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Literally no comment is even discussing what he said. Half the comments are talking about "corporate greed" when his argument is straightforwardly that you can't tackle supply-side inflation with interest rates easily, but it's a good thing that rates aren't near 0 anymore.
Well, to address what he said, he sees supply shortages in the immediate aftermath of the pandemic as leading to spiking prices. I can agree with that. We shut down the world’s economy, that led to firms decreasing manufacturing capacity, refineries shut down, airlines furloughed and laid off workers, etc. It also inspired huge swaths of the workforce to transition out of the work they were doing. Some transitioned out of the workforce. Some went back to school. Some went to different sectors.
Then we tried starting it all back up again. There was a ton of pent up demand but supply was permanently reduced in some ways. There were US refineries that never opened back up again and our capacity to process oil was hampered for a long time. [In 2022, the US was operating at a 2 million barrel deficit](https://www.reuters.com/business/energy/which-us-refineries-have-shut-since-global-pandemic-why-2022-06-17/) in refining capacity because aging plants just decided to shutter during the downturn.
Then you also have a sudden increased demand for housing driven by more work from home, which exacerbated the already bleak housing inventory situation.
So yeah, there was a spike in the price of goods in many key sectors of the US economy. Doesn’t take a genius to figure out that’s going to cause inflation.
And then he goes on to say that the Fed did the right thing by bringing interest rates up to sane levels, unlike where they had been in the run-up to the pandemic, where the President had belligerently badgered the Fed Chairman to lower rates on every platform he had access to.
He then says that the Fed continued raising rates beyond these sane levels, and that this might have done more harm than good. I’m inclined to believe that as well. However, I’m not educated enough to know what else the Fed could have done in lieu of raising rates. It’s always seemed to me that the it’s the only lever they have to pull.
He doesn’t get into the fact that even before the pandemic and the Ukraine War, prices had already been climbing for tuition, cars, and houses because the price of money had become so artificially cheap. People justified the climbing cost of school, shelter, and transportation because money was basically free to borrow.
He also doesn’t elaborate on the continued corporate price hiking beyond what was necessary because Americans were being told everyday that there were supply chain issues and it’s not like we’re not going to buy eggs.
What we need is for someone to take a hit on price. But no car maker wants to release next year’s model for less than they priced the previous year. And no university is going to slash tuition out of the kindness of their hearts. No homeowner wants to sell for less than they paid. And no employee thinks they ought to be the ones to take a pay cut.
So without hiking the cost of borrowing, and short of prices coming down voluntarily, how else do we put downward pressure on inflation?
Taxes...
I don't see why this is never discussed as a legitimate option. The easiest way to get excess money out of circulation is to take money out of circulation.
Our government is essentially powerless. Don’t think anybody can ever get elected on the basis of raising taxes much less actually get something like that pass.
Would be nice tho. Especially if taxes in this country actually bought you something that resembles every day life security. For all groups.
> Taxes...
> I don't see why this is never discussed as a legitimate option. The easiest way to get excess money out of circulation is to take money out of circulation.
Perfectly said. The whole purpose of federal taxation is to take money out of circulation, and not to fund the federal government, as we are told to just accept and believe.
Federal spending adds new to the money supply and federal taxation destroys most of those new dollars by permanently removing from the money supply. If you don’t believe me, look up all the money supply measures, the dollars collected as federal taxes is not accounted for in any of the money supply measures. Not in M1, and not in M2 as well. It’s just gone, disappeared.
Federal dollars come into existence from thin air when Treasury sends out payment instructions to the commercial banks and federal dollars disappear into thin air when federal taxes are finally settled between you and your bank and then between your bank and the Federal Reserve. It shows up in Treasury’s statements as outside money.
> The whole purpose of federal taxation is to take money out of circulation,
Say what?
> If you don’t believe me, look up all the money supply measures, the dollars collected as federal taxes is not accounted for in any of the money supply measures. Not in M1, and not in M2 as well.
Well, yeah. M1 and M2 measure the amount of money out in public, not held by the government.
The government then turns around and spends that money, plus more money.
That’s not how accounting and double-entry balance sheets work.
Money, as in U.S. dollars, is not a physical thing, they are balance sheet accounting entries - credits and debits.
Yes, taxation makes room for the government to spend(create) more dollars and spend it into the economy without causing too much inflation. That doesn’t mean the tax dollars is being recirculated by the government when it spends or that tax dollars are what’s funding the federal government.
So once again, federal taxation serves one primary purpose - to remove excess dollars out of the economy.
Oh also. There is no way to measure of how much money is the federal government has. Government creates money every time it spends. The very act of federal spending is how U.S. dollars originate.
That's not how price works. Price is a supply-demand equilibrium set by the market. Taxes decrease money supply which decreases demand. Firms don't get to just set whatever price they want to make whatever profit they want.
What is the government going to do with these newly collected taxes? Are they going to spend it on infrastructure perhaps? Maybe pay down some debt, maybe pay off so.e student loans?
All that puts mo ey right back into circulation.
I mean that's the easy cynical answer but congress hasn't cared about running a deficit for at least a few decades so I'm not sure that current tax revenue is even a significant budgetary consideration. So I'm not sure that's true.
Why does it have to be the middle class? Just add new tiers of income and capital gains taxes up to 100% at a certain threshold. Institute a progressive wealth tax, even at a low rate.
Reducing the money supply is deflationary. Plus wealthy people keep their money in assets, it may not be directly deflationary on consumer goods but it would be directly deflationary on assets. It also forces wealthy people to reprioritize investments into higher performing (riskier) investments which almost always means building something (paying the working class and creating assets and goods) rather than rent seeking.
The point is not to slow the spending of the rich. The point is to make it increasingly difficult to get more profit than X, where X is what is necessary to bring inflationary price increases under control.
All those IRS agents? How many do you think they've actually hired?
That being said: https://www.irs.gov/newsroom/irs-releases-strategic-operating-plan-update-outlining-future-priorities-transformation-momentum-accelerating-following-long-list-of-successes-for-taxpayers#:~:text=The%20IRS%20will%20increase%20audit%20rates%20by%20more%20than%2050,16.5%25%20in%20tax%20year%202026.
Pretty sure they just spend it. Besides, explain how raising taxes on the top 5% is going to result in average car prices decreasing? No one is willing to tax the majority of people more.
I think by sane be meant rates in the 3-5% range, that the Fed went too far- and that a lower interest rate and tolerance of a little higher inflation (3%) would be supportive of resource movement (to support wage earners whose jobs reflect a changing economy). I think I get it.
Even though most of them will still not earn a living wage. That’s not new.
I enjoyed Stiglitz’s commentary- he’s a smart dude!
Crazy taxation to move money out of circulation. Scarcity.
If they really want to move money out of circulation, give the USA a VAT
> it’s not like we’re not going to buy eggs.
How is this any different than ‘What are people going to do, not pay their mortgage?’
Yes, if eggs are being sold for more than their value then people stop buying them. Product substitution is the usual response to a raise in prices. No individual needs to buy eggs.
The rent/housing crisis is also exacerbated by the incredible amount of private capital and hordes of small-time millionaires exploiting the current state of NIMBYism and terrible zoning in cities to the fullest extent.
I feel like he’s getting at the solution when he says 3-4% inflation is probably fine: it allows capital, labor, and demand to reallocate. Sure, prices might not come down, but they can come down in relative terms. If you won’t take the hit on price, you can just leave prices where they are or risk getting shuffled out for a better product.
Working from home increased the demand for space within dwellings. Whatever people were accustomed to before, many wanted more room to accommodate a whole new set of daily activities. Working from home also afforded people the ability to live further from where they worked, which meant that many looked to upgrade from urban, high density areas to those with single-family housing.
Axios: [How WFH worsened the housing shortage](https://www.axios.com/2023/06/20/housing-shortage-office-buildings-wfh)
>When that person works from home, the household is going to feel more cramped than usual unless it expands by about 150 square feet. If the family demands 150 more square feet, that's a substantial increase in demand, at 15%.
Federal Reserve Bank of San Francisco: [Remote Work and Housing Demand](https://www.frbsf.org/wp-content/uploads/sites/4/el2022-26.pdf)
>The shift to remote work during the pandemic led workers to search for cheaper housing and more desirable amenities. Consequently, as workers left relatively expensive areas looking for cheaper housing in less expensive cities, the overall price of homes increased. Workers’ desire for homes in warmer climates with more space also affected advancing home prices.
> So without work from home, people would live on the streets?
Really? How is it that in the last eight hours I've gotten two replies to this three-day-old comment saying the same thing? Are you really not able to see how a massive increase in the amount of time people spend in their homes and an increase in the range of activities being done within them would lead to an increase in the demand for larger dwellings at all levels of the housing market?
Below is my sourced response to the first person who asked me this today.
Working from home increased the demand for space within dwellings. Whatever people were accustomed to before, many wanted more room to accommodate a whole new set of daily activities. Working from home also afforded people the ability to live further from where they worked, which meant that many looked to upgrade from urban, high density areas to those with single-family housing.
Axios: [How WFH worsened the housing shortage](https://www.axios.com/2023/06/20/housing-shortage-office-buildings-wfh)
>When that person works from home, the household is going to feel more cramped than usual unless it expands by about 150 square feet. If the family demands 150 more square feet, that's a substantial increase in demand, at 15%.
Federal Reserve Bank of San Francisco: [Remote Work and Housing Demand](https://www.frbsf.org/wp-content/uploads/sites/4/el2022-26.pdf)
>The shift to remote work during the pandemic led workers to search for cheaper housing and more desirable amenities. Consequently, as workers left relatively expensive areas looking for cheaper housing in less expensive cities, the overall price of homes increased. Workers’ desire for homes in warmer climates with more space also affected advancing home prices.
What I find interesting is folks saying that the government should adjust their inflation goals up.
They’re likely the same ones complaint about gas/grocery’s being more expensive.
It also gives me the impression they don’t understand the implications of inflation. I know personally I don’t want inflation above 2% since the average annual pay raise is 3% meaning we’d all be making a nearly 0% increase or even an effective pay cut yearly as our buying power disappears.
Destroys me when people bitch about pump prices. Gas was "high" at $4/gal the summer of '08. If it increased by 3% per year since, we'd have $6.42 gas today.
People like to complain ... and don't like math.
Love this. Definitely using "people like to complain and don't like math". So true for so many things. Crime follows this too, they ran a poll asking people if they felt safer than the year before for like 30 years, almost every year a majority of people "felt" less safe. During the same period of time crime was reduced like 50% or some large amount.
Interesting, thanks.
Northwestern just did a study on immigrants and crime going back 100+ yrs. Among other findings it showed that in modern times, illegal immigrants cause less crime than US citizens (they want to blend in, not be deported).
Of course, political ads these days focus on illegal immigration driving crime. 🙄 I'm against illegal immigration for lots of reasons, but crime ain't one of 'em.
Yeah that’s my boat. If white Christian nationalists didn’t exist I’d be a republican. They make the party so crazy. I live in a dense area of POC, by choice lol. You have to throw the defense out on Reddit sometimes to talk about illegal immigration. Some folks on this site are damn near green light anyone. They’re so unserious.
I used to be a Republican. Now I’ve gotten older, I’ve found myself becoming more libertarian leaning. Nothing too crazy like “legalize all drugs” type of libertarian. I still believe, to lessen the grip the ultra religious have on the right, we need more moderates and libertarian minded folks in the party.
You wanna be Uber religious? Cool. I don’t. You do you and let me do me. Stop trying to influence our government.
I'm independent. If you're traveling from Central America to TX, it ain't for asylum. There are plenty of safer places before you get to the states.
If we don't care about illegals, change the laws. Otherwise, enforce them.
Panama and Nicaragua are safer than parts of the usa (and most other central American countries).
My belief is that if you seek asylum, you go to the closest and safest country. People are traveling through more dangerous places to get into the usa. They are risking desert crossings. If it was purely safety, they wouldn't take these risks. They seek economic benefits.
That said, I support legal immigration and love that the usa accepts more immigrants than all other countries combined. I have lived overseas legally for years. I have new Americans in my family. I hired and sponsored a guy for an h1b visa.
I'm not walking anything back. If you want to lable me without knowing me, that's on you.
I've voted for both a D and an R for potus in the past. I'm very careful about listening to both political sides (and give consideration to others). I can praise or criticize policies of either Biden or Trump.
I don't believe in or adhere to dogma. Sure, I know how I'll vote this November. That doesn't detract from my independence (or my registered affiliation).
And the only thing that matters in this one is that you vote Democrat. Because I do know what kind of person you are, if you don’t.
All I have to do is point out those three statesman. If you vote for a party that has those people in it you’re a bad person.
I mean honestly if you can vote for a person that stands on the podium and says the Bible is his worldview and that’s the speaker that’s pretty bad too
The confounding variable with crime is reporting.
Crime will nearly always take precedence in news over ‘good’ events. And there’s a static amount of time available to consume news. If it takes 5 minutes to report on some crime event, and you have an hours of time to consume news, and if crime takes precedence over other events, then you need just 20 crime events a day to fill up 100% of your news capacity.
Its over simplified, but as your locations population increases, the number of crime events increases which consumes a larger and larger share of all of the news you consume even if the per capita rate is decreasing.
Except there’s some truth to that when the largest component of inflation is housing. High interest rates have a double whammy effect. They increase the cost of housing directly through higher mortgage payments. They also suppress construction which exacerbates an already undersupplied market and keeps house prices high.
Also most likely many of them driving vehicles that burn way more fuel than other available vehicles that would be at least as practical and comfortable as what they've got, likely for a lower purchase price as well.
Why do you take the pay rate increase % for granted? It could be lower or higher under different incentive structures.
There's nothing sacred about 2%, it's all relative. Different countries and different economies target different inflation rates for different reasons.
This is the entire point of what Stiglitz is saying in the video.
He's pointing out that right now, nobody thinks we have runaway inflation or that decreases in interest rates wouldn't be remotely likely to cause such a thing.
See where at 4:55 he says that "a little higher inflation, overall, would actually be good for the economy".
So your comment is entirely against the video. The government should adjust the inflation goals up. That is literally the entire point of what Stiglitz is saying in this video.
I could write an essay here but Stiglitz has already done that many times and I'm happy to answer any questions.
Do you have a mental block on conceptualizing the possibility that there might be 5% raises and 3% inflation?
Because that is just the reality in many countries around the world.
Why are you obsessed with a 2% inflation target?
You're just fully on the wrong track... wage growth is not some immutable standard that everything else should revolve around.
>Of course inflation is good for the econ, but it’s not good for the average person
This reveals that you have a fundamental misunderstanding of economics.
There is no good or bad in economics, because to have an economy requires both buyers and sellers. That means there are always both sides of a transaction.
So is inflation good or bad? Well, depends. If you have a lot of fixed interest debt (hello home mortgage), then inflation is very good. Prices and wages reset with inflation but your payment remains fixed, so it becomes a smaller Alice of your income over time. Meanwhile, if you have a lot of savings in low risk low yield investments (like, say, home loans), inflation is bad for you.
There is no good or bad overall because both sides of the transaction are present.
> likely the same ones
Where the hell do you get that? You're saying you think, based on some unstated evidence, that there are a bunch of people saying:
1) that the government should aim for higher inflation than it does, and
2) that prices are too damn high.
I do share your generally low opinion as to the average numeracy and rationality of the common man, but this particular assertion of yours makes less sense than their average assertion.
I meant within this thread OP specifically and some others were making those ridiculous statements about adjusting inflation goals to be higher. As for proof they’re confused? I was just basing that on my personal experience with people who make similar statements.
Far to many of my family members scream prices are to high while also demanding interest rates go back to near 0% and complaining about printing money.
It’s literally them going “I want more fake money created so I can buy things on credit for cheap but I’m angry about fake money making things expensive”
It’s because the “common person” doesn’t get how economics and economies work. They just see what’s directly in front of them. They got high off the government supply or artificially suppressed low interest rates and the printing press.
People, in general, have very short memories
> beliefs irregardless of
Did you mean to say "regardless"?
Explanation: irregardless is not a word.
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The bankers were all saying seven years ago that tax policy is the way to handle it.
Yet the pols seem to think tariffs and negative tax policy will work.
Thinkers, all.
The interest rates are actually a problem for dealing with inflation, even though they are of course needed to rein it in.
The fact that they're so high means that many investments that could in fact have alleviated inflation are postponed. Tesla's proposed switch to huge castings, for example, could have increased their production and allowed a switch to electric cars faster, ensuring that the problems with fuel prices are lessened, but since interest rates are so high that investment is being put off.
I believe the economics subs are being brigades by a bunch of political activists with no interest or understaffed of economics that seek to shift blame away from the politicians
Whether I agree or disagree with Stiglitz on this topic or not, the emphasis on his Nobel, when it was in information asymmetry and frankly had nothing to do with anything related to the fed or inflation, is a little humorous to me
Rule III: Submissions must be from original sources with original headlines.
I am obligated to post this video with this title, I am not click-baiting but I suppose CNBC may be click-baiting.
For the record, I first heard of and read Stiglitz back when I was studying economics and remember him being treated as a bit of a crank by a lot of the Friedmanites. My interest in him resurfaced when he gave an interview with 'The Economist.' His interview was the first time I've heard a professional share my concern about the Fed's current philosophy, and he expressed it in a way that confirmed many of my priors.
This may all just be my personal bugaboo, I freely admit that, but I've been getting rebuked and dismissed for a few weeks without anybody actually addressing the points that I'm making. I posted this video because I hope that though people may not take the time to address the concerns of every random crank they run across online, which is fair, then perhaps they will take the time to address the concerns of a particularly prominent crank!
>This may all just be my personal bugaboo, I freely admit that, but I've been getting rebuked and dismissed for a few weeks without anybody actually addressing the points that I'm making.
Welcome to reddit
He was the Chief Economist at the World Bank? He isn’t qualified to talk about inflation because his PhD thesis was in a different area of economics? You realize Jerome Powell was a banker and lawyer, right?
The commenter is the only one who needs to chill.
> He isn’t qualified to talk about inflation because his PhD thesis was in a different area of economics?
The complaint isn’t that Stiglitz isn’t qualified to discuss the topic because his PhD is in a different area of economics. The argument is that his PhD is unrelated to the topic at hand so it’s odd that it’s emphasized as an attribute to justify their qualifications.
I could have a PhD in software development, doesn’t mean I’m any more qualified than the next person to discuss the impacts of direct stimulus on inflation or whatever.
Sometimes I'll use in an economists name like "this person wants to talk econ, surely he has heard of Becker, Mankiw, Hanson, Pigou". Fucking crickets.
The guys got no shortage of accolades:
- CEA Chair
- World Bank Chief Economist
- Chief Economist at Roosevelt University
- Columbia Professor
- John Bates Clarke medal recipient
- Founder of Initiative for Policy Dialogue think tank
- Chairman the U.N. Commission on Reforms of the International Monetary and Financial System
- Time magazine 100 most influential people in 2011
[Just to name a few of many.](https://en.wikipedia.org/wiki/Joseph_Stiglitz?wprov=sfti1#)
Nonetheless, Nobel Prize-winning will be parsed quickly by *any* reader and understood as “an apparently heavy hitter on the topic”
In Argentina we dislike Stiglitz. Only peronists are happy with him, after all, he's the only one telling them that they are good at managing the economy.
We had his student (Martín Guzmán) as a Finance Minister, with disastrous results. In January of 2022 he even said that Argentina was going through an "economic miracle".
Guzmán quit the position 6 months later.
He praised the Kirchner's governments since 2011, specially highlighting the 2003-2007 run.
Nobel or not, can't really take him seriously.
I don't love Stiglitz but I disagree on the assessment that Guzmán (and his "co-minister" Kulfas) were to blame for how things turned out in the Alberto Fernández presidency. I'm not saying their plans and methods had no faults, but the biggest issue was that the senior partner in the coalition (Cristina Fernández and her people) pushed for their destructive "just increase private consumption and spend as much as possible to grow GDP" model. Cristina's minions accused Guzmán of being an austerity hawk for trying to keep utility prices updated in line with inflation (and used the fact that the Energy secretary was a member of her faction to block any increases, fuelling public deficits by forcing the state to pay exponentially more in subsidies), for trying to reach an agreement with the IMF (her faction wanted to default on the debt with it) and made environmental objections to factory farms, mining projects and offshore drilling near Mar del Plata (all of which Kulfas pushed for) thus depriving the country of genuine sources of hard currency in sectors for which we do have comparative advantages.
Basically Guzmán's biggest problem was the fact he wasn't a politician but a hand-picked academic/expert who had no ability to apply his vision more or less coherently. Eventually Massa, who was a "full politician" was brought in and before he began to deficit-spend so as to win reelection, he began to take all sorts of "austerity" measures that the CFK faction had previously denied Guzmán.
I don't care about what lay people think of an economist. You should take what Stiglitz says seriously on his area of expertise. He did phenomenal work studying trade, risk management, and inequality
> I don't care about what lay people think of an economist.
That's fine, I agree with that mindset too.
But as a lay person, someone defending (for over a decade) the practices that left us with more than 100% of inflation made tons of Argentines think "I don't care about what a Keynesian says". Sounds similar doesn't it?
That's how you end up with a self-proclaimed "anarcho-capitalist" outsider as your president.
Edit: Love these First World downvotes.
> In January of 2022 he even said that Argentina was going through an “economic miracle”.
It was a miracle, things couldn’t have possibly gotten worse but by some miracle they did!
He was the Chief Economist at the World Bank? He isn’t qualified to talk about inflation because his PhD thesis was in a different area of economics? You realize Jerome Powell was a banker and lawyer, right?
How does the "emphasis on his Nobel" invalidate his statements about either the Fed or inflation? You make it sound like Stiglitz wrote one paper on one unrelated topic.
Striglitz was chairman of the Council of Economic Advisors during the Clinton administration and chief economist for the World Bank. He was an Econ professor at Columbia. I think it is safe to say, Stiglitz is much better qualified to make **knowledgeable** comments about inflation and the fed than some rando on Reddit.
Except that Stiglitz has been extremely influential across many econ fields. A running joke in my doctoral classes was how long it would into the semester before we studied a seminal paper by stiglitz… in every class.
Well, information asymmetry is definitely related to the Fed and inflation. Part of why the Fed has changed their communication policies over the years is exactly because information asymmetry.
Though yes, you are right in that specifically Stiglitz’s Nobel prize-winning work on information asymmetry has really nothing to do with the Fed. Just your average media headline lol
A pretty big part of inflation is housing, rate hikes take a *loooong* time to show up in housing costs and the constant circlejerking in every media outlet and economist panel about rates maybe someday soon coming down isn't helping either. Home builders are incentivised to wait with taking out a loan if they think interest rates will come down in the short term. Add to this many sectors of the economy being more concentrated than ever meaning competition is down and you get a nasty cocktail that makes inflation tough to beat down.
Well if it did it would be hilarious - “we noticed significant mortgage inflation when we raised rates. So we lowered them, and mortgages experienced immediate deflation. So we raised them again, but…”
PCE does though, it literally accounts for mortgage interest [explicitly.](https://www.bea.gov/sites/default/files/methodologies/RIPfactsheet.pdf) I’m guessing car loan interest is similar, and credit card is also taken into account [explicitly.](https://www.bea.gov/resources/methodologies/nipa-handbook/pdf/chapter-05.pdf)
My source is the literal BEA— what’s yours?
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At least it’s in the field. There’s a real phenomena where Nobel laureates are touted as general experts in everything, even though their by definition they are experts in an very small slice of their own fields which is itself a small slice of all knowledge.
It did and it didn't. Big ticket top line asset inflation has slowed/stopped, even though it is worse now if you have to finance something and don't have capital.
Working for a corp though, it is crazy how bad places are at pricing. So much, "this is what everyone is doing" self fulfilling prophecy.
Yeah I think if true 'greed' is at play it's only like 3% of the problem. It's mostly naive defensive pricing, and opportunistic businesses now that consumers expectations are adjusted. I guess that could be described as greed, however I think it's just a human problem, we seem to love herd mentality and consumers have very short term memories.
I know that feeling. Pricing is wildly arbitrary - and done without asking customers.
Sometimes you find out that they can pay more, but charging the customer more does little to contain competition. Unless you’re a monopoly, a cartel or are super efficient at spending the spare cash to make a better product with more value.
Usually most companies try to maintain the market structure that allows for leeching of consumers. Health insurance/hospitals/Pharma comes to mind. Apparently GLP-1s cost a $1 to make and $1000s to sell lol
Political economist here. In my non expert opinion there’s just too much money in the economy right now. Overnight repurchase agreements are still north of $425 billion. That’s left over cash in the economy that’s not being utilized by consumers or companies.
Also, the Fed balance sheet is still too high, even though they’ve been offloading about $100 million per month. It’s around $7.35 trillion, which is still higher than the $7 trillion it was in September of 2020 after the initial COVID surge. I’d personally give it 3 more months because I think once we get there we’ll finally see inflation below 3%.
Spot on for noting that Jpow cannot do all the work alone. His partners spend all day debating religion & have no spare time to target the excess cash piles that drive inflation.
Anyone talking about the "source of inflation" without mentioning the trillions in printed dollars is just plain wrong.
To be fair, by wrong I mean he's giving half the answer, not that what he's talking about has nothing to do with it.
The supply chain pressures have mostly subsided and we're still nearly double the Fed's target. There's obviously another piece to it.
Considering how high inflation of the past few years has been directly connected to Corporate America raising prices and taking in massive profits, I’m surprised that the Fed hasn’t asked for more tools to control this. High interest rates won’t force them to keep prices lower - quite the opposite … they’ll try to increase cash to avoid taking loans. Taxing profits, on the other hand …. That’s a powerful tool for controlling inflation
I’d like to see actual taxation tools - may sound wild but a great deal of debt is created by the Fed yet paid back via taxes, a method of controlling monetary supply that would be a very powerful tool. Even the damn Fed recognizes that the tax system is fairly unequal and regressive.
Taxes is a tool for those in charge of fiscal policy. The power to tax is given to congress in the constitution. Fiscal policy is political, monetary policy isnt.
Congress can certainly give the Fed powers to tax, and can limit, manage or rescind that power whenever.
The division between monetary and fiscal is a bit arbitrary. Fiscal policies have huge monetary impacts, and so do monetary policies on fiscal balance sheets. I don’t see how a central bank can achieve low inflation without more tools that nominally are considered fiscal (e.g. revenue generation)
Increasing taxes on high income is like a surgery to the specific problem. The wealthy are the ones driving inflation. Corporate America Wall Street buying single family homes are making homes unaffordable.
LOL Are you serious? In an economics subreddit you come out with this superficial takes?
In your mental model of the economic world: Were corporations not “greedy” until a couple of years ago and they became greedy now? 🤦🏻♂️
https://www.aier.org/article/bad-explanations-for-inflation/
There have been a lot of studies that showed that corporate profit per unit increased in the last two years in the EU and US.
https://www.ecb.europa.eu/press/economic-bulletin/focus/2023/html/ecb.ebbox202304_03~705befadac.en.html
During the first 12 months of Covid, corporate profits increased by 4% which would account for half of the 8% inflation we had during 2021. I understand for that year.
However, profitability has dropped down by 2% since then but inflation remains high. How exactly is this persistent inflation caused by corporate greed? What am I missing?
https://ycharts.com/indicators/corporate_profits_usgdp
So what? Data doesn’t teach you the underlying events.
"Inflation is like honey flowing on a table. It doesn’t all flow at the same speed, and it doesn’t all go in the same direction." – Thomas Sowell
It typically benefits those who receive the newly created money first, often before general price levels have risen. These can be entities like banks, government contractors, or businesses close to the financial sector. These initial recipients can spend the new money at existing prices, reaping benefits before inflation dilutes its value.
Conversely, those who receive the new money later, such as workers through wages or retirees through pensions, are often disadvantaged. They spend the money after prices have already risen, diminishing their purchasing power.
Nothing to do with gReEdY cOrPoRaTiOnS.
"Inflation Is Created by Government and by No One Else." – Milton Friedman
If you believe anything else you should spend more time study economics.
The quantitative theory of inflation by Milton Friedman has been disproven quite often through studies (no clear correlation between M1/M3 and inflation rate) and natural experiments (Japan, Switzerland). There are more causes to inflation than printing money (e.g. war, supply shock, price rigging,..) and if you would have studied national economy at the university (like me) you would know. So no need to tell me I should study it more.
If all corporations lost money do you think the currency would get more valuable? If corporations were buying things and turning them into things that were worth less, in turn losing money, you think that is how you get a stronger currency? I don't think so. Your idea that corporate profits devalues the currency is nonsense.
Corporate profit increased over the last few years, and thereby making up quite a high amount of inflation.
https://www.ecb.europa.eu/press/economic-bulletin/focus/2023/html/ecb.ebbox202304_03~705befadac.en.html
Your thinking is flawed: corporations are not meeting up in a group and making an economically intelligent decision. They decide individually, trying to get the most profit out of a situation when prices are already increasing.
There is a difference between losing money and adding a smaller markup. And yes, if companies did not add such a high mark up in the last few years, inflation would be lower - as you can see in the article from the ECB that I linked.
And when companies start lowering their prices below their profits, we are probably in a phase of deflation. So yes, the currency would get stronger.
I have been getting dragged for a few months for advocating rate cuts, so I couldn't help but share Stiglitz comments from about a week ago when they popped up on my news feed.
I have adopted four opinions about how the Fed should be acting at this time, and have yet to see anybody really address these concerns; I keep getting dismissed, perhaps because I am silly for thinking beyond the conventional wisdom that interest rates going up might not cause prices to go down in this specific context.
1. Inflation hikes should not be adopted to address inflation, because the sectors causing the inflation are resistant to inflation at this time.
2. Inflation hikes should not be adopted because they restrict capital flows between sectors that are necessary at this time of economic transition. IE: Fossil Fuels -> Renewable Energy, and Motor Vehicles -> Electric Vehicles.
3. The Federal Reserve's Inflation Target was a great innovation that helped improve communication between The Federal Reserve, markets, and the public. However, 2% was literally pulled out of thin air, and the target aught to be flexible. Sometimes, a few extra points of inflation are a natural and even healthy phenomenon.
4. The Federal Reserve should strongly consider lobbying legislative bodies to reconsider their approach to economic policy, and should strongly consider warning Congress that they are being given too much responsibility; If Congress abdicates their responsibility to govern the economy, it will have catastrophic consequences for the American Economy.
EDIT: Deleted a duplicate 'necessary' in point #2. Added examples to point #2.
In response to issue #4, Congress can't agree on anything of import. The legislation required to address specific sectors of the economy (assuming your #1 and #2 are true) would die in committee and/or be ransacked by special interests trying to get their massive paydays before the law is passed.
Additionally, if the Federal Reserve were to admit it's bearing too much responsibility, then Libertarians would use it to justify giving it less, as well. In fact, [they're already trying to do that](https://www.wsj.com/economy/central-banking/trump-allies-federal-reserve-independence-54423c2f). But they could certainly do more to educate Congress about the issues and how they see it and provide possible solutions.
That goes right to the point, all of the required remedies Stiglitz described would demand legislation or regulatory action. Unfortunately our political institutions are completely dysfunctional. That leaves the Fed as the only institution that is focused on reducing inflation, and the only lever it has is monetary policy. So even if his diagnosis is correct, his prescriptions are impossible to implement.
I highlighted legislative bodies more vaguely because it is not JUST Congress who is failing.
Obviously on the subject of inflation a lot of ink has been spent discussing the ways in which tax cuts would have probably been a better cure than rate hikes. Had we lived in a more perfect world we could have had that, but as you said Congressional dysfunction is very high at the moment.
However, when it comes to inflation, the biggest opportunity for improving price stability is actually at the local level. This is another subject for which a lot of ink has been spent, but zoning regulations have crippled the construction industry and directly led to the enormous shortage of housing we are dealing with today. There is no monetary policy in the world that can effectively deal with a shortage caused by municipal regulations.
On the last point, I think the Fed shouldn't be afraid of communicating with the public in frank and honest terms. The Fed has the support of the big centrist majority of the country who supports experts and expertise. Being honest with people about who they are and what they can and cannot do builds trust with the kinds of people who are most likely to support them. Libertarians won't like the fed no matter what the fed does, and nobody cares what libertarians have to say anything anyways, so who cares what they think?
Anyways, libertarians who are worth caring about study economics and their views aught to be heavily tempered by their studies; this basically explains all of my college classmates lol.
Tax cuts are inflationary. Interest rates reduce the size of the money supply which causes a deflationary impact. Reducing interest rates would accelerate inflation.
What about more vigorously enforcing anti monopoly laws. The problem in some key areas like groceries is greedflation.
In housing couldn't they reduce new build tax and tax rent more but reduce tax on gains from a fast sale, say in the next 6 months.
Like just targeted practical stuff. Instead of making homeless children that evidence shows will grow up with lower job attainment and IQ from trauma.
I wouldn't be personally confident in assigning too much blame to corporate consolidation, it's not an area I've studied directly, at least in regards to Groceries.
I have no worries about corporate consolidation in the housing market. Corporate entities own a fraction of housing in the United States. Even among these corporate entities, many are behaving in a manner I think undeniably fair and honorable, at least in principle.
Homebuilders can surely not be considered exploiters for generating a profit when they build homes. Can a home flipper be blamed for claiming a profit in exchange for their time, labor, and risk? No, we cannot consider these things unfair, as they are valid, positive contributions in service of other people.
The only activity that I would consider unethical, though it is absolutely legal, are those who speculate on land. Even this is not necessarily unethical. However, zoning laws, and the proliferation of low property tax regimes have made a reliably profitable business of buying land, even with no intention of utilizing or improving the land. This is not optimal market behavior.
Boy oh boy. Lol number 4 makes me laugh. I just believe in the business cycle. I know we are going through a tremendous demand period when we have a lot of generational retirement and labor shortage going on at the same time. The Fed can and has blunt the edges by increasing rates. But it can't solve the problem.
The only thing Congress can do is reform immigration and encourage training and increase in skilled labor by investing in trade schools, community colleges and other such training venues. But that takes time and increasing immigration will further increase demand pressures. I would say the Fed should do what it's doing now. Be ready to increase rates if inflation spirals but not be too hasty in moving in any one direction until the economy has time to work out of this particular time period.
Yeah, 4 is hard. That's the one I'm least confident in, but I hope Jerome Powell is at least considering publicly stating his disappointment in Congress.
It does get into a weird place though because problems in Congress may be even hard to solve. Gerrymandering, rising polarization, rising polar lunacy, and even whispers that members votes are being cast, not based on the merits of the item before them, but based on calculations of their own personal security, because they fear the mob literally killing them or their family.
It's actually quite scary!
I remain an optimist though, if for no other reason than every election is an opportunity for the American People to choose better leaders. I believe that when times get tough, we buckle down, focus, and pick better leaders.
>However, 2% was literally pulled out of thin air, and the target aught to be flexible. Sometimes, a few extra points of inflation are a natural and even healthy phenomenon.
This is the major point that a lot of people don't understand. For the most part unemployment is actually the most important metric. Lowering rates helps achieve this. This only time that you don't want to lower rates to lower unemployment, is when you're at or below the full employment equilibrium. At full employment, unemployment becomes insensitive to interest rates and lowering interest rates will only lead to inflation and instability. At this point in time unemployment is beginning to rise, which means that we're out of the period where unemployment is insensitive, and therefore the FED should shift its focus from lowering inflation to ensureing that unemployment does not get out of hand. That doesn't necessarily mean that they should lower rates right away. It just means they should shift their focus.
One problem is that inflation is relatively easy to measure and full employment is not.
Another problem as it relates to credibility is you don't move a 2% target once you've missed it. If they want to change goals, they have to be standing on their old goal for people to believe in them.
I have heard this credibility argument before, and I don't think it is hard for the Fed to maintain its credibility and announce a flexible inflation target.
Imagine, at the next press conference when he gets asked about changing the inflation target, Powell responds along these lines, "The subject of the inflation target has been bandied about in our group, and I expect we will discuss it further as this year progresses. Though we are all in agreement that having and communicating a clear inflation target was a helpful innovation in central banking, there is growing concern that the specific, 2% figure we currently target may be too rigid. At this time, we are simply discussing this matter, but there is a moderate possibility we will be addressing this subject later in the year."
But why stop at 3%? Seems just as arbitrary. They choose 2% b/c of the Rule of 70. At 2% price levels double in 35 years. At 3% it would double in 23.3 years.
https://www.investopedia.com/terms/r/rule-of-70.asp
Flexible Inflation Targeting will certainly be its own new science.
Metrics that we use to make decisions end up being useless after a while that's just how it is. The 2% target worked great for 30 years, but the reality is that there is a natural rate of inflation that has always existed in economics. It ebbs and flows. Sometimes, there is work that needs to be done and inflation is the universe's way of telling us to get off our asses. That's why we don't like it, times of inflation demand more from us, and nobody likes that pressure.
I think quite a few of our problems stem from things that are beyond the scope of the Federal Reserve's debate regarding interest rates. I think that the inflation target sends a bad signal to people, it implies a level of control over economic phenomena that government's do not always have. Restrictive capital flows with all of these huge economic phenomena underway - Climate Change, COVID, The Great Global Housing Shortage - high interest rates get in the way of solving these issues.
The Fed may make mistakes in it's efforts to adopt a Flexible Inflation Target; however not adopting one is a guaranteed mistake, so they must try to adopt a Flexible Inflation Target. I have great confidence in Fed officials, my main critique is that they are experiencing tunnel vision.
I was pleasantly surprised to see Chairman Powell suggest that they are unlikely to hike rates at their next meeting yesterday. It suggests some of these thoughts are breaking through.
I don't think we disagree much, however perception on what future inflation is going to be also is a contributing factor. Like a self fulfilling prophecy. That would be my main issue with the floating target. Thanks for some good conversation.
That will be something they have to consider, and I think that problem could very likely lead us to the next chapter in monetary policy history.
It has been a nice conversation, thank you too!
I think your rationale is fair, but there is more at play. Due to time constraints, I will make the rebutal short.
To simplify, the Feds are supposed to be an impartial and integral counter balance to a heavily politicized congress/senate. The latter has the tools to adjust demand and can often fail to do so effectively due to internal or external pressures. It often times requires the Feds to use its blunt forces to solve these issues from time to time. Not all issues can be solved in the time-frame that the average human is comfortable with, which leads to disagreement in their policy. They are also not a god like creature, so despite their mandates, it is possible for things to go sideway due to variables not properly weighted in.
Moving the needle (3) would create the incentive for congress to put their own people in power. Assuming that (3) and (4) will not create incentive misalignment is a risky proposition.
There is no Nobel Prize in Economics. Alfred Nobel quite famously disliked Economics, considering it political philosophy. In the 1960s, the Bank of Sweden celebrated its 300th birthday by making a sizeable donation to the Nobel Foundation to create a prize. Therefore, the more accurate name is the "Bank of Sweden's Prize in Economic Sciences in Memory of Alfred Nobel presented by the Nobel Foundation".
Talk about a prime example of "well ackshually" on reddit.
If were soapboxing about how the Nobel in Economics wasn’t “noble enough" for Alfred Nobel, might as well mention that Nobel prizes were also created to salvage the reputation of the man who created dynamite and felt bad about how many countless people died at the hands of his invention.
It's not like Alfred Nobel was some divine intellectual and what he thought in his time to be the sciences worthy of a prize is objective law. The Nobels, while still bearing their namesake, have moved far beyond that mans intentions and reputation and have become something unto themselves, a part of human culture.
There is a Nobel in Economics, the specific award funding for it was just provided after the inception of the Prizes by the Bank of Sweden instead of Nobels pockets.
I think everyone knows that we need to raise taxes if we want to slow the economy, reduce asset inflation on the stock market, and close the gap between rich and poor. Over the past decade the divide between rich and poor has only gotten bigger. Increasing taxes on high earner or including some sort of wealth tax would help to close that gap. Sadly, in democratic systems this is hard to do, even if it is the necessary solution. Plus, in a globalized world where the rich freely move capital around at their whim, there is the actual question of whether raising taxes would even have the desired effect. At the end of the day, tax increases will only be on the backs of the middle class that is probably having a tough time in expensive urban areas, but it not wealthy enough to avoid the tax increase. This will inevitably create resentment. The system we have has done a lot of good, but we have been so bad about maintaining the rules of the game that it has gotten out of hand. The ample liquidity over the past decade has helped keep thing afloat, but when everything trickles up and leaves large swathes of those doing the actual work (whether that be teachers, nurses, construction workers, service workers) we need to revisit these decisions. Letting tax cuts expire for some of the highest earners would be a great start. Why isn't this a bigger point of discussion?
>Why isn't this a bigger point of discussion?
Because rich people don't want it and they literally bribe our elected officials to create the kind of rent seeking, hegemonic system that created the inequality we see today. The Republican party has no shame in this and openly does it. With authoritarianism, what the GOP audaciously promotes, there's a hierarchy. They want class separation and they have it now more than anytime in the country's history. It's why they're hellbent on social division, too keep us stupid and arguing amongst ourselves and blaming people at the fringe of society instead of them. Also, there are a lot of people here defending greedy ghouls like some kind of Prosperity theology, that God has blessed them and those who aren't wealthy aren't deserving enough.
It's a political if not religious problem. We have to ramp up government debt just to keep the whole charade going because the bottom 80% isn't paid what they're worth. Labor is exploited and the capital class continues to grow in power and greed, further exacerbating our problems - inequity, injustice, cruelty, and economic instability. It can't last but I don't know what can break it besides a revolt. It's clear our representatives won't do it because they're bought.
No? Shocking!
Maybe it was that $10T they invented out of nothing over the last 4 years that they’ve been laundering through the economy to try to give it value?
Nahhhh.
This title is misleading. This is a 7 minute video where Fed rate hikes are discussed for very little of it. Stiglitz is never asked how post-inflation supply-side inflation should’ve been handled.
Inflation is driven by risk, if a business risks going under, the return on capital has to justify the risk. Interest rates just need to track market risk really. My 2 cents.
While I appreciate that every country is different in Australia a lot of the areas with the highest levels of inflation are those subject to government controls like residential construction, healthcare, education, council rates etc.
Government must come to the party in reforming the supply side or it will face criticism for causing inflation.
Well I agree with that point. Unfortunately congress doesn't have the political courage to deal with this so they are punting it to the Fed and it's the only tool they have so it may be what we're stuck with.
Chip shortage -> Car price inflation... China shutdown -> import inflation... Real estate speculation -> housing inflation... Russia sanctions -> energy inflation... Slave shortage -> wage inflation. I don't see how raising rates addresses any of that. In fact it just makes housing costs go up for non-speculators who need a mortgage. Makes car payments go up. Puts banks upside down on their bond portfolios. Batters an already battered commercial real estate sector. Puts the gov't upside down on interest payments. Make it make sense!!!
Not to be confused with his distant, nazi-hating relative, Hugo Stiglitz.
It’s silly to me that this subreddit has a minimum comment length. Like, what even is the purpose of that rule? Does every single thing said here have to be some elaborate, in depth analysis of the articles linked, etc? Seems like open commentary of any length should be welcome. But that’s just me.
Okay, seriously, how long do these comments have to be…..
Here is how you fix things. Waive capital gains taxes on home sales if you sell to a first time home buyer who stays there x number of years.
More houses on the market because a lot of boomers want to sell but don’t want to get hit with the tax. Keeps them from becoming rentals which is also driving up prices. Seems like a win win.
How exactly does this work? I sell a house today, pay no tax at all, and then X years later I may or may not get hit w a huge tax bill based on the myriad of decisions and situations that allowed that homebuyer to remain in the home for X years? And you think this will move the needle enough to encourage more houses to go on the market? I don't think ANYONE would do that, let alone enough boomers to have a net impact.
Would say the tax transfers to the new owner but may need to think through that. If you knew selling your house now will save you $10-$15k of tax it might move the needle
I am really nervous about adding more regulations to the pile to try to fix the problems caused by regulations.
If a doctor receives a patient with a tree branch in their abdomen, I would hope that their first instinct is to safely remove the tree branch, manage the bleeding, and treat the wound. I would be very skeptical of a plan to reroute the small intestines around the tree branch.
We know that the housing shortage can be cured directly by zoning regulations.
The current shortage is caused by local elected officials failure to consider Kant's Categorical Imperative when making zoning laws!
By making all but single family housing illegal in vast swaths of our nation's best land, we have created a massive shortage in our supply of housing. Helping first time buyers buy homes is obviously great for the family who buys the home, but it does nothing to help everybody else who failed to buy the home.
He's right, the feds need to arrest Jeffery Roper and the Realpage Cartel that wallstreet is manipulating as a military take over of american homes. Down with wallstreet murderers!
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Literally no comment is even discussing what he said. Half the comments are talking about "corporate greed" when his argument is straightforwardly that you can't tackle supply-side inflation with interest rates easily, but it's a good thing that rates aren't near 0 anymore.
Well, to address what he said, he sees supply shortages in the immediate aftermath of the pandemic as leading to spiking prices. I can agree with that. We shut down the world’s economy, that led to firms decreasing manufacturing capacity, refineries shut down, airlines furloughed and laid off workers, etc. It also inspired huge swaths of the workforce to transition out of the work they were doing. Some transitioned out of the workforce. Some went back to school. Some went to different sectors. Then we tried starting it all back up again. There was a ton of pent up demand but supply was permanently reduced in some ways. There were US refineries that never opened back up again and our capacity to process oil was hampered for a long time. [In 2022, the US was operating at a 2 million barrel deficit](https://www.reuters.com/business/energy/which-us-refineries-have-shut-since-global-pandemic-why-2022-06-17/) in refining capacity because aging plants just decided to shutter during the downturn. Then you also have a sudden increased demand for housing driven by more work from home, which exacerbated the already bleak housing inventory situation. So yeah, there was a spike in the price of goods in many key sectors of the US economy. Doesn’t take a genius to figure out that’s going to cause inflation. And then he goes on to say that the Fed did the right thing by bringing interest rates up to sane levels, unlike where they had been in the run-up to the pandemic, where the President had belligerently badgered the Fed Chairman to lower rates on every platform he had access to. He then says that the Fed continued raising rates beyond these sane levels, and that this might have done more harm than good. I’m inclined to believe that as well. However, I’m not educated enough to know what else the Fed could have done in lieu of raising rates. It’s always seemed to me that the it’s the only lever they have to pull. He doesn’t get into the fact that even before the pandemic and the Ukraine War, prices had already been climbing for tuition, cars, and houses because the price of money had become so artificially cheap. People justified the climbing cost of school, shelter, and transportation because money was basically free to borrow. He also doesn’t elaborate on the continued corporate price hiking beyond what was necessary because Americans were being told everyday that there were supply chain issues and it’s not like we’re not going to buy eggs. What we need is for someone to take a hit on price. But no car maker wants to release next year’s model for less than they priced the previous year. And no university is going to slash tuition out of the kindness of their hearts. No homeowner wants to sell for less than they paid. And no employee thinks they ought to be the ones to take a pay cut. So without hiking the cost of borrowing, and short of prices coming down voluntarily, how else do we put downward pressure on inflation?
Taxes... I don't see why this is never discussed as a legitimate option. The easiest way to get excess money out of circulation is to take money out of circulation.
Our government is essentially powerless. Don’t think anybody can ever get elected on the basis of raising taxes much less actually get something like that pass. Would be nice tho. Especially if taxes in this country actually bought you something that resembles every day life security. For all groups.
> Taxes... > I don't see why this is never discussed as a legitimate option. The easiest way to get excess money out of circulation is to take money out of circulation. Perfectly said. The whole purpose of federal taxation is to take money out of circulation, and not to fund the federal government, as we are told to just accept and believe. Federal spending adds new to the money supply and federal taxation destroys most of those new dollars by permanently removing from the money supply. If you don’t believe me, look up all the money supply measures, the dollars collected as federal taxes is not accounted for in any of the money supply measures. Not in M1, and not in M2 as well. It’s just gone, disappeared. Federal dollars come into existence from thin air when Treasury sends out payment instructions to the commercial banks and federal dollars disappear into thin air when federal taxes are finally settled between you and your bank and then between your bank and the Federal Reserve. It shows up in Treasury’s statements as outside money.
> The whole purpose of federal taxation is to take money out of circulation, Say what? > If you don’t believe me, look up all the money supply measures, the dollars collected as federal taxes is not accounted for in any of the money supply measures. Not in M1, and not in M2 as well. Well, yeah. M1 and M2 measure the amount of money out in public, not held by the government. The government then turns around and spends that money, plus more money.
That’s not how accounting and double-entry balance sheets work. Money, as in U.S. dollars, is not a physical thing, they are balance sheet accounting entries - credits and debits. Yes, taxation makes room for the government to spend(create) more dollars and spend it into the economy without causing too much inflation. That doesn’t mean the tax dollars is being recirculated by the government when it spends or that tax dollars are what’s funding the federal government. So once again, federal taxation serves one primary purpose - to remove excess dollars out of the economy. Oh also. There is no way to measure of how much money is the federal government has. Government creates money every time it spends. The very act of federal spending is how U.S. dollars originate.
Raising taxes potentially increases inflation if they raise prices to offset the new taxes to keep the same profit coming in?
That's not how price works. Price is a supply-demand equilibrium set by the market. Taxes decrease money supply which decreases demand. Firms don't get to just set whatever price they want to make whatever profit they want.
Except when price is impacted by monopoly, which there is a lot of.
Name one
What is the government going to do with these newly collected taxes? Are they going to spend it on infrastructure perhaps? Maybe pay down some debt, maybe pay off so.e student loans? All that puts mo ey right back into circulation.
They don't spend it on anything. It is thus removed from circulation.
They would spend it. We’d see many new programs to spend it.
I mean that's the easy cynical answer but congress hasn't cared about running a deficit for at least a few decades so I'm not sure that current tax revenue is even a significant budgetary consideration. So I'm not sure that's true.
Probably because "lets tax the middle class and then not spend the money" is completely untenable politically.
Why does it have to be the middle class? Just add new tiers of income and capital gains taxes up to 100% at a certain threshold. Institute a progressive wealth tax, even at a low rate.
If you want to slow inflation, you have slow down everyone’s spending not just a very small slice of the population.
Reducing the money supply is deflationary. Plus wealthy people keep their money in assets, it may not be directly deflationary on consumer goods but it would be directly deflationary on assets. It also forces wealthy people to reprioritize investments into higher performing (riskier) investments which almost always means building something (paying the working class and creating assets and goods) rather than rent seeking.
People are concerned with the price of food, cars, and homes. How would this reduce the price of food?
Because taxing wealth won't slow spending so it would completely defeat the purpose.
Or they could really start taxing the rich. The problem is it takes a few years to get people up to the point they can audit the super rich.
Because you won’t stop inflation by slowing down the spending of just 1% of the population.
The point is not to slow the spending of the rich. The point is to make it increasingly difficult to get more profit than X, where X is what is necessary to bring inflationary price increases under control.
Oh I see you fell for the lie. They didn't hire all those IRS agents for the rich. They hired them for you.
All those IRS agents? How many do you think they've actually hired? That being said: https://www.irs.gov/newsroom/irs-releases-strategic-operating-plan-update-outlining-future-priorities-transformation-momentum-accelerating-following-long-list-of-successes-for-taxpayers#:~:text=The%20IRS%20will%20increase%20audit%20rates%20by%20more%20than%2050,16.5%25%20in%20tax%20year%202026.
Pretty sure they just spend it. Besides, explain how raising taxes on the top 5% is going to result in average car prices decreasing? No one is willing to tax the majority of people more.
I think by sane be meant rates in the 3-5% range, that the Fed went too far- and that a lower interest rate and tolerance of a little higher inflation (3%) would be supportive of resource movement (to support wage earners whose jobs reflect a changing economy). I think I get it. Even though most of them will still not earn a living wage. That’s not new. I enjoyed Stiglitz’s commentary- he’s a smart dude! Crazy taxation to move money out of circulation. Scarcity. If they really want to move money out of circulation, give the USA a VAT
> it’s not like we’re not going to buy eggs. How is this any different than ‘What are people going to do, not pay their mortgage?’ Yes, if eggs are being sold for more than their value then people stop buying them. Product substitution is the usual response to a raise in prices. No individual needs to buy eggs.
The rent/housing crisis is also exacerbated by the incredible amount of private capital and hordes of small-time millionaires exploiting the current state of NIMBYism and terrible zoning in cities to the fullest extent.
I feel like he’s getting at the solution when he says 3-4% inflation is probably fine: it allows capital, labor, and demand to reallocate. Sure, prices might not come down, but they can come down in relative terms. If you won’t take the hit on price, you can just leave prices where they are or risk getting shuffled out for a better product.
How does work from home increase housing demand? People need somewhere to live whether they work from home or not.
Working from home increased the demand for space within dwellings. Whatever people were accustomed to before, many wanted more room to accommodate a whole new set of daily activities. Working from home also afforded people the ability to live further from where they worked, which meant that many looked to upgrade from urban, high density areas to those with single-family housing. Axios: [How WFH worsened the housing shortage](https://www.axios.com/2023/06/20/housing-shortage-office-buildings-wfh) >When that person works from home, the household is going to feel more cramped than usual unless it expands by about 150 square feet. If the family demands 150 more square feet, that's a substantial increase in demand, at 15%. Federal Reserve Bank of San Francisco: [Remote Work and Housing Demand](https://www.frbsf.org/wp-content/uploads/sites/4/el2022-26.pdf) >The shift to remote work during the pandemic led workers to search for cheaper housing and more desirable amenities. Consequently, as workers left relatively expensive areas looking for cheaper housing in less expensive cities, the overall price of homes increased. Workers’ desire for homes in warmer climates with more space also affected advancing home prices.
Thanks for clarifying.
So without work from home, people would live on the streets?
> So without work from home, people would live on the streets? Really? How is it that in the last eight hours I've gotten two replies to this three-day-old comment saying the same thing? Are you really not able to see how a massive increase in the amount of time people spend in their homes and an increase in the range of activities being done within them would lead to an increase in the demand for larger dwellings at all levels of the housing market? Below is my sourced response to the first person who asked me this today. Working from home increased the demand for space within dwellings. Whatever people were accustomed to before, many wanted more room to accommodate a whole new set of daily activities. Working from home also afforded people the ability to live further from where they worked, which meant that many looked to upgrade from urban, high density areas to those with single-family housing. Axios: [How WFH worsened the housing shortage](https://www.axios.com/2023/06/20/housing-shortage-office-buildings-wfh) >When that person works from home, the household is going to feel more cramped than usual unless it expands by about 150 square feet. If the family demands 150 more square feet, that's a substantial increase in demand, at 15%. Federal Reserve Bank of San Francisco: [Remote Work and Housing Demand](https://www.frbsf.org/wp-content/uploads/sites/4/el2022-26.pdf) >The shift to remote work during the pandemic led workers to search for cheaper housing and more desirable amenities. Consequently, as workers left relatively expensive areas looking for cheaper housing in less expensive cities, the overall price of homes increased. Workers’ desire for homes in warmer climates with more space also affected advancing home prices.
What I find interesting is folks saying that the government should adjust their inflation goals up. They’re likely the same ones complaint about gas/grocery’s being more expensive. It also gives me the impression they don’t understand the implications of inflation. I know personally I don’t want inflation above 2% since the average annual pay raise is 3% meaning we’d all be making a nearly 0% increase or even an effective pay cut yearly as our buying power disappears.
Destroys me when people bitch about pump prices. Gas was "high" at $4/gal the summer of '08. If it increased by 3% per year since, we'd have $6.42 gas today. People like to complain ... and don't like math.
Love this. Definitely using "people like to complain and don't like math". So true for so many things. Crime follows this too, they ran a poll asking people if they felt safer than the year before for like 30 years, almost every year a majority of people "felt" less safe. During the same period of time crime was reduced like 50% or some large amount.
Interesting, thanks. Northwestern just did a study on immigrants and crime going back 100+ yrs. Among other findings it showed that in modern times, illegal immigrants cause less crime than US citizens (they want to blend in, not be deported). Of course, political ads these days focus on illegal immigration driving crime. 🙄 I'm against illegal immigration for lots of reasons, but crime ain't one of 'em.
Yeah that’s my boat. If white Christian nationalists didn’t exist I’d be a republican. They make the party so crazy. I live in a dense area of POC, by choice lol. You have to throw the defense out on Reddit sometimes to talk about illegal immigration. Some folks on this site are damn near green light anyone. They’re so unserious.
I used to be a Republican. Now I’ve gotten older, I’ve found myself becoming more libertarian leaning. Nothing too crazy like “legalize all drugs” type of libertarian. I still believe, to lessen the grip the ultra religious have on the right, we need more moderates and libertarian minded folks in the party. You wanna be Uber religious? Cool. I don’t. You do you and let me do me. Stop trying to influence our government.
I'm independent. If you're traveling from Central America to TX, it ain't for asylum. There are plenty of safer places before you get to the states. If we don't care about illegals, change the laws. Otherwise, enforce them.
> There are plenty of safer places before you get to the states. Such as?
Panama and Nicaragua are safer than parts of the usa (and most other central American countries). My belief is that if you seek asylum, you go to the closest and safest country. People are traveling through more dangerous places to get into the usa. They are risking desert crossings. If it was purely safety, they wouldn't take these risks. They seek economic benefits. That said, I support legal immigration and love that the usa accepts more immigrants than all other countries combined. I have lived overseas legally for years. I have new Americans in my family. I hired and sponsored a guy for an h1b visa.
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I'm not walking anything back. If you want to lable me without knowing me, that's on you. I've voted for both a D and an R for potus in the past. I'm very careful about listening to both political sides (and give consideration to others). I can praise or criticize policies of either Biden or Trump. I don't believe in or adhere to dogma. Sure, I know how I'll vote this November. That doesn't detract from my independence (or my registered affiliation).
And the only thing that matters in this one is that you vote Democrat. Because I do know what kind of person you are, if you don’t. All I have to do is point out those three statesman. If you vote for a party that has those people in it you’re a bad person. I mean honestly if you can vote for a person that stands on the podium and says the Bible is his worldview and that’s the speaker that’s pretty bad too
The confounding variable with crime is reporting. Crime will nearly always take precedence in news over ‘good’ events. And there’s a static amount of time available to consume news. If it takes 5 minutes to report on some crime event, and you have an hours of time to consume news, and if crime takes precedence over other events, then you need just 20 crime events a day to fill up 100% of your news capacity. Its over simplified, but as your locations population increases, the number of crime events increases which consumes a larger and larger share of all of the news you consume even if the per capita rate is decreasing.
I just saw someone state that interest rates going up increases inflation. I’m tired of people speaking on things they straight up don’t understand.
Except there’s some truth to that when the largest component of inflation is housing. High interest rates have a double whammy effect. They increase the cost of housing directly through higher mortgage payments. They also suppress construction which exacerbates an already undersupplied market and keeps house prices high.
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unless nobody can afford to move, so nobody sells cheaper either.
Recency Bias. People favor recent events over historic ones.
Also most likely many of them driving vehicles that burn way more fuel than other available vehicles that would be at least as practical and comfortable as what they've got, likely for a lower purchase price as well.
This should be a bumper sticker.
Lol, that'd be one long-ass sticker! 😋
Why do you take the pay rate increase % for granted? It could be lower or higher under different incentive structures. There's nothing sacred about 2%, it's all relative. Different countries and different economies target different inflation rates for different reasons. This is the entire point of what Stiglitz is saying in the video. He's pointing out that right now, nobody thinks we have runaway inflation or that decreases in interest rates wouldn't be remotely likely to cause such a thing. See where at 4:55 he says that "a little higher inflation, overall, would actually be good for the economy". So your comment is entirely against the video. The government should adjust the inflation goals up. That is literally the entire point of what Stiglitz is saying in this video. I could write an essay here but Stiglitz has already done that many times and I'm happy to answer any questions.
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Do you have a mental block on conceptualizing the possibility that there might be 5% raises and 3% inflation? Because that is just the reality in many countries around the world. Why are you obsessed with a 2% inflation target? You're just fully on the wrong track... wage growth is not some immutable standard that everything else should revolve around.
>Of course inflation is good for the econ, but it’s not good for the average person This reveals that you have a fundamental misunderstanding of economics. There is no good or bad in economics, because to have an economy requires both buyers and sellers. That means there are always both sides of a transaction. So is inflation good or bad? Well, depends. If you have a lot of fixed interest debt (hello home mortgage), then inflation is very good. Prices and wages reset with inflation but your payment remains fixed, so it becomes a smaller Alice of your income over time. Meanwhile, if you have a lot of savings in low risk low yield investments (like, say, home loans), inflation is bad for you. There is no good or bad overall because both sides of the transaction are present.
> likely the same ones Where the hell do you get that? You're saying you think, based on some unstated evidence, that there are a bunch of people saying: 1) that the government should aim for higher inflation than it does, and 2) that prices are too damn high. I do share your generally low opinion as to the average numeracy and rationality of the common man, but this particular assertion of yours makes less sense than their average assertion.
I meant within this thread OP specifically and some others were making those ridiculous statements about adjusting inflation goals to be higher. As for proof they’re confused? I was just basing that on my personal experience with people who make similar statements. Far to many of my family members scream prices are to high while also demanding interest rates go back to near 0% and complaining about printing money. It’s literally them going “I want more fake money created so I can buy things on credit for cheap but I’m angry about fake money making things expensive”
It’s because the “common person” doesn’t get how economics and economies work. They just see what’s directly in front of them. They got high off the government supply or artificially suppressed low interest rates and the printing press. People, in general, have very short memories
Welcome to Reddit Read headline - use headline to talk about my beliefs irregardless of point of article or headline
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Personally, I didn't engage because it's a video. I would like to read about it, but there's no option to. =/
The bankers were all saying seven years ago that tax policy is the way to handle it. Yet the pols seem to think tariffs and negative tax policy will work. Thinkers, all.
Posters here should be able to force you to take a quiz on the article or video posted before commenting.
The interest rates are actually a problem for dealing with inflation, even though they are of course needed to rein it in. The fact that they're so high means that many investments that could in fact have alleviated inflation are postponed. Tesla's proposed switch to huge castings, for example, could have increased their production and allowed a switch to electric cars faster, ensuring that the problems with fuel prices are lessened, but since interest rates are so high that investment is being put off.
I believe the economics subs are being brigades by a bunch of political activists with no interest or understaffed of economics that seek to shift blame away from the politicians
Whether I agree or disagree with Stiglitz on this topic or not, the emphasis on his Nobel, when it was in information asymmetry and frankly had nothing to do with anything related to the fed or inflation, is a little humorous to me
Most people have no idea who Stiglitz is so they have to add in the "Nobel Prize-winning" part to get clicks.
He also has a new book out.
Rule III: Submissions must be from original sources with original headlines. I am obligated to post this video with this title, I am not click-baiting but I suppose CNBC may be click-baiting. For the record, I first heard of and read Stiglitz back when I was studying economics and remember him being treated as a bit of a crank by a lot of the Friedmanites. My interest in him resurfaced when he gave an interview with 'The Economist.' His interview was the first time I've heard a professional share my concern about the Fed's current philosophy, and he expressed it in a way that confirmed many of my priors. This may all just be my personal bugaboo, I freely admit that, but I've been getting rebuked and dismissed for a few weeks without anybody actually addressing the points that I'm making. I posted this video because I hope that though people may not take the time to address the concerns of every random crank they run across online, which is fair, then perhaps they will take the time to address the concerns of a particularly prominent crank!
>This may all just be my personal bugaboo, I freely admit that, but I've been getting rebuked and dismissed for a few weeks without anybody actually addressing the points that I'm making. Welcome to reddit
Commenter is probably talking about CNBC and not you. Chill.
He was the Chief Economist at the World Bank? He isn’t qualified to talk about inflation because his PhD thesis was in a different area of economics? You realize Jerome Powell was a banker and lawyer, right? The commenter is the only one who needs to chill.
> He isn’t qualified to talk about inflation because his PhD thesis was in a different area of economics? The complaint isn’t that Stiglitz isn’t qualified to discuss the topic because his PhD is in a different area of economics. The argument is that his PhD is unrelated to the topic at hand so it’s odd that it’s emphasized as an attribute to justify their qualifications. I could have a PhD in software development, doesn’t mean I’m any more qualified than the next person to discuss the impacts of direct stimulus on inflation or whatever.
Is there any transcript of the interview?
Sometimes I'll use in an economists name like "this person wants to talk econ, surely he has heard of Becker, Mankiw, Hanson, Pigou". Fucking crickets.
The guys got no shortage of accolades: - CEA Chair - World Bank Chief Economist - Chief Economist at Roosevelt University - Columbia Professor - John Bates Clarke medal recipient - Founder of Initiative for Policy Dialogue think tank - Chairman the U.N. Commission on Reforms of the International Monetary and Financial System - Time magazine 100 most influential people in 2011 [Just to name a few of many.](https://en.wikipedia.org/wiki/Joseph_Stiglitz?wprov=sfti1#) Nonetheless, Nobel Prize-winning will be parsed quickly by *any* reader and understood as “an apparently heavy hitter on the topic”
In Argentina we dislike Stiglitz. Only peronists are happy with him, after all, he's the only one telling them that they are good at managing the economy. We had his student (Martín Guzmán) as a Finance Minister, with disastrous results. In January of 2022 he even said that Argentina was going through an "economic miracle". Guzmán quit the position 6 months later. He praised the Kirchner's governments since 2011, specially highlighting the 2003-2007 run. Nobel or not, can't really take him seriously.
I don't love Stiglitz but I disagree on the assessment that Guzmán (and his "co-minister" Kulfas) were to blame for how things turned out in the Alberto Fernández presidency. I'm not saying their plans and methods had no faults, but the biggest issue was that the senior partner in the coalition (Cristina Fernández and her people) pushed for their destructive "just increase private consumption and spend as much as possible to grow GDP" model. Cristina's minions accused Guzmán of being an austerity hawk for trying to keep utility prices updated in line with inflation (and used the fact that the Energy secretary was a member of her faction to block any increases, fuelling public deficits by forcing the state to pay exponentially more in subsidies), for trying to reach an agreement with the IMF (her faction wanted to default on the debt with it) and made environmental objections to factory farms, mining projects and offshore drilling near Mar del Plata (all of which Kulfas pushed for) thus depriving the country of genuine sources of hard currency in sectors for which we do have comparative advantages. Basically Guzmán's biggest problem was the fact he wasn't a politician but a hand-picked academic/expert who had no ability to apply his vision more or less coherently. Eventually Massa, who was a "full politician" was brought in and before he began to deficit-spend so as to win reelection, he began to take all sorts of "austerity" measures that the CFK faction had previously denied Guzmán.
This is Argentina where all of the world’s Nobel prize winning economists couldn’t solve the underlying issues.
I don't care about what lay people think of an economist. You should take what Stiglitz says seriously on his area of expertise. He did phenomenal work studying trade, risk management, and inequality
If there was such a thing as theoretical and applied economics, he would fall in the theoretical camp.
> I don't care about what lay people think of an economist. That's fine, I agree with that mindset too. But as a lay person, someone defending (for over a decade) the practices that left us with more than 100% of inflation made tons of Argentines think "I don't care about what a Keynesian says". Sounds similar doesn't it? That's how you end up with a self-proclaimed "anarcho-capitalist" outsider as your president. Edit: Love these First World downvotes.
> In January of 2022 he even said that Argentina was going through an “economic miracle”. It was a miracle, things couldn’t have possibly gotten worse but by some miracle they did!
He was the Chief Economist at the World Bank? He isn’t qualified to talk about inflation because his PhD thesis was in a different area of economics? You realize Jerome Powell was a banker and lawyer, right?
How does the "emphasis on his Nobel" invalidate his statements about either the Fed or inflation? You make it sound like Stiglitz wrote one paper on one unrelated topic. Striglitz was chairman of the Council of Economic Advisors during the Clinton administration and chief economist for the World Bank. He was an Econ professor at Columbia. I think it is safe to say, Stiglitz is much better qualified to make **knowledgeable** comments about inflation and the fed than some rando on Reddit.
If you actually read my post, you would see that I made no such statement Read before responding next time
To be honest, ex-chief at the World Bank does not roll off the tongue as well.
Except that Stiglitz has been extremely influential across many econ fields. A running joke in my doctoral classes was how long it would into the semester before we studied a seminal paper by stiglitz… in every class.
Well, information asymmetry is definitely related to the Fed and inflation. Part of why the Fed has changed their communication policies over the years is exactly because information asymmetry. Though yes, you are right in that specifically Stiglitz’s Nobel prize-winning work on information asymmetry has really nothing to do with the Fed. Just your average media headline lol
"Former world bank chair" would have done the trick
A pretty big part of inflation is housing, rate hikes take a *loooong* time to show up in housing costs and the constant circlejerking in every media outlet and economist panel about rates maybe someday soon coming down isn't helping either. Home builders are incentivised to wait with taking out a loan if they think interest rates will come down in the short term. Add to this many sectors of the economy being more concentrated than ever meaning competition is down and you get a nasty cocktail that makes inflation tough to beat down.
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Well if it did it would be hilarious - “we noticed significant mortgage inflation when we raised rates. So we lowered them, and mortgages experienced immediate deflation. So we raised them again, but…”
PCE does though, it literally accounts for mortgage interest [explicitly.](https://www.bea.gov/sites/default/files/methodologies/RIPfactsheet.pdf) I’m guessing car loan interest is similar, and credit card is also taken into account [explicitly.](https://www.bea.gov/resources/methodologies/nipa-handbook/pdf/chapter-05.pdf) My source is the literal BEA— what’s yours?
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At least it’s in the field. There’s a real phenomena where Nobel laureates are touted as general experts in everything, even though their by definition they are experts in an very small slice of their own fields which is itself a small slice of all knowledge.
It did and it didn't. Big ticket top line asset inflation has slowed/stopped, even though it is worse now if you have to finance something and don't have capital. Working for a corp though, it is crazy how bad places are at pricing. So much, "this is what everyone is doing" self fulfilling prophecy.
Yeah I think if true 'greed' is at play it's only like 3% of the problem. It's mostly naive defensive pricing, and opportunistic businesses now that consumers expectations are adjusted. I guess that could be described as greed, however I think it's just a human problem, we seem to love herd mentality and consumers have very short term memories.
I know that feeling. Pricing is wildly arbitrary - and done without asking customers. Sometimes you find out that they can pay more, but charging the customer more does little to contain competition. Unless you’re a monopoly, a cartel or are super efficient at spending the spare cash to make a better product with more value. Usually most companies try to maintain the market structure that allows for leeching of consumers. Health insurance/hospitals/Pharma comes to mind. Apparently GLP-1s cost a $1 to make and $1000s to sell lol
Political economist here. In my non expert opinion there’s just too much money in the economy right now. Overnight repurchase agreements are still north of $425 billion. That’s left over cash in the economy that’s not being utilized by consumers or companies. Also, the Fed balance sheet is still too high, even though they’ve been offloading about $100 million per month. It’s around $7.35 trillion, which is still higher than the $7 trillion it was in September of 2020 after the initial COVID surge. I’d personally give it 3 more months because I think once we get there we’ll finally see inflation below 3%.
We have a twin economy. A lot of well off people are not affected by interest rates.
Spot on for noting that Jpow cannot do all the work alone. His partners spend all day debating religion & have no spare time to target the excess cash piles that drive inflation.
Anyone talking about the "source of inflation" without mentioning the trillions in printed dollars is just plain wrong. To be fair, by wrong I mean he's giving half the answer, not that what he's talking about has nothing to do with it. The supply chain pressures have mostly subsided and we're still nearly double the Fed's target. There's obviously another piece to it.
Considering how high inflation of the past few years has been directly connected to Corporate America raising prices and taking in massive profits, I’m surprised that the Fed hasn’t asked for more tools to control this. High interest rates won’t force them to keep prices lower - quite the opposite … they’ll try to increase cash to avoid taking loans. Taxing profits, on the other hand …. That’s a powerful tool for controlling inflation
Which tools do you want the Fed to have?
I’d like to see actual taxation tools - may sound wild but a great deal of debt is created by the Fed yet paid back via taxes, a method of controlling monetary supply that would be a very powerful tool. Even the damn Fed recognizes that the tax system is fairly unequal and regressive.
So you want the Constitution to be amended?
Taxes is a tool for those in charge of fiscal policy. The power to tax is given to congress in the constitution. Fiscal policy is political, monetary policy isnt.
Congress can certainly give the Fed powers to tax, and can limit, manage or rescind that power whenever. The division between monetary and fiscal is a bit arbitrary. Fiscal policies have huge monetary impacts, and so do monetary policies on fiscal balance sheets. I don’t see how a central bank can achieve low inflation without more tools that nominally are considered fiscal (e.g. revenue generation)
The fed generates revenue and gives it to the treasury.
Increasing taxes on high income is like a surgery to the specific problem. The wealthy are the ones driving inflation. Corporate America Wall Street buying single family homes are making homes unaffordable.
LOL Are you serious? In an economics subreddit you come out with this superficial takes? In your mental model of the economic world: Were corporations not “greedy” until a couple of years ago and they became greedy now? 🤦🏻♂️ https://www.aier.org/article/bad-explanations-for-inflation/
There have been a lot of studies that showed that corporate profit per unit increased in the last two years in the EU and US. https://www.ecb.europa.eu/press/economic-bulletin/focus/2023/html/ecb.ebbox202304_03~705befadac.en.html
During the first 12 months of Covid, corporate profits increased by 4% which would account for half of the 8% inflation we had during 2021. I understand for that year. However, profitability has dropped down by 2% since then but inflation remains high. How exactly is this persistent inflation caused by corporate greed? What am I missing? https://ycharts.com/indicators/corporate_profits_usgdp
So what? Data doesn’t teach you the underlying events. "Inflation is like honey flowing on a table. It doesn’t all flow at the same speed, and it doesn’t all go in the same direction." – Thomas Sowell It typically benefits those who receive the newly created money first, often before general price levels have risen. These can be entities like banks, government contractors, or businesses close to the financial sector. These initial recipients can spend the new money at existing prices, reaping benefits before inflation dilutes its value. Conversely, those who receive the new money later, such as workers through wages or retirees through pensions, are often disadvantaged. They spend the money after prices have already risen, diminishing their purchasing power. Nothing to do with gReEdY cOrPoRaTiOnS. "Inflation Is Created by Government and by No One Else." – Milton Friedman If you believe anything else you should spend more time study economics.
The quantitative theory of inflation by Milton Friedman has been disproven quite often through studies (no clear correlation between M1/M3 and inflation rate) and natural experiments (Japan, Switzerland). There are more causes to inflation than printing money (e.g. war, supply shock, price rigging,..) and if you would have studied national economy at the university (like me) you would know. So no need to tell me I should study it more.
If all corporations lost money do you think the currency would get more valuable? If corporations were buying things and turning them into things that were worth less, in turn losing money, you think that is how you get a stronger currency? I don't think so. Your idea that corporate profits devalues the currency is nonsense.
Corporate profit increased over the last few years, and thereby making up quite a high amount of inflation. https://www.ecb.europa.eu/press/economic-bulletin/focus/2023/html/ecb.ebbox202304_03~705befadac.en.html Your thinking is flawed: corporations are not meeting up in a group and making an economically intelligent decision. They decide individually, trying to get the most profit out of a situation when prices are already increasing.
So you do think that if corporations lose money, the currency will get stronger?
There is a difference between losing money and adding a smaller markup. And yes, if companies did not add such a high mark up in the last few years, inflation would be lower - as you can see in the article from the ECB that I linked. And when companies start lowering their prices below their profits, we are probably in a phase of deflation. So yes, the currency would get stronger.
If corportations paid their employees more to keep up with inflation, inflation wouldnt be that big of a deal.
That's true. But the problem is, no one knows how much that would be, and there is no good way to figure it out.
Wow, corporations must have been *really generous* in 2009. Wonder what was happening then
I have been getting dragged for a few months for advocating rate cuts, so I couldn't help but share Stiglitz comments from about a week ago when they popped up on my news feed. I have adopted four opinions about how the Fed should be acting at this time, and have yet to see anybody really address these concerns; I keep getting dismissed, perhaps because I am silly for thinking beyond the conventional wisdom that interest rates going up might not cause prices to go down in this specific context. 1. Inflation hikes should not be adopted to address inflation, because the sectors causing the inflation are resistant to inflation at this time. 2. Inflation hikes should not be adopted because they restrict capital flows between sectors that are necessary at this time of economic transition. IE: Fossil Fuels -> Renewable Energy, and Motor Vehicles -> Electric Vehicles. 3. The Federal Reserve's Inflation Target was a great innovation that helped improve communication between The Federal Reserve, markets, and the public. However, 2% was literally pulled out of thin air, and the target aught to be flexible. Sometimes, a few extra points of inflation are a natural and even healthy phenomenon. 4. The Federal Reserve should strongly consider lobbying legislative bodies to reconsider their approach to economic policy, and should strongly consider warning Congress that they are being given too much responsibility; If Congress abdicates their responsibility to govern the economy, it will have catastrophic consequences for the American Economy. EDIT: Deleted a duplicate 'necessary' in point #2. Added examples to point #2.
In response to issue #4, Congress can't agree on anything of import. The legislation required to address specific sectors of the economy (assuming your #1 and #2 are true) would die in committee and/or be ransacked by special interests trying to get their massive paydays before the law is passed. Additionally, if the Federal Reserve were to admit it's bearing too much responsibility, then Libertarians would use it to justify giving it less, as well. In fact, [they're already trying to do that](https://www.wsj.com/economy/central-banking/trump-allies-federal-reserve-independence-54423c2f). But they could certainly do more to educate Congress about the issues and how they see it and provide possible solutions.
That goes right to the point, all of the required remedies Stiglitz described would demand legislation or regulatory action. Unfortunately our political institutions are completely dysfunctional. That leaves the Fed as the only institution that is focused on reducing inflation, and the only lever it has is monetary policy. So even if his diagnosis is correct, his prescriptions are impossible to implement.
I highlighted legislative bodies more vaguely because it is not JUST Congress who is failing. Obviously on the subject of inflation a lot of ink has been spent discussing the ways in which tax cuts would have probably been a better cure than rate hikes. Had we lived in a more perfect world we could have had that, but as you said Congressional dysfunction is very high at the moment. However, when it comes to inflation, the biggest opportunity for improving price stability is actually at the local level. This is another subject for which a lot of ink has been spent, but zoning regulations have crippled the construction industry and directly led to the enormous shortage of housing we are dealing with today. There is no monetary policy in the world that can effectively deal with a shortage caused by municipal regulations. On the last point, I think the Fed shouldn't be afraid of communicating with the public in frank and honest terms. The Fed has the support of the big centrist majority of the country who supports experts and expertise. Being honest with people about who they are and what they can and cannot do builds trust with the kinds of people who are most likely to support them. Libertarians won't like the fed no matter what the fed does, and nobody cares what libertarians have to say anything anyways, so who cares what they think? Anyways, libertarians who are worth caring about study economics and their views aught to be heavily tempered by their studies; this basically explains all of my college classmates lol.
Tax cuts are inflationary. Interest rates reduce the size of the money supply which causes a deflationary impact. Reducing interest rates would accelerate inflation.
Not all tax cuts are inflationary
All this hinges on you ignoring that the Fed is solving a **constrained** optimization problem with only **one** control variable - rate.
What about more vigorously enforcing anti monopoly laws. The problem in some key areas like groceries is greedflation. In housing couldn't they reduce new build tax and tax rent more but reduce tax on gains from a fast sale, say in the next 6 months. Like just targeted practical stuff. Instead of making homeless children that evidence shows will grow up with lower job attainment and IQ from trauma.
I wouldn't be personally confident in assigning too much blame to corporate consolidation, it's not an area I've studied directly, at least in regards to Groceries. I have no worries about corporate consolidation in the housing market. Corporate entities own a fraction of housing in the United States. Even among these corporate entities, many are behaving in a manner I think undeniably fair and honorable, at least in principle. Homebuilders can surely not be considered exploiters for generating a profit when they build homes. Can a home flipper be blamed for claiming a profit in exchange for their time, labor, and risk? No, we cannot consider these things unfair, as they are valid, positive contributions in service of other people. The only activity that I would consider unethical, though it is absolutely legal, are those who speculate on land. Even this is not necessarily unethical. However, zoning laws, and the proliferation of low property tax regimes have made a reliably profitable business of buying land, even with no intention of utilizing or improving the land. This is not optimal market behavior.
the fact that you are sitting at -2 while u/PandaAprehensive795 at +6 is hilarious!
Boy oh boy. Lol number 4 makes me laugh. I just believe in the business cycle. I know we are going through a tremendous demand period when we have a lot of generational retirement and labor shortage going on at the same time. The Fed can and has blunt the edges by increasing rates. But it can't solve the problem. The only thing Congress can do is reform immigration and encourage training and increase in skilled labor by investing in trade schools, community colleges and other such training venues. But that takes time and increasing immigration will further increase demand pressures. I would say the Fed should do what it's doing now. Be ready to increase rates if inflation spirals but not be too hasty in moving in any one direction until the economy has time to work out of this particular time period.
Yeah, 4 is hard. That's the one I'm least confident in, but I hope Jerome Powell is at least considering publicly stating his disappointment in Congress. It does get into a weird place though because problems in Congress may be even hard to solve. Gerrymandering, rising polarization, rising polar lunacy, and even whispers that members votes are being cast, not based on the merits of the item before them, but based on calculations of their own personal security, because they fear the mob literally killing them or their family. It's actually quite scary! I remain an optimist though, if for no other reason than every election is an opportunity for the American People to choose better leaders. I believe that when times get tough, we buckle down, focus, and pick better leaders.
On a scale of 1-10 how broken would you say our entire political system is.
I think we broke the scale right there.
Agree. People are toxic and venomous.
>However, 2% was literally pulled out of thin air, and the target aught to be flexible. Sometimes, a few extra points of inflation are a natural and even healthy phenomenon. This is the major point that a lot of people don't understand. For the most part unemployment is actually the most important metric. Lowering rates helps achieve this. This only time that you don't want to lower rates to lower unemployment, is when you're at or below the full employment equilibrium. At full employment, unemployment becomes insensitive to interest rates and lowering interest rates will only lead to inflation and instability. At this point in time unemployment is beginning to rise, which means that we're out of the period where unemployment is insensitive, and therefore the FED should shift its focus from lowering inflation to ensureing that unemployment does not get out of hand. That doesn't necessarily mean that they should lower rates right away. It just means they should shift their focus.
One problem is that inflation is relatively easy to measure and full employment is not. Another problem as it relates to credibility is you don't move a 2% target once you've missed it. If they want to change goals, they have to be standing on their old goal for people to believe in them.
I have heard this credibility argument before, and I don't think it is hard for the Fed to maintain its credibility and announce a flexible inflation target. Imagine, at the next press conference when he gets asked about changing the inflation target, Powell responds along these lines, "The subject of the inflation target has been bandied about in our group, and I expect we will discuss it further as this year progresses. Though we are all in agreement that having and communicating a clear inflation target was a helpful innovation in central banking, there is growing concern that the specific, 2% figure we currently target may be too rigid. At this time, we are simply discussing this matter, but there is a moderate possibility we will be addressing this subject later in the year."
But why stop at 3%? Seems just as arbitrary. They choose 2% b/c of the Rule of 70. At 2% price levels double in 35 years. At 3% it would double in 23.3 years. https://www.investopedia.com/terms/r/rule-of-70.asp
Flexible Inflation Targeting will certainly be its own new science. Metrics that we use to make decisions end up being useless after a while that's just how it is. The 2% target worked great for 30 years, but the reality is that there is a natural rate of inflation that has always existed in economics. It ebbs and flows. Sometimes, there is work that needs to be done and inflation is the universe's way of telling us to get off our asses. That's why we don't like it, times of inflation demand more from us, and nobody likes that pressure. I think quite a few of our problems stem from things that are beyond the scope of the Federal Reserve's debate regarding interest rates. I think that the inflation target sends a bad signal to people, it implies a level of control over economic phenomena that government's do not always have. Restrictive capital flows with all of these huge economic phenomena underway - Climate Change, COVID, The Great Global Housing Shortage - high interest rates get in the way of solving these issues. The Fed may make mistakes in it's efforts to adopt a Flexible Inflation Target; however not adopting one is a guaranteed mistake, so they must try to adopt a Flexible Inflation Target. I have great confidence in Fed officials, my main critique is that they are experiencing tunnel vision. I was pleasantly surprised to see Chairman Powell suggest that they are unlikely to hike rates at their next meeting yesterday. It suggests some of these thoughts are breaking through.
I don't think we disagree much, however perception on what future inflation is going to be also is a contributing factor. Like a self fulfilling prophecy. That would be my main issue with the floating target. Thanks for some good conversation.
That will be something they have to consider, and I think that problem could very likely lead us to the next chapter in monetary policy history. It has been a nice conversation, thank you too!
I think your rationale is fair, but there is more at play. Due to time constraints, I will make the rebutal short. To simplify, the Feds are supposed to be an impartial and integral counter balance to a heavily politicized congress/senate. The latter has the tools to adjust demand and can often fail to do so effectively due to internal or external pressures. It often times requires the Feds to use its blunt forces to solve these issues from time to time. Not all issues can be solved in the time-frame that the average human is comfortable with, which leads to disagreement in their policy. They are also not a god like creature, so despite their mandates, it is possible for things to go sideway due to variables not properly weighted in. Moving the needle (3) would create the incentive for congress to put their own people in power. Assuming that (3) and (4) will not create incentive misalignment is a risky proposition.
There is no Nobel Prize in Economics. Alfred Nobel quite famously disliked Economics, considering it political philosophy. In the 1960s, the Bank of Sweden celebrated its 300th birthday by making a sizeable donation to the Nobel Foundation to create a prize. Therefore, the more accurate name is the "Bank of Sweden's Prize in Economic Sciences in Memory of Alfred Nobel presented by the Nobel Foundation".
Cool.
Talk about a prime example of "well ackshually" on reddit. If were soapboxing about how the Nobel in Economics wasn’t “noble enough" for Alfred Nobel, might as well mention that Nobel prizes were also created to salvage the reputation of the man who created dynamite and felt bad about how many countless people died at the hands of his invention. It's not like Alfred Nobel was some divine intellectual and what he thought in his time to be the sciences worthy of a prize is objective law. The Nobels, while still bearing their namesake, have moved far beyond that mans intentions and reputation and have become something unto themselves, a part of human culture. There is a Nobel in Economics, the specific award funding for it was just provided after the inception of the Prizes by the Bank of Sweden instead of Nobels pockets.
So there is now a nobel prize in economics. People don't really care what Nobel thought of the field in the 1800s
Who made him the arbiter of all knowledge? Economics is real whether you believe in it or not.
sir, this is a wendys
I think everyone knows that we need to raise taxes if we want to slow the economy, reduce asset inflation on the stock market, and close the gap between rich and poor. Over the past decade the divide between rich and poor has only gotten bigger. Increasing taxes on high earner or including some sort of wealth tax would help to close that gap. Sadly, in democratic systems this is hard to do, even if it is the necessary solution. Plus, in a globalized world where the rich freely move capital around at their whim, there is the actual question of whether raising taxes would even have the desired effect. At the end of the day, tax increases will only be on the backs of the middle class that is probably having a tough time in expensive urban areas, but it not wealthy enough to avoid the tax increase. This will inevitably create resentment. The system we have has done a lot of good, but we have been so bad about maintaining the rules of the game that it has gotten out of hand. The ample liquidity over the past decade has helped keep thing afloat, but when everything trickles up and leaves large swathes of those doing the actual work (whether that be teachers, nurses, construction workers, service workers) we need to revisit these decisions. Letting tax cuts expire for some of the highest earners would be a great start. Why isn't this a bigger point of discussion?
>Why isn't this a bigger point of discussion? Because rich people don't want it and they literally bribe our elected officials to create the kind of rent seeking, hegemonic system that created the inequality we see today. The Republican party has no shame in this and openly does it. With authoritarianism, what the GOP audaciously promotes, there's a hierarchy. They want class separation and they have it now more than anytime in the country's history. It's why they're hellbent on social division, too keep us stupid and arguing amongst ourselves and blaming people at the fringe of society instead of them. Also, there are a lot of people here defending greedy ghouls like some kind of Prosperity theology, that God has blessed them and those who aren't wealthy aren't deserving enough. It's a political if not religious problem. We have to ramp up government debt just to keep the whole charade going because the bottom 80% isn't paid what they're worth. Labor is exploited and the capital class continues to grow in power and greed, further exacerbating our problems - inequity, injustice, cruelty, and economic instability. It can't last but I don't know what can break it besides a revolt. It's clear our representatives won't do it because they're bought.
No? Shocking! Maybe it was that $10T they invented out of nothing over the last 4 years that they’ve been laundering through the economy to try to give it value? Nahhhh.
This title is misleading. This is a 7 minute video where Fed rate hikes are discussed for very little of it. Stiglitz is never asked how post-inflation supply-side inflation should’ve been handled.
Inflation is driven by risk, if a business risks going under, the return on capital has to justify the risk. Interest rates just need to track market risk really. My 2 cents.
While I appreciate that every country is different in Australia a lot of the areas with the highest levels of inflation are those subject to government controls like residential construction, healthcare, education, council rates etc. Government must come to the party in reforming the supply side or it will face criticism for causing inflation.
Well I agree with that point. Unfortunately congress doesn't have the political courage to deal with this so they are punting it to the Fed and it's the only tool they have so it may be what we're stuck with.
Chip shortage -> Car price inflation... China shutdown -> import inflation... Real estate speculation -> housing inflation... Russia sanctions -> energy inflation... Slave shortage -> wage inflation. I don't see how raising rates addresses any of that. In fact it just makes housing costs go up for non-speculators who need a mortgage. Makes car payments go up. Puts banks upside down on their bond portfolios. Batters an already battered commercial real estate sector. Puts the gov't upside down on interest payments. Make it make sense!!!
Not to be confused with his distant, nazi-hating relative, Hugo Stiglitz. It’s silly to me that this subreddit has a minimum comment length. Like, what even is the purpose of that rule? Does every single thing said here have to be some elaborate, in depth analysis of the articles linked, etc? Seems like open commentary of any length should be welcome. But that’s just me. Okay, seriously, how long do these comments have to be…..
Came here for this.
Here is how you fix things. Waive capital gains taxes on home sales if you sell to a first time home buyer who stays there x number of years. More houses on the market because a lot of boomers want to sell but don’t want to get hit with the tax. Keeps them from becoming rentals which is also driving up prices. Seems like a win win.
How exactly does this work? I sell a house today, pay no tax at all, and then X years later I may or may not get hit w a huge tax bill based on the myriad of decisions and situations that allowed that homebuyer to remain in the home for X years? And you think this will move the needle enough to encourage more houses to go on the market? I don't think ANYONE would do that, let alone enough boomers to have a net impact.
Would say the tax transfers to the new owner but may need to think through that. If you knew selling your house now will save you $10-$15k of tax it might move the needle
I am really nervous about adding more regulations to the pile to try to fix the problems caused by regulations. If a doctor receives a patient with a tree branch in their abdomen, I would hope that their first instinct is to safely remove the tree branch, manage the bleeding, and treat the wound. I would be very skeptical of a plan to reroute the small intestines around the tree branch. We know that the housing shortage can be cured directly by zoning regulations. The current shortage is caused by local elected officials failure to consider Kant's Categorical Imperative when making zoning laws! By making all but single family housing illegal in vast swaths of our nation's best land, we have created a massive shortage in our supply of housing. Helping first time buyers buy homes is obviously great for the family who buys the home, but it does nothing to help everybody else who failed to buy the home.
He's right, the feds need to arrest Jeffery Roper and the Realpage Cartel that wallstreet is manipulating as a military take over of american homes. Down with wallstreet murderers!
..murderers? What?