I was called by KCBS yesterday afternoon while watching the San Francisco 49ers game and asked to come on to discuss inflation.
This is the result. It goes only 4 minutes and 17 seconds.
For more on inflation, see Lawrence H. White, “Inflation,” in David R. Henderson, ed., The Concise Encyclopedia of Economics, Liberty Fund, 2008.
Dec 14 2021
Some wisdom from Chris Freiman, reposted with his permission. Somewhat related to my recent piece on motivated reasoning about deterrence. I’ve noticed a bunch of suspiciously convenient asymmetries in influence lately. That is, people tend to believe that they are influential when that would produce the re...
Dec 14 2021
The problem of lawlessness can be solved by the rule of law. Now, “rule of law” seems redundant, since laws are a kind of rule. But the point is that the “rule of law” is juxtaposed against “rule of men,” in which the judgements of the judge, and the privileges of the disputants, determine the outcome. Sir ...
Dec 13 2021
I was called by KCBS yesterday afternoon while watching the San Francisco 49ers game and asked to come on to discuss inflation. This is the result. It goes only 4 minutes and 17 seconds. For more on inflation, see Lawrence H. White, "Inflation," in David R. Henderson, ed., The Concise Encyclopedia of Economics, L...
READER COMMENTS
rsm
Dec 14 2021 at 1:25am
《inflation occurs—that is, the purchasing power of the dollar shrinks—to the extent that the nominal supply of dollars grows faster than the real demand to hold dollars.》
Are you claiming the real demand to hold dollars right now is shrinking? But why is Covered Interest Parity violated?
If the persistent violation of Covered Interest Parity means arbitrage conditions are not necessarily eliminated in the voluminous foreign exchange market, aren’t prices arbitrary?
If you can’t prove prices aren’t arbitrary, isn’t inflation psychological?
《the price level and rate of inflation are literally indeterminate. They are whatever people think they will be. They are determined by expectations, but expectations follow no rational rules. If people believe that certain changes in the money stock will cause changes in the rate of inflation, that may well happen, because their expectations will be built into their long term contracts.》(Fischer Black, “Noise”)
Also, didn’t the gold standard regularly get suspended? Haven’t we been lectured at length about Roman currency debasement, so wasn’t inflation a noisy phenomenon no matter what the standard?
Why wouldn’t inflation simply be a power play, signaling psychological states rather than physical supply and demand?
Jon Murphy
Dec 14 2021 at 7:54am
What he said: “the nominal supply of dollars grows faster than the real demand to hold dollars.” Real demand could be shrinking. Or it could be constant. Or it could be increasing but at a slower pace than nominal supply.
Not sure what this has to do with the post given we’re talking price level, not exchange rates. But I’m not an international monetary economist, so I could be missing something. Expand on your point.
I don’t understand your conclusion. Why would CIP not holding mean prices are arbitrary?
Also, be more clear by what you mean by “arbitrary.” If you mean “based on random choice and personal whim,” then your Fisher quote shows prices are not arbitrary but rather the result of expectations.
rsm
Dec 15 2021 at 12:46am
Jon: is real dollar demand growing, as indicated by the premium on dollars represented by the violation of Covered Interest Parity?
Simply put, CIP violation means future dollars are worth more than today’s; how does that fit in with the definition of inflation given here? Why are dollars worth more and more in financial markets, even as real inflation rises? Is there still a huge, ever-growing demand for dollars worldwide? Can inflation be seen as increasing demand for needlessly scarce dollars?
《Why would CIP not holding mean prices are arbitrary?》
Does CIP violation show that riskless arbitrage persists for decades? But does rational pricing theory assume no-arbitrage conditions? Thus, does CIP violation show prices are arbitrary in a huge free market? So, why shouldn’t real economy prices be irrational, too?
《your Fisher quote shows prices are not arbitrary but rather the result of expectations.》
Did Fischer Black also say “expectations follow no rational rules”, in that quotation? Is “follow no rational rules” the same as “based on random choice and personal whim”?
Jon Murphy
Dec 15 2021 at 8:26am
You answer my question with a series of rhetorical questions. I still don’t understand your claims.
rsm
Dec 16 2021 at 12:43am
Isn’t my claim simply that arbitrage conditions provably persist in the largest freest markets, so how are real prices not arbitrary?
IronSig
Dec 15 2021 at 7:40pm
Shoot, KCBS has shuffled the audio elsewhere.
Comments are closed.