Very interesting. Great summary of money in the 1800s. Let me quibble about recent events. Saying the post-Covid inflation was government driven is half true. The supply chain problems arisen with restarting the economy were part of the story. And fiscal dominance is not the right description. Deficits and the debt are higher than we’d like, but no one doubts the ability of the government to pay its bills. If they did, inflation would not have fallen.
Thanks George. I appreciate you reading and commenting! I am also now following your column. So, I truly appreciate your thoughts! First, in a world of fiat currency, sustained inflation can only be caused by government activity. If we have 2 possible causes: (1) gov and (2) supply chains, you can have inflation without (2) but not without (1). You can have a temporary deviation from steady state inflation due to (2) although more likely you'd change dispersion as supply chains should affect relative not aggregate prices. I've been following the research on this too. I see the Blanchard-Summers and other work. Then I see some ECB reports and, I think, IMF (I can check), finding almost zero correlation with supply chains. At most, I think the supply chain issues during and post Covid could have affected the rate of change initially and, as those conditions improved post Covid, logically they should then have slowed inflation as they eased post Covid, increasing supply again, but that's when inflation took off. It seems pretty clear that the two massive bumps in government spending and money printing are the main drivers of subsequent inflation. And, as you hint, that's indeed a challenge for much of modern macro. ... oh, and Fiscal Dominance is certainly the right term for the fiscal side driving the monetary, whether we are in such a situation today is a very fair question. Good points. In any case, I'm honestly thinking about inflation and more broadly price level determination these days, so I am 100% open to thoughts, questions, challenges and such. Thanks for reading and for commenting. I hope to learn from each other as I read your work more as well. Thanks, Chris
"I think the supply chain issues during and post Covid could have affected the rate of change initially" Sorry.. to be clear, I mean the rate of change of inflation (i.e., the second derivative of the price level with respect to time, not the first)
Very interesting. Great summary of money in the 1800s. Let me quibble about recent events. Saying the post-Covid inflation was government driven is half true. The supply chain problems arisen with restarting the economy were part of the story. And fiscal dominance is not the right description. Deficits and the debt are higher than we’d like, but no one doubts the ability of the government to pay its bills. If they did, inflation would not have fallen.
Thanks George. I appreciate you reading and commenting! I am also now following your column. So, I truly appreciate your thoughts! First, in a world of fiat currency, sustained inflation can only be caused by government activity. If we have 2 possible causes: (1) gov and (2) supply chains, you can have inflation without (2) but not without (1). You can have a temporary deviation from steady state inflation due to (2) although more likely you'd change dispersion as supply chains should affect relative not aggregate prices. I've been following the research on this too. I see the Blanchard-Summers and other work. Then I see some ECB reports and, I think, IMF (I can check), finding almost zero correlation with supply chains. At most, I think the supply chain issues during and post Covid could have affected the rate of change initially and, as those conditions improved post Covid, logically they should then have slowed inflation as they eased post Covid, increasing supply again, but that's when inflation took off. It seems pretty clear that the two massive bumps in government spending and money printing are the main drivers of subsequent inflation. And, as you hint, that's indeed a challenge for much of modern macro. ... oh, and Fiscal Dominance is certainly the right term for the fiscal side driving the monetary, whether we are in such a situation today is a very fair question. Good points. In any case, I'm honestly thinking about inflation and more broadly price level determination these days, so I am 100% open to thoughts, questions, challenges and such. Thanks for reading and for commenting. I hope to learn from each other as I read your work more as well. Thanks, Chris
"I think the supply chain issues during and post Covid could have affected the rate of change initially" Sorry.. to be clear, I mean the rate of change of inflation (i.e., the second derivative of the price level with respect to time, not the first)