“Why Inflation Is Biden’s Most Stubborn Political Problem” by Andrew Restuccia and Sam Goldfarb at WSJ was one of those coffee-spilling articles that gave Grumpy his nickname. Not the article, which was well written, but the contents. In response to rising inflation,
Thank-you for explaining, once again, what the root cause of inflation. As an old retired sailor, even I can grasp the idea that throwing money around will not fix the inflation problem. I do have a question, why is there no attempt at balancing the budget?
Inflation out of control at 3%! I can’t stop laughing. All of this while you have basically been pushed out of the slump of the 2010s in a few years.
Having said that, I agree that at this point inflation is purely fiscal. And given the budget worries, I’m fine seeing the administration tax heavily incomes above 1Mln.
Very good note about more money spending by the govt causing inflation, and an excellent graph showing it starting from Biden’s first big Free Money program and more direct government spending in Feb 2021.
It would have been excellent to note how much better and faster is a tax cut stimulus rather than a new spending program of the same deficit level. Tax payers all know what they would spend more on, so tax cuts are quickly spent or invested, so stimulate immediately.
Since the rich already pay a huge % of income tax paid, most tax cuts do reduce taxes of the rich taxpayers. Elites say they don’t like this,
No wonder people don't understand inflation if in Week 2 the textbook fails to explain that monetary policy, not fiscal policy causes inflation (and deflation and employment and unemployment)! That's "demand curves slope down" territory. John McCain's goose was cooked by the public mistakenly blaming GWB for the unfolding financial crisis instead of Fed mismanagement. The same could happen to Biden.
"This dishonesty, this pandering to polls with no principles, this constant vacillation, this willingness to say utterly silly things as if we’re all small children, might have something to do with the Administration’s terrible poll numbers."
I don't know if Nixon's excuses were any better, but these guys seem truly not to understand that they can't just tell the DA not to prosecute when their policies break econ laws. I've stopped thinking they think *we're* stupid and beginning to conclude *they* are that stupid. They will still be "confused" when our economy mirrors the streets of San Francisco, covered in poo & populated by marks and grifters.
"Maybe honest, consistent leadership might poll better than telling fairy tales and handing out candy."
Too little, too late, and not within their competencies.
What are the chances that even the WSJ is suffering more and more from the bias in the quasi-neo-Marxist journalistic education system? I seem to note an increasing number or articles that seem to have a slant (many about how bad musk is) or deny economic reality to support social justice (climate, racism, etc.)?
The Keynesian model Deficit = Aggregate Demand= Inflation has a missing funding component determining whether inflation in the model is zero or greater than zero. If the deficit is funded by "real" savings, real meaning savings that would have otherwise funded added private capital stock, then inflation would be zero. If the deficit was funded by Federal Reserve printed money, then inflation is creater than zero. Both scenarios shift future consumption to the present in the amount of government deficit spending.
The Keynesian inflation model is a special case showing one reason how inflation happens. Inflation can be generated many ways, Milton Friedman's helicopter rain also causes inflation, another special case.
Irving Fisher MV=PQ to then P=MV/Q shows the mechanism of inflation.
The Keynesian model is essentially Q=MV/P. Does deficit spending increase M? If no there is no inflation, no change in P. If deficit spending increases M, there will likely be infation. Unless Q increases with M, either velocity drops or .... P increases to match the unchanging Q, that is inflation. Since money is "paper" something from nothing why would increases in M change Q. Lincoln's Law claims changes in M do not change Q.
My point is that the brilliant Mr Grumpy describes a particular mean that creates inflation, our current means, the usual means. Yet to understand the fundamental mechanism Keynes is not the guide. Irving Fisher is the teacher. Inflation is monetary phenomenon.
How differently do various forms of deficit spending actually affect the price level? If the deficit increases because of new spending, that must be more inflationary than increased deficits via higher interest expense? If deficits are fueling inflation, where on the spectrum do these various sources fall?
Thanks. When I was in Government (the SEC) I was constantly surprised at how often simple, Econ 101 analysis was ignored. I guess saying "I was constantly surprised" means I wasn't learning very fast but lawyers were forever inventing political and self-interested stories that surprised me. We used to have more rules than we possibly could analyze so we would analyze those rules and regulations from attorney's who were likely to leave government and who used the word "sceineter" frequently as a guide to who was violating Econ 101 the most. It worked pretty well...
John is correct that Jared Bernstein is the real hypocrite in this whole mess. A while ago I saw an interview with Art Laffer and he said he never wanted to work in an administration, because he'd have to be a politician, not an economist. His comments were in regards to some of the things Janet Yellen was hawking at the time. At a recent event, I said to an economist peolpe like this (Bernstein and Yellen) are obviously brilliant, so how can they go so against these basic concepts which have been empirically proven over and over again in real world experience. His response was it is simple hubris- If only they would give me everything I want and do it my way, everything would be fine. In other words, they believe central planning (so long as they're the one doing the planning) is superior to the free market. Therein lies the problem.
Bernanke, pg. 287, “Lower long-term rates also tend to raise asset prices, including house and stock prices, which, by making people feel wealthier, tends to stimulate consumer spending-the “wealth effect”.
If the monies represented by the deficits are spent on projects which increase productivity and reduce waste, the deficits are beneficial no matter how financed. The initial inflationary effects of bank financing are quickly overcome by the larger output and lower unit costs. Debt incurred which reduces unit costs of production and promotes the health and welfare of the population obviously is “good” debt.
Debt incurred to finance transfer payments (interest, pensions, etc.) is of dubious quality. Any enterprise, private or public, is in dire straits if it has borrowed in order to make such payments.
This admin doesn’t believe in M2. Talked to a friend last December who works in the Wall Street. He said some famous economist from whatever firm who has connection with the Fed showed up one day to give a seminar and said that, based on some research, M2 supply doesn’t make much impact on inflation. So they believed the Fed will cut rates soon.
Thank-you for explaining, once again, what the root cause of inflation. As an old retired sailor, even I can grasp the idea that throwing money around will not fix the inflation problem. I do have a question, why is there no attempt at balancing the budget?
Inflation out of control at 3%! I can’t stop laughing. All of this while you have basically been pushed out of the slump of the 2010s in a few years.
Having said that, I agree that at this point inflation is purely fiscal. And given the budget worries, I’m fine seeing the administration tax heavily incomes above 1Mln.
Jared Bernstein is often referred to as an economist. When did he become one? His doctorate is a DSW.
Very good note about more money spending by the govt causing inflation, and an excellent graph showing it starting from Biden’s first big Free Money program and more direct government spending in Feb 2021.
It would have been excellent to note how much better and faster is a tax cut stimulus rather than a new spending program of the same deficit level. Tax payers all know what they would spend more on, so tax cuts are quickly spent or invested, so stimulate immediately.
Since the rich already pay a huge % of income tax paid, most tax cuts do reduce taxes of the rich taxpayers. Elites say they don’t like this,
Why not cut the policy rate to 0 and ultimately cut spending by over $1.5 trillion per year?
No wonder people don't understand inflation if in Week 2 the textbook fails to explain that monetary policy, not fiscal policy causes inflation (and deflation and employment and unemployment)! That's "demand curves slope down" territory. John McCain's goose was cooked by the public mistakenly blaming GWB for the unfolding financial crisis instead of Fed mismanagement. The same could happen to Biden.
"This dishonesty, this pandering to polls with no principles, this constant vacillation, this willingness to say utterly silly things as if we’re all small children, might have something to do with the Administration’s terrible poll numbers."
I don't know if Nixon's excuses were any better, but these guys seem truly not to understand that they can't just tell the DA not to prosecute when their policies break econ laws. I've stopped thinking they think *we're* stupid and beginning to conclude *they* are that stupid. They will still be "confused" when our economy mirrors the streets of San Francisco, covered in poo & populated by marks and grifters.
"Maybe honest, consistent leadership might poll better than telling fairy tales and handing out candy."
Too little, too late, and not within their competencies.
What are the chances that even the WSJ is suffering more and more from the bias in the quasi-neo-Marxist journalistic education system? I seem to note an increasing number or articles that seem to have a slant (many about how bad musk is) or deny economic reality to support social justice (climate, racism, etc.)?
The Keynesian model Deficit = Aggregate Demand= Inflation has a missing funding component determining whether inflation in the model is zero or greater than zero. If the deficit is funded by "real" savings, real meaning savings that would have otherwise funded added private capital stock, then inflation would be zero. If the deficit was funded by Federal Reserve printed money, then inflation is creater than zero. Both scenarios shift future consumption to the present in the amount of government deficit spending.
The Keynesian inflation model is a special case showing one reason how inflation happens. Inflation can be generated many ways, Milton Friedman's helicopter rain also causes inflation, another special case.
Irving Fisher MV=PQ to then P=MV/Q shows the mechanism of inflation.
The Keynesian model is essentially Q=MV/P. Does deficit spending increase M? If no there is no inflation, no change in P. If deficit spending increases M, there will likely be infation. Unless Q increases with M, either velocity drops or .... P increases to match the unchanging Q, that is inflation. Since money is "paper" something from nothing why would increases in M change Q. Lincoln's Law claims changes in M do not change Q.
My point is that the brilliant Mr Grumpy describes a particular mean that creates inflation, our current means, the usual means. Yet to understand the fundamental mechanism Keynes is not the guide. Irving Fisher is the teacher. Inflation is monetary phenomenon.
How differently do various forms of deficit spending actually affect the price level? If the deficit increases because of new spending, that must be more inflationary than increased deficits via higher interest expense? If deficits are fueling inflation, where on the spectrum do these various sources fall?
Thanks. When I was in Government (the SEC) I was constantly surprised at how often simple, Econ 101 analysis was ignored. I guess saying "I was constantly surprised" means I wasn't learning very fast but lawyers were forever inventing political and self-interested stories that surprised me. We used to have more rules than we possibly could analyze so we would analyze those rules and regulations from attorney's who were likely to leave government and who used the word "sceineter" frequently as a guide to who was violating Econ 101 the most. It worked pretty well...
John is correct that Jared Bernstein is the real hypocrite in this whole mess. A while ago I saw an interview with Art Laffer and he said he never wanted to work in an administration, because he'd have to be a politician, not an economist. His comments were in regards to some of the things Janet Yellen was hawking at the time. At a recent event, I said to an economist peolpe like this (Bernstein and Yellen) are obviously brilliant, so how can they go so against these basic concepts which have been empirically proven over and over again in real world experience. His response was it is simple hubris- If only they would give me everything I want and do it my way, everything would be fine. In other words, they believe central planning (so long as they're the one doing the planning) is superior to the free market. Therein lies the problem.
I guess Milton Friedman was right after all.
Bernanke, pg. 287, “Lower long-term rates also tend to raise asset prices, including house and stock prices, which, by making people feel wealthier, tends to stimulate consumer spending-the “wealth effect”.
If the monies represented by the deficits are spent on projects which increase productivity and reduce waste, the deficits are beneficial no matter how financed. The initial inflationary effects of bank financing are quickly overcome by the larger output and lower unit costs. Debt incurred which reduces unit costs of production and promotes the health and welfare of the population obviously is “good” debt.
Debt incurred to finance transfer payments (interest, pensions, etc.) is of dubious quality. Any enterprise, private or public, is in dire straits if it has borrowed in order to make such payments.
This admin doesn’t believe in M2. Talked to a friend last December who works in the Wall Street. He said some famous economist from whatever firm who has connection with the Fed showed up one day to give a seminar and said that, based on some research, M2 supply doesn’t make much impact on inflation. So they believed the Fed will cut rates soon.