Another example of an economic commentator getting cause and effect backwards. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
Sure, Joe Blow is so keen on borrowing to buy his house because he has inflationary expectations.
But Joe doesn't have them in relation to what he consumes 'cos he's interested in the past, not the future.
He wants a pay rise not because he thinks prices are going to go up, but because they have gone up and he can't buy what he used to.
Only economists could assume anything else, but then they don't live in the real world. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
People have inflation expectations, but Joe's only thinking, "Man, meat and cereal are costing me a lot more these days." He thinks that will continue to be the case, watching the news. But he's only going to adjust his budget gradually as he needs to.
The problem economists run into when they talk about consumers and firms is that they see all of these adjustments and assume people and businesses will handle them immediately. That would be silly. He/it might plan a bit ahead of the game, but he/it has no idea what, exactly, is going to happen. Most of the adjustment is gradual. Economists -- and, again, this really applies to economists of a certain persuasion -- take this fuzzy term, "expectations," and build automatic clearing of markets into things. Granted, it's more a convenient assumption they make in cases where they're likely focusing on some other issues, but still: It's silly.
Welcome to the fight over sticky prices and wages. Conservatives want live babies so they can raise them to be dead soldiers. - George Carlin
Joe Blow doesn't really think about inflation when he's borrowing for a house.
Of course he does. He thinks house prices are going to go up. They always go up, don't they? If he didn't, then he wouldn't buy.
Drew J Jones:
People have inflation expectations, but Joe's only thinking, "Man, meat and cereal are costing me a lot more these days." He thinks that will continue to be the case, watching the news.
But IMHO he asks for his wages to go up to restore the status quo ante. Not to pre-empt inflation.
I doubt whether inflationary expectations play much, if any, sort of role in Joe's thinking - unless he's an economist.... "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
Okay, yes, that's true. I was thinking more along the lines of how it impacted his real interest rate at a given price. But you're right. He'll be thinking about the price of the asset, too. Really, though, I don't think that's going to impact him much unless prices are moving strongly in one direction or another (like they are now).
I completely agree that's his initial move. He's falling behind, so he asks for a higher wage. But I suspect that, if the inflation is sustained, he'll think of the future to some degree. I don't think it's an either/or kind of thing. Conservatives want live babies so they can raise them to be dead soldiers. - George Carlin
I don't think it's an either/or kind of thing.
Indeed.
I don't think many things are "either/or". Unfortunately we are up against people who think they are...... "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
It's funny. The pundits will occasionally bring up Harry Truman's statement that "All my economic advisors say, 'One the one hand _, and on the other hand _.' Someone give me a one-handed economist." And I always think, "Yeah, and we have a word for one-handed economists: Frauds." Conservatives want live babies so they can raise them to be dead soldiers. - George Carlin
He's a weird one in the history books. One of the most hated presidents in history during his time, yet he's now looked upon as a true maverick and one of the all-time greats. Conservatives want live babies so they can raise them to be dead soldiers. - George Carlin
I would REALLY love to see a discussion of it here among people who actually have some economics background. The insights are pretty fascinating, but the book def. has an agenda (hey, that I agree with) so I'm really interested to know what others think of it. "Pretending that you already know the answer when you don't is not actually very helpful." ~Migeru.
I'm planning to go back to the reviews in the FT and the Economist I saw a while back and do a compare. In the long run, we're all dead. John Maynard Keynes
