Putin has unleased a third rider, widespread war, that builds on the Coronavirus and the big background threat from Climate Change, so might now a fourth rider be making an appearence, that of generalised Inflation?
Maybe even stagflation in some countires?
So what are you're thought, are we entering a period of sustained inflation?
What are your personal experiences of it and do you have any plans to combat it's affects on your and your family?
I should add I think generalised global inflation is a good proxy for the Famine, one of the tradition riders, as it will lead to food stress in many parts of the world.
I am not sure about the inflation question, but Europe is now even more highly motivated to shift away from fossil fuels and so perversely move more quickly toward solving the climate warming problem.
Quote from: mongers on March 09, 2022, 11:15:02 AMI should add I think generalised global inflation is a good proxy for the Famine, one of the tradition riders, as it will lead to food stress in many parts of the world.
I wonder if we aren't going to see localized famine in Ukraine and Russia as a result of the war and sanctions...
Quote from: Barrister on March 09, 2022, 12:03:45 PMI wonder if we aren't going to see localized famine in Ukraine and Russia as a result of the war and sanctions...
Wheat prices are up 50% - I think Indonesia and Egypt are the two big exposed countries.
It might not be famine but in lots of the developed world one of the big things governments do is subsidise food especially for staples like bread. So they will either have to decrease subsidies/increase prices which has triggered revolutions before or probably spend a lot of money keeping subsidies/prices stable.
QuoteSo what are you're thought, are we entering a period of sustained inflation?
I was team transitory - I thought a lot of inflation was to do with one off covid shocks working their way through the system. But I think you add into that a set of huge supply shocks on fuel/energy and food and it is more likely to spread/become generalised maybe?
Quote from: Barrister on March 09, 2022, 12:03:45 PMQuote from: mongers on March 09, 2022, 11:15:02 AMI should add I think generalised global inflation is a good proxy for the Famine, one of the tradition riders, as it will lead to food stress in many parts of the world.
I wonder if we aren't going to see localized famine in Ukraine and Russia as a result of the war and sanctions...
If we are, we'll probably see it elsewhere as well given that they're both big food exporters.
I think a lot of the inflation at least in the United States and probably many other economies were supply chain shock based which you could conclude was transitory, but I think it was only transitory if those supply chain issues had been fixed relatively quickly. Once prices go up for long enough much of business and economic activity re-baselines around the new pricing--wages also do as well, so it isn't like you easily unwind that. I think Biden's stimulus also was directly inflationary in the U.S., particularly the $1400 checks he mailed out (which were largely not necessary) and the large number of cash payouts through the child tax credit. Some aspects of the stimulus and the infrastructure bill were not inflationary since they were often funded at least partially and as a rule tax-funded spending generally won't be directly inflationary.
I think we may be entering a long term and sustained energy crisis and that is going to drive prices (energy is a major driver of inflation), I perversely think yet another oil crisis is actually probably a good thing for the world as a whole because it will help countries that are capable of transitioning to lower oil use scenarios find the political justification/will to start doing so; but it's going to lead to bad political shocks and lots of problems for a long time.
If we come out the other side of it I'm long term optimistic because I think covid and this war and a few other things have exposed a lot of weaknesses in our global system. I think ten years from now supply chains and inventory management for example are very likely to be done with very different assumptions than they were the prior 20 years. Also I think there is a growing awareness the age of really cheap shipping (I'm talking oceangoing bulk and container shipping) is over, and that is going to have to be a prominent factor in deciding what makes sense to offshore and what doesn't.
I never saw climate change as one of the four horsemen, though I guess it can be.
Otherwise, we've had plagues, war and, potentially, as BB says, famine.
So with inflation, and climate change, I guess this is the apocalypse :(
Quote from: Josephus on March 09, 2022, 03:56:45 PMI never saw climate change as one of the four horsemen, though I guess it can be.
Otherwise, we've had plagues, war and, potentially, as BB says, famine.
So with inflation, and climate change, I guess this is the apocalypse :(
You are old enough to remember when we had real inflation. I am not sure yet how serious this is.
Not sure about other countries - but KPMG's forecast for the UK:
(https://pbs.twimg.com/media/FNbROxuXEAgILzE?format=png&name=small)
Yikes :ph34r:
It's curious if high inflation does become the norm considering so much else seemed to point towards following the course Japan has set in recent decades.
Temporary covid induced problem on top of a otherwise stagnant situation?
Quote from: Tyr on March 09, 2022, 06:03:16 PMIt's curious if high inflation does become the norm considering so much else seemed to point towards following the course Japan has set in recent decades.
Temporary covid induced problem on top of a otherwise stagnant situation?
Yeah I think there's a covid demand shock, there's also clearly a lot of supply chain issues which we've seen China and the US. There are a few other "shocks" too - like this war with all its implications and we're in the very early days of seeing them, but also the coal supply issues in China.
But I don't think the situation was necessarily stagnating underneath that. For example, I think the Chinese/Asian shift to gas is a huge deal and isn't temporary. I think we've been used to trends in the US or - at a push - European economy as the big drivers of things like global inflation. But I think we now have to include China in that as well in a way that we maybe weren't super-aware of pre-covid.
One thing I am pretty sure of is that now officially a decade of reckless money printing and asset-bubbling will be left off the hook, as any and all economic troubles will be blamed on the war, definitely NOT on messed up central bank policies.
Well yeah. If you were convinced that the policies of the last decade were reckless then you would necessarily not consider other options. However not everybody is like that.
Meanwhile as well as locking down Shenzhen for six days (this caused the biggest fall in Chinese stock markets since 2008):
(https://pbs.twimg.com/media/FN1708LXwAERmQi?format=jpg&name=small)
:ph34r:
There's an awful lot of news out there that if it keeps going (and is cumulative) looks very worring indeed.
Yeah, as I mentioned in the China thread - the worst crop in a century is combined with skyrocketing prices for imported food (and energy) as well. Hardly ideal for China.
Quote from: Jacob on March 14, 2022, 05:40:47 PMYeah, as I mentioned in the China thread - the worst crop in a century is combined with skyrocketing prices for imported food (and energy) as well. Hardly ideal for China.
This on top of the grains not getting out of the Ukraine or even beting planted in the first place, means millions of the worlds poorest will starve this year.
Quote from: mongers on March 14, 2022, 05:48:28 PMThis on top of the grains not getting out of the Ukraine or even beting planted in the first place, means millions of the worlds poorest will starve this year.
Which will potentially lead to instability and possibly war.
Quote from: Jacob on March 14, 2022, 05:58:41 PMQuote from: mongers on March 14, 2022, 05:48:28 PMThis on top of the grains not getting out of the Ukraine or even beting planted in the first place, means millions of the worlds poorest will starve this year.
Which will potentially lead to instability and possibly war.
Sssh, don't tell Berkut.
My electricity kWh cost went up 71% on the 1st of April; Is this a return to the 1970s?
Quote from: Jacob on March 14, 2022, 05:58:41 PMQuote from: mongers on March 14, 2022, 05:48:28 PMThis on top of the grains not getting out of the Ukraine or even beting planted in the first place, means millions of the worlds poorest will starve this year.
Which will potentially lead to instability and possibly war.
Saw news that there were foodriots in Sri Lanka. The rest won't be far behind
Report on how Germany's transitioning to become a major LNG importer which is very good news, but interesting comment from Helen Thompson:
QuoteHelen Thompson POLIS
@HelenHet20
Or having absorbed the shock of a 19% increase in China's demand for LNG imports in 2021 sending European and Asian LNG prices soaring, the LNG market will now be hit by a second shock, which will force European countries to decide whether gas is to be a transition bridge or not.
This is why I think the forces from the war will drive Europe and East and South Asia into moving faster on energy transition and renewables. I don't see any reason to think the gas shocks will stop, the big consumers in Europe and Asia don't have domestic support (or much domestic supply of alternatives) - so I think all of the forces will push those countries to transition away from fossil fuels quicker, in a way that I don't think is true for the US or other energy producing countries :hmm:
What it's likely going to move them toward is coal, if Germany's recent history is any indication. :P
Renewables Will only result in dependency on rare earths and specific minerals. Something that is continuously ignored by many.
Coupled with a big drive towards further electrification I'm not convinced we're not walking into just another disaster with self-created shortages... Like in some 3rd world shithole.
Inflation is a phenomenon the relates to the general price level and not to relative prices of specific commodities, even really important ones like energy. Energy prices fluctuated quite a bit during the long deflation (mid 90s-2020) and got quite high at various points; on the other hand, energy prices were pretty low during much of the more inflationary postwar period. It's a common mistake to make since inflation is an abstract concept and it is tempting to identify simple causal relationships.
When inflation and interest rates starting steadily drifting down in 90s and early oughts, it was commonly seen as a deviation from the inflationary norm that would inevitably reverse, and some traders lost their shirts betting on inflations that never came. Now we've come to view near zero inflation and nominal interest rates as the norm, with the return of inflation being a deviation that will subside as things get back to normal. I'm not so sure.
The closest historical parallel to the recent long deflation was the preww1 period from the 1880s to 1914, when nominal interest rates remained low and prices stayed relatively stable over the period. The common denominator of the two historical periods is what we now call hyper-globalization:
- Widespread deployment of commercial steamships and oil burning ships + global rail building --> containerization and deployment of mega-container ships + multi-modal
- Integration of huge masses of people and resources from developing countries into the world economy through coercive high imperialism --> Integration of huge masses of people and resources of Asia into the world economy through the internal imperialism of coercive authoritarian states.
- Commonly accepted and stable global currency standard based on gold backed sterling ---> Commonly accepted and stable global currency standard based on Fed backed dollar
- Ideology favoring free flows of capital and traded goods across international boundaries.
When the prior period of globalization ended, inflation became endemic. The current global economic system is not collapsing quite so drastically, but the trend towards de-globalization is unmistakable and is likely to endure for the foreseeable future. While I think hyperinflation can be avoided barring extreme shocks, a return to the moderate levels of endemic inflation seen in the post WW2 period is likely.
Globalization if we are talking about agricultural products and manufactured goods may be strained, but globalization of services that is very difficult to measure / track is almost certainly accelerating.
Population growth is also inflationary, and that appears to be moderating or even reversing in some places. See Japan as a leader in this space.
I don't agree population growth is inflationary as a general proposition; if that were true 1880-1914 would have been a high inflation era and it was the opposite. Population growth can be deflationary if it generates a large surplus of potential workers that can be controlled and put at the disposal of a globalized economy with freely moving capital.
When you have free flows of capital combined several hundred million people engaged in extremely low productivity agriculture and those people are released, controlled and made available to the global economy as a continuous supply of cheap labor, the overall effect can be deflationary. If that continuous flow of surplus labor dries up and capital retreats to national boundaries, the opposite is more likely.
Services are tricky because some are tradable, and some are not. Technology and globalization expanded the scope of potentially internationally tradable services (e.g. Indian call centers), but it's not clear to me that kind of globalization is going to continue to deepen. And even if it does, demographic reversal will confine the exploitable scope.
Is there really a trend towards de-globalization? Global trade volumes are still rising...
AR, population growth grows an economy not inflation. If population growth was itself inflationary Canada should have had inflation for the last 20 years because of our immigration policies.
Quote from: Zanza on May 11, 2022, 09:22:29 AMIs there really a trend towards de-globalization? Global trade volumes are still rising...
I think as a percentage of GDP it's been plateauing for a while and is trending down a bit now.
It may be relative but I think we're clearly not in the same world as the 90s until the financial crisis. I'm not sure what we're moving into. I think the factors Minsky flags are absolutely what marked that era's hyper-globalisation.
The other thing to wonder about, which is tied to Jake's thread a while ago is the role of Africa in any future economy. As ever I've no idea, but their population is going to be very large compared to where it is now which will have an effect - but it feels like they might miss at least this round of globalisation, or perhaps the next one is focused on and about Africa.
Quote from: Zanza on May 11, 2022, 09:22:29 AMIs there really a trend towards de-globalization? Global trade volumes are still rising...
Dance partners are changing leading to disruption of existing supply chains. The big unknown though is the US and where their trade policies go in the next decade. Do they become increasingly isolationist? Seems likely.
Quote from: The Minsky Moment on May 11, 2022, 09:18:51 AMI don't agree population growth is inflationary as a general proposition; if that were true 1880-1914 would have been a high inflation era and it was the opposite. Population growth can be deflationary if it generates a large surplus of potential workers that can be controlled and put at the disposal of a globalized economy with freely moving capital.
When you have free flows of capital combined several hundred million people engaged in extremely low productivity agriculture and those people are released, controlled and made available to the global economy as a continuous supply of cheap labor, the overall effect can be deflationary. If that continuous flow of surplus labor dries up and capital retreats to national boundaries, the opposite is more likely.
Services are tricky because some are tradable, and some are not. Technology and globalization expanded the scope of potentially internationally tradable services (e.g. Indian call centers), but it's not clear to me that kind of globalization is going to continue to deepen. And even if it does, demographic reversal will confine the exploitable scope.
I'm an accountant with 5 people reporting to me...one is romanian, one is brazilian...they work remotely. We had an open position and I interviewed someone in the Philippines, though it went to an american in the US. I have no doubt this type of international activity is going to explode.
There are lots of puts and takes with population growth because the population is both on the supply and demand side, but real estate/housing/real property is a factor that is purely negative when you have a declining population. Existing building stocks simply need to be maintained.
Quote from: Zanza on May 11, 2022, 09:22:29 AMIs there really a trend towards de-globalization? Global trade volumes are still rising...
According to the World Bank data, export/GDP ratio was 30.6% in 2011 declining to 28.3% in 2019 and 26.5% in 2020.
We may see a post COVID bounce back but will it be an enduring trend or a dead cat bounce?
Quote from: alfred russel on May 11, 2022, 09:32:51 AMbut real estate/housing/real property is a factor that is purely negative when you have a declining population. Existing building stocks simply need to be maintained.
How does that play into inflation? There seems to be an assumption that construction activity is inherently inflationary. If so, it is mistaken.
Changing demographics is likely to change the mixes of goods and services produced and consumed and that may impact certain relative prices, but the overall general price level impact is a different matter.
Quote from: The Minsky Moment on May 11, 2022, 09:38:56 AMQuote from: alfred russel on May 11, 2022, 09:32:51 AMbut real estate/housing/real property is a factor that is purely negative when you have a declining population. Existing building stocks simply need to be maintained.
How does that play into inflation? There seems to be an assumption that construction activity is inherently inflationary. If so, it is mistaken.
Changing demographics is likely to change the mixes of goods and services produced and consumed and that may impact certain relative prices, but the overall general price level impact is a different matter.
Obviously price level is set by supply and demand. In general if you increase population the result on price levels is ambiguous because you increase both supply (more workers) and demand (more people want more stuff). But land can't be created. Rents will go up with increased population. That creates some inflationary pressure that wouldn't be present absent population increase.
Read a thing a few days ago that global diesel reserves are close to an all-time low. It was argued there's a real risk of significant price increases and potentially even shortages, with knock on effects on global shipping and thus prices.
Is this something that's popped up on anyone's radar here?
Quote from: alfred russel on May 11, 2022, 10:54:42 AMRents will go up with increased population. That creates some inflationary pressure that wouldn't be present absent population increase.
Rents increase when housing demand increased faster than supply. Population growth is one driver of demand but not only one. In the 1910s the average American had a little over 300 square feet of living space; now it is over 950.
There are many factors that influence housing supply - including regulatory restrictions - but land availability is not a critical restraining factor. There is still plenty of open and cheap land available in the US - indeed, there a long-standing trend of people moving out of areas where land is cheap to big cities (where it is not).
At the end of the day what rent tells you is the price of rent. It's a relative price, not a general price level. Thus, for example, between 2011 and 2020 median US rents increased 26%; however, inflation increased only 15%. If a country really has severe structural constraints on the building of housing, that could have significant distorting effects across the economy. However, take an extreme example like Hong Kong - which does face brutal structural constraint on land availability. HK experienced steady population growth during 1998-2010, but had very little inflation during that period.
Quote from: Jacob on May 11, 2022, 11:24:33 AMRead a thing a few days ago that global diesel reserves are close to an all-time low. It was argued there's a real risk of significant price increases and potentially even shortages, with knock on effects on global shipping and thus prices.
Is this something that's popped up on anyone's radar here?
Shipping rates are already sky high. I am doing an interesting commercial arbitration over who took the risk of that increase. If they go higher then some goods will probably stop being shipped because the profit margin will shrink to zero 0, unless the costs can be passed on - which depending on the goods in question might be possible. But of course leading to further inflationary pressures.
Quote from: The Minsky Moment on May 11, 2022, 09:34:26 AMQuote from: Zanza on May 11, 2022, 09:22:29 AMIs there really a trend towards de-globalization? Global trade volumes are still rising...
According to the World Bank data, export/GDP ratio was 30.6% in 2011 declining to 28.3% in 2019 and 26.5% in 2020.
We may see a post COVID bounce back but will it be an enduring trend or a dead cat bounce?
Ok, if you define it as share of GDP, it might decline. Probably a function of China's domestic market growth. But in absolute terms, it is still growing. For de-globalization, I would expect unraveling of existing trade ties, which seems to be rare. Russia being the major exception this year of course.
https://unctad.org/news/global-trade-hits-record-high-285-trillion-2021-likely-be-subd
Quote from: The Minsky Moment on May 11, 2022, 11:28:48 AMQuote from: alfred russel on May 11, 2022, 10:54:42 AMRents will go up with increased population. That creates some inflationary pressure that wouldn't be present absent population increase.
Rents increase when housing demand increased faster than supply. Population growth is one driver of demand but not only one. In the 1910s the average American had a little over 300 square feet of living space; now it is over 950.
There are many factors that influence housing supply - including regulatory restrictions - but land availability is not a critical restraining factor. There is still plenty of open and cheap land available in the US - indeed, there a long-standing trend of people moving out of areas where land is cheap to big cities (where it is not).
At the end of the day what rent tells you is the price of rent. It's a relative price, not a general price level. Thus, for example, between 2011 and 2020 median US rents increased 26%; however, inflation increased only 15%. If a country really has severe structural constraints on the building of housing, that could have significant distorting effects across the economy. However, take an extreme example like Hong Kong - which does face brutal structural constraint on land availability. HK experienced steady population growth during 1998-2010, but had very little inflation during that period.
Not really getting the resistance to population's impact on rents being inflationary...obviously it is one of many factors but the giveaway that you agree with me in principle is in your post: people have been moving from rural areas to big cities: ie the population growth in big cities exceeds that of the sticks (which in many cases has declining populations. Big cities have had significant rent increases vs. rural areas, haven't they?
Quote from: alfred russel on May 11, 2022, 11:50:25 AMig cities have had significant rent increases vs. rural areas, haven't they?
Sure rents in America's largest cities have gone up for lots of reasons. But that doesn't really have anything to do with inflation.
Quote from: The Minsky Moment on May 11, 2022, 12:19:51 PMQuote from: alfred russel on May 11, 2022, 11:50:25 AMig cities have had significant rent increases vs. rural areas, haven't they?
Sure rents in America's largest cities have gone up for lots of reasons. But that doesn't really have anything to do with inflation.
How does it not have anything to do with inflation? Rents going up are inflation by themselves, and it is a cost that must be borne by almost every business.
Quote from: Zanza on May 11, 2022, 11:46:20 AMOk, if you define it as share of GDP, it might decline. Probably a function of China's domestic market growth. But in absolute terms, it is still growing. For de-globalization, I would expect unraveling of existing trade ties, which seems to be rare. Russia being the major exception this year of course.
In my original post from today, I indicated I did not expect to see that kind of catastrophic deglobalization that occurred during and after WW1. For example, I would not expect to see absolute declines in the nominal dollar value of trade. Rather, I would expect to see a relative retreat from the practice of deepening ever more intricate international supply chains and an increase in national-strategic policies encouraging developing domestic sources of key raw materials and as many components of manufacturing supply chains as possible.
Quote from: alfred russel on May 11, 2022, 12:25:12 PMQuote from: The Minsky Moment on May 11, 2022, 12:19:51 PMQuote from: alfred russel on May 11, 2022, 11:50:25 AMig cities have had significant rent increases vs. rural areas, haven't they?
Sure rents in America's largest cities have gone up for lots of reasons. But that doesn't really have anything to do with inflation.
How does it not have anything to do with inflation? Rents going up are inflation by themselves, and it is a cost that must be borne by almost every business.
Because inflation is the rise in the general price level - of all goods and services expressed in money. Rent is a relative price of a particular good.
Rents have increased continuously in the US since the end of WW2. At the same time real per person incomes have all increased in a similar proportion. The average size of dwellings has increased. The quality and amenities of the dwellings have increased. So there is no clear relationship between what people are paying in rents and what the overall price levels are for the economy as a whole.
One simple explanation of the rise in rents in the US is that as incomes have increased, Americans have chosen to spend more resources building bigger or better homes, or choosing to locate themselves in more costly areas in exchange for better availability of certain amenities. Or maybe consumption baskets are changing and people are choosing to spend more (or less) on their houses and apartments in relative terms than on food or travel or insurance or something else. The larger point is that to look at raw increases in rent numbers in isolation doesn't tell you much about economy-wide effects
Housing is literally the biggest component of the consumer price index. An increase in the cost of housing is inflationary and a decrease is deflationary. The same goes for costs related to commercial and industrial real estate.
If you double the population without a change in income levels, the effect on cost of some widget is ambiguous. Demand is increased but so is the labor available to meet that demand, and there could be some efficiences of producing at higher volumes (there could also be inefficiencies).
Land is not in the same situation. It is part of why the cost of rent in places like NYC or San Francisco is astronomical. A lot of people want to live there but there isn't much land, you can't produce more, and hence what there is gets bid up. By contrast it was obscenely cheap to get off campus housing when i lived in South Bend Indiana with a population way off its high and a bunch of abandoned buildings even in the city center.
Quote from: alfred russel on May 11, 2022, 01:28:28 PMHousing is literally the biggest component of the consumer price index. An increase in the cost of housing is inflationary and a decrease is deflationary. The same goes for costs related to commercial and industrial real estate.
There's a lot of confusion in these sentences.
First, the CPI is not equivalent to inflation. The popular financial press uses the CPI as a convenient proxy for inflation, but the CPI is what is says it is - a measure of change in a defined basket of consumer goods. Shelter is the largest component of the CPI but most of that component consists of owner-occupied housing. Despite that fact, the owner occupied houses are not surveyed for the purposes of estimating costs. Rather rents are imputed based on the rental survey.
An increase in the amounts that people spend on housing can mean a lot of things. It can mean that people are choosing for any number of reasons to allocate more of their budget to housing. It can mean that certain costs relating to provisioning of housing is going up and that can occur for any number of reasons - including changes in regulatory structure. It can mean that people for whatever reason are choosing to move from where housing is plentiful to where housing is scarce. It CAN occur because there is inflation - a general rise in the price level - but it may not be.
QuoteLand is not in the same situation. It is part of why the cost of rent in places like NYC or San Francisco is astronomical. A lot of people want to live there but there isn't much land, you can't produce more, and hence what there is gets bid up. By contrast it was obscenely cheap to get off campus housing when i lived in South Bend Indiana with a population way off its high and a bunch of abandoned buildings even in the city center.
There's actually plenty of land in NYC. It would not be that hard to lower housing costs in the city, if there were a major change in social habits and completely reworking of the regulatory structure. High costs in the "good neighborhoods" are WAD - the point is to use physical space to express one's dominance over others and to exclude the outs.
This is all interesting but really has nothing to do with inflation which is a national not local phenomenon. Nationally there is a glut of land in America.
Quote from: The Minsky Moment on May 11, 2022, 03:47:37 PMThere's a lot of confusion in these sentences.
There is not any confusion on this on my side and I'm sorry you feel the need to obfuscate and insult. The idea that there is a land glut in America is not true. There is a lot of land of varying value including some of the highest value real estate in the world.
We have a current stock of land, buildings and infrastructure. If the population of the US declines significantly, that stock will exceed demand and the price will fall, all else being equal. The result will be lower rents. If you are in an in demand area the opposite is true.
I looked up the apartment building i moved into right out of school. The price has more than doubled. The current price of my house has almost tripled in the last 10 years. Those represent significant increases in the prices people have to pay, which is reflective of this being the largest component of the CPI calculation. Those are well above the national inflation rate: do you think that has something to do with Atlanta growing faster than the national average?
Let's say you have a basket of goods with 100 different goods. If the price of one of those goods goes up while the price of all the other goods stays the same, then it's not inflation, it's just a relative price change of that one good.
Is there an inflection point to this logic? If the price of 10 goods goes up while the price of 90 goods stays the same, is it still just the relative change of price of these 10 goods? What about if the price of 99 goods goes up while the price of the 100th one stays the same?
Quote from: alfred russel on May 11, 2022, 04:08:11 PMThere is not any confusion on this on my side and I'm sorry you feel the need to obfuscate and insult. The idea that there is a land glut in America is not true. There is a lot of land of varying value including some of the highest value real estate in the world.
We have a current stock of land, buildings and infrastructure. If the population of the US declines significantly, that stock will exceed demand and the price will fall, all else being equal. The result will be lower rents. If you are in an in demand area the opposite is true.
I looked up the apartment building i moved into right out of school. The price has more than doubled. The current price of my house has almost tripled in the last 10 years. Those represent significant increases in the prices people have to pay, which is reflective of this being the largest component of the CPI calculation. Those are well above the national inflation rate: do you think that has something to do with Atlanta growing faster than the national average?
Vancouver property prices have been skyrocketing for well over a decade, but inflation has only started being a real concern this year. From that I surmise that increasing housing prices in a local market is not a good indicator nor driver of inflation.
I'm not an expert in these things, but Minsky's argument seems relatively clear to me: an increase in the CPI is no a relieable indicator of inflation, nor is an increase in property prices. I am less clear what your argument is, unless it's simply to opposite - that increases in housing prices is driving inflation?
Quote from: Jacob on May 11, 2022, 05:02:14 PMVancouver property prices have been skyrocketing for well over a decade, but inflation has only started being a real concern this year. From that I surmise that increasing housing prices in a local market is not a good indicator nor driver of inflation.
I'm not an expert in these things, but Minsky's argument seems relatively clear to me: an increase in the CPI is no a relieable indicator of inflation, nor is an increase in property prices. I am less clear what your argument is, unless it's simply to opposite - that increases in housing prices is driving inflation?
The general way to measure price changes in the US economy is CPI. I started this by saying that a contributing factor to why we may not have high inflation in the next few decades is because populations are plateauing and in some cases declining, and that is going to impact real estate prices which impacts inflation. MM at some point argued that is just one thing and I pointed out that rents are by far the biggest component of CPI.
I really don't get the controversy or why anyone is disputing this. It isn't a theory i've made up and I've never seen it as something people don't accept. I can't possibly see some agenda that either i'm pushing or how it might disrupt someone's else's agenda.
If rents double, that is a significant change in price levels. It sucks for people that need to live in places. It also sucks for providers of goods and services, like barbers, restaurant owners, bowling alleys, grocery stores, etc. that have significant costs in real estate. Those prices will end up getting passed on. I don't see how that wouldn't be considered inflationary.
Quote from: Jacob on May 11, 2022, 05:02:14 PMVancouver property prices have been skyrocketing for well over a decade, but inflation has only started being a real concern this year. From that I surmise that increasing housing prices in a local market is not a good indicator nor driver of inflation.
I'm not an expert in these things, but Minsky's argument seems relatively clear to me: an increase in the CPI is no a relieable indicator of inflation, nor is an increase in property prices. I am less clear what your argument is, unless it's simply to opposite - that increases in housing prices is driving inflation?
Jacob, you are off on a couple of counts.
First, there are a few ways CPI is measured in the US but it is the generally used indicator of inflation. When people quote a number for US inflation in news stories it is almost one of the versions calculated by the US government's Bureau of Labor Statistics. I don't think anyone is arguing it shouldn't be used.
Second, rents are just one of the components of CPI. So saying that rents have dramatically increased in Vancouver over the past decade but inflation wasn't a problem and therefore inflation is not connected to real estate/housing is just not correct. Inflation is calculated by combining calculating the change in price levels of basically everything that consumers buy. Inflation rates have tended to be low because increases in rent were offset by decreases in price levels of manufactured goods like TVs. The share of income people have been spending on food has been plummeting for years. Inflation is calculated by averaging all the changes in price levels that consumers spend money on. Housing costs are included in the calculation--in the US version they have the biggest weight of any input--by definition they impact inflation though they are still a minority of the inputs and can be offset/diluted away.
I think the one and only thing where AR is a little off is mentioning the housing prices. I don't think that's the relevant part. The housing price increase doesn't have to scale with the rental price increase, especially if the housing prices appreciate due to lower mortgage rates. Just because AR's house goes up in price threefold doesn't mean that the rent for that house would go up threefold.
In fact, I think that the inflation of asset prices without it being reflected in the inflation of consumer prices was the rule rather than the exception the last few decades. You'd think that at some point people would want to cash out rather than double down on their paper asset wealth, though, at which point you're going to unleash a whole bunch of money to chase the same quantity of goods.
Quote from: The Minsky Moment on May 11, 2022, 12:25:33 PMQuote from: Zanza on May 11, 2022, 11:46:20 AMOk, if you define it as share of GDP, it might decline. Probably a function of China's domestic market growth. But in absolute terms, it is still growing. For de-globalization, I would expect unraveling of existing trade ties, which seems to be rare. Russia being the major exception this year of course.
In my original post from today, I indicated I did not expect to see that kind of catastrophic deglobalization that occurred during and after WW1. For example, I would not expect to see absolute declines in the nominal dollar value of trade. Rather, I would expect to see a relative retreat from the practice of deepening ever more intricate international supply chains and an increase in national-strategic policies encouraging developing domestic sources of key raw materials and as many components of manufacturing supply chains as possible.
Ok, then I focused too much on the term de-globalization. I share your expectation as outlined above.
I am not convinced that government policies to encourage moving supply chains into friendly economic blocs will be successful though. Multinationals will do what is best for them, regardless of policy, as long as it is legal and viable.
Quote from: alfred russel on May 11, 2022, 04:08:11 PMThere is not any confusion on this on my side and I'm sorry you feel the need to obfuscate and insult.
The confusion was in the sentences not the person. I believe that my responses have been clear. If there is something you find unclear please feel free to point it out.
QuoteThe idea that there is a land glut in America is not true. There is a lot of land of varying value including some of the highest value real estate in the world.
We have a current stock of land, buildings and infrastructure. If the population of the US declines significantly, that stock will exceed demand and the price will fall, all else being equal. The result will be lower rents. If you are in an in demand area the opposite is true.
In the 18th and 19th century most proto-economic models - the Physiocrats, Malthus, Ricardo - viewed land as the key limiting factor. That made sense in modelling what was still predominantly agricultural economies in a continent with a fixed supply of arable land.
In these models, there was a hierarchy of land values based on the fertility of the land. That still exists but is negligible significance economically now because agriculture is such a small part of overall activity and output.
Differentials in land values now are not due to an absolute scarcity of land that has particularly valuable natural or inherent characteristics. Some of the most valuable land in the world is located on a swamp near the Potomac River. Land values vary now because of a combination of theorized clustering synergies and social ordering. Want to get housing prices down in the big US cities? One way to do it would be radically level income and wealth inequality. This a phenomenon that has little to do with overall price levels.
QuoteI looked up the apartment building i moved into right out of school. The price has more than doubled. The current price of my house has almost tripled in the last 10 years.
This anecdote proves the point. You have experienced a big increase in a particular price.
But over the same period, measured inflation has been unusually and historically low.
Quote from: alfred russel on May 11, 2022, 05:16:07 PMThe general way to measure price changes in the US economy is CPI.
CPI is very useful for lots of things, but the general way to measure inflation is the GDP deflator.
Quote from: DGuller on May 11, 2022, 04:22:53 PMLet's say you have a basket of goods with 100 different goods. If the price of one of those goods goes up while the price of all the other goods stays the same, then it's not inflation, it's just a relative price change of that one good.
Is there an inflection point to this logic? If the price of 10 goods goes up while the price of 90 goods stays the same, is it still just the relative change of price of these 10 goods? What about if the price of 99 goods goes up while the price of the 100th one stays the same?
It may be that some of the disagreement here is terminology.
There are many prices of many different things and those prices are always changing relative to each other. The question is why those prices are moving around. There is a saying sometimes heard in that one should never reason from a price change. The logic behind that is that prices are like symptoms, but you need to analyze the underlying condition to understand what is really going on. For example, to what extent is a price increase due to particular conditions affecting that market and to what extent is it due to an economy-wide price inflation?
That brings in the concept of a general price level - that is the price of all goods and services as expressed in the monetary unit. That is what I understand to be inflation. The general price level is a theoretical construct, but there is no question it is real - some prices in early 20s Germany might have gone up for any number of reasons, but all of them skyrocketed due to deliberately inflationary monetary policy.
That is source of Friedman's famous dictum that inflation is always and everywhere a monetary phenomenon. And while I don't 100% agree with the statement, it is at least partially true in the sense that inflations require some kind of monetary accommodation to take root. That said, I do agree that inflation can have non-monetary causes. Namely, if real resources are close to full employment, anincrease in demand that is accommodated (not suppressed) by the monetary authority is likely to cause a rise in the general price level (but not necessarily a rise in *all* prices).
Taking that framework and looking at the period from the last 30 years or so, the most significant economic fact was the rapid arrival of hundreds of millions or working age people, previously effectively unemployed in an economic sense, but now suddenly integrated into the world economy, with their wages repressed by domestic policies. That sudden appearance of mass reserve army of labor, combined with policies promoting free movement of goods and capital, and technologies that radically reduced transport costs, exerted a deflationary force during this entire period. Whatever demand might be generated in the world economy could easily be satiated by the seemingly bottomless Chinese manufacturing capacity, so long as capital could flow about to address the resulting imbalances.
The US policy response during this period was (and still is) to maintain a totally open capital account and absorb enormous quantities of capital from trade surplus countries, resulting in historically low interest rates and asset booms. Thus, even as the US economy experienced low inflation, it also experienced a boom in asset prices. And that boom meant that anything seen as an investible asset - stocks, bonds, Warhol paintings, crypto, music catalogs, etc. - went up in price. And that is why prices of certain housing increased even as inflation remained dormant. Because houses are seen - rightly or wrongly - as investment assets.
Quote from: The Minsky Moment on May 12, 2022, 09:12:17 AMThis anecdote proves the point. You have experienced a big increase in a particular price. But over the same period, measured inflation has been unusually and historically low.
How does it possibly prove the point?
Quote from: DGuller on May 11, 2022, 09:33:14 PMI think the one and only thing where AR is a little off is mentioning the housing prices. I don't think that's the relevant part. The housing price increase doesn't have to scale with the rental price increase, especially if the housing prices appreciate due to lower mortgage rates. Just because AR's house goes up in price threefold doesn't mean that the rent for that house would go up threefold.
I agree with this. I was mentioning it because they are connected and everyone is better aware of what is going on with housing prices than rental (including me).
Quote from: alfred russel on May 12, 2022, 12:07:24 PMQuote from: The Minsky Moment on May 12, 2022, 09:12:17 AMThis anecdote proves the point. You have experienced a big increase in a particular price. But over the same period, measured inflation has been unusually and historically low.
How does it possibly prove the point?
Consider the rapid rise in house prices in Canada - through a couple of decades of those large increases inflation was essentially non existent.
Incidentally, house prices do not figure into the CPI. The CPI imputes a rental value to owner-occupied housing. the price change in the index is based on changes in normalized rents.
Quote from: The Minsky Moment on May 12, 2022, 12:59:10 PMIncidentally, house prices do not figure into the CPI. The CPI imputes a rental value to owner-occupied housing. the price change in the index is based on changes in normalized rents.
I understand that. But there is a link between housing prices and the rental rates applicable to the housing.
A quick google of research on the topic and how it is impacting home prices in Japan:
QuoteHow does a shrinking population affect the housing market? In this study, drawing on Japan's experience, we find that there exists an asymmetric relationship between housing prices and population change. Due to the durability of housing structures, the decline in housing prices associated with population losses is estimated to be larger than the rise in prices associated with population increases. Given that population losses have been and are projected to be more acute in rural areas than urban areas in Japan, the on-going demographic transition in Japan could worsen regional disparities, as falling house prices in rural areas could intensify population outflows. Policy measures to promote more even population growth across regions, and avoid the over-supply of houses, are critical to stabilize house prices with a shrinking population.
https://www.imf.org/en/Publications/WP/Issues/2020/09/25/Demographics-and-the-Housing-Market-Japans-Disappearing-Cities-49737
Whilst academically it's an interesting topic, from my perspective inflation is just a mechanism for driving an increasing number of 'us' into poverty. It's a pyramid structure with most Languishites probably at the middle levels or nearer the top, inflation just acts to eat away at the income/resources of those at the base/bottom and then continues to work it's way up the social structure.
The 'game' for the likes of me is cut outgoings early and for long enough to try and wait out this period of inflation; one or two years is doable, anymore it's hello soup kitchens and hand-outs.
Inflation also devalues debt and so helps to moderate wealth inequality.
Quote from: crazy canuck on May 31, 2022, 07:14:36 AMInflation also devalues debt and so helps to moderate wealth inequality.
I have trouble seeing high inflation hitting the well-off more than the poor, which would seem necessary for such a balancing effect.
Quote from: Tamas on May 31, 2022, 07:21:47 AMQuote from: crazy canuck on May 31, 2022, 07:14:36 AMInflation also devalues debt and so helps to moderate wealth inequality.
I have trouble seeing high inflation hitting the well-off more than the poor, which would seem necessary for such a balancing effect.
That's understandable. But the effect on devaluing that is also real. Why do you think countries concentrate so much on keeping inflation down. Do you really think it is to protect the poor. Or do you think it more likely that it is to protect banking interests?
People reliant on fixed income - pensions, un-indexed government benefits - are harmed by inflation. Wage earners in competitive industries who carry debt may benefit. So generally speaking the effect on inflation for lower income strata is harmful for the elderly or those reliant on government assistance, mixed for wage earners who rent, more positive for wage earners at the bottom of the housing ladder and carrying a fixed mortgage.
I am a bit surprised that talk of price controls (mainly on gasoline) hasn't reared its head yet. Throwing Nixon policies at the GOP is always fun.
[commie] I keep seeing in business news how oil companies are pulling in massive profits, so it is probably not increased costs that they are passing on to the consumer. [/commie]
Quote from: The Minsky Moment on May 31, 2022, 08:43:40 AMPeople reliant on fixed income - pensions, un-indexed government benefits - are harmed by inflation. Wage earners in competitive industries who carry debt may benefit. So generally speaking the effect on inflation for lower income strata is harmful for the elderly or those reliant on government assistance, mixed for wage earners who rent, more positive for wage earners at the bottom of the housing ladder and carrying a fixed mortgage.
I think public sector workers are going to be particularly screwed because - at least in Europe - there is talk of the need for wage constraint by governments.
At the supermarket today I really noticed the price increases. Even the cheapest cooking oil is over 3 quid. Madness.
Interesting piece from Helen Thompson on the energy side of this:
QuoteHere's the crux of the crisis — we in the West are running out of energy
New oil flows solved the 1970s price shock but a changing world means there is no easy fix this time
Helen Thompson
Sunday June 05 2022, 12.01am, The Sunday Times
It is easy to imagine we are back in the 1970s. To those who lived through that tumultuous decade, the economic news feels eerily familiar. With energy costs soaring, inflation in the UK has hit 9 per cent. Only two years after the recovery from the economic slump induced by the first lockdown, the Bank of England is signalling that another recession is probably coming. So far there has been no energy rationing of the kind that, after the 1973 oil price shock and 1974 miners' strike, led to petrol ration books and electricity blackouts. But the government has let it be known that it is modelling "reasonable" worst-case scenarios for the autumn under which Russia halts gas and oil exports to Europe and there are electricity shortages and limits placed on industrial gas use.
Geopolitically, a 1970s vibe prevails too. Then, tumult in the Middle East from the 1973 Yom Kippur War to the 1978-79 Iranian revolution inflicted a series of energy blows on western economies while the Soviets projected their power deeper into central Asia and Africa. Now, Russia's war to annihilate Ukraine's independence has sent energy and food shock waves around the whole world, not least the Middle East. In Iran, where the government is reducing food subsidies, the security forces have already killed protesters. Arab governments have proved slow to produce the extra oil needed to push prices back down. This has invoked sufficient anger in Washington that a bill opening up Opec members to antitrust lawsuits has been working its way through Congress.
But to think that we have returned to the 1970s is a comforting illusion, suggesting there is a similar path to the relative economic improvement of the second half of the 1980s and 1990s. The way out of the 1970s was both harsh and fortuitous. Only severe recessions driven by a sharp increase in interest rates and new oil supplies in the West brought the energy crises to an end.
The oil that flowed out of the North Sea and Alaska also transformed the world geopolitically. The Saudis reacted to the glut by increasing production to win market share, sending prices tumbling in 1986. This caused a profound crisis for the Soviet Union from which it did not recover. High energy prices in the 1970s had been an opportunity for the increasingly moribund Soviet economy. Yet in using oil export revenues to allow a massive volume of grain imports from the West, the Soviet state left itself existentially reliant on foreign currency earnings that from 1986 the oil industry could no longer provide. For two years, it got by. But in 1988 there was a bad harvest. A year later the Soviet empire in eastern Europe duly ended; within two more the Soviet Union itself dissolved.
Now we live in an economic world far removed from the 1970s. Inducing recession may be the only way to reduce the inflationary pressures from energy prices, but the high interest rates pursued by the American Federal Reserve Board and Margaret Thatcher's first government are not an option. Quite simply, there is too much debt in the world for interest rates in any advanced economy to rise very far. For more than a decade, central banks have set rates to facilitate high debt. Whatever the inflationary pressures in play, they have only a little latitude to turn away from that imperative.
The geopolitical world is also scarcely recognisable. The 1970s were an immediate turning point, marking the end of the historical Middle East created by western territorial and commercial imperialism, and a deepening reliance of western Europe on Soviet energy exports. But western countries could adapt to those changes under conditions in which high per capita energy consumption was largely a western affair. By contrast, from the 2000s, China and India's spiralling demand transformed energy consumption, at the same time as the supply of oil coming from the Middle East began to stagnate.
During the first half of 2008 the world experienced an economic crisis generated by exceptionally high oil prices, the significance of which was disguised by the financial crash that September. It was the American shale oil sector that allowed the world to escape repeats of this oil crisis during the 2010s. But shale output cannot grow as rapidly again as it did over the past decade.
In sanctioning Russian oil exports, western countries are, meanwhile, reconfiguring the supply and transport chains for oil. By contrast, most west European governments responded to the shock of the Yom Kippur War by siding with the invading Arab states over Israel to protect their oil supplies.
Through the 2010s, the Asian demand shock spread to gas. But it did so as the American capacity to export gas across the world surged, producing a period of low prices. This cushion for European countries buying seaborne liquid natural gas abruptly changed last year when China's demand for imports rapidly accelerated, pushing up prices dramatically. Now, another shock has arrived with Germany — Europe's largest gas consumer — planning to join the liquid natural gas market to replace pipelined Russian gas.
From the first years of this century, Asian energy consumption also transformed Russia's geopolitical options. Unlike the Soviet Union, Russia became a Eurasian energy power able to sell westwards and eastwards. Just as significantly, Vladimir Putin has reversed the old Soviet agricultural vulnerability by turning Russia into the world's largest wheat exporter.
This underlying geopolitical environment makes it impossible to minimise the economic disruption wrought by Moscow's war, or to inflict sufficient harm on the Russian economy to force Putin to recalibrate. Russia's export earnings are still rising, and its naval blockade of Ukraine's ports, leaving Ukraine unable to export food, means its market share of the international grain market is growing.
Adaptation to the economic crisis must recognise it for its singular particulars. Since the rate of new oil discoveries has been falling since the 1960s, there are nothing like the same energy fixes available that there were 40 years ago. If these hard realities incentivise a rapid energy transition, they do not detract from the serious difficulties that reducing fossil fuel energy dependency entails. What can be taken from the 1970s is a belief that the future can be faced. But that faith must start from an understanding that there is nothing that can be done to bring back a western-centric energy world where the supply of oil is plentiful.
Helen Thompson is author of Disorder: Hard Times in the 21st Century.
Worth remembering the 70s oil crisis induced economic downturn game after the pretty succesful 60s.
This time around.... :ph34r:
Quote from: Josquius on May 31, 2022, 09:18:41 AMAt the supermarket today I really noticed the price increases. Even the cheapest cooking oil is over 3 quid. Madness.
Noticed quite a few prices rises and volatility at Sainsbury's, but what really surprised me was I spotted a price rise at Lidl, pretty much unheard of.
And yesterday, the coffee I went in to buy has gone up 27%. :gasp: