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Never mind causes - I'd settle for literature that manages not to fall into the trap of "One True Kind of Inflation..."

by Metatone (metatone [a|t] gmail (dot) com) on Fri Nov 19th, 2010 at 12:31:04 PM EST
[ Parent ]

Well, inflation is inflation. It's when the same basket of stuff (where the basket is chosen in some non-insane way) costs more money than it used to do.

Of course that depends on how you chose your basket, which is always a political decision. But I know how to make baskets, I don't know what causes them to change price.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 19th, 2010 at 05:00:53 PM EST
[ Parent ]

Of course that depends on how you chose your basket...

And the contents of the baskets vary over time, as does inflation itself. How does the increase in types of goods that "the average family" needs factor into this discussion? For instance, some time in the '80s personal computers became important for families with aspirations for their children. In 1978 I bought a Toyota Corolla wagon of that model year for a little over $6,000.00. In 1981, I believe, I bought an Apple II with dual disc drives for about $2,500. In 1972 I had bought an HP 45 programmable calculator, for about $250.00. Neither the calculator nor the computer or anything comparable in price and function had been available five years before I made my purchases.

The home computer added an entire segment to our economy. It also became a significant expense item for middle class families. So how do we account for the varying contents of the baskets from, say, 1948, when only a small portion of households had TVs and very few had two cars to the mid 70s, when most households had at least one color TV and a large number had two cars, and on to the 21st century, when most households have at least two cars, multiple TVs, and multiple PCs.

And in which time were we better off? I think Elizabeth Warren has noted that family economic well being peaked in the early 70s and that the average family has been squeezed economically since, resulting typically in families with two incomes even when they have young children. But the basket is bigger.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Nov 20th, 2010 at 12:14:48 AM EST
[ Parent ]

Yes, those are problems with measuring inflation, as Mig has discussed previously.

However, what I want is form some idea of what would cause a constant basket to change in price. Because I already know how to make baskets.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Nov 20th, 2010 at 08:03:52 AM EST
[ Parent ]

Damn! I would have been so much better informed had I found ET a couple of years earlier.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Nov 20th, 2010 at 12:37:59 PM EST
[ Parent ]

There has been talk about collecting the stuff we've written about economic theory in one place. It seems to always come to nought because of how much work it would be (and how inherently unfunny such a task is).

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Nov 20th, 2010 at 02:00:34 PM EST
[ Parent ]

The interim solution I have proposed is diary tagging. More work for diarists however, unless there is an index of carefully planned tags that can be clicked on - rather like the <allowed html> list that is presented as you write.

You can't be me, I'm taken

by Sven Triloqvist on Sat Nov 20th, 2010 at 04:16:02 PM EST
[ Parent ]

A good buddy of mine worked on "Semantic Web" stuff back in 1971. It didn't work.

The reasons why are tedious and complex but, as an illustrative example, one reason comes down to the way I use English (words, in the vulgar sense :-), and the way you use English and the way Jake, say, uses English are all ever so slightly different that sum to the necessity for having a ATinNM-to-Sven-to-Jake [& iterate]/English Dictionary & Grammar translation handy and start adding on every user, and every possible user.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Sat Nov 20th, 2010 at 04:53:39 PM EST
[ Parent ]

There is a system of diary tagging. Not a perfectly conceived list, true, but it's there. Who uses it?

(Hint: no one, or almost).

by afew (afew(a in a circle)eurotrib_dot_com) on Sat Nov 20th, 2010 at 04:57:24 PM EST
[ Parent ]

There is? Where?

On other group-blogs I have used tags, mainly from a list someone else made. In general if it comes at the right point in the process (after writing, before preview and publish) and it can be accessed easily from a reader perspective, I think it would be used.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Sat Nov 20th, 2010 at 07:08:52 PM EST
[ Parent ]

There's plenty to criticise about it: the list isn't well-thought-out, and it isn't mentioned in "How to post a diary" in the User Guide. Above all, there's only one possible choice. But you can use those topic tags to filter your search results in the (awful) Scoop Search function. Which might be useful if everyone used them whenever possible.

by afew (afew(a in a circle)eurotrib_dot_com) on Sun Nov 21st, 2010 at 03:09:33 AM EST
[ Parent ]

I seem to recall there being a bug in that function. I take it it was resolved, then? Or am I misremembering?

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Nov 21st, 2010 at 03:11:57 AM EST
[ Parent ]

Never heard of that. If you're right there was a bug (discussed where?), I doubt if it's been fixed.

by afew (afew(a in a circle)eurotrib_dot_com) on Sun Nov 21st, 2010 at 03:16:32 AM EST
[ Parent ]

A quick test of the Search function reveals that... you're right. It will bring up a result based on the text entered, irrespective of the topic tag.

More Scoop magic.

by afew (afew(a in a circle)eurotrib_dot_com) on Sun Nov 21st, 2010 at 03:22:32 AM EST
[ Parent ]

Re: Incidentally... (4.00 / 4)

There was another discussion preceding the linked thread here European Tribune - Socratic Economics IV: How is inflation calculated?

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Sat Nov 20th, 2010 at 02:35:15 PM EST
[ Parent ]

Galbraith's Affluent Society ... (4.00 / 2)

... discusses how mark-up pricing works in economies dominated by fix-price markets and firms with substantial market power. Most neoclassically inspired work on inflation is trying to explain why there is ongoing and persistent inflation in economies dominated by flex-price markets where firms typically have little market power ...

... but, historically, those types of economies more normally had periods of inflation and deflation. With a currency with an intrinsic value, the average tendency would be toward inflation, as the sovereign debased the currency in order to cope with the repeated liquidit crises caused by a currency with an intrinsic value, but they did not have the year after year for decades inflation typical of economies dominated by fix-price markets with substantial market power by producers acting as price makers.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Fri Nov 19th, 2010 at 05:51:01 PM EST
[ Parent ]

Re: Galbraith's Affluent Society ... (none / 1)

I've read The Affluent Society, but it only goes into one possible mechanism.

What I'm really looking for is something that discusses different plausible mechanisms for inflation (expansion in demand that can't keep up with supply; firms using market power to price in expected inflation; a way to resolve (or not) a political conflict over who gets to take the hit from a resource crunch), and how you can tell from the data which causes are at work at any given time.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 19th, 2010 at 05:56:03 PM EST
[ Parent ]

Re: Galbraith's Affluent Society ... (4.00 / 2)

But its all the same mechanisms ~ demand and supply in flex price markets and price leaders increasing prices in fix price markets. No matter what is driving inflation, it always has to go via those mechanisms.

If you have a pet theory that has to always be the cause, it gets tricky how to squeeze the right answer out of the data, but if you are actually looking for which of the causes are stronger at a particular point in time, you tell that from the data the same way you sort out any other cause in historical time.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Fri Nov 19th, 2010 at 09:36:58 PM EST
[ Parent ]

Re: Galbraith's Affluent Society ... (4.00 / 2)

Well, yes - but that ignores the fact that the useful definition of inflation isn't some percentage variation in something or other, but loss of buying power.

And current measures of inflation have a very partial and selective view of that. Specifically they consider inflation a loss of buying power for one class, who experience inflation as a corrosive destroyer of asset values.

Coincidentally, that same class experience property and investment appreciation as an expansion of buying power, which is why they're not considered inflationary - even though to someone outside that class their buying power can be reduced dramatically during (e.g.) a property bubble.

There's only a loss of buying power for the population as a whole when nominal inflation is running at outrageous levels and wages aren't being raised to suit.

The real cause of inflation isn't profit, but interest/usury and the constant demand for increasing ROI.

If your units of measurement are discrete rather than synergistic, it's not physically or mathematically possible to make the pie higher without inflating it.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Nov 19th, 2010 at 10:08:49 PM EST
[ Parent ]

Re: Galbraith's Affluent Society ... (none / 1)

Yes, the useful definition of product price inflation is the loss in buying power of new product of future contracts fixed in terms of money values.

Chasing after "the proper" definition of inflation sui generis is another one of those idealist will-o-wisp chases after the impossible. The question of what is "the proper" definition of inflation sui generis is a category mistake.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Fri Nov 19th, 2010 at 10:58:48 PM EST
[ Parent ]

Re: Galbraith's Affluent Society ... (none / 0)

I'm not sure what you mean by that. Inflation plays havoc with debt instruments, but it has little impact on other classes of wealth such as property or shares. For those in the middle class, their homes do fine, their savings get hammered. The poor have no assets to worry about, but they do see their already low incomes decline with high inflation. My one experience with it, back in Poland in the early nineties, was merely annoying, but that's because when my wages went from quite adequate to 'oh fuck' I was able to both beg my parents for an infusion and to switch to a de facto inflation indexed form of freelance work.

by MarekNYC on Fri Nov 19th, 2010 at 11:35:26 PM EST
[ Parent ]

Re: Galbraith's Affluent Society ... (4.00 / 5)

The poor only see their already low incomes declining because there's an implicit assumption that wages can't be increased to compensate.

The usual narrative is that if wages were increased, that would be 'inflationary.'

Meanwhile profits that increase at the expense of wages aren't considered inflationary, even though they drive down effective buying power for the majority of the population in an equivalent way.

Nor is commodity sharking - at least not directly.

Nor are asset bubbles.

So in practice, traditional inflation is almost entirely a political concept. It's a loaded idea that enforces certain political assumptions about the way that wealth should be distributed.

This doesn't mean that economies can't explode. But economies can explode in many ways, and it's interesting that only some of them are considered inflationary, while others are described as "Oopsie, didn't see that coming - just one of those things, I guess."

by ThatBritGuy (thatbritguy (at) googlemail.com) on Sat Nov 20th, 2010 at 12:28:52 AM EST
[ Parent ]

yes (4.00 / 4)

the great ideological victory of the 70s and 80s for the neolibs has been to blame "inflation" on wage indexation, and conflate inflation with wage inflation. It justified breaking the unions, and it brought about endless growth to profits and asset values, which are of course not 'inflation'...

And then Greenspan went one step further by saying that asset inflation is not something that can be identified (and thus should not be fought) whereas asset deflation is evil and should be fought by increased central bank liquidity.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Sat Nov 20th, 2010 at 06:16:21 AM EST
[ Parent ]

Re: Galbraith's Affluent Society ... (none / 1)

The poor only see their already low incomes declining because there's an implicit assumption that wages can't be increased to compensate.
The usual narrative is that if wages were increased, that would be 'inflationary.'

It's worse than that.

Even if wages are indexed by general inflation, it often happens that the price of products bought by the poor inflate much faster.
When the pension system is based on the fiction that people save while they work and live on the savings once retired (rather than be earnest, risk the explicit social confrontation, ditch the Ponzi scheme and treat pensions as one segment of the contributions from working people to non-working people), poor pensioners are at a risk, too. If pension is provided by the state, the state may or may not index by inflation (it didn't in post-1989 former East Bloc countries); if pensions are provided by private funds, those can, no, will lose big when their investments provide the fuel for the next asset inflation bubble.

So, again, I am not convinced that inflation is automatically bad for the wealthy and good for the poor.

_{*Lunatic*, n.

One whose delusions are out of fashion.}

by DoDo on Sat Nov 20th, 2010 at 10:39:30 AM EST
[ Parent ]

Re: Galbraith's Affluent Society ... (none / 1)

But its all the same mechanisms ~ demand and supply in flex price markets and price leaders increasing prices in fix price markets. No matter what is driving inflation, it always has to go via those mechanisms.

OK, I'll buy that. But that doesn't answer the question of what causes fixprice actors to change their prices, or how prices are determined in the flexprice sector in an economy that includes a fixprice sector as well.

If you have a pet theory that has to always be the cause, it gets tricky how to squeeze the right answer out of the data, but if you are actually looking for which of the causes are stronger at a particular point in time, you tell that from the data the same way you sort out any other cause in historical time.

Except you can't, unless you have an idea about what different sorts of causes inflation can have, and how they should show up in the data, if they are actually there. There is no theory-neutral way to decompose a data set.

So, I'd like to understand as many possible theories of inflation as I can, and what they would predict about the data if they were true.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 19th, 2010 at 10:56:49 PM EST
[ Parent ]

Re: Galbraith's Affluent Society ... (4.00 / 3)

Splitting it between fix price and flex price impulses helps, especially timelining them separately.

If its on fix price, you of course have to look for stable, falling or rising mark-ups, stable mark-ups indicating cost driven inflation, rising mark-ups indicating growing market power, volatile mark-ups indicating product/input price spirals.

If its flex price, you look for the effects that neoclassical imagine to be the whole picture: shortages, buffer stocks rising or falling, static sales volume indicating demand driven inflation, falling sales volume indicating supply driven inflation.

The problem with trying to sort out causes of inflation independent of understanding what is going on in the economy is that monetary flows are information simplifiers ~ that's the power of monetary production economies for complex industrial economies, after all ~ so that you lose some of the explanatory leverage that you have when looking directly at the industrial activity that is reflected in different rates of product price inflation in different sectors of the economy.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Fri Nov 19th, 2010 at 11:17:29 PM EST
[ Parent ]

JakeS:

The One True Cause Of All Inflation.

....is Profit.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Nov 19th, 2010 at 07:58:09 PM EST
[ Parent ]

To zeroth order, profits and wages are symmetric in the firm's cash flow. So if profits cause inflation, wages do too.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 19th, 2010 at 08:14:38 PM EST
[ Parent ]