patrick.net

Here's a challenge for Mish.

Prove that Keynes or "Keynesians" ever said inflation provides overall economic benefits ? He didn't. He was concerned about the negative effects of inflation, but he was willing to tolerate them when the alternative was deflation and unemployment.

Inflation is a tax (sometimes) at least according to Keynes, in the sense that in emergencies a government can literally print money. Ultimately the value of that money comes from somewhere. But that's a reference to the money supply inflation which only sometimes translates to price and wage increase devaluation of money (as opposed to devaluation against other currencies which can also happen at the same time).

I'm concerned about inflation happening now, because it seems unlikely that wages can keep up.

bgamall4 says

Inflation is a tax, unless wages keep pace which they have not since 1979

That's ridiculous. Is deflation a tax if wages drop faster than goods and services?

marcus says

I'm concerned about inflation happening now, because it seems unlikely that wages can keep up.

price inflation is part of the price-discovery mechanism.

if wages can't "keep up", price rises stop as suppliers run out of sales.

granted, that's just half-assed theory and economics really, really needs to model the high-rent sectors -- real estate and healthcare, each ~$3T -- better.

deepcgi says

Saving money is bad.

Putting money in a coffee can buried in the yard is bad.

Taking 86% of the wealth of the planet -- that's what the top 10% owns -- impoverishes those with 14%, no matter if you call your excess income "savings".

Voting for politicians who believe that government should also live within its means is bad.

"Living within our means" is a thought-terminating cliche.

These same politicians went off and spent THREE TRILLION on wars 2001-2005 and didn't attempt to pay for these at all -- just borrow the money from our trading partners.

They are liars.

As the most productive country on the planet -- $100k+ of GDP per worker -- If we were to really "live within our means" we'd have an economy as powerful as Norway's and a populace as happy.

Encouraging economic policies where energy, homes, and other costs of living decrease is bad.

No politician can run on a platform of reducing the cost of housing, since most voters own. Hell, Texas politicians -- your guys -- recently made it harder for renters to vote (renters move more and so their papers are less likely to be in order).

Those nasty evil republicans want to spend the credit card money, too, but they are evil because they want to spend it overseas and on wars and on people that are even richer than you are.

Yes, the GOP has thrown away TRILLIONS on waste, spending money and we're not any richer for it, POORER actually since we had to consume resources like copper, concrete, steel, and oil to make that malinvestment.

How many GM cars did our occupation leave in Iraq? You don't even want to know!

The bottom line is we need to figure out how to re-start the class war and give the lower 99% of this economy a break -- a New Deal or Fair Deal.

This does not necessarily have to be a Democratic vs. Republican issue though -- it is REALLY a LEFT vs RIGHT issue, and it's only contingent accident that the parties are aligned this way now.

Socialized medicine. Export economy. Housing & Energy policy. More public transit. Looks a bit Communist if you ask me, actually.

Bellingham Bill says

These same politicians went off and spent THREE TRILLION on wars 2001-2005 and didn't attempt to pay for these at all -- just borrow the money from our trading partners.

They are liars.

Irrelevant. go hang em for their perpetual wars, fight for a budget change, there is NO excuse for borrowing/counterfeiting at the expense of future generations.

Bellingham Bill says

Putting money in a coffee can buried in the yard is bad.

Nope - it is very useful, because not if but when you hit a rough patch you don't need to fire-sell all your assets in distress, you go and get some from the yard. Sound capital formation is the cornerstone of a stable economy.

@mell/deepcgi-

Once again, I'll ask. Is there ANY evidence that REAL wages perform better under deflationary times vs. inflationary times???

Once you answer this-I'll ask why do you think deflation is better than inflation?

tatupu70 says

@mell/deepcgi-

Once again, I'll ask. Is there ANY evidence that REAL wages perform better under deflationary times vs. inflationary times???

Once you answer this-I'll ask why do you think deflation is better than inflation?

They do perform no better or worse in either scenario as long as both deflation and inflation are organically happening, they are necessary symptoms of the economy. There is no question that real wages perform piss-poor(er) in artificially created inflation, just look at the the past years.

We're in our 14th year of Keynesian economics about to be 15.
15 years after Reaganomics the country was rebounded and running strong under Clinton.

Not saying Reaganomics were great, but at least they were more effective than Keynesian economics.

That's damning evidence..

CaptainShuddup says

We're in our 14th year of Keynesian economics about to be 15.

CaptainShuddup says

We're in our 14th year of Keynesian economics about to be 15.

15 years after Reaganomics the country was rebounded and running strong under Clinton.

Not saying Reaganomics were great, but at least they were more effective than Keynesian economics.

Reagan was the greatest borrow and spend keynesian in american history.

mell says

They do perform no better or worse in either scenario as long as both deflation and inflation are organically happening, they are necessary symptoms of the economy. There is no question that real wages perform piss-poor(er) in artificially created inflation, just look at the the past years.

How do you determine organic inflation vs. artificially created inflation? Is there a test?

Do you have any data to back your claim that real wages perform poorly in "artificially created" inflation? (more than 3 years)

Discuss Reagan with this lot, they'll mention
"trickle down economics" and income equality.

When the libs create the greatest income inequality in History, they tout the merits of Keynesian economics. BUT if you say Reagan's economic policy was more effective over the same amount of time.

Well Reagan was Financial genius!

Spoiler Alert!!

Obama is not going to be able to recall his last 3 years in office to the grand jury that's coming. Holder will be the fall guy.

I missed that. Where we on a depression prior to Reagan? I thought it was the opposite.

Mish says

Inflation is the natural result of consumers increasing their demands on production thereby moving money, creating jobs, and growing the economy. Inflation generally means wages are increasing. Inflation generally means things are getting more expensive because people are living better and spending more money.

You've got it backwards. As productivity increases, goods get cheaper. The natural state of a world with growing economies is price deflation on many things (while things in short supply get more expensive). Efficiency and productivity work to minimize short supply.

Price inflation is an artifact of a monetary system which creates money. Productivity still governs what people can afford, in that goods which are produced efficiently get cheaper relative to incomes.

However, the problem with policy driven inflation is that it distorts the economy. It transfers wealth from the people with earliest access to the money, at the cost of people who get it later, after it's diffused through the economy. In this respect, it can actually damage productivity by causing people to speculate into the economic sectors where the new money flows, instead of building out more difficult, productive businesses, which is their only choice if we don't have monetary system based asset bubbles.

If inflation works to make people wealthier, why wasn't Zimbabwe the wealthiest country on earth?

myob says

It transfers wealth from the people with earliest access to the money, at the cost of people who get it later

Please explain this mechanism. How do people with "earliest access" get the money??

This is pure BS along with mell's neo-crony nonsense.

ja says

Once is cheaper to hire, more employers will do it.

Employers hire when there is demand and they need more employees to meet it.

It wasn't as bad as you claim.

No where near as bad. The economy bounced back by Bush Sr.'s second year, and we had a surplus by Clinton's 3 year.

It's going to take 30 years to dig our selves out of Obama's hole.
The Gulf oil hole was a prelude to what was in store for us.

You just have the luxury of hidden numbers, back room deals, unaccounted unemployed, unaccounted government spending, then lies about how much was paid back by whom.

Had Ronnie had that luxury, he would have been the most successful president in the History of America. Because at least he had substance to handle real crisis in America when they arose.

tatupu70 says

Please explain this mechanism. How do people with "earliest access" get the money??

This is pure BS along with mell's neo-crony nonsense.

Fed money is spent into existence via several outlets - buying treasuries and thereby financing government debt spending, via sub-market rate loans to big banks and direct bank asset purchases via QE.

The government benefits from money printing since it's the biggest debtor, that's simple. Next, the banks get very cheap money, with which they invest into the markets, assets, and get to cover their previous bad bets. They get wealthy, staff get big bonuses, etc, they do great.

Meanwhile, the average person isn't seeing wages go up, their hours are being cut, while the cost of housing and energy are increasing, making their life harder. The increased costs due to asset price inflation are directly a result of inflationary monetary policy.

myob says

Next, the banks get very cheap money, with which they invest into the markets, assets, and get to cover their previous bad bets. They get wealthy, staff get big bonuses, etc, they do great.

That's actually not true. An analysis I saw showed that it's mostly foreign banks that are borrowing from the Fed. US banks aren't. If you have anything showing banks are taking loans from the Fed and investing that money into assets, please show it.

myob says

Meanwhile, the average person isn't seeing wages go up, their hours are being cut, while the cost of housing and energy are increasing, making their life harder. The increased costs due to asset price inflation are directly a result of inflationary monetary policy.

Wage growth is low, but it obviously has nothing to do with anything the Fed is doing. Low wage growth is a 30 year trend.

Increased asset costs are due to wealth inequality more than Fed policy, although in reality, Fed policy is due to inequality as well.

CaptainShuddup says

Reagan shouted everything he did from the roof top.
Except Contra. Which
if he spent as much as you say he did, then why was he running guns and drugs to
pay for those things you mentioned?

He had no choice, he couldn't allow the sandinistas to plant the evil empire soviet flag all over south america. That would make the cuban missile crises seem like BBQ. The crack epidemic in united states was the price we had to pay to preserve our freedom. Sometimes collateral damage is necessary.

Bellingham Bill says

How many GM cars did our occupation leave in Iraq? You don't even want to know!

Michele stands in for the Government in general here or the joke don't work, but...

Infidels and infidel whores, I thank you for your well built vehicle that we will be driving around the desert to kill heretical Shi'a, Kurds, and Christians.

deepcgi says

Saving money is bad. Tightening my belt and living within my means is bad. Voting for politicians who believe that government should also live within its means is bad. Encouraging economic policies where energy, homes, and other costs of living decrease is bad.

Yes. Too much of it, and you have the Paradox of Thrift.
http://www.investinganswers.com/financial-dictionary/economics/paradox-thrift-5858

CaptainShuddup says

It's going to take 30 years to dig our selves out of Obama's hole.

Hey, what payroll taxes were levied for Medicare Part D?

CaptainShuddup says

Which if he spent as much as you say he did, then why was he running guns and drugs to pay for those things you mentioned?

Because it was secret, off the books type stuff.

The salient points

Pity the Keynesian Fools (especially the Wogster)

Challenge to Keynesians

Reality Check Questions

If price of food drops will people stop eating?
If the price of gasoline drops will people stop driving?
If price of airline tickets drop will people stop flying?
If the handle on your frying pan falls off or your blow-dryer breaks, will you delay making another purchase because you can get it cheaper next month?
If computers, printers, TVs, and other electronic devices will be cheaper next year, then cheaper again the following year, will people delay purchasing electronic devices as long as prices decline?
If your coat is worn out, are you inclined to wait another year if there are discounts now, but you expect even bigger discounts a year from now?
Will people delay medical procedures in expectation of falling prices?
If deflation theory is accurate, why are there huge lines at stores when prices drop the most?

Bonus Question

If falling prices stop people from buying things, how are any computers, flat screen TVs, monitors, etc., ever sold, in light of the fact that quality improves and prices decline every year?

Read more at http://globaleconomicanalysis.blogspot.com/2014/10/challenge-to-keynesians-prove-rising.html#8Kt2MZ1h2dh70Syb.99

indigenous says

Bonus Question

If falling prices stop people from buying things, how are any computers, flat screen TVs, monitors, etc., ever sold, in light of the fact that quality improves and prices decline every year?

I especially like the bonus question, IOW the Mishmeister bitch slaps the Wogster out of the forum.

Is Mish the same person as Indigenous ? IT would be funny if he was.

humanity says

Is Mish the same person as Indigenous

I could see how you would get us mixed up because we both illustrate the specious nature of what the Wogster espouses, but no not the same person, in fact very dissimilar, other than we are both very astute.

CaptainShuddup says

Discuss Reagan with this lot, they'll mention

"trickle down economics" and income equality.

When the libs create the greatest income inequality in History, they tout the merits of Keynesian economics. BUT if you say Reagan's economic policy was more effective over the same amount of time.

Well Reagan was Financial genius!

Spoiler Alert!!

Obama is not going to be able to recall his last 3 years in office to the grand jury that's coming. Holder will be the fall guy.

Keep bickering over libs vs. republicans, the billionaires like it that way...

Notice how the mutts are oblivious to the very provocative and fundamental questions about deflation, as they are too busy telling us how stupid the Rs are...

Save us inflation! You're our only hope!

You are arguing over which of the two Keynesian parties are the biggest offender? How well trained you have become.

If you are sticklers for numbers, however:

The national debt as a percentage of GDP went from about 24% in 1980 to about 48% in 1993.

On Sept 11, 2001 it stood at about 36% and has risen steadily through 2014, where it stands at about 74%.

Both parties enjoy the abuse of fiat currency. It is only a question of upon what they CLAIM is their beneficiary of choice. President Obama has picked up the ball where W left it and carried it 74 percent of the way to the goal line.

Unfortunately, all of them have been running the wrong way. Oops.

deepcgi says

You are arguing over which of the two Keynesian parties are the biggest offender? How well trained you have become.

Not really, I guess you are talking about the Keynesians v the Monetarists. I'm just talking about deflation and the stupid ideas put forth by the Keynesians.

My timing was poor Indigenous. My apologies. I am also a long term critic of Keynesian defenders. I, however, do not see any evidence of more sane economic reasoning in the Republican Party - let alone the Democratic one. Both parties revel in the abuse of the fiat currency for the engrandizement of special interests. I believe it is time we stopped defining the parties between right and left. They are both misguided.

tatupu70 says

Employers hire when there is demand and they need more employees to meet it.

Huh? THis is just basic offer and demand curves, when prices (salaries) are allowed to fluctuate or not.

ja says

Huh? THis is just basic offer and demand curves, when prices (salaries) are allowed to fluctuate or not.

Not really. If I own a business making widgets and I can satisfy all my demand with 20 employees, I am no more likely to hire if labor is $10/hour or $30/hour.

You can make an argument about labor vs. automation, but that's about it.

bob2356 says

Inflation isn't keynesian. Deflation isn't the opposite of keynesian. Keynes was against inflation.

You are right I have not read anything by Keynes, but de facto his philosophy has been conflated with inflation. Mainly as a tool to politicians.

What Lenin said about inflation was perfect. Yet he mises the boat regarding the form of government, which I suppose is because of Marx?

bob2356 says

Deflation, as we have already seen, involves a transference of wealth from the rest of the community to the rentier class and to all holders of titles to money; just as inflation involves the opposite.

This is not true, just the opposite. If the value of the money goes down the rent goes down. In which case if you are leveraged you have a problem which is why the Fed wants to keep inflation going. In the early 30s houses had record lows. Deflation transfers wealth back to the proletariat/bourgeoisie.

bob2356 says

Unlike you keynes understood the real danger in deflation lies in the increase in the value of debt and the effects it would have on business.

In this case there would be an increase in bankruptcy, which is part of the cause of the deflation, as it was in the early 30s.

bob2356 says

Rothbard on the other hand pretty much embraced deflation as a sort of de facto banking reform.

Yup Rothbard had it right. If you are leveraged deflation is going to be hard on you. In reality this is what happened in 2008 the banks that were bailed out had malinvested when the adjustment was made almost a trillion would have been marked to market to zero value. That is big time deflation.

All of a sudden the centralized banking we have had since the 80s and the investment bankers would have taken a haircut more resembling a scalping. Since which the idiotic Fed has broadcast loud and clear "You do not have to fear tail risk" IOW as soon as the Fed start in with QE whatever the fuck the stock market will start going up again.

Just wanted to remind everyone of the Wogsters response:

http://www.youtube.com/embed/K8E_zMLCRNg

PS, Patrick you might want to consider a cricket button in order to make things more efficient?

indigenous says

You are right I have not read anything by Keynes, but de facto his philosophy has been conflated with inflation. Mainly as a tool to politicians.

If you have never read anything then how do you know what his philosophy was? You believe what politicians tell you? That explains a lot.

indigenous says

This is not true, just the opposite. If the value of the money goes down the rent goes down. In which case if you are leveraged you have a problem which is why the Fed wants to keep inflation going. In the early 30s houses had record lows. Deflation transfers wealth back to the proletariat/bourgeoisie.

When the only tool you have is a hammer everything sure looks like a nail. Not all debt is housing. The phrase was not renter it was rentier which he uses to refer to business and banks. He wasn't talking about housing. There is much more debt in day to day business operations than in housing. There is 11 trillion in mortgage debt out of 59 trillion total debt in the US. Keynes was talking about the operations of business which entails huge amounts of borrowing,basically grinding to a halt. Like the great depression.

indigenous says

Yup Rothbard had it right. If you are leveraged deflation is going to be hard on you. In reality this is what happened in 2008 the banks that were bailed out had malinvested when the adjustment was made almost a trillion would have been marked to market to zero value. That is big time deflation.

You still don't understand the concept. It wouldn't be deflation, it would be a very big loss. Even if the banks were very deservedly allowed to go bankrupt it still wouldn't be deflation. If it spread to the entire economy, not just housing, it would be deflation. Deflation is a systemic economy wide phenomena, not a loss in a single sector.

Rothbard was just plain wrong, mises even says so. Maybe you should actually read the ariticle, it's from mises.org.