Whodunit and what to do about it
On the simple side, I'll just say that I think we've figured out how to not have recession, we just pump money into the system. So the problems that methodology creates are apparently less painful than recession? For the last 14 years or so, we've talked about raising the interest rate. At the first hint of economic slowdown, we stop raising the rate, or even lower it. And if the slowdown, or the threat of slowdown, persists? Well, pump some money directly into the systems. Say, like $5 trillion+ for Covid relief. I'm not saying good or bad, just that it seems that's where we are.
Context, context, context.
I don't always get context right. When I do, it was the right thing to emphasize. My philosophy for directing my employees is to not march forward without starting their written plan with the highest level context they feel applies. Who and what is the plan serving? Why? Does history in the area of effort make a difference? And so on.
I hypothesize that today's inflation dynamic is new within my lifetime (80 years). I'd like to understand the context.
I know money and its substitutes have been shifting towards the rich and the comfortable for the last 40 plus years.
I'll guess the current inflation is about human greed, whether strong or mild, deciding to feed off the well to do and stop fussing with the poorly off.
I'll guess sellers are raising their prices with the expectation that they will find a sweet spot for their market where they're making as much or more while serving a much smaller population.
I find this attitude pervasive in my comfortable for business neighborhood of North San Diego County.
Lunch our for worker bees here is up about 50% from last year or the restaurant has shut down.
Bagels up 30%. Tub of cream cheese up 70%. Talking to the bagel shop owner I hear their prices are up even more plus their restaurant supply wholesaler charges a delivery fee for the first time ever.
My dentist sees the cost of a crown up 25%
Triggers for this earthquake following the 40 year tectonic shift were the pandemic with supply chain impacts and the discovery that many people and businesses would pay more for the same old things. People and companies were ranking themselves by willingness to pay.
The war in Ukraine added a bit of distraction.
However, it was the sanctions that lit the fuse. No one knows how bad the fallout will be. All speculation I have read is chilling.
Once sanctions were applied, there were obviously going to be negative effects on the West.
Within days we were clued in that most of the world would be affected.
The ultimate blow from the sanctions is hardly perceived yet but it can be hallucinated.
Starvation for millions.
Years of delay added to our ability to tame global heating.
Much of the world opting out of America's financial orbit. World financial underpinnings becoming a work in progress forced into production mode.
Nukes at the ready and you can be sure strategists are pulling out their first strike plans.
The world had a lot of chaos.
I run a business. I have just convinced myself to revisit pricing.
So, the deepest human problem revolving around what we call inflation, a term that becomes meaningless in the midst of existential chaos, is to keep the whole population afloat - fed, clothed, housed, educated, connected, healthy, aspirational.
The answer is to get everyone the requisite money to stimulate providers into once again serving the mass market rather than the crass market.
UBI is too gross a fire hose.
Targeted funds to meet needs is the answer to the real problem with rising prices, the ever-growing attractiveness of primarily selling to the affluent.
Inflation is a symptom of the deeper ailment - much like flushed cheeks signifying a fever and its basis.
Since most of the research cited says the demand side is a small part of the inflation problem, it's hard for me to see how reducing aggregate demand and supply thru higher interest rates fixes the problem?
MR. VOLCKER: The Federal Reserve has a long history with operating
MS. FOX: From war time.
MR. VOLCKER: And they went on for 10 years more after the war.
Mortgage & consumer credit controls went on for quite a long while.
We should still have them. [Laughter] 72
--As cited from Tankus, 2022, "The New Monetary Policy." Modern Money
Everybody seems to focus on the liability side of the inflation balance sheet. What about the asset side? Who benefits? I see some (all?) of the components of inflation as a transfer of assets from ordinary people to certain members of the wealthy class. Examples include: price gouging to increase profits, raising energy prices to maintain cash flow to the oil barons and fossil fuel companies when their finds or reserves are declining and the complexity of supply chains for technology. And when we use higher interest rates to combat inflation, we transfer more assets from ordinary people to the wealthy classes.
And the numbers used are statistical analyses weighted differently in accordance with arbitrary decisions by economists and central bankers. Blair Fix has done some interesting analyses of the breakdown. https://economicsfromthetopdown.com/2021/11/24/the-truth-about-inflation/
And why do we see inflation as devaluing currency just because it takes more currency to purchase the higher-priced goods we want? Currency measures value and, if the value placed on things is higher, that does not mean the currency is worth less intrinsically. If I measure the length of a piece of wood that is 96 inches long, the inches have not gotten smaller when I measure a piece of wood that is 120 inches long. But it makes no sense to use a tape measure with inches to measure the distance across the front of my property when feet and meters are more appropriate or to measure the distance across the country when miles are more useful. The mileage indicators have not made the inches smaller.
Dollars are also used to measure credit. The dollar has not shrunk when the banks issue more credit to buy higher-priced housing for example. My mother bought a house in 1950 for $8k and it would now sell for $1 million. In aggregate it now takes more currency to purchase the same property but the individual dollar is still the same size. 100 pennies.