The returns that capital demands (and the government obliges to) are ultimately unsustainable. That's the core problem here.
Rising wages? There has been no meaningful real increase in wages in 40 years despite a massive increase in productivity. Profits keep going up and up. The expectations for profits keep going up. The problem here is that the people who make companies possible don't get to share in the proceeds of what they contribute to.
Rising wages and lower profits would actually represent in workers actually getting an actual real increase in wages and getting a greater share in the fruits of their labor. But no, that's unacceptable. We have to raise prices to maintain the profits and effectively erode those wage increases.
The real failure here is the government.
Take rising energy prices. The government could take action to hasten development of existing leases and/or restrict the export of refined petroleum products. Oil hasn't gotten more expensive to produce. Oil and gas companies are simply raking in massive profits.
What we actually need is a system like Norway where we don't simply give away natural resources like this for private investors to profit off. At least in Norway, the government is making a ton of revenue from the increased prices, which it can direct back to people who need it.
Housing? Shelter is or should be a human right. What we're allowing to happen here through investors buying up housing stock (and jacking up the prices), second homes, AirBnB and so on has reached the point of being a human rights violation IMHO. Also those skyrocketing rents do even more to erode the income of particularly lower income people to keep them living paycheck to paycheck.
This is modern serfdom in action. The government acts at the behest of the capital-owning class regardless of party and part of that is having a compliant labor pool. This is turning into the West's version of Pakistan's brick kilns.
After going into massive debt for college, having to pay a huge amount for your car, gas and rent and so on, you're absolutely showing up to work. That's the point.
The Norway example is really annoying. It keeps coming back as an example to follow, when everybody knows it is a complete outlier that cannot be reproduced elsewhere.
Norway is sitting on a gigantic pile of offshore gas that it uses to generate massive profits that go into a huge fund they don't know what to do with, all of that for a 5M population that drowns into social programs.
There is literally no country in the world that has this ratio of natural resources $ / capita.
Yet, when you look at what Norway has actually produced over the past few decades in terms of innovation, companies, etc. the picture is very, very empty.
The US government only takes a 12.5% royalty on profits from oil and gas extraction on public land [1]. Norway has a petroleum tax of 27% and a special tax of 51% for a total of 78% [2] in comparison.
While we would generate less tax revenue per capita than Norway would, that's not the point. The point is the state should take a much larger share of the profits of extracting natural resources that state owns.
Norway may be at the far end of the spectrum, but it's not black and white. Most countries have resources and very few share them with their citizens. It's not just to be born into a system where an incumbent oligarchy has control of resources. That kind of modern realpolitik doesn't develop any kind of civic duty or pride.
> Norway is sitting on a gigantic pile of offshore gas that it uses to generate massive profits that go into a huge fund they don't know what to do with, all of that for a 5M population that drowns into social programs.
> Yet, when you look at what Norway has actually produced over the past few decades in terms of innovation, companies, etc. the picture is very, very empty.
I don't agree with this being used as a primary metric for determining the worth of a nation or the value of its policies.
The #1 priority of a country should be the well-being of its people. Not "of its wealthiest"; not "of its economy". The well-being of all its people.
Norway is, last I knew, consistently among the happiest countries on Earth. I think that's a far, far more meaningful metric than "how many new ways to part people from their money have they come up with?"
(Now, I think there's a reasonable argument to be made with respect to things like basic scientific research, improved green technologies and other advances toward ending climate change, etc—particularly since that's vitally important for every nation's long-term well-being. But that's not at all the same thing as "innovation, companies, etc".)
> Yet, when you look at what Norway has actually produced over the past few decades in terms of innovation, companies, etc. the picture is very, very empty.
Do you have anything to back this claim up? Most of what I've searched about the Nordic countries in terms of innovation seems to disagree with this assertion.
>What we're allowing to happen here through investors buying up housing stock (and jacking up the prices), second homes, AirBnB and so on has reached the point of being a human rights violation IMHO.
There are plenty of affordable places to live. People just don't want to move there. Buying a house in a hip U.S. city/suburb isn't a human right.
This comment is too simplistic, but I have noticed this scenario playing out with a lot of the younger people I work with. We have a remote org and hire remote, but a lot of the young people we hire out of college have relocated to some of the most expensive cities.
There’s a growing attitude that if they’re already paying exorbitant amounts for housing and have a large amount of student debt, why not go all-in and buy a house that’s an extra $100-500K more than what they could find in a cheaper location?
There’s also a lot of FOMO from people who watched their friends over-extend themselves on expensive home purchases and then be rewarded heavily for it by rising home values. I’ve talked to a lot of younger people who have feel a severe sense of urgency to buy the most expensive house they can afford before they miss out on future gains or get priced out of the market entirely.
If you think house prices only go up rapidly and your entire adult life has confirmed that idea, you also wouldn’t be interested in moving to a boring location and buying a cheap house. You’d want to move somewhere exciting and get the most expensive house the bank will let you buy.
Why shouldn't we expect people who work in cities to be able to live dignified lives in those cities? There are always going to be janitors, home care providers, baristas, grocery store employees, etc. Our daily lives depend upon them. It's insane to me that we have a system that requires those people to exist but barely pays them enough to afford to live.
I can buy a plot of dirt for maybe $10k near a city with lots of jobs in my state. The problem is actually building something requires following codes and building regulations. A simple adobe house is doable by hands by a family with the occasional help from extended family or friends. But government say "bad" and I need permits, even if it's on a 5 acre plot with zero chance of any structural failure spreading to a neighbor.
Meanwhile even shithole houses go for $250k+ in part because affordable housing is simply irreplaceable due to that housing being built before such onerous regulations being implemented.
Fair enough, but constraining supply of housing in desirable places by placing absurd obstacles on those that want to build more units isn't a human right either.
This does not even factor in the NIMBY-ism of many progressive cities. People argue that housing is a human right and time and time again refuse to allow permitting changes that build more affordable, multi-family homes in their backyard.
Productivity has risen, but it isn't a tide tide that raises all boats. Look at what has boomed since the 70s, finance and tech. Finance because markets were liberalized and the economy financialized. They are at the junction where capital gets allocated in the economy, so they are able to take rents on all the capital that flows through them. The more money moving around the more they slurp up. Tech is where the lions share of productivity was created. All of the huge tech companies are able to leverage the internet to reach a market way larger than any physical store could before. A software development team is automating the workflow that would have gone to physical store employees running a Sears or whatever, a company manufactures a machine that does the work of 5 people 10 times faster, etc. That is why they get paid so much.
Meanwhile the rest of the economy de-industrialized, manufacturing jobs became more scarce because technology increased productivity, whatever was too labor cost intensive went overseas, and whatever jobs couldn't be offshored, retail and service jobs, aren't capable of having the same productivity gains as what was happening in tech. There are pretty hard limits to what restaurant staff, or retail employees, or other regular jobs can do to become more productive. That is why their wages are stagnant, the only reason those jobs exist is because they can't be exported, in some places they even import foreign workers to do those jobs to keep wages low. This is why unions fell out of favor, labor has no leverage anymore since their jobs can just be exported, or they cant but they are low skill jobs so employers can just churn people or grab import immigrants to do it because employees are nothing more than cogs in a machine that Amazon hasn't figured out how to automate yet.
Keep in mind that this is all by design, capital was liberalized, economies globalized, college loans guaranteed, nimbys limiting development in real estate and energy, these were all policies that people wanted and politicians enacted, whether or not they were fully aware of the second order consequences which are why things feel so messed up now.
What people wanted to send almost all labor intensive jobs like manufacturing overseas? Or sending almost all the production of semiconductors which are the primary building blocks of technology overseas? The corporate ownership? Yes. The vast population of citizens? No.
Do you realize that the United States mainly exports cardboard and oil plus a few car parts for BMW? While we import almost everything else.
Finance and tech remained because they are top-heavy industries that require only a few high paid people to execute the majority of those businesses. Bottom line is that this is not sustainable over the long haul. People will revolt as they fully realize that a basic task like buying their own property for their family is unachievable and other basic expenses like healthcare, rent, transportation, and food take up all or more of their income.
> The returns that capital demands (and the government obliges to) are ultimately unsustainable.
That's the start of the top comment, really? We're emerging from the era of unprecedentedly low returns on capital. There are trillions in bonds with negative nominal yield ffs.
Brick kilns in Pakistan (and also Bangladesh and possibly other places) are a form of neoslavery [1]. What happens is that depserate people are forced to take a job but as part of that job they go into debt. The company provides housing? You'll have to pay that back. They provide food too. You'll have to pay that back.
That's the point. For most there is absolutely no escaping that debt so they can't possibly get out of this situation (hence "neoslavery").
This form of coercion is violence and that's the point of having a budget shortfall in your existence: to make you a compliant worker whether you want to be or not.
Another term for this (and what people think we're heading to) is neo-feudalism because we're getting closer and closer to being serfs effectively.
And if you're not interested in the daylight issues that far north, Tulsa, OK is paying a $10k incentive to attract remote workers. At least two of my coworkers moved there during COVID.
They're drinking the water while choking the river.
If you have to have ever-increasing profits, you have to ALSO have purchasers with ever-increasing purchasing power.
You can slide by for a while by wedging yourself into a currently existing system and tapping some of its resources, but eventually if that drain isn't backfilled with more then it will run dry.
Question for anyone that knows - have healthcare costs eaten away at what possible wage increases could have happened? It seems to me that for the average almost-minimum wage full time worker the insurance cost to their employer is probably a very large portion of their wages.
Norway doesn't produce consumer tech products. Most of Norway's tech exports are oil or shipping related, in particular some state-of-the art offshore machinery.
The only consumer product that is produced in volume, is fish.
Keep in mind that Norway only has a population similar to South Carolina. There is a limit to how diverse the tech sector can be.
Sweden, the closest neighbour, is governed in very similar ways, and has plenty of familiar consumer oriented products.
I think wages only can go up with abundant energy.
This time around interest is lagging inflation by atleast 1 year.
In the 70s the rate and salaries increased BEFORE the inflation occured = inflation was rate/salary driven and because debt level was lower.
Today salaries are not increasing 10% per year for most people.
So I actually think the interest rate hike increases the scarcity inflation eventually since energy production need low interest loans to build new sources.
The only sure thing about the hike is that ZERO new companies will be created, for good and for bad.
How is it possibly true that ZERO companies will be created if interest rates go up.
How many businesses are equity funded in the first place?
We did not have capital to start our business.
Most small businesses starting from zero can't get capital in the first place (excluding personal funds, family funds which aren't usually charging interest tied to the Fed benchmark)
Those tech companies that do get tons of capital despite negative value are somewhat unique and for sure interest rates will eventually affect that. Valuations are already starting to come back to at least the Stratosphere ;)
>So I actually think the interest rate hike increases the inflation since energy production need low interest loans to build new sources.
You mean wind, solar and nuclear power? I mean they are capital intensive because the operational costs are dwarfed by the initial investment. With coal and gas, the fuel is an ongoing and high expense compared to the power plant itself.
You can argue either side to this, and make a good case.
My personal preference is to trigger a recession and reduce inflation. The easy cop-out solution is to say a "big f*ck off" to pensioners, lower middle class, and poor people and let inflation soar, but I believe that long term this would be more destructive to the general economy. Better take the long term view here and not kick the can down the street.
> personal preference is to trigger a recession and reduce inflation
These aren't binary outcomes. Tight money does nothing to ease supply-side bottlenecks. It does little to target demand displaced by rising energy prices. If those are the principal drivers of inflation, tightening could depress non-energy demand in a way that causes a recession without alleviating inflation. Stagflation. (To be clear, we're not at tight money yet.)
> If those are the principal drivers of inflation, tightening could depress non-energy demand in a way that causes a recession without alleviating inflation
You don't think the inflation has anything to do with printing $14 trillion out of thin air, or increasing the M1 money supply from ~4tn in march 2020 to over $20tn today?
That's my fear. In other words, increasing interest rates may not address the cause of the current inflation, so now instead of one problem (inflation) we have two (inflation + recession, aka stagflation).
Through their actions they’re revealing that all of the excuses thus far were a lie. “Chip shortage”, “wood shortage”, “salmon shortage”, were all fake and overblown, and the real problem was too much money the whole time.
takes guts to do this and it was needed. Problem is that it will expose that most of the US economy is a sham that needed 0% interest rates to even fake growth. our "leaders" have been kicking the can down the road for a long time. US economy used to grow even with very high interest rates, now even a slight increase puts us into a recession.
Why do people assume that an economy will grow forever. If that were the case, how come the Roman empire failed to conquer the galaxy? 3% over 2000 years is a lot of growth, a lot, I can't stress how unimaginably large that amount of growth is.
I don't think it's that simple. Lower middle class and poor people have debt, and inflation is good for making debt less valuable in real dollars. Pensioners, maybe, but social security is indexed to inflation if I'm not mistaken? I wouldn't be surprised if many public and private pensions are as well.
This is much more a move in favor of the rich that are owed money by the poor imo.
The concept of "inflating debt away" is an assumption that wages match inflation while debt stays static. This is a fair assumption in low inflation times, but is showing some cracks these days.
One might then ask, do higher-class wages match/exceed inflation more than lower-class wages? This is debatable. But here's some interesting data from the Atlanta FED, where you can track wages by quintile, education, "skill", hourly vs. non-hourly, etc. Make your own conclusions.
They have debt, but they also have work contracts with out of date wages. But even in our sector, with the leverage that we as programmers have, companies don’t bother to match inflation. You have to make some risky or uncomfortable move to renegotiate your wage or find a new job. For many people it can be worse. So, everyone is under additional financial stress.
Everywhere I look I see the unexamined assumption that inflation is necessarily bad for everyone. I haven't be enable to find a straight answer on who it actually benefits and who it hurts in the long run. I've found economics studies arguing contradictory conclusions. Wages, costs, debt, cash, stocks, and rent all react differently, and your experience of inflation depends hugely on what balance of these things you have.
Inflation and responses to it affect the distribution of wealth. When I hear an automatic response from "responsible" policymakers explain that some sacrifices will be needed to tame it (mostly not by them, of course), then I strongly suspect that we're headed for yet more accumulation of wealth at the top.
> This is much more a move in favor of the rich that are owed money by the poor imo.
Inflation affects the poor much more than it does the rich, which is why it's considered a "regressive tax". The Fed making a historically large rate hike is a direct attempt at fighting inflation, preferentially so over preventing a recession.
And since we're already very near to full employment, the risk that inflation poses to the poor is greater than that of unemployement, hence why it is better for the poor that inflation is brought in check even at the risk of recession.
The mistake is that, most poor peoples largest expense is housing, and most poor people rent. Those who own have mortgages. Sure their $30K student loans (already on income based repayments) may benefit from inflation, but housing prices certainly not.
Still waiting for inflation to hit my effing salary.
I know it won't, because we're entering stagflation territory and unemployment is going to go up. COVID was a massive wealth transfer from the lower and (esp) middle class to the oligarchs.
...and the lower classes hold a lot of debt, which under high inflation would start to vaporize. It would effectively transfer a lot of wealth from those who hold a lot of cash to those who don't.
I don’t know anyone who has had their salaries keep pace with inflation. And I presume the lack of pay rises is the cause for all the industrial action I keep hearing about.
Inflation is largely being driven by import problems and oil prices, therefore, it is unclear if a recession is a golden key to lower inflation. Keep in mind that oil is internationally expensive, and even a reduction in the US may not bring down prices significantly.
So we could see recession AND inflation at the same time. Then tack on higher interest rates, and everything goes squish.
A huge component of American and British inflation is endogenous (stimulus checks, loose monetary policy, etc…). Both the central bank and the government can and should do something about it.
Core inflation in the UK is 6.2%, in the US is 6%, more than half the inflation rate. This is not the same in countries more affected by the energy shock, such as the eurozone.
Exactly, the best time to raise rates was 6 years ago when the economy was humming along well. Instead the fed kept them too low creating huge bubbles, which it's now in the process of popping. These next few years are going to be a lot rougher than they needed to be.
This isn't just hindsight bias either. Plenty of people have been warning about exactly this problem for years.
I think you would need monarchy (or something more tyrannical) to get that. Democracies seem reliably short-sighted. The personal responsibility of taking on debt is so thoroughly attenuated in a democracy that piling on ($90k per citizen and counting, in the US) debt is the expedient thing to do, and it's seemingly impossible to overcome the electoral price paid for trying to reject that expedient option.
> You can argue either side to this, and make a good case.
Here is an argument. Fed is a thief. First it recklessly bailed out all the toxic banks and derivatives in 2008, then kept the interest rates low for too long propping up the asset prices, then basically printed money as if there is no tomorrow, and then the moment middle class started to see wage growth they gave the asset owning class opportunity exit with big margin as they retired and then started raising the rates. End the Fed.
Every central bank in the world is caught between a rock and a hard place. A recession would be bad for the long-term economy, likely reducing aggregate productivity. But if they don't manage to get inflation under control, we'll see a wage/price spiral as high inflation expectations become entrenched among companies and workers.
The Fed missed the chance to act quickly in November/December and now it has to show commitment to bring inflation down before it spirals out of control. In the US and the UK, the current burst in inflation is more endogenous than it is in the eurozone (see core inflation), so it can and should be put under control by the central bank and by the government, the former with interest rates and the latter cutting stimulus checks and the like.
We’ll see what the BoE and the UK government do, but I’m not an optimist. I don’t see Johnson stop using public money to directly buy votes and I’m very doubtful of the competence of a central banker that goes on TV asking people to not demand pay rises.
Actually higher inflation may help the poor and the middle class. If the inflation is caused by higher wages it is of great advantage of the poor and middle class. As well as a lot of the upper class (i.e., those of them that work for a living).
The present inflation is a bit of a mixed bag. It is partially caused by higher wages, but it is mostly caused by high oil prices, disturbances in grain and fertilizer sales caused by the war in ukraine and various covid related supply chain screwups.
I think the solution is to continue to address the things that can be addressed, like the covid supply chain screwups, low refining capacity, etc. Triggering a recession on purpose is really dumb.
What's the good play here? Cause a recession or price those lower middle class out of being able to afford the cost of living? Typically they aren't the ones with the best negotiating power.
Speaking of lower middle class and poor people. Powell recently stated that workers had too much power and were able to demand too much higher wages. He intended to create policy to tip the balance of power away from workers to resolve this. I don't believe the well-being of lower middle class and poor people are a concern of his.
Yup. The last few years have also seen some of the highest wage growth in decades, and highest saving rates across the board. All that pent up demand and broadly distributed spending power is fueling inflation now. But, in the balance of things, labor did really well.
It's capital that being severely punished now, with negative returns (on top of inflation), it will take years to recoup losses. Anybody hoping of becoming a rentier (the FIRE crowd, seniors looking to retire come to mind) has seen their plans evaporate the last year.
While the truly rich probably don't care either way, their balance sheets are all shrinking nonetheless.
Low inflation may bring price stability and sanity to the markets, but it will not particularly benefit lower incomes.
I would say the inflation hurts middle class significantly more -- they at least have some savings/money.
However, if you are poor you would have more debt\less savings. As such a recession would be worse -- especially as it leads to less jobs and lost jobs.
Here's another perspective to this. An induced recession at a time when most people and businesses are recovering from historic losses that came about in the pandemic, is the worst.
In a recession, spending from the top 10% of the population slows down, which in turn stops the trickle down economics, and hits the lower 90% of the society the hardest. And when that happens after a 2 year long period where they were already hit hard, the effects will be even more long lasting.
[Edit]: Since most of you latched on to the argument that "trickle down economics" doesn't work, I'll clarify. Outside the rhetoric of "Billionaires are hoarding all the money", in a healthy economy, trickle down economics is how most of the businesses work. Every time a person earning six figures goes out buys that extra pair of shoes or goes on that extra vacation or orders in food because they were feeling lazy, it's trickle down economics. It works. When the people with higher purchasing power (I said top 10% for a reason and not top 0.1%) feel the pinch, it has a disproportionate impact on people with less money to spare.
> when most people and businesses are recovering from historic losses
That's the thing. Most people and businesses did not have historic losses, outside of a few market segments. People and businesses are flush with cash, pumping up demand/inflation.
Selfishly I want inflation to inflate away my debt. But I'm well compensated and able to pursue new opportunities even in pretty lean times. Practically we have to control inflation in order to avoid far worse problems.
Are US pensions not tied to the CPI or some other inflation measure? (In Germany, pensions are, in principle, tied to the development of wages, which are generally assumed to outpace inflation.)
Yes, Social Security is indexed to inflation. You can also buy a certain amount of I-Bonds that are tied to inflation and are paying very nicely nowadays. Tax free too.
It actually may not be, when you enter a recession you can fall into an equity trap where everyone starts hoarding money and it further plummets the economy
Prediction higher interest rates will reverse the following trends:
* Private car leases at near zero interest rate will stop. At one point it was sometime cheaper to lease than to buy a car for cash
* Housing bubble. Near zero central bank/bank interest rates has inflated a housing bubble. Higher interest rates will decrease housing prices since fewer buyers will be able to afford higher interest mortages.
* Tech bubble. Cheap interest has also funded some startups with non viable long term business ideas
* Electric scooter rental companies. There will be fewer electric scooters since the interest rate to lease them will be higher. Electric scooter rental companies will afford fewer scooters.
* Less investment companies buying up farmland. It will be more expensive to finance these deals
* High leverage tech stocks over schiller p/e 15 rate will deflate.
* There was no exponential startups growing forever. There was however debt growing an exponential rate. The world is still linear.
Linear power production.
* Graphic cards for gaming will be more available for gamers again. Reason crypto currency mining will decrease deflate by higher interest rate not flowing as much into crypto.
* Tech bubble less tech startups will effect cloud vendor footprint. Fewer tech startups less need to rent cloud services.
I generally agree with all of this, though, i think two of the points may see counter-intuitive outcomes:
>* Housing bubble. Near zero central bank/bank interest rates has inflated a housing bubble. Higher interest rates will decrease housing prices since fewer buyers will be able to afford higher interest mortages.
Ehh... we should expect this, but supply may meet demand, instead of the other way around. We could see an unprecedented ramp down in the already unprecedentedly low inventory.
>* Less investment companies buying up farmland. It will be more expensive to finance these deals
I would be skeptical of this. There will be fewer financed deals, but there are likely firms out there betting on these rate hikes failing, which still make farmland a safe bet against inflation.
> Ehh... we should expect this, but supply may meet demand, instead of the other way around. We could see an unprecedented ramp down in the already unprecedentedly low inventory.
This seems likely. As a hypothetical homeowner, I would have very little incentive to sell my house for less than I paid for it AND take the hit borrowing more expensive money unless there exists some external factor for me to move.
If you've come here for informed commentary on economics, so far it seems the comments section is about par for the course by internet standards. If you're looking for informed professional analysis, I highly recommend the Inside Economics podcast by Moody's Analytics[0].
They post at least once per week and they often discuss recession odds, they break down the causes of inflation, and regularly host industry experts. (One of my favorites was an episode featuring an economist that works for a US car manufacturer and the insight they could give into the economics of new vs used cars and how auto makers are having to adapt to new economics of vehicles.)
Economics is the lies told by some middle class assholes with a degree and/or credential that get paid just enough by upper class assholes to trick low class rubes.
> Economics is the lies told by some middle class assholes with a degree and/or credential that get paid just enough by upper class assholes to trick low class rubes.
Why does nonsense like this get parroted so much? Economics is as much a science as any other social science. Which is to say that it's certainly imperfect and is subject to social problems surrounding science (e.g. the replication crisis), but it's still very much a science. Obviously it's an evolving field with many areas of disagreement among experts, but what science isn't? Plenty of economic principles/models have strong predictive power and broad consensus from economists.
As for your (apparent) critique, economics currently isn't very good at long-term (especially macroeconomic) forecasting. But then science isn't great at predicting weather or earthquakes long term, yet we don't dismiss those fields as lies propagated by the elite. This isn't a defense of Moody's or anything - they may well have ignored the risks of mortgage-backed securities for financial gain, and I can't speak to the accuracy of their podcast.
But your argument seems no different than claims that because pharmaceutical companies have lied and caused harm in the name of profits, the entire field of medicine is nothing but lies and propaganda and we should throw it out and switch to curing cancer with juice cleanses.
Predictably, the Fed's quantitative easing combined with stimulus created inflation.
You can make a decent argument that the initial policy was the right thing to do. I mean, if you're going to force people not to work because of a pandemic, you have to give them some money. Whether there was (or is ever) a need to prop up the stock market as well is less obvious.
But where they VERY clearly f'ed up is labeling the inflation as "transitory" and allowing the market to keep running up ridiculous returns (which were detached from underlying value) and now having to clamp down much harder to get a hold on inflation, which will cause significant structural unemployment as those companies that were running red hot and expanding until a few months ago have to do a bunch of layoffs.
A much greater proportion of this inflation is due to supply side shocks, and very little (if any at all) has to do with QE. COVID simultaneously destroyed supply chains while shifting consumer from spending on services to spending on goods which, by the laws of supply and demand, meant prices for goods went up: inflation.
Energy and locomotion are core aspects of the US economy that factor into just about everything including – you guessed it – the price of goods! And just as the impacts of the pandemic were easing in the US, one of the world's largest oil producers started a war and then was subject to sanctions and embargos by the US and Europe. And so, surprise, the price at the pump has skyrocketed! Again, no connection to QE.
The stimulus, on the other hand, I would agree with you; those checks increased the purchasing power of individuals right as supply chain issues cut the supply of goods. I imagine the alternative world where the stimulus hadn't happened might have been more structurally worse, albeit with lower inflation.
I agree with pretty much all of this, but would add that while the stimulus was absolutely necessary, it was applied/distributed so sloppily that lots of people who didn’t need it wound up with tons of free money (I personally know a few) while folks who were really suffering got almost no benefit at all (too little too late).
Once again, the only people who came out ahead are the ones with all the money and power in the first place.
While supply chain problems were real during the pandemic, especially w.r.t. automobiles, QE is by far the driving force of our current economic situation. Here is some data to put your talking point into context.
Look at the recent production some of the items being severely impacted by inflation. Now look up their price charts (you can use February before Putin invaded Ukraine to eliminate another variable).
You could argue that demand for oil was also lower, because of fewer automobiles and, of course, lockdowns. Crude oil prices were at 2018 levels until the very end of 2021 (when inflation was at 7%), so you can't blame inflation on that.
Did Covid affect productivity? Undeniably. A significant portion of the world population was literally locked down for months. Is that lower productivity and resulting supply chain disruptment a contributor to inflation? Probably. Although without any government intervention, prices probably would have depressed similar to the 1930's as the economy contracted and cash became more valuable as paper loans eliminated money generated by the money multiplier.
But these statements suggest a low level misunderstanding: "and very little (if any at all) has to do with QE" and "one of the world's largest oil producers started a war."
QE is a major contributor (hence why it is finally being rolled back to undo the damage...) and the inflation rate was 7.9% in February, BEFORE Putin invaded Ukraine. If I had to guess a significance, I'd say overall economic price increases are a consequence of 70% QE, 20% supply chain, 10% Russia. Another thing... look at the stock market. If the supply chain truly demolished the value of the economy, why did the market go on a historic bull run? Either the supply chain issues were not as bad as you think, or the Fed way over-quantitative-eased and disconnected prices from reality by expanding their balance sheet with literal securities, and of course the historically low interest rates.
> Predictably, the Fed's quantitative easing combined with stimulus created inflation.
Combined with the removal of the conditions to which the stimulus and easing were responding, largely, the effects of both voluntary and mandatory behavior changes associated with the pandemic. (That's also why this didn't happen with last fiscal/monetary stimulus, because the underlying conditions didn't snap back as fast, allowing stimulus to unwind without overshooting.)
Dang. Well if it's enough to pop the various housing/cryptocurrency/startup bubbles, good. They were already pretty squishy but only for a threat that had to be carried out.
It can always be walked back, and probably will be in year...
Unless the tax brackets are adjusted, inflation with rising wages means more people in higher tax brackets. If corporate earnings go up, there's more for the IRS too though that might be wiped out by the lessening value of each dollar.
Let's say inflation is 10%. Let's say I have some money. To just break even, I have to invest it somewhere that returns 10%. So I do. (That's easier to find than it was when inflation was 1.5%.)
Then the IRS says that the 10% is income, and taxes me on that. They make more than they did when I was getting 1.5% on my money.
Ridiculous that the Fed doesn't just raise 200bp and be done. They could have done this six months ago (call it 250bp then) if they truly believe that the level of interest rates will have a material effect on the inflation rate.
The piece meal, drip drip increases just raises uncertainty for consumers and businesses while ensuring they are "behind the curve"
Where was this thinking when it came to applying trillions of dollars in monetary policy? We're supposed to cautious with interest rate hikes, yet free with the money printer. Quite the double standard I'd say.
Or rather, it ensures they avoid a one-off under-correction. One big rate hike will be forgotten quickly and worked around. Inflation is a beast that needs long-term trends, not one-off actions.
I know simple metaphors for complex problems aren’t great, but I’ve always liked this one:
Think of an economics equilibrium as a guitar string. The harder you pluck it (shock) the longer if vibrates back and forth before reaching equilibrium. Plucking it softer but more often, keeps the string closer to equilibrium across the entire time horizon.
This also applies to things like minimum wage increases.
Too many dollars are chasing too few goods because of supply chain issues caused by these governments locking everyone down when they overreacted. You can't reduce inflation this way except by affecting tens of millions of innocent people who now have austerity measures imposed on them from on high courtesy of Janet Yellen and her posse.
They should have avoided the steep lockdowns and given cash directly to households instead of the giant infusion/bailout to failing states and companies that didn't even need the money.
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Rising wages? There has been no meaningful real increase in wages in 40 years despite a massive increase in productivity. Profits keep going up and up. The expectations for profits keep going up. The problem here is that the people who make companies possible don't get to share in the proceeds of what they contribute to.
Rising wages and lower profits would actually represent in workers actually getting an actual real increase in wages and getting a greater share in the fruits of their labor. But no, that's unacceptable. We have to raise prices to maintain the profits and effectively erode those wage increases.
The real failure here is the government.
Take rising energy prices. The government could take action to hasten development of existing leases and/or restrict the export of refined petroleum products. Oil hasn't gotten more expensive to produce. Oil and gas companies are simply raking in massive profits.
What we actually need is a system like Norway where we don't simply give away natural resources like this for private investors to profit off. At least in Norway, the government is making a ton of revenue from the increased prices, which it can direct back to people who need it.
Housing? Shelter is or should be a human right. What we're allowing to happen here through investors buying up housing stock (and jacking up the prices), second homes, AirBnB and so on has reached the point of being a human rights violation IMHO. Also those skyrocketing rents do even more to erode the income of particularly lower income people to keep them living paycheck to paycheck.
This is modern serfdom in action. The government acts at the behest of the capital-owning class regardless of party and part of that is having a compliant labor pool. This is turning into the West's version of Pakistan's brick kilns.
After going into massive debt for college, having to pay a huge amount for your car, gas and rent and so on, you're absolutely showing up to work. That's the point.
A budget shortfall is built into your existence.
Norway is sitting on a gigantic pile of offshore gas that it uses to generate massive profits that go into a huge fund they don't know what to do with, all of that for a 5M population that drowns into social programs.
There is literally no country in the world that has this ratio of natural resources $ / capita.
Yet, when you look at what Norway has actually produced over the past few decades in terms of innovation, companies, etc. the picture is very, very empty.
While we would generate less tax revenue per capita than Norway would, that's not the point. The point is the state should take a much larger share of the profits of extracting natural resources that state owns.
[1]: https://www.americanprogress.org/article/federal-oil-and-gas...
[2]: https://www2.deloitte.com/content/dam/Deloitte/global/Docume...
Norway may be at the far end of the spectrum, but it's not black and white. Most countries have resources and very few share them with their citizens. It's not just to be born into a system where an incumbent oligarchy has control of resources. That kind of modern realpolitik doesn't develop any kind of civic duty or pride.
Source: https://www.norskpetroleum.no/en/production-and-exports/expo...
Norway EXPORTS about $80Bn worth of oil & gas per year. Which is about $14,800 per capita.
I don't agree with this being used as a primary metric for determining the worth of a nation or the value of its policies.
The #1 priority of a country should be the well-being of its people. Not "of its wealthiest"; not "of its economy". The well-being of all its people.
Norway is, last I knew, consistently among the happiest countries on Earth. I think that's a far, far more meaningful metric than "how many new ways to part people from their money have they come up with?"
(Now, I think there's a reasonable argument to be made with respect to things like basic scientific research, improved green technologies and other advances toward ending climate change, etc—particularly since that's vitally important for every nation's long-term well-being. But that's not at all the same thing as "innovation, companies, etc".)
Not foisting Uber on the world is a strength, not a weakness...
Being stable, taking care of your own stuff, that's strength.
Your idea of a strong economy has its foundations in a growth-only myth that has caused all of the issues we see before us.
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Do you have anything to back this claim up? Most of what I've searched about the Nordic countries in terms of innovation seems to disagree with this assertion.
https://voxeu.org/article/nordic-innovation-cuddly-capitalis...https://www.ft.com/content/e3c15066-cd77-11e4-9144-00144feab...https://www.globalinnovationindex.org/analysis-indicator
a huge chunk of oil has been taken off the global market and refining capacity can't be increased instantly
>After going into massive debt for college
college used to possible to be paid for with a part time job before the government started handing out loans which jacked up prices
Easy to get loans certainly have an impact on prices, but non tuition spending has declined on a per student basis.
There are plenty of affordable places to live. People just don't want to move there. Buying a house in a hip U.S. city/suburb isn't a human right.
There’s a growing attitude that if they’re already paying exorbitant amounts for housing and have a large amount of student debt, why not go all-in and buy a house that’s an extra $100-500K more than what they could find in a cheaper location?
There’s also a lot of FOMO from people who watched their friends over-extend themselves on expensive home purchases and then be rewarded heavily for it by rising home values. I’ve talked to a lot of younger people who have feel a severe sense of urgency to buy the most expensive house they can afford before they miss out on future gains or get priced out of the market entirely.
If you think house prices only go up rapidly and your entire adult life has confirmed that idea, you also wouldn’t be interested in moving to a boring location and buying a cheap house. You’d want to move somewhere exciting and get the most expensive house the bank will let you buy.
Meanwhile even shithole houses go for $250k+ in part because affordable housing is simply irreplaceable due to that housing being built before such onerous regulations being implemented.
Meanwhile the rest of the economy de-industrialized, manufacturing jobs became more scarce because technology increased productivity, whatever was too labor cost intensive went overseas, and whatever jobs couldn't be offshored, retail and service jobs, aren't capable of having the same productivity gains as what was happening in tech. There are pretty hard limits to what restaurant staff, or retail employees, or other regular jobs can do to become more productive. That is why their wages are stagnant, the only reason those jobs exist is because they can't be exported, in some places they even import foreign workers to do those jobs to keep wages low. This is why unions fell out of favor, labor has no leverage anymore since their jobs can just be exported, or they cant but they are low skill jobs so employers can just churn people or grab import immigrants to do it because employees are nothing more than cogs in a machine that Amazon hasn't figured out how to automate yet.
Keep in mind that this is all by design, capital was liberalized, economies globalized, college loans guaranteed, nimbys limiting development in real estate and energy, these were all policies that people wanted and politicians enacted, whether or not they were fully aware of the second order consequences which are why things feel so messed up now.
What people wanted to send almost all labor intensive jobs like manufacturing overseas? Or sending almost all the production of semiconductors which are the primary building blocks of technology overseas? The corporate ownership? Yes. The vast population of citizens? No.
Do you realize that the United States mainly exports cardboard and oil plus a few car parts for BMW? While we import almost everything else.
Finance and tech remained because they are top-heavy industries that require only a few high paid people to execute the majority of those businesses. Bottom line is that this is not sustainable over the long haul. People will revolt as they fully realize that a basic task like buying their own property for their family is unachievable and other basic expenses like healthcare, rent, transportation, and food take up all or more of their income.
That's the start of the top comment, really? We're emerging from the era of unprecedentedly low returns on capital. There are trillions in bonds with negative nominal yield ffs.
Just getting corporations and billionaire individuals to pay some taxes would be a nice start.
Could you elaborate on this reference? I am not familiar with this.
That's the point. For most there is absolutely no escaping that debt so they can't possibly get out of this situation (hence "neoslavery").
This form of coercion is violence and that's the point of having a budget shortfall in your existence: to make you a compliant worker whether you want to be or not.
Another term for this (and what people think we're heading to) is neo-feudalism because we're getting closer and closer to being serfs effectively.
[1]: https://www.aljazeera.com/features/2019/10/21/the-spiralling...
If you have to have ever-increasing profits, you have to ALSO have purchasers with ever-increasing purchasing power.
You can slide by for a while by wedging yourself into a currently existing system and tapping some of its resources, but eventually if that drain isn't backfilled with more then it will run dry.
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Which consumer products do you own come from Norway?
The only consumer product that is produced in volume, is fish.
Keep in mind that Norway only has a population similar to South Carolina. There is a limit to how diverse the tech sector can be.
Sweden, the closest neighbour, is governed in very similar ways, and has plenty of familiar consumer oriented products.
There is also some really interesting scientific research.
If you're telling me that the AVERAGE person in the West is worse off now than in 1925 or even 1965, you're delusional.
MAYBE the average white male. But even that I am highly skeptical...
Was life better in 1995 or 2005 or 2012? I dunno. There's ups and downs. The trend line has been obvious.
This time around interest is lagging inflation by atleast 1 year.
In the 70s the rate and salaries increased BEFORE the inflation occured = inflation was rate/salary driven and because debt level was lower.
Today salaries are not increasing 10% per year for most people.
So I actually think the interest rate hike increases the scarcity inflation eventually since energy production need low interest loans to build new sources.
The only sure thing about the hike is that ZERO new companies will be created, for good and for bad.
How many businesses are equity funded in the first place?
We did not have capital to start our business.
Most small businesses starting from zero can't get capital in the first place (excluding personal funds, family funds which aren't usually charging interest tied to the Fed benchmark)
Those tech companies that do get tons of capital despite negative value are somewhat unique and for sure interest rates will eventually affect that. Valuations are already starting to come back to at least the Stratosphere ;)
You mean wind, solar and nuclear power? I mean they are capital intensive because the operational costs are dwarfed by the initial investment. With coal and gas, the fuel is an ongoing and high expense compared to the power plant itself.
My personal preference is to trigger a recession and reduce inflation. The easy cop-out solution is to say a "big f*ck off" to pensioners, lower middle class, and poor people and let inflation soar, but I believe that long term this would be more destructive to the general economy. Better take the long term view here and not kick the can down the street.
These aren't binary outcomes. Tight money does nothing to ease supply-side bottlenecks. It does little to target demand displaced by rising energy prices. If those are the principal drivers of inflation, tightening could depress non-energy demand in a way that causes a recession without alleviating inflation. Stagflation. (To be clear, we're not at tight money yet.)
You don't think the inflation has anything to do with printing $14 trillion out of thin air, or increasing the M1 money supply from ~4tn in march 2020 to over $20tn today?
https://www.covidmoneytracker.org/
https://fred.stlouisfed.org/series/M1SL
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This is much more a move in favor of the rich that are owed money by the poor imo.
One might then ask, do higher-class wages match/exceed inflation more than lower-class wages? This is debatable. But here's some interesting data from the Atlanta FED, where you can track wages by quintile, education, "skill", hourly vs. non-hourly, etc. Make your own conclusions.
[1] https://www.atlantafed.org/chcs/wage-growth-tracker
Inflation and responses to it affect the distribution of wealth. When I hear an automatic response from "responsible" policymakers explain that some sacrifices will be needed to tame it (mostly not by them, of course), then I strongly suspect that we're headed for yet more accumulation of wealth at the top.
Inflation affects the poor much more than it does the rich, which is why it's considered a "regressive tax". The Fed making a historically large rate hike is a direct attempt at fighting inflation, preferentially so over preventing a recession.
And since we're already very near to full employment, the risk that inflation poses to the poor is greater than that of unemployement, hence why it is better for the poor that inflation is brought in check even at the risk of recession.
inflation is a monster that destroys the low and middle class. the rich and powerful have tools to profit and dance around it.
Tanking the economy will hurt these people the most. But yes, inflation would flatten.
I know it won't, because we're entering stagflation territory and unemployment is going to go up. COVID was a massive wealth transfer from the lower and (esp) middle class to the oligarchs.
Can't have that.
So we could see recession AND inflation at the same time. Then tack on higher interest rates, and everything goes squish.
Core inflation in the UK is 6.2%, in the US is 6%, more than half the inflation rate. This is not the same in countries more affected by the energy shock, such as the eurozone.
This isn't just hindsight bias either. Plenty of people have been warning about exactly this problem for years.
Here is an argument. Fed is a thief. First it recklessly bailed out all the toxic banks and derivatives in 2008, then kept the interest rates low for too long propping up the asset prices, then basically printed money as if there is no tomorrow, and then the moment middle class started to see wage growth they gave the asset owning class opportunity exit with big margin as they retired and then started raising the rates. End the Fed.
We’ll see what the BoE and the UK government do, but I’m not an optimist. I don’t see Johnson stop using public money to directly buy votes and I’m very doubtful of the competence of a central banker that goes on TV asking people to not demand pay rises.
The present inflation is a bit of a mixed bag. It is partially caused by higher wages, but it is mostly caused by high oil prices, disturbances in grain and fertilizer sales caused by the war in ukraine and various covid related supply chain screwups.
I think the solution is to continue to address the things that can be addressed, like the covid supply chain screwups, low refining capacity, etc. Triggering a recession on purpose is really dumb.
https://www.wsj.com/articles/transcript-fed-chief-powells-po...
It's capital that being severely punished now, with negative returns (on top of inflation), it will take years to recoup losses. Anybody hoping of becoming a rentier (the FIRE crowd, seniors looking to retire come to mind) has seen their plans evaporate the last year.
While the truly rich probably don't care either way, their balance sheets are all shrinking nonetheless.
Low inflation may bring price stability and sanity to the markets, but it will not particularly benefit lower incomes.
However, if you are poor you would have more debt\less savings. As such a recession would be worse -- especially as it leads to less jobs and lost jobs.
People love to act like they’re helping poor people when in truth they’re just hurting the labor market ie everyone but rich people.
In a recession, spending from the top 10% of the population slows down, which in turn stops the trickle down economics, and hits the lower 90% of the society the hardest. And when that happens after a 2 year long period where they were already hit hard, the effects will be even more long lasting.
[Edit]: Since most of you latched on to the argument that "trickle down economics" doesn't work, I'll clarify. Outside the rhetoric of "Billionaires are hoarding all the money", in a healthy economy, trickle down economics is how most of the businesses work. Every time a person earning six figures goes out buys that extra pair of shoes or goes on that extra vacation or orders in food because they were feeling lazy, it's trickle down economics. It works. When the people with higher purchasing power (I said top 10% for a reason and not top 0.1%) feel the pinch, it has a disproportionate impact on people with less money to spare.
That's the thing. Most people and businesses did not have historic losses, outside of a few market segments. People and businesses are flush with cash, pumping up demand/inflation.
It ever started?
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Selfishly I want inflation to inflate away my debt. But I'm well compensated and able to pursue new opportunities even in pretty lean times. Practically we have to control inflation in order to avoid far worse problems.
Are US pensions not tied to the CPI or some other inflation measure? (In Germany, pensions are, in principle, tied to the development of wages, which are generally assumed to outpace inflation.)
* Private car leases at near zero interest rate will stop. At one point it was sometime cheaper to lease than to buy a car for cash
* Housing bubble. Near zero central bank/bank interest rates has inflated a housing bubble. Higher interest rates will decrease housing prices since fewer buyers will be able to afford higher interest mortages.
* Tech bubble. Cheap interest has also funded some startups with non viable long term business ideas
* Electric scooter rental companies. There will be fewer electric scooters since the interest rate to lease them will be higher. Electric scooter rental companies will afford fewer scooters.
* Less investment companies buying up farmland. It will be more expensive to finance these deals
* High leverage tech stocks over schiller p/e 15 rate will deflate.
* There was no exponential startups growing forever. There was however debt growing an exponential rate. The world is still linear. Linear power production.
* Graphic cards for gaming will be more available for gamers again. Reason crypto currency mining will decrease deflate by higher interest rate not flowing as much into crypto.
* Tech bubble less tech startups will effect cloud vendor footprint. Fewer tech startups less need to rent cloud services.
>* Housing bubble. Near zero central bank/bank interest rates has inflated a housing bubble. Higher interest rates will decrease housing prices since fewer buyers will be able to afford higher interest mortages.
Ehh... we should expect this, but supply may meet demand, instead of the other way around. We could see an unprecedented ramp down in the already unprecedentedly low inventory.
>* Less investment companies buying up farmland. It will be more expensive to finance these deals
I would be skeptical of this. There will be fewer financed deals, but there are likely firms out there betting on these rate hikes failing, which still make farmland a safe bet against inflation.
This seems likely. As a hypothetical homeowner, I would have very little incentive to sell my house for less than I paid for it AND take the hit borrowing more expensive money unless there exists some external factor for me to move.
What do you mean by this?
They post at least once per week and they often discuss recession odds, they break down the causes of inflation, and regularly host industry experts. (One of my favorites was an episode featuring an economist that works for a US car manufacturer and the insight they could give into the economics of new vs used cars and how auto makers are having to adapt to new economics of vehicles.)
[0] https://about.moodys.io/podcast-series/moodys-talks-inside-e...
Economics is the lies told by some middle class assholes with a degree and/or credential that get paid just enough by upper class assholes to trick low class rubes.
Why does nonsense like this get parroted so much? Economics is as much a science as any other social science. Which is to say that it's certainly imperfect and is subject to social problems surrounding science (e.g. the replication crisis), but it's still very much a science. Obviously it's an evolving field with many areas of disagreement among experts, but what science isn't? Plenty of economic principles/models have strong predictive power and broad consensus from economists.
As for your (apparent) critique, economics currently isn't very good at long-term (especially macroeconomic) forecasting. But then science isn't great at predicting weather or earthquakes long term, yet we don't dismiss those fields as lies propagated by the elite. This isn't a defense of Moody's or anything - they may well have ignored the risks of mortgage-backed securities for financial gain, and I can't speak to the accuracy of their podcast.
But your argument seems no different than claims that because pharmaceutical companies have lied and caused harm in the name of profits, the entire field of medicine is nothing but lies and propaganda and we should throw it out and switch to curing cancer with juice cleanses.
You can make a decent argument that the initial policy was the right thing to do. I mean, if you're going to force people not to work because of a pandemic, you have to give them some money. Whether there was (or is ever) a need to prop up the stock market as well is less obvious.
But where they VERY clearly f'ed up is labeling the inflation as "transitory" and allowing the market to keep running up ridiculous returns (which were detached from underlying value) and now having to clamp down much harder to get a hold on inflation, which will cause significant structural unemployment as those companies that were running red hot and expanding until a few months ago have to do a bunch of layoffs.
Energy and locomotion are core aspects of the US economy that factor into just about everything including – you guessed it – the price of goods! And just as the impacts of the pandemic were easing in the US, one of the world's largest oil producers started a war and then was subject to sanctions and embargos by the US and Europe. And so, surprise, the price at the pump has skyrocketed! Again, no connection to QE.
The stimulus, on the other hand, I would agree with you; those checks increased the purchasing power of individuals right as supply chain issues cut the supply of goods. I imagine the alternative world where the stimulus hadn't happened might have been more structurally worse, albeit with lower inflation.
Once again, the only people who came out ahead are the ones with all the money and power in the first place.
Look at the recent production some of the items being severely impacted by inflation. Now look up their price charts (you can use February before Putin invaded Ukraine to eliminate another variable).
Wheat: https://www.statista.com/statistics/267268/production-of-whe... Meats: https://www.statista.com/statistics/237632/production-of-mea... Steel: https://www.statista.com/statistics/267264/world-crude-steel...
The only economically significant shortages (as defined by lower production) were in automobiles and oil: https://www.statista.com/statistics/262747/worldwide-automob...
You could argue that demand for oil was also lower, because of fewer automobiles and, of course, lockdowns. Crude oil prices were at 2018 levels until the very end of 2021 (when inflation was at 7%), so you can't blame inflation on that.
Did Covid affect productivity? Undeniably. A significant portion of the world population was literally locked down for months. Is that lower productivity and resulting supply chain disruptment a contributor to inflation? Probably. Although without any government intervention, prices probably would have depressed similar to the 1930's as the economy contracted and cash became more valuable as paper loans eliminated money generated by the money multiplier.
But these statements suggest a low level misunderstanding: "and very little (if any at all) has to do with QE" and "one of the world's largest oil producers started a war."
QE is a major contributor (hence why it is finally being rolled back to undo the damage...) and the inflation rate was 7.9% in February, BEFORE Putin invaded Ukraine. If I had to guess a significance, I'd say overall economic price increases are a consequence of 70% QE, 20% supply chain, 10% Russia. Another thing... look at the stock market. If the supply chain truly demolished the value of the economy, why did the market go on a historic bull run? Either the supply chain issues were not as bad as you think, or the Fed way over-quantitative-eased and disconnected prices from reality by expanding their balance sheet with literal securities, and of course the historically low interest rates.
Combined with the removal of the conditions to which the stimulus and easing were responding, largely, the effects of both voluntary and mandatory behavior changes associated with the pandemic. (That's also why this didn't happen with last fiscal/monetary stimulus, because the underlying conditions didn't snap back as fast, allowing stimulus to unwind without overshooting.)
It can always be walked back, and probably will be in year...
Not to any significant degree. Bank rates won't come close to offsetting the effect of inflation. The big winner will be the IRS, as intended.
.
https://taxdude.substack.com/p/inflation-is-a-double-stealth...
Then the IRS says that the 10% is income, and taxes me on that. They make more than they did when I was getting 1.5% on my money.
The piece meal, drip drip increases just raises uncertainty for consumers and businesses while ensuring they are "behind the curve"
Think of an economics equilibrium as a guitar string. The harder you pluck it (shock) the longer if vibrates back and forth before reaching equilibrium. Plucking it softer but more often, keeps the string closer to equilibrium across the entire time horizon.
This also applies to things like minimum wage increases.
They should have avoided the steep lockdowns and given cash directly to households instead of the giant infusion/bailout to failing states and companies that didn't even need the money.