Some people say inflation is causes by war, others say inflation is caused by money printing. Some others say inflation is caused by weaker currency?
Some people say the inflation we have today is caused by Covid lockdowns or the war with Russia?
Many things, there is no simplistic answer.
Yes, Covid then the surge to buy consumer goods could have been part of today’s inflation. Part of.
Specifically the stimulus money that was issued during the Covid era is blamed by some for the following stint of inflation. Certainly uncontrolled money printing can cause inflation, or more properly devaluation of currency. Confederate money is the classic example.
But I wonder if that’s all there is to it. I lived through the inflationary period of the 1970s and what everyone complained about was a real decline in their standard of living. Everything cost more but wages did not inflate at the same rate as prices, and attempts to seek higher wages were blamed for a “wage-price spiral”. Concurrently, the world price of crude oil quadrupled thanks to OPEC and I can’t help but think that petroleum and everything dependent on it like transportation of goods to market being simply more expensive than it used to be was a major contributing factor.
Yea but why did the price of gas, oil and coal gone way up it not like they are running out of fossil fuels any time soon.
Well back in the 1970s it was because the Organization of Petroleum Exporting Countries decided that they had enough of a hold on the crude oil supply to simply demand more money. This was underscored by the Arab Oil Embargo, when the gulf states flatly held back oil for a time to punish the USA for supporting Israel during the 1973 war.
Petroleum, and thereby gasoline and diesel and thereby the price of everything delivered to a store by truck, train or ship, is a heavily futured commodity. When news leads investors to believe that the future demand for petroleum will be greater or the future available supply lesser than previously thought, it leads to bidding wars which spike the price. The bidding price of petroleum is very panic-prone.
I was under the impression that our current inflation was probably a mixture of stimulus spending due to covid, supply chain disruptions due to covid, increased corporate profits and labor shortages.
It should also be noted that:
- inflation is not inherently a bad thing; most central banks target an inflation level of 2-3% and
- …which America’s current inflation level of 3.24% is pretty close to (I know this is slightly off-topic but it’s just weird that so many Americans continue to have the impression that their level of inflation is catastrophic; actually, it’s enviable at this point).
The fact that a little inflation is a good thing (indeed, even the ideal state) is a clue that as well as negative causes like printing money and supply shocks, inflation can also be a measure of confidence in an economy; something proportional to the anticipated return on investments.
Types of inflation:
Monetary Inflation: Milton Friedman famously said, “Inflation is, everywhere and always, a monetary phenomenon.” If you have a group of people on an island and they each have $100, a hierarchy of prices for goods will develop. Give them all an extra $100, and expect prices to double. Any time a fiat currency has more money printed, the basket of dollars chasing a basket of goods grows, and the price of the goods grows with it.
This is true, but only in aggregate. When it comes down to specific goods, other factors come into play. And if your economy is growing as fast as you are printing money, the balance between supply and demand doesn’t change that much and prices remain relatively stable.
Joe Biden famously said, “Milton Friedman isn’t running the show anymore.” But he never was. He was just describing how reality works, and that doesn’t change when a different political party shows up. The inflation we are seeing today shows it.
Other types of inflation:
Cost-Push Inflation: When the costs to a producer go up due to scarcity, regulation, taxes, or other external factors, the price of goods go up to match. We are seeing cost-push inflation in the construction supply chain, and in csrtain electronics.
An example of this would be the rise in hard drive prices after a fire at a factory wiped out a significant amount of production. Prices rose, which stimulated production elsewhere, then they came back to Earth. This is why conservatives and libertarians don’t believe that taxing corporations is a good social justice move, since they just push the cost increases to consumers.
Demand-Pull Inflation: When demand goes up for a product faster than the supply can match, inflation results. That surge in demand can happen because of stimulus, or because of sectoral changes in the economy, or because a bubble forms (Tulips, anyone? Or NFTs?) A good example of this was suburban and rural real estate during the lockdowns. There was a large surge in demand for such housing, and prices went through the roof. They still haven’t fully recovered.
Another example of demand-pull inflation due to a sectoral shift would be graphics cards. My graphics card cost me around $300, four years ago. Then Bitcoin mining, VR and AI came along, and suddenly my card doubled in price, even though it’s old. And the replacement card I was going to buy for $600 went to $1200. For a long time, high end cards weren’t even available to consumers because big crypto mining firms were contracting for the entire supply.
I don’t understand this argument, assuming you’re talking about income taxes. Income taxes only reduce the company’s profit, and only percentage-wise, not a flat amount. That profit is split among the shareholders. Except for small businesses, there tend to be either a lot of shareholders, or a few very rich shareholders. In neither case is it very common for these people to rely on the profits of the company to survive, so there shouldn’t be a sense in which they “need” to raise prices - other than perhaps for the executives to hit their bonus targets.
If a company raise prices in response to an increase in taxes, it’s because they think they can maximize profits that way as people will be more willing to pay more because the company will beat it into consumers’ heads that they’ve been “forced” to raise prices by higher taxes. That’s the same main cause of a lot of the inflation - businesses raise prices more than they really need to because consumers see the prevailing inflation and come to expect higher prices, and thus can’t garnish enough pushback against the size of the price increases.
People generally do admit that increases in taxes that are paid by small businesses are bad for the economy, as that’s money coming out of the pocket of people just trying to earn a living as their own boss, so that’s why they want only really rich people to pay more in taxes.
On the other hand, it’s a very good argument against sales taxes or other similar gross receipts taxes.
The 1970s were a classic example of cost-push inflation.
In addition to the two oil embargoes (1973 and 1979), there was also an outbreak of Southern Corn Leaf Blight beginning in 1970 and lasting until 1974 that reduced overall crop yields and pushed up the price of meat and poultry even later than that, as farmers and ranchers had to build their stocks back up.
This is only true if the company gives dividends. The large majority of companies do not. When a company takes in revenue above its expenses, it can save it and pay taxes, or invest it back into the company, or pay it out as bonuses. Or, they can leave the money offshore and not do anything with it in the US.
When the costs to a company go up, it either has to cut back on investment, cut back on expenses, or raise prices. There is no option to ‘take it out of profits’, becausebthe average profit margin in business is 7.7%, and lots of them operate on way smaller margins than that. Going after CEOs doesn’t help, because while they may be highly compensated, their compensation is trivial to a large company’s bottom line.
Yeah, this. I thought that was known. People were unable to work and everything was shut down and we were in trouble (well, I wasn’t but lots of people were). Government helped everyone get through it by opening the coffers.
Of course it caused inflation. As predictable as getting wet if you step out into a rainstorm, isn’t it?
In addition to the points you raise, @glowacks, it seems that you could make a similar claim about any income tax increase. Just as a business will want to pass on their increased costs to maintain their profits, if we raise taxes on the working class and they will want an increase in wages to maintin their standard of living. If we accept the argument, then it seems we’re inn a situation where we must never raise taxes on anybody, ever.
Then the company should cut their salaries. If the amounts are so trivial, they’ll barely notice the difference.
Unles the CEOs are worth what they are paid.
I hope this isn’t too far off-topic.
When I was a kid, my mother made lasagna with layers of cottage cheese. I hate cottage cheese. One day, she said she was making lasagna for dinner that night, so I asked her to leave out the cottage cheese. She said “oh, you’ll never even know it’s there.” The counter argument didn’t occur to me until much later; “leave it out, you’ll never know it’s missing.”
Ever since then, I’ve been bothered when people make an argument that only applies in one direction, or to one group of people.
One engineer is the same as another; we can offshore those jobs.
Executives are special and irreplaceable individuals; no one can do what they do.
Executive salaries are negligible, cutting them wouldn’t make any difference.
Executive salaries are sacrosanct, they wouldn’t stand for any decrease.
We’re all in this together. We all work hard, we all want the rising tide to lift our boat along with all the others. If our taxes go up, we’ll all try to make up the difference. When things are going wrong, we all need to make the sacrifices to fix them. To blame inflation on just one group, or to excuse another group from helping to bring it down, is the wrong approach.
Yep. A modest amount is not bad at all. But see the GOP lies,.
The decades of “quantitative easing” did.
Not the pittance given to consumers. The fucking decades of printing money in flabbergasting numbers.
Plus many people had their expenses reduced through not having to pay rent (and then after the fact realizing the rent payments were postponed, not eliminated), not paying for gas by working from home and not having to pay student loans leading to even more spending money. Discretionary money was also saved since so many events were cancelled or audiences not allowed.
Any lie in particular or is this just a Straight Dope standard “All Republicans are evil.” statement?
For that, their compensation should be a function of profits. No: You made dumbass decisions that cost this company 100s of millions of $ so here is your $5M salary plus $2M in options as a bonus and this added golden parachute if we decide to fire you.