Hey everybody! I'm putting together a list of common myths about inflation. Does anyone know about a list or article such propaganda?
Interesting discussion! But I was looking more for common misconceptions amongst the public and media pundits. I was talking to some people and they were saying that speculators in the oil market were driving up the price of oil, thus causing higher prices thus this is the cause of inflation. What are some other common misconceptions promoted out there?
donmc: maxpot46: It only justifies government intervention in the money. That's your conclusion not mine.
maxpot46: It only justifies government intervention in the money.
It only justifies government intervention in the money.
That's your conclusion not mine.
Is it not a fact that all statists, in advocating government intervention in the money, worry loudly about price stability? So while I may have put words in your mouth (for which I apologize), your argument leads to that implication. How else to gain price stability then government intervention, when the market's best money (gold) does not lead to it?
donmc:My entire point is that an increase in the money supply does not necessarily cause a widespread increase in prices. That's why i don't like defining inflation as an increase in the money supply because it doesn't clear up what is happening. If the federal government prints and inserts into the economy exactly 1 us dollar today it will have no discernable impact on prices, yet by the definition it's still inflation.
Yet the government has just managed to coopt $1 worth of US goods/services, because they printed a dollar without earning it. Yes, the "price level" (which prices again?) might stay the same, but the distribution of goods has been altered in favor of the government. You say "stable price level, good", I say "government stole goods to keep stable price level instead of letting it drop a little and enhancing the value of my savings, bad".
donmc:I too would much rather see 100% gold backing with a 100% reserve requirement, AND the private sector be able to mint coins instead of the federal goverment.
Then why the obsession with price stability? Because your preferred system won't deliver it.
"He that struggles with us strengthens our nerves, and sharpens our skill. Our antagonist is our helper." Edmund Burke
"What people today call inflation is not inflation, i.e., the increase in the quantity of money and money substitutes, but the general rise in commodity prices and wage rates which is the inevitable consequence of inflation. (Mises, Planning for Freedom, 79)"
http://www.mises.org/story/2781
Donmc,
I am afraid you're mistaken. Twice.
In your first mistake, you are asserting that you do not like the official definition of inflation, because it isn't always the result of money supply inflation. Then you also do not like the traditional definition of inflation, because it doesn't always result in price increases. You solidify your view with bringing the "third example" in, where you achieve "price stability".
Note, that in the second example, you point out that without the corresponding and proportional increase in money supply, an increase in total number of goods will result in deflation. There were 4 ICB sold for 0.5 each,resulting in the same 2 dollars of GDP. So, there was no reduction in GDP, and yet, you alledge that the deflation occured. I can only assume one thing, and that is you were referring to deflation in prices, concluding then that it is not the money supply or the economy, but the prices you're still concerned about.
You will probably assert that it is indeed unfair that the computer you type your posts on, was purchased for less than an equal machine would be purchased for say ten years before. That was the deflation in prices resulting from increase in total number of goods manufactured. So, you would suggest that we need to insure the price stability, to make sure prices do not fall?
In your second mistake, you assume that having your house price fall in dollar terms annually is a bad thing. How so? What do you care of it's worth in dollar terms, if upon an eventual sale you would still be able to exchange it for the same amount of goods as when you first bought it? Do you like your computer any less because it worth less now then when you first bought it? You wouldn't want to borrow dollars to purchase a house, and that is a good thing, for you should first save, and then buy, not the other way around. But you would want to lend your capital in those conditions, for you will get back much in purchasing ability at repayment. Lender is favored and a borrower is punished, - that is an ultimate fairness to me.
Where your mistakes are derived from:
You think of economy in terms of dollars and prices. But this isn't what economy is. Economy is only a descriptive term for an exchange of things we make among us all. And so, if there were only two of us, and we made one thing each a year and exchanged them, then our exchange consisted of only two things a year. As we employ machinery and better ways of production, inventions and saved capital, we could make say ten things each a year and exchange them. Now our yearly exchange is twenty things. So, one thing becomes only worth one/tenth of or year of my work, where it used to be a whole year of my work. So, all that is changing is the unit of exchange we employ, it is being divided further and further. Nothing else changes. Because you produce ten things a year, you're able to buy ten things a year, and the price of ieach in dollars simply signifies the rate of progress as it falls further and further. And what should I care if the price of a gadget that I used to spend a year building, had fell from one whole dollar to just ten cents now that I can make ten of those a year? As long as there is complete fairness, I couldn't care less! The government and their sick cronies still cannot spend anything unless I actually give it to them and that is all that counts for me!
Now, I see your great point of keeping the price stability for the sake of economic calculations. The simplicity and the ease of availability of calculations in such a system has no equals, I agree.
There are other things we could simplify as well. I may suggest posting your annual income, social security number, mother maiden name, address and phone, bank accounts and assets on a publicly accessible website. This would greatly simplify an economic calculations in regards to your creditworthness, for example, without the need to use more sophisticated methods of assessment. Of course, there might be a downside to this, - you could be a victim of identity theft.
But so is the case with inflation of money supply for the sake of ease of calculations. FED doesn't send us all new and additional money, nope, it keeps it all for itself, the government (the destroyers and abusers), and the cronies of the government. So the simplicity in this case comes with abuse and fraud.
I don't see anything so terrible about information asymmetry - it's the only thing that gives an incentive to invest! I think the idea that information asymmetry is bad comes out of a general methodology of equilibrium, a focus on the statics of the economy, without the Austrian interest in dynamics. It's the same kind of thinking, by the way, which allows companies to have "human resources" departments.
Now, on the original topic. I think the biggest myth about inflation is that it's tied to a stronger, growing economy, as in "inflation is the price we pay for expansion - we have to balance unemployment vs. inflation" or other such garbage. The fact that anyone believes such nonsense is the price we pay for not learning economics. Even neoclassical economics ought to cause one to realize that more economic output cannot cause inflation absent someone increasing the money supply. Closely related is the myth that the Fed exists to prevent - rather than to cause - inflation.
Sorry this is off topic.
Can you explain what you mean by this:
JAlanKatz:It's the same kind of thinking, by the way, which allows companies to have "human resources" departments.
I'm certainly no fan of HR departments, but I don't follow the connection to static vs. dynamic thinking.
tgibson11:I'm certainly no fan of HR departments, but I don't follow the connection to static vs. dynamic thinking.
I'm commenting on the name of the department - the idea that workers are not unique sources of dissipated information, but rather are "resources." That type of reductionism - treating people as data points, and so on - seems to me to be a hallmark of the "scientism" of the neoclassical methodology.
The tie-in to statics vs. dynamics is that the problem with statics is precisely the fact that it ignores - because it is unquantifiable - the entire discovery process, the idea of the economy as a learning system. This is precisely the engineering view that allows for the abstract view of human beings as well.
On a side note, I have to wonder why it is that economists working with non-linear dynamics, non-equilibrium concepts, and so forth, such as at the Santa Fe Institute, tend to be so socialist. Their ideas tie in so well to Austrian ideas, and present such a good Hayekian case for the market, that I'm amazed that 1-they don't realize it and 2-there aren't more Austrians crowding in on their institutes.
That inflation happens because "free market capitalism" is under-regulated
Democracy is nothing more than replacing bullets with ballots
If Pro is the opposite of Con. What is the opposite of Progress?
mr_anonymous: Most common myth about inflation: That the Federal Reserve System can reduce it/control it through monetary intervention.
Most common myth about inflation: That the Federal Reserve System can reduce it/control it through monetary intervention.
Well, they can, they just don't. They certainly have the ability to increase or decrease the money supply.
Harksaw:Well, they can, they just don't.
Well, a central bank I guess can increase or decrease the money supply, but it does not cure inflation. What do they do when there is high inflation and high unemployment? In this situation, the Federal Reserve can do nothing to solve the problem because any action they take will harm the other, a situation that would not arise in the free-market.
Rothbard said it best when he said that the government (the Fed) is inherently inflationary because controls the production of money.
...And nobody has ever taught you how to live out on the street, But now you're gonna have to get used to it...
Harksaw: mr_anonymous: Most common myth about inflation: That the Federal Reserve System can reduce it/control it through monetary intervention. Well, they can, they just don't. They certainly have the ability to increase or decrease the money supply.
They can control the money supply, but they can't control (or measure) money demand, making it impossible for the Fed to control the "price level". They imply that they can simply so they keep the power to spend as much as they want (which is the true point of the Fed).
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