects are visible. I was there, in pre-war Yugoslavia, when my mother cashed in 1000 NOK for what to my 12 year old eyes looked like Scrooge McDuck amounts of Yugo Dinars. We had to get extra bags to carry it all. Meanwhile everywhere we turned, people were in despair because all value was evaporating. And what was left over, was heavily rationed.
You’re correct that the recent uptick is unprecedented, but given that the other graph (shared by Nobel prize winning economist) shows no stable relationship between M2 and inflation, why does it matter? He might be wrong and you might be right, but that graph alone doesn’t tell that story.
These morons are trying to pump a certain crypto-token by instilling inflation fears, but since inflation has been a non-issue in the US since the 1970s, they are now trying to shift the focus to the money supply as if it had any relevance at all.
Because money which isn't spent doesn't contribute to inflation. It might contribute to inflation, but prices don't increase in reaction to possible buyers, only actual buyers (or the expectation of actual buyers, but that's a short term effect since if the customer doesn't materialize you've still got bills to pay).
Correct, which is why I said you have to look at demand. Velocity tells you nothing, it isn't an input.
Also, you are wrong about prices not increasing "in reaction to possible buyers". If we lived in the fabulous world of rational expectations and flexible prices moving instantly but we don't. Understanding why this isn't the case, ironically, is why we use monetary policy/inflation targeting.
It describes a very sharp increase in created money. The poster of the linked tweet is implying this is unique and we will see negative economic effects (like inflation) because of it.
Parent to that tweet is arguing we have not seen those effects despite past federal reserve action and so there is no worry.
The wider context to this conversation is that some people [who?] believe federal reserve policy is flawed and supported by systemic bias in the reporting of economic indicators like GDP.
It's not created money. We didn't just print this money. The money is printed on collateral, that is private industry traded assets for US dollars.
This graph also completely ignores that the US dollar is the de facto reserve currency of the world, so dividing dollars by US population is fairly meaningless in 2021.
You mean they are buying assets and thus the money is simply providing liquidity and has tangential value. They aren't just printing it and giving it away, this subtle but significant difference is one of the reasons that money supply and inflation have very little if anything to do with one another.
Yes, buying assets, but basically buying risk-free treasuries that come in inexhaustible quantities. When they make the purchase that money goes directly to the federal government to be spent.
And that money is in competition with others who are buying treasuries, driving down the interest rate (since it’s an auction) and presumably pushing that money to other uses.
So you are right, it’s not “given away”, but it’s a pretty frictionless way for “new money” to enter the financial system. It’s not like the money is put in a bank account and just sits there.
But your point is well taken. There is no “2 + 2 = 4” rule when it comes to money supply and inflation.
Yes, don't worry guys. The Federal Reserve has got you covered. And if things get too expensive, you can always just ask for a raise, amirite! :)
Anyway, here's a cash crop chart for corn that has more than doubled in price since last year. Once the cost of making finished products with these crops increase, you can be sure that shop prices will also reflect it. Some of these charts are even growing exponentially.
If you zoom out to 20 years it shows that back in 2011 the same thing happened; did we have hyperinflation in 2011 or huge price increases in food in 2011?
I didn't say we'd have hyper-inflation. I said we'd have inflation, and the banks are saying that too, btw. What we're seeing now isn't just some seasonal pump, but a huge across the board pump. Of course, if wages also reflect that increase, then there's not much of a problem. But what we're facing today is massive unemployment, and a massive amount of money sitting un-touched in banks, sometimes with negative interest. Negative interest plus more inflation equals less purchasing power for you either way you try to argue. So what we're witnessing now is a massive transfer of wealth. The only thing most normies can hope for, is a higher price on Doge. But yes, if the printing gets out of hand, we'll have hyper-inflation too. Some of these charts are already going exponential.
Since the massive QE is happening in economies around the world,vthere will be some flight to the dollar as well as gold. A lot of money could continue to sit at negative rates. There won't be much impetus for capital investment for a decade. It's hard to say exactly how this will play out month to month, but it is going to be a harrowing.
If the comparison is with 2008, the answer is that the "money" was created on different sides of the balance sheet for different purposes. (We all remember that banks are effectively statistically multiplexing asset cash against liability deposits, nu?)
2008 the Fed printed $2 trillion asset cash(M0) and used it to buy bad debt off the banks books, and put the debt in a runoff fund. No discernible impact on M2. (well, it stopped it imploding).
2020 Fed prints ~$4 trillion of liability deposits, and hands it out to all and sundry to pay their rents, and support the stock market.
M2 goes vertical. Which it has never done for the US in the last 100 odd years. So this time it will actually be different.
“Print” is a misnomer, as only the US Mint prints paper currency and mints metal coins which is a very tiny sliver of the M0 money supply.
So to rephrase what actually happens: “in 2008, the Federal Reserve decided to buy a notional amount of $2 trillion in bonds and debt securities, every time it bought some it created the same amount of new US dollars at the time of transaction which becomes owned by the seller. Increasing the money supply upon payment.”
Its primary mechanism for controlling the money supply and people’s behavior is by purchasing a predetermined amount and category of assets from people. Unless authorized by Congress to do something specific.
Congress does not usually touch the Federal Reserve Act, as the whole point of the Federal Reserve system was to remove politics from management of the money supply. But they obviously can and always could alter the Federal Reserve’s charter and in 2020 they let the Federal Reserve give money directly to individuals in some of the stimulus programs.
More about breaking down exactly how the Fed's digital dollar ledger updates actually result increasing the money supply.
Despite everyone knowing the "printer go brr" meme being just a colloquialism, I don't think people are really clear on what the reality is. It is Just-In-Time creation of dollars upon transaction.
There is no one definition of "money". M0, M1, M2, M3, MZM are various metrics which have been proposed over time for trying to track the supply of USD all with varying definitions. M2 is frequently used as the simplest and best general case proxy for "how much USD is out in circulation" in a way that tracks credit + currency.
So saying the M2 is high relative to population means that we have been "printing money" (increasing the USD money supply) at a high rate relative to population.
M2 is a measure of the money supply. There are different measures of the money supply, which roughly speaking are M0 (cash), M1 (M0+current accounts), M2 (M1+savings accounts) and M3 (M2+money market instruments). The fact that they have divided M2 by the population seems a little strange, but basically the graphic shows the amount of "money" (cash+current accounts) per person over a time period in the US.
So far it's a lot of words and graphs with a tenuous grip on reality in a few places:
> There are, however, some groups in lower income brackets that do poorly in inflationary environments. If someone doesn’t have a lot of money and lives on a fixed income in retirement, they have a lot of vulnerability to inflation. Those sorts of folks should consider owning inflation hedges to protect their lifestyle, if they expect that high levels of inflation have a reasonable probability of occurring.
If you think someone in a low tax bracket on fixed income has the spare money to invest in anything, you're not understanding the words "low income" or "fixed."
> Capital had political control from the late 1800s through the 1920s. Labor had political control from the 1930s through the 1970s. Capital again had political control from the 1980s through the 2010s. I’m not sure what’s next but signs are increasingly pointing towards labor regaining some influence, and it’s a topic I continue to monitor.
> If you think someone in a low tax bracket on fixed income has the spare money to invest in anything, you're not understanding the words "low income" or "fixed."
The low fixed income often comes from investment. For example, you save money in 401k, then as you near retirement, you shift investments into safer instruments ie. bonds. The result is exactly low fixed income and vulnerability to inflation.
The whole appeal of someone like Alden is that she isn't playing for either team, shes just trying to step back and analyze. And it is a much more useful an interesting perspective on the world than turning every single discussion into team sports politics.
The fact that the parent is one of the more upvoted comments I've ever written seems to indicate that I'm not alone.
A final point is that her publicly listed example portfolio performance seems to indicate the she has an exceptionally solid grasp on reality.
> shes just trying to step back and analyze... And it is a much more useful an interesting perspective on the world than turning every single discussion into team sports politics.
When is the last time you read a serious financial analysis that divided up 150 years of world history in such a way? Or tried to relate it to investment?
> The fact that the parent is one of the more upvoted comments I've ever written seems to indicate that I'm not alone.
Does that mean you're correct?
> A final point is that her publicly listed example portfolio performance seems to indicate the she has an exceptionally solid grasp on reality.
I read through her website, and it's pretty much the same thing you'll get on other pitch sites ultimately selling a newsletter. It's not bad advice in general, but wealth managers and other investors don't post example portfolios. They post their track record with real money.
> When is the last time you read a serious financial analysis that divided up 150 years of world history in such a way? Or tried to relate it to investment?
Ray Dalio, the founder of the world's biggest hedge fund does primarily this in his public communication.
Anyway suit yourself, the whole point of it not being team politics is that it really doesn't matter at all if people disagree. I factor her advice heavily in my own portfolio and it has benefitted me. If you think she's wrong ignore her. And I guess complain loudly that other people find it useful.
Yes it does. Because I'm not playing team politics, it is not competitive, in the sense that there are two sides where one wins.
I'm stating that people find this take useful. The fact that it is getting updated indicates that people indeed do find it useful. In that case it is tautologically correct.
As mentioned before, the awesome thing about playing my game instead of your game is that the fact that you disagree is totally meaningless to me, as I mentioned I'm not on a team, I have no opponent. Unless you have a way to stop me from using Lyn Alden's advice, I simply place zero value on your opinion and move on. (except in the sense that it is fun to point out the fallacies for sport in the context of a message board).
The idea that workers were lording it over the rich from the 1930s through to the 1970s is preposterous. Unless the words political and control have been twisted to mean their polar opposites.
The post-WWII-but-pre-1970 economic world - the world of “embedded liberalism” - was a pleasant place. There were corporations, but they didn't do anything garish like compete with each other. Executive pay was taxed so heavily that nobody had much incentive to try to increase their profit margin; workforces were so heavily unionized that companies were nervous about any changes that might upset employees. As long as companies followed the script, the government embraced and protected them. Starting a new business was considered some bizarre act of alchemy, like discovering a new form of matter; normal people worked for the same giant company their whole life and got a nice gold watch as a reward when they retired. The government wasn't exactly socialist per se, but it kept starting and expanding programs like Medicare and Medicaid and Social Security, and every night you went to sleep knowing there would be probably be another uncontroversial, mostly-successful government welfare program tomorrow.
was it really so pleasant? inflation was very high, medical treatments were not so great, entertainment was expensive, most jobs still did not pay much, hours were long. Someone with a tech job probably earns more money on an inflation-adjusted basis and has a much nicer standard of living compared to someone living in the 60s
Some of the assertions are questionable. college and healthcare have gone up but the amount people actually pay relative to sticker price is small . There is tons of financial aids and other deference and forbearance programs, so college is quite affordable if you finish.
Normally, an increase in money supply would cause consumer goods to increase in price, since more people are able to buy them and there is a limit on how much of any particular physical good is available.
This isn't the case, however, for digital goods. If there are suddenly 100 million new people who want to buy a Netflix subscription, it isn't like we are going to see the price of a Netflix subscription go up because there isn't enough Netflix to go around. The marginal cost for a new subscriber is practically zero, so there should be no price increase caused by a shortage.
It would be easy to see that inflation would be essentially zero if ALL goods people wanted to buy were digital ones... no amount of demand can eat up the supply, since supply is practically infinite.
Of course, in the real world, some goods are digital and some are physical. If you gave everyone $5000, some of that would go to Netflix subscriptions, which wouldn't effect consumer prices, and some would go to buying TVs to play Netflix on, which WOULD cause inflation.
I am curious how much of our current "low inflation even with an increasing money supply" is caused by our increasing spending on non-exclusionary goods.