2y ago

We won’t fix inflation while economists stay in denial about its causes

www.smh.com.au

TL;DR: economists are still stuck in the idea of the market as a perfect force for reaching optimal outcomes. They're ignoring the simple fact that businesses are putting prices up purely to increase profits. And that they can do this because the economic ideal of perfect competition (where many small firms compete with near-identical products) does not exist. We have a small number of very powerful businesses—oligopolies—in nearly every market for consumer-facing goods.

34 comments

Economists aren't really in denial, they are just doing their job of giving a false sense of scientific legitimacy to the plan the ruling class will enact anyways: discipline labor, cut social spending, bail out finance when they inevitably crash.
- Aye, there's a reason economics is called "the dismal science."
  
  Because it is not a science.
  A founding principle of economics is that people make rational economic decisions...
- What got me off conservatism is the fact that even Friedman wanted a Welfare System through negative tax returns.
  However that idea was absolutely dismissed by conservatives.
- Who's going to fund the new economics building at the University, the working class or some billionaire? Better make sure you don't have any Marxists on staff.
  
  I'd rather my taxes go to better universities instead of the war machine. But that would require the government in this country to do a 180 from where they've had their priorities for the last 70+ years.
I actually don't think I've seen that many economists (the progressive ones at least) who haven't been making the case for some sort of windfall tax on profits. The Australia Institute have been all over this for years now. Even the more centrist / conservative economists admit there needs to be some sort of intervention to regulate competition in the market. Pretty sure it was the IMF who came up with the approach for calculating how much profit driven inflation there is. Anyone who doesn't recognise this is either on the payroll or selectively ignoring huge chunks of data / evidence.
- Everyone that can do anything about it is in charge of trickling down the payroll.
We are generally taught that there's a balancing act going on between inflation and interest rates, but that's not really true. There's a balancing act going on between inflation and unemployment - and interest rates are the way to control unemployment. When the government says that inflation is too high what they're saying is that too many people have money and the way to fix it is to get a few tens or hundreds of thousands of them fired.
- I don't know if that's true. They want to get people spending less. Being unemployed is one reason you might spend less. Having high mortgage repayments is another reason.
  
  https://www.abc.net.au/news/2023-06-25/the-rba-wants-more-unemployment-lets-applaud-it/102506500
  It's well known that interest rates cause the unemployment level to rise, the RBA governor even covered it in a speech recently (https://www.theguardian.com/business/2023/jun/22/rba-reserve-bank-australia-unemployment-inflation) and they have a page explaining it (https://www.rba.gov.au/education/resources/explainers/nairu.html).
  Even though it's been suggested and documented that our current inflation issues are driven by corporate price rises and lingering pandemic supply issues, the government outsources the responsibility for interest rates to the RBA - but the only tool they have is monetary policy.
  Related: it's shown that full employment benefits everyone, but it benefits the least advantaged most https://grattan.edu.au/news/when-unemployment-falls-disadvantaged-workers-benefit-most/ so there really is a dichotomy between corporate profits and social wellbeing.
Nice work. It does trouble me that there’s such an orthodoxy in economics going through so much of government.
The theory so often fails, so why not use different theory? It’s frustrating when it’s people’s livelihoods at stake.
- Because they're trying to distract you while their friends rifle through your pockets.
smh.com.au
Apt domain name. Smh indeed.
They're ignoring the simple fact that businesses are putting prices up purely to increase profits.
This is incorrect. Yes, greed exists, but it always exists. Even in classical capitalist economics, inflation comes when supply can't keep up with demand. Fiat currencies floating globally, rampant money printing, global shortages and supply chain issues plus corporate greed starts to show a clearer picture
I'd love to spend less money on groceries and every day costs but it's just not possible with the prices of everything going through the roof like you said. People are still spending more because they have to.
The government seems clueless on what to do. Their only action is for the RBA to increase the interest rate and then hold onto their butts and pray.
I'm not saying I disagree or agree, but I've heard a lot of friends and colleagues start to decry inflation as simply a tool of the government. I haven't heard this argument so often before. Am I missing new data or a political trend? I'm not huge in social media or TV news FYI.
- You're missing basic knowledge, not new data or a political trend. If you live in the western world, you should know everything is about debt and inflation. How can college cost 75k a year? Access to debt. How could people but housed after 1975? Access to debt, how can people afford health care? Access to debt. Every time a large portion of society gets ahead of the curve, there needs to be price increases to increase the debt. That's it. That's everything in the US and many western countries. The debt has to be increased. That is where the wealthy make the most profit.
- Government spend much money. Much money come from tax and borrowing. Let's pretend there's $100 in the economy. Gov't takes 10% in tax. They spend $10, and the rest of the people share $90.
  When next year comes, the economy grew to $110 and the government Collect $11 in tax, but actually decide to spend $20. Meaning they borrowed $9.
  Year 3, economy grows to $150. Government gets $15 in tax, everyone feels "richer", but government has to borrow to pay the $9 on last year, plus whatever new spending this year. Let's say gov't now owes $50.
  So the next year! They create inflation and everyone has lots of money but can't afford shit. Maybe economy balloons to stupidity like $500. Government takes $50, and pays off their debt. Or could.
  In in this way, over time, inflation helps reduce the massive debt load incurred by governments because $1 is a lot easier to get in 2023 than it was in 2019.
  
  Your analysis would be true if many people's economies who weren't running up debt vs GDP were doing just fine. They are not. Countries with the same relative debt are way worse off lately.
The inflation is, quite simply, because we've been printing money since the early 2000's, and the shit hits the fan eventually. Every time any company fails due to massive corruption, it's bought out with printed money. ..that, and, the covid "please don't riot" checks. Fiscal irresponsibility and corruption, plain and simple.
Free market capitalism is a myth - capitalism doesn't work without a separation of corporate and government interests, and in free market capitalism, the government gets bought.
- You couldn't be more wrong. It's all about debt. You think inflation is worse than debt and payment on debt and how easy it is to get into debt and never recover?
  
  'Fiscal irresponsibility' = debt. Inflation is just from the gov't printing money to buy our way out of the debt, and distribute the debt to the whole system.
  The problem is, the underlying debt isn't paper. It isn't even gold. It's ultimately borrowed from actual material resources, and systems of nonmonetary wealth. ..and that kind of debt can't be printed away.
  When those systems of material resources and nonmonetary wealth run dry, they'll continue printing until the value of the money is less than the paper it's printed on.
  So, it's not a matter of "it's all about inflation and not about debt." It's a matter of debts that will be paid by natural law, coming due in the form of inflation.
- You're right except for the printing money thing. Don't ruin a good idea by planting it in shit.
  
  Sshhh.. ..you had me at "you're right."

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