I don’t have anything interesting or funny to add, but I know engagement means a ton to the RUclips algorithm. So I’ll just say, thank you for the channel and everything you’re doing. It’s a breath of fresh air.
Best (respectfully formulated) counterpoints will be featured in this thread (but please don't comment here). Three notes. (1) The discussion with UE took place in November before we got the news about Omicron. (2) Transitory = till just after the pandemic ends (3) if you disagree with our takes, do let us know :), especially with proper arguments.
As user @DavieB noted, there is considerable controversy over what transitory actually means. In this video we have been (perhaps too) generous to team transitory in defining it as till after the pandemic ends.... Whenever that may be.
Noted by @AlbertS, the positions of people in team permanent are in general very different. Schiff, Weidmann, and Summers have very different world views and on what is driving inflation & might make it "permanent."
New data on labour markets in the US (EU much less) does seem to point to a labour market that is increasingly hot... the risk of this is that it could start feeding into expectations at some point. I'll keep an eye on it.
While the latest U.S. inflation numbers are consistent with what we said here (pandemic went on longer than we though in November), there are now signs that inflation is being driven by more mainstream categories. In other words, there are now more signs of demand-pull and expectation driven inflation.
So this is basically the age old economics problem of "How long is the short term?". Or to misquote a conversation I heard "In the long run, everything works out. But in the long run, we're all dead"
The problem with that quote is that it is misleading as if Keynes doesn't really care, but the full quote of John Maynard Keynes is: But this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again. it really takes on a different meanings and more of a purpose for economists to understand the scheme of things.
Bro, I have a degree in finance (with honors) and I work in asset management so I have some educational and professional background on the topic of economics. Its incredibly difficult to find purely educational content like this online without some sort of bias that's usually geared towards pitching some investment. I've seen two of your videos and I'm incredibly impressed. For one, I never realized just how much economics is theoretical which leads to a strong divide in opinions between world class economists. The only slight critique that I have is the inclusion of Peter Schiff who is always pandering gold as a good investment and as such his opinions are clearly biased. Otherwise, phenomenal job and thanks for the amazing dive into current economics from various points of view. Cheers!
Thanks. Love to hear that! I feel that I had to include him because this is a RUclips video and he is massively popular in the YT space, not so much outside of it (partly for the reasons that you mention).
Absolutely agree, this is actually the one of the only RUclips channels about economics I actually watch even though my formation goes straight to economics, It's simply an extreme level of bias on social media, even those that I kinda like have too much bias (I more left wing shall we say, but I really don't like other left wings on economics, but I find right wing usually worst on bias [cof cof PragerU cof cof]).
As per today Team Permanent crushed Team Transitory 🤣10.in UK and 9.2 in USA… is called living in la la land 🤦🏻♂️in a note I like your down to earth economic teachings 👏🏻👏🏻
@@MoneyMacro i hope that's why, but it seems like every economist has a different opinion than the next. The only consensus is among the MMT folks, and while they have an interesting argument, i can't buy their framework. Am i wrong on this outlook?
As a fellow economist, this was great. Very well made. Hopefully it will go viral (sadly dont think so, its more then 30 sec long after all), this needs to be show in schools or similar since way to many really do not understand the basics when it comes to inflation
If I am 100% honest, I did think twice if I should watch a 1hour video and I almost skipped. But I am very happy that I didn't. Great video also for someone who is not an economist.
Larsen Wrong, this is a simplistic, superficial, and inaccurate treatise of the subject. Find a dictionary from the 60's or the 70's and look up 'Inflation'. The term has evolved in error, to be synonymous with 'rising prices', and that is woefully simplistic, and erroneous.
Thank you so much for making non-sensationalized economics videoss that seriously teach people to consider multiple perspectives. Your breaking the mould here and you should never stop mate
It's good to hear different perspective but this is not the place to hear different perspective. Even in the middle of trying to supposedly explain the other side, at 18:40, he's inserting "rebuttals" from Joseph Stiglitz.
As far as labor shortage, here in Colorado I see wages going up for ordinary jobs, but not as much as rent, gas, groceries, so these folks are not yet better off. Stimulus checks were a relative pittance compared to the stock market situation, where it should have cratered given decrease in the tangible economy, but instead has gone up. Massive amounts of residential construction, but it is split between luxury condominiums, single family housings, and now high end duplexes. Nothing serving the non-privileged first time buyer or the delivery truck drivers, the warehouse stockers, etc where there has been a big boom in employment. The fiscal and monetary stimulus has increased wealth disparity.
This discussion needs an update, it is still not transitory after the pandemic. And that leaves out only one cause, as discussed in this video. UE was right at the end that supply chains has not been researched enough and has probably been one of the most crucial part of inflation of past years. I am actually saying that the trade war USA started against China has been the main cause. Nobody in the West is daring to say this out loud though to the general public. I feel the scientific world needs to step up more about this issue and particularly you as well, Joeri, as truth must be told in both ways.
I think there's an important point about the labor market that's a bit subtle. If you look at the labour force participation rate (at least in the US) it's dropped radically and consistently since 2008. Now, one could attribute this to a wealthier society in which fewer people need to work, but there's more going on here. The unemployment numbers have behaved quite strangely since around 2008, much slower on the way down than they used to be. This is because there's a much larger "dark pool" of non-participating labour, ready to be tapped, but unable to get jobs, that doesn't jobseek (and therefore doesn't show up in the unemployment numbers) unless the labour market is exceptionably favorable. So, what's the conclusion here? I think that we need to take drops in unemployment much more seriously when it happens in the 3.5-5% range, because they represent inflows (well, typically decreased net outflows) into the labour market as well. I'm also a bit skeptical of the "early retirement" narrative for this reason. I'm sure plenty of people are reconsidering their relationship with work, but there's a big difference between leaving the labor force to enjoy your extended golden years vs leaving the labor market to enjoy your extended stay at the local drug den. The situations under which each of people in these circumstances return to the market are rather different. fred.stlouisfed.org/series/NILFWJN
The retirement theory matches what I have seen anecdotally. Not alot of people living on unemployment, but alot of grandparents no longer working. When it comes to younger nonparticipation, it seems alot of that seems to be lower wage workers now providing familial childcare so higher wage warners can keep working without the interiptions of the chaotic daycare closures.
Excellent video , I agree with all of your points. I have teachers from my master's in econ, who are literally obsessed with inflation and cant think of anything else. Sadly we still use the quantity theory of money, especially in undergraduate programs. They all support that the tapering should have already begun in last October-November. Maybe since in Europe we're used to having an inflation of 2% for so many years , now that it's around 5% they all think its the end of the world. And most of them seem to support that it's clearly a demand pull inflation, its demand's fault, not at all supply problems. And it's such a nuisance to try and argue with them since they don't accept any other explanation. It was nice seeing Kalecki being mentioned, hopefully more people read his works. Excited for the exchange rate video in the future, as well. Loved the collaboration.
Well, Joeri & Co. notwithstanding, the world seems to agree with your econ teachers. Inflation has continued, and gotten worse, exactly as Milton Friedman would predict. The quantity of money theory has proven itself, again.
Inflation is resuming due to the war now, not of supply chain problems. No heterodox or orthodox economist predicted such escalation. Also Friedman quietly assumes Full Employment, which is far from reality. Only in FE does QTM work. There have been papers which found a correlation between money supply and inflation, but no Granger causation. In the very long term , just as prof. Joeri said, QTM works. But no one can say that if you increase Ms by 5% then automatically π rises by 5% as well.
@@alex_2293 Well, at 3.9% unemployment in the US, full employment is as close as we will ever see. But you are clearly correct that the precision of money supply:inflation is pretty low.
Thanks for the high quality discussion. As mentioned by others, it's very difficult to come by such unbiased and deep exposition of a very complicated matter. I can't thank you enough!
I really appreciate your academic who is talking to an interested general public that has some background knowledge vibe/format. I hope that you stick with your academic work and job because it allows you to keep this channel boring/non-spectacular, I really appreciate how the fact you don’t seem to be interested in making a main career out of RUclips or gathering a huge audience, seems to be letting you keep the absolute information content and density high.
Definitely agree with what you're saying. I love that he can just deliver the information straight and not get bogged down in issues of "will this affect my views" and such.
The price of houses is not included directly in consumer price indexes because it is not the house that is consumed. Rather it is the service flow the house provides. If you rent that is the price of the service. If you own then owners equivalent rent is an estimate of the implicit price you might pay for the service if you were renting the property to yourself.
there is no class warfare. people don't go around thinking "X people of my income range is my team" except if you're indoctrinated by Marxist ideology to do so (so if it does exist, it's being waged by the poor, not by the rich) Back to the sane world, the way things actually works is everyone just seeks profits, and different people have differing levels of ability to get it. The people that have great ability to get it are then post ex facto called a class. and that's the key part - post ex facto. That makes this warfare paradigm is a tautology. And that assumption underpins the rest of the theory. So that's the intellectual equivalent of an elephant doing a balancing act on a tricycle being balanced on an apricot seed.
@@gwho Rich people doing what they can to stay rich by screwing over poor people IS class warfare. It's also the way capitalism works. If you don't have class warfare you don't have capitalism either.
The comment on Energy Markets underpinning the economy was so spot on. Of course no one expected Russia to invade Ukraine, but that callout ended up being completely accurate regarding the impact.
Eagerly awaiting your update specifically on current base effects on inflation. Honestly, I am surprised that this phenomenon is not given more attention as people, the markets, and even governments (especially govts?) seem to take CPI at face value and react rashly. I suppose it is currently very difficult to gauge base effects given the series of unexpected events that have occurred this year and how we're still experiencing consequences of supply/demand shifts from the pandemic. Still, I am very curious about the impact/role of base effects on inflation and the global economy today. Thanks for the amazing videos!
here from Plain Bagel. good stuff.....i have watched a lot of RUclipsr's try to explain this topic but its mostly biased because they hold stocks, this channel looks legit!
Great video overall. I am on team "permanent", even though in the long term inflation is always transitory (Germany is no longer undergoing hyperinflation from 1921). I think another thing you might want to consider about Japan is that they are a large net exporter of goods, strengthening their exchange rate. They do in fact have a high savings rate ~20-25% vs ~2-10% in the western world (which you touched on), but also that the "inflation" of the money supply could be preventing their prices from going down, rather than causing the prices to go up. After all, a mature economy with the aging demographics of japan, coupled with a large trade surplus, one would expect deflation, but rather their prices have remained stable or slightly increased.
Just found this channel and it is my absolute favorite new channel. Working through Some of your older videos like this one, and they are great. Top tier. Good job. Learning lots. Thanks!
This is by far the best RUclips analysis of the current bout of inflation I've seen. I especially appreciate that you covered under-reported unemployment and rising wages. I think these factors don't come up enough in the inflation conversation. You also made an excellent point on inflation being driven in part by higher price stickiness in services than goods. This hadn't occurred to me and makes intuitive sense. Thanks for all your hard work, Joeri! Your channel just keeps getting better and better. 🙂
The effect on wages is the only time I have ever agreed with Stiglitz. The obverse of higher labor costs is higher wages. IMHO, that is a good thing. I also have an opinion about the difference in wage change in the US vs. EU. The US wage rate is closer to the supply/demand price point. This is due to the various labor laws throughout Europe, which cause a lower demand for labor relative to supply (this is manifested by the much higher unemployment rates in Europe vs. the US at the best of times). So raising the true demand for labor in the US increases wages. Raising true demand in Europe for labor has not brought price (wages) to the true price point. It should lower unemployment, though that is likely delayed.
28:20 CPI may not have inflated, but no one uses credit to buy food (yet). Stocks & real estate have seen double digit inflation- very bad if you are young & trying to acquire assets.
In science (economics not included apparently ;p), any number is virtually useless without an uncertainty attached to it. So, I was wondering what the uncertainty in the CPI is, and how it is calculated, considering the huge variations in prices of goods and services and their respective weights. Also, as a video idea, I think it would be great to discuss about the financialization of the western economies. Everything seems an "asset" nowadays (houses, bitcoin, nfts etc.), but when did this start and why?
In accounting, everything is either an asset or a liability. That has been true for at least a couple of centuries. Why it is now in more general usage, I don't know.
To the last question: I think the spreading of information through the internet, combined with better social safety nets and low interest rates, lead to a situation where people had the security (social safety) to take bigger risks with their money, further incentivices by consistent low interest rate (so saving becomes unappealing) and we also have the knowledge to teach people how to invest themselves instead of letting an institution do it. Or in bland terms; lower costs, higher pay-off relative to alternative and better access to various asset markets.
Great work, I'm sure you put in the hours on this one. It gave structure to some thoughts I already had myself about this topic, and complemented them. Please keep up the more scientific approach (compared to many other channels). Thanks!
From your video, my votes are: (1) supply chain disruptions + (2) changes from services to goods being the main causes. The data isn't there for an employment side driven inflation. The quantity of money stuff is laughably discredited by decades of data. But that chart on the shift from services to goods was very convincing. I shifted to full time WFH and I doubt I will ever return to the office 5 days a week. Thus, my costco bills have to increase by the corresponding amount that I am not using my employer's services at the office. I need more things at home to take of things I used to be able to go the service sector to get.
So basically the "new normal" is that expanding money supply is fine, because asset prices do not matter. As long as the money supply does not spill over to consumer goods, everybody is happy. Japan is a role model, where all the new money went into government bonds and other long-term loans, and everybody is happy. Or are they? The whole purpose of the monetary stimulus in the first place is based on a false promise that it is necessary to have inflation, because "deflation" is bad. However, nobody ever proved that a mild deflation actually decreases consumption and leads to an economic downturn. On the contrary - deflationary Japan still consumes like normal and all over the wold people keep buying the newest Iphones at their release date, rather than wait 1 year for a 30% price drop. Moreover, the reason why deflation was happening in the past during recessions, was that money back then (i.e. gold) was actually a good store of value. So if you had an increase in uncertainty, money was a safe bet. So - it does not matter if there is a mild inflation, a mild deflation or none of the two - people will keep spending money and economy will grow as normal. The whole fixation with creating inflation is completely ill-founded. However - central banks managed to create a huge inflation in asset prices. And so far it seems that everything is fine... unless you want to buy a house - then you have to take a loan so large, that you will be paying it off for the rest of your life. "But at a low interest rate" you said. Yeah - but at a much greater risk (because you never know how much this interest rate will change in the next 40 years). Or - if you want to buy farming land and live off of farming. Good luck. Buying land for farming is unprofitable. Because the land is traded at such inflated prices that the only way to make a return on investment is to sell it at an even higher price. This is the classic case of stocks trading at 100x their earnings. "Expectations of future returns" - bullshit. Expectations of future money printing. Has it happened before? Of course - every financial bubble before was fueled by a monetary expansion. Is it different this time? Partly yes, it is different. Central banks have managed to create new bubbles every time one has burst. Dot-com bubble was replaced by housing bubble, which was replaced by commodities bubble, which has morphed partly back into housing bubble, and then expanded into crypto bubble. We don't have just one bubble today. We have a multi-bubble. Basically anything that resembles an investable asset is overpriced today. So what about inflation? Yes - supply problems probably play a role here, as does the great resignation. But the fiscal stimulus in the form of government checks is probably the greatest contributor. We also don't know what is the impact of the asset-price inflation on the consumer-price inflation. After all there will come time, when at least a part of the crypto, stock and mortgage millionaires will want to cash out and start consuming their profits. It is hard to say if inflation will be at current levels for a long time. What is certain is that the system is getting more unbalanced year after year. Maybe there will be no major crisis in the next 30 years, like in Japan there was no correction of the monetary expansion in the last 30 years. But it will have to end eventually.
No. I don't think so. This is the tricky thing about these discussions. The "money printing" narrative is on to something. It is just often presented in an oversimplified manner. But, (see my video on QE), there are plenty of problems with our current model of trying to lower interest rates and increasing asset prices to chase growth.
@@MoneyMacro Thank you for replying to my comment. I have watched your QE video and also a few others on the structure of the financial system and money printing, etc. My thoughts are that it is important not to confuse debt with money. When you talk about financial core, bank money and financial crust, of course, I agree that many financial instruments are treated in _some specific circumstances_ as a _payment form_. However it does not mean that this is money. Exchanging money is a risk-free transfer of value. On the other hand, bank loans, bonds, stocks, and other financial instruments are risk-bearing. It means that they are IOUs, or promissory notes. That's why they carry interest, which is dependent on the level of their risk. Government bonds, stocks or bank loans _are not money_. They are _promises_ to pay money in the future. All money in the economy is dependent on the value this economy has already created. This is the basic concept of money. Money is the _already created_ value. At the beginning of trade people were bartering with already created goods and readily available services. Money was invented to facilitate this exchange. In this context bonds, stocks, etc are promises to pay money in the future, hence - they do not represent an already created value, good or service. They represent a promise to create that value _in the future_. In order to deliver on those promises companies need economic resources - realistic amount of goods and services (skills, knowledge, creativity). This is where the problem with financial bubbles becomes apparent - the promises are false, too optimistic, undeliverable. Does this mean that every bubble is poised to burst? Theoretically not. Economic breakthroughs can happen (new technologies. etc) that will deliver the "promised" returns. At the time of bubble creation, however, this is rather betting on luck. So I would even say that financial bubbles have two main levers - first the overinflated expectations stemming from low borrowing costs and visible in high asset prices. Already these expectations are untenable and are poised to eventually crash. Second - the systemic, economy-wide nature of these unrealistic expectations causes misallocation of resources (this is what the Austrain School is saying) to chase the dreams, what further makes the matter worse, as with misallocated resources, the economy is even less capable of delivering on the promisses. How does it relate to loose monetary policy? Low interest rates inflate supply of loans (bank money), that increases the prices of investable assets. This is already a distortion in the economy, because investable asset prices should depend primarily on what realistic future value can be created by those assets (think Price / Earnings for stocks). If the assets become a hot tradeable commodity themselves, this is already a distortion in the market, that will eventually correct (once enough investors will want to cash out on their earnings). QE is an extension of this mechanism to long-term loans. The central bank by buying bonds from banks and paying for them with reserves, enables these banks to buy even more bonds from bond issuers - both by lowering the risk of such purchases (banks will know that the central bank might buy new bonds from them in the future) as well as by lowering interest rates on these bonds (lower cost of borrowing for bond issuers). This way the amount of issued bonds is increasing, meaning that the amount of "promises" of future money is further increased. This further increases asset prices and creates an economy of inflated expectations, that eventually will have to crash.
@@stefaniastanoaie6616 when the fed will start increasing interest rates and rolling back QE for a longer period of time, say 6 months, I think a large portion of the house of cards might start collapsing. But predicting bubble burst has always been extremely difficult. There have been so many people saying for years now that the bubble will burst any moment, and they all have been proven wrong. I think the Fed is the key here. In a situation of multitude of "investable asset classes" it has been possible to create bubble after bubble with seemingly no side effects. If the Fed's recent interest rate hikes cause a too big correction, then it is very possible that the Fed will get scared and quickly go back to inflating bubbles.
Take a look at Canada. Our housing bubble has gotten so out of control. Our economy is like a snake choking on it's own tail. Canadians typically renew mortgages every 5 years, or you can go with a variable rate. The high housing costs are such a drag on growth. Think of what will happen when rates have to start going back up, the consumer is already being crushed. Our latest gdp was 80% contributed to government spending. What happens when the government can't afford to payout the high yields on bonds? Who will buy them? The central bank? That's inflationary. So imagine what is going to happen to the mass psychology once rates have to start going back up into even greater economic weakness. Canada has cut 3x already, short term relief at the expense of long term pain. It will be government spending that is the primary driver of inflation during the next wave. They will blame it on war, supply chains, mpox etc. Rates have been going down since 1981, so that psychology is tough to break. People are in for a rude awakening in Canada.
A lovely and really comprehensive Video. I would've liked to have seen the issue of decreased salience as brought up by blanchard, or the impact of downward nominal wage rigidities during the labour market segment. However I understand that this video is allready close to 1 hour long. For that alone you deserve some praise. But the next time you upload such a comprehensive video please release it before I hand in my seminar paper :D.
@@MoneyMacro Blanchard talks about it in: Blanchard, O. (2018): "Should We Reject the Natural Rate Hypothesis?" Journal of Economic Perspectives, 32(1), pp.97-120. At page 114 he describes two possible explanations for the anchoring of inflation expectations. One of them is that stable and low inflation leads to a less frequent update of inflation expectation because prices and wages are changes less often. So it is basicly the idea of "sticky information".
Very balanced take, I especially appreciate the reductionist approach of rigorously defining inflation before you talk about it. I'm hoping housing costs will be better accounted for in the CPI in this, the era of big data, as this is usually the single largest expense for the poorest households and is quite complicated to calculate. There's all kinds of confounding factors like mortgages, interest rates, localized rents, rent control, crowding, and maintenance costs being deferred that can really "move inflation around" or hide it entirely from CPI.
I don’t follow the base effects example. Given that the CPI is based on a basket of goods, if some restaurants are closed, why would the projection on the basket of food prices change? You would have less data points, but presumably the same answer at the basket level, no?
Great video, thank you for the grounded discussion. I agree that higher wages are a good thing. That said, one thing I just don't understand is why UE is "cautiously optimistic" about the fact that nobody cares about fiscal restraint any more, especially in the US. I get that economists tend to work from a theoretical perspective, and in this case theory suggests adding debt is good on balance. I also agree a welfare state, if you can afford it, is an ethical imperative. However, is there any practical understanding that unconditionally handing politicians a printing press while economists are doing their best to delegitimize opposition to massive deficits will have serious negative consequences down the road? For all my life, I've heard many economists stress that (1) central banks must be independent and (2) fiscal policy must be anti-cyclical. Right now, the opposite is being established and most economists are cheering it on. It is crystal clear that Western central banks like the Fed and ECB are no longer independent. Their unofficial job is to monetize government debt in very large quantities. They have passed the point of no return, since if they were to take away the printing press now, they would cause an immediate debt crisis and economic implosion. Secondly, with all economies expanding, spending is ramped up even more. Budget deficits in many countries are so huge that no theoretical tax increases on the rich would come even close to meeting existing deficits, let alone spending increases. For example, right now the US is running a 2.8 trillion dollar deficit during an economic upturn! With Build Back Better, that'd probably be closer to 3.5-4.0 trillion. During the next recession, the deficit would get to that number easily. Oh, and the US gov't is sitting on a pile of 164 trillion dollars of unfunded liabilities, much of it is social spending due to demographic ageing. Not including dozens of trillions of underfunded pensions in the US. Just a great time to tell politicians they can just buy off their electoral problems and borrow as much as they want. There is zero appetite for budgetary restraint in both the population and its political leaders, and economists are legitimizing this status quo of endless debt increases. We talk a lot about building a sustainable economy, but THIS is totally unsustainable. Long before we become carbon-neutral in 2050 we will go bankrupt. Please tell me, WHY are economists cheering for this? I don't want to insult you, but they look to me like educated fools that are leading us into the abyss. They are so educated they can rationalize away what is obviously unsustainable. The entire economy is over-indebted; debt is the highest in world history, but the answer is always more debt. Even if we can postpone the end like Japan has done, which seems unlikely, where has it brought them? 240+% of gov't debt to GDP and three decades of stagnation. Just great. Sorry for the rant, it drives me nuts.
There is always uncertainty of the future, where we try to figure out if extra debt taken now will produce even more value before the debt needs to be paid. + the uncertainities, if others will be willing to give our country new debt cheaply enough in the future; if they trust us enough that we will (be able to) pay the debt + pay the determined interest payments back. Taking extra debt is “risky business” for sure, but it’s a gamble that might pay off enourmously as well. In that respect, it’s similar to the stock market (my day job). So you might be right, but you also might be wrong… and it always depends what the nation’s goals are & how you predict the future will turn out, how much risk a country deems it can take + loads of other factors. In essence, you described the risks, without describing the benefits. Both need to be looked at. Good economists are paid well for a reason; this is all complex as hell ^^ :D Cheers ❤️
Imagine it as if there are two countries haggling for a fair price at the veggie local market, instead of 2 people doing the same. Or how you would haggle for conditions to loan money to your friends, depending on how shady they act & how they live their lives & what they say will they do with their money (as in, throw it all away or build a great business) Countries are very similar, only on a country-level-of-scale (and therefore extra complexity, since consequences of error are that much more impacfull for many people)
@@rutessian Yes and no. Before the welfare state, countries and kingdoms went bankrupt due to expensive foreign wars, among other things. Pulling future consumption forward has always been too attractive. Also, if you want to be practical, abolishing welfare is impossible. And the richest countries are wealthy in part because the wealth is not just for the 1%.
@@rolandxb3581 Rich countries are rich because they produce more than they consume, or at least most of them used to. I know it's impossible to eliminate the welfare state. Bullshiters have been spreading the message that it's necessary for more than 100 years. This modern iteration started with Bismark, in Prussia, if I recall.
My old statistics teacher is yelling inside my head because the charts' scales don't start at 0 (and you compare two charts with different scales). :) Otherwise this was very a informative and level-headed take on the issue. Thank you!
Thanks. You raise an important point. However, purely from a visual perspective it can be really hard to show pretty big changes now if your chart starts at 0 always.... Tricky.
@@MoneyMacro Charts can start at whatever value you need. No one shows temperature graphs with 0 Kelvin at the bottom because it would be pretty stupid in almost all cases. 0 is just a value that is sometimes useful and sometimes not. There is no silver bullet.
It is the job of major bankers and economists who are given major voices by the regime to maintain confidence in the regime. Their job isn't to give the masses accurate analysis or predictions, it is to manage expectations. Even if they believe catastrophe is ahead, they will never be allowed to public state it for fear of causing a panic.
I appreciate the video and it has given me a lot to think about. But I think it has a couple of big flaws. I could not help but notice that it came across as left leaning. The comments regarding billionaires and climate change initiatives were not very relevant to supporting the main argument being made, that inflation is transitory. So the video felt tainted to me, and I knew the conclusion that would be reached would be that inflation is transitory. The video goes great lengths to dispel that inflation will be "permanent". But I don't think anyone is claiming that the demand pull side will be permanent. So we are (mostly) left with the debate of how long the cost push side will persist. This is where the video really fails IMO, because it fails to make a convincing argument about why wages won't be sticky. You disproved that the demand pull side will persist since supply chain issues will go away, but you failed to effectively argue why the cost-push side won't persist. The co-host mentions that it is because labor unions now exist in smaller numbers today compared to the 70s. That's quite a controversial statement that assumes a lot of things, including whether labor unions caused prices to stay sticky in the 70s, or whether unions can even be credited with wage growth to begin with. Instead of elaborating, we are left with this unsubstantiated one-liner. One reason I can think why wages won't stay sticky is the continued globalization of the labor force, which is more evident than ever with remote work during the pandemic. This will ultimately create downward pressure on wages in wealthier countries. But no one mentioned anything about this, instead we get remarks about climate change and the rapacity of the wealthy. To be clear, I do not believe climate change is a hoax, or do I even believe inflation is long term. I just feel that the conclusion the economists made in this video was disappointing for all of the reasons above.
I notice that the Japanese stock market declined for 20 years starting in 1990, and only started rising for the last 10, which according to the chart of M3, is exactly when the money printer started going into hyper-BRR?... Do we have good data on the amount of money printing from 90-2010?
One thing to look out for with the 'money printing' narrative (I am guilty to this in this video as well) as that the vast majority of M3 money is 'printed' by the private sector. That being said, both UE and myself think that the quantity theory of money is valid. It is just not very easily to use it to make causal arguments because new money can also go into financial markets (velocity down) or into actual new productive capacity (Q up). I think the former happened in Japan.
Interesting video, seems to take a lot of aspects into account. Some of which was new for me. Thanks you for this. I do think that one aspect, not considered now, will work towards a long-term inflation. That is that at least in Europe, social pressure is moving away from total flexibility jobs - like zero-hour contracts and so called self-employed jobs. These will obviously not disappear, but its portion of the total labour market seems set to decrease considerably. Add to that the ongoing and increasing inequality in the world and the dropping part of wages in the total economy - with the social pressures this brings - I think you will see an increase in wages in the upcomming 10 years. Also the labour force is decreasing in Europe due to aging and it is not certain that efficiency increases can make up for the difference. In my view, these points will lead to some increase in long-term inflation.
Those things also lower peoples reliance on debt, having a cooling effect on inflation. Normally this is done by forcing interest rates in order to force a brake on new credit creation. But these things also slow down credit creation so also slow down the growth of the money supply without needing to raise interest rates. And if the working population ends of shrinking it will also shrink the production and availability of goods and services keeping things in balance.
Personally I disagree with your point on flexible jobs. At least here in the UK, freelance work and flexible work is growing. I certainly can see this greater labour market flexibility becoming an integral part of many developed economies.
@@josephbrennan370 the entire economy is gearing up for a shift to a lot more decentralisation. Making people less reliant on masive corperations and enabling increasing numbers of people to walk away from the abuse. Turning labour flexibility into a good thing for working people. At least eventually, i am sure it will be fought and tried to reverse at every oppertunity i'm sure.
Shouldn't stock prices and other investment mechanisms be included in the CPI? (People need to retire eventually, right?) If so we're the case, wouldn't that affect much of the supposed decoupling between money supply and inflation (e.g., comparing money supply vs new CPI with assets/investments/retirement costs included). Going a bit further, shouldn't even some quality of life items be included in inflation calculations? e.g., flights, gold/jewelry, etc. If that's too "hard" to do, aren't we just deluding ourselves with the CPI given that investment assets/recreation items are arguably a key measure of the purchasing power of a currency?
Looking back on this a year later, The pandemic is over, And we are seeing persistent inflation. Do you think this impacts any of the comments about "we're not seeing that inflation" showing them to be premature? And do you think today's perspective gives more weight to the transient or the persistent side?
This is clearly written by Europeans who want government. Rather than quoting a competent opposing economist, they quoted Peter Schiff, who has predicted economic catastrophe every year since at least 2005. These two have clearly been shown to be wrong. Joeri showed graphs of the US and EU money supply vs. inflation which showed identical graphs, then said they are different. What?? Furthermore, the Dark Knight said inflation was coming down in the US. This was in January. Well, in March, inflation hit a new 40 year high. The statements quoted by Yellen are especially ridiculous. So Team Transitory is WAY off the mark. As a physician, I am used to dealing with highly buffered systems. Economists don't appear to be. For instance, you can remove one kidney in most people, and there will be no change in the kidney function laboratory values. Long term, there are consequences, however. Take out half of the remaining kidney, and effects are observable. Analogously, you can print a lot of money short term, with no obvious effect in the next months. But go to extreme, as the Fed and Congress have done with money printing, and the deleterious effects overwhelm the buffers. Inflation is here, permanent, and is once again proving Milton Friedman correct.
It's great to see a more nuanced discussion on the current state of inflation. What I always find interesting is how the words inflation/deflation are often weaponized depending on how it's being applied. It's often praised the inflation of stock market value while never acknowledging the often corresponding deflation of workers wages, regulatory safety bodies, Public Services, etc. As pointed out, we have some of the talking heads that are actually complaining that workers wages are actually it causing inflation while ignoring the systemic economic structural issues or the opportunist price gouging.
Thank you for providing a balanced academic viewpoint on this that is backed up by evidence in real world economies. I really wish this kind of balanced analysis was more common among mainstream new sources. You talked a bit about expectations of future inflation being low in this video. How is this metric measured and is this a reflection of institutional or individual expectations? I can see institutions being convinced that central banks will control inflation using monetary policy, but most individuals seem to be swayed by the money supply arguments of the permanent inflation camp, even if they're not grounded in evidence.
It's been nine month but what I found was missing in the discussions was the impact of price gouging made by different companies. There have been recording of executives stating that they are using the cover of the inflation to find their highest price point for their commodities. Many sectors have been showing record profits. I believe it is exacerbating the impact of the supply chain constraints and the covid monetary policies.
Goods are priced in money. So would it not make sense to think that changing the supply of money would also change the price of goods? Especially when the supply of money is being changed a lot in a short period of time? What explains changes in the velocity of money?
Calling Team transitory ''Transitory'' when Powell has dropped the term seems a bit dense 2 me but that's beside the point . Also putting Larry summers in with Peter schiff seems a bit weird since Peter has been calling for like massive hyper inflation for basically since QE started following the GFC, but Larry is just saying that with an amount of transitory inflation we shouldn't discount the idea that there is much more permanent inflation underneath. I think there is absolutely no way of arguing currently that Larry is wrong I think he is by far the most right out of all 6 people mentioned whereas for example Peter Schiff is wrong on his inflation takes in a lot of areas which you guys mentioned, it feels slightly straw manned from my point of view because instead of attacking Larry's very nuanced views you are more or less attacking Schiff's positions which are truly outlandish and so much easier to debunk or at least to make seem stupid because I don't think he's wrong on everything. Whatever all the complex reasons for the current inflation the idea that the central bank has given all governments a free pass 2 run massive budget deficits is probably rather inflationary, just as a way of saying it we have stopped doing anti cyclical fiscal policy and instead are now just always doing expansionary fiscal policy (America hasn't run a budget surplus in 20+ years), this is pretty much purely achieved through central banks suppression of interest rate on bonds by buying them in actually absurd quantities. I think therefor the fiscal side is responsible for the inflation but they are only capable of creating this inflation through the actions of the central banks, and this takes long because of the massively indirect way they do it. Added to this channel of inflation I also think people are massively sleeping on the demographic factors, I think aging and the accompanying decreasing size of the labour pool as a % of the population or functionally as a % of consumers will also be a problem. I have heard predictions as long ago as 2010 for 2020 to be a transition year in which we would finally feel our aging because it is the start of the great retirement of the boomer generation. I think this aging also means there is now more normal people money in assets (retirement funds and savings )which means the asset inflation which I agree with you on the Central banks are creating also causes a stronger wealth effect which probably also pushes inflation more during asset bubbles, and probably pushes a bunch of people into retirement as their portfolios grew enough that they thought they had enough sooner. Basically I agree with most of the points raised by both of you apart from the fact that I just completely disagree on the idea that we can keep spending like this as governments a thing which I believe I heard mostly your guest argue for at some points, I think the tightness in the labour market can be a very good thing although not if pushed to the absolute extreme of course. And I disagree on the conclusion that central banks do not have a massive role in creating this inflation because from my point of view anti cyclical policy works because a lower demand for goods/services from consumers gets turned into higher savings and bond buying which the government then uses to spend more, if it is done by printing instead it is massively inflationary because the governments spend all the money they can get their hands on (especially if it doesn't need to tax its voters for said money at least not directly).
Also some extra thinking right, you guys shoved aside the idea that supply side inflation is something the central banks have to do something about because basically you guys internally except the idea that the total productive capacity of the economy has not lowered it has probably increased just like normal but that doesn't at all have to be the case with a shrinking labour force, and the massive problem of immense changes in society without the economy being allowed to go into ''creative destruction'' and so a lot of productive capacity being wasted on stuff that is not wanted and so decreasing the supply of the goods people want therefor creating inflation (companies just burning money for the fun of it, consuming resources without producing a profit so in essence destroying productivity in the economy and destroying value at least in the short term because of course all these companies will become tesla or amazon).
Good point noting that it was very hard to group people on team permanent. They have pretty different positions. I do stand behind the choices in that these are the most prominent voices. I'll feature this in the main thread at the top.
20:15 Aren't they just looking at what stores are asking for certain goods rather than what people have paid for it? Should be the same, but in one case you don't have to snoop into someone's bank account.
Pandemic is far from through with global supply chains. Shenzen just emerged from a massive lockdown while many major Chinese cities are still in lockdown. Still, I think Jens Weidmann from team permanent did the best job in predicting supply issues would last longer. Although, he didn't predict the link to the war in Ukraine.
43:42 But that is aggregate consumption of services? not goods, correct? So a bit misleading, but I see you discuss goods vs services later. Still, I think you undersold the money supply theory a bit but great video overall!
I don't quite understand your math where you mentioned that according to Alberto Cavallo, we are underestimating inflation by .8% during the Covid era. If that is correct, then you should add 0.8% to the official 6.2% inflation figure of 2021 instead of subtracting. Am I missing something?
Great video, though was hoping to hear more about longer-term factors like green energy costs, ageing and de-globalisation effects which might cause elevated inflation after the pandemic stuff is sorted. thanks
Thank you for the content ! Love the video. I was mostly on camp permanent, but the arguments you provided were very insightful. I think the inflation expectation is greatly undermined, but i understand its something that is very hard to capture and very hard to see whats the influence off. I had a question for housing. From i understand, housing is not included in the CPI mostly because its also an investment. But, in a way, housing does have an indirect impact on CPI since if interest rates rises up, people who had to take a huge loan will suddenly have less purchasing power hence, impact goods/service consumption. Do you know if there is any proof of what i am saying or my take makes no sense ? Also, i kinda wish housing was taking into account for CPI even though its partly an investment. They should maybe include only the price of only first time home buyer ? That could be a way to differentiate people who see housing as an investment to those who need to live, but i could also see that being not a good to way to include housing since you will also have people buying a bigger house than they need in the CPI. Anyway, thank you for your time and your video !
Shouldn't the money printing section be renamed to money creation? I'm not an expert, but I believe money printing refers to the physical act of creating currency, while money creation refers to all acts of creating money.
I have an alternate explanation for why inflation expectations remain low right now: most people have bigger things to worry about and are suffering from bad news fatigue.
I think a lot of people will watch this video and think “oh, so prices will come down, thank goodness” when that can’t possibly be the argument. When have you ever seen rent prices go down? When have milk and eggs become less expensive? When has an iPhone become less expensive? People are begging for a reason to raise prices. Just like many companies were begging for reasons to abuse their workers, and both got their wish.
Why not then not just have CPI but also an index to measure asset inflation to gauge how much money growth has siphoned toward asset inflation? Would that help in getting both sides to agree? Since no one should argue that inflation can only show up in goods.
I have no idea how in the world Economic Explained is the channel about economics with the most subscriber while your videos are waaaaay better (I know the bar is low). Seriously, this is the best content in english went it comes to economics, and it's a pleasure to see that some of your videos seems to really take off ! (btw, team transitory of course, always loyal to lord Stiglitz)
@@fraliv5526 Well, I'd argue that it isn't really the job of economists to predict that Putin would go psycho mode and blast Ukraine, but it's true that the video didn't age well at all. Economists can argue over and over about long term macro dynamics, when a war starts, I agree that all this reasoning become pretty much useless.
You are great guys. When I will start to have a stable income, I sustain you immediately. What you do is just incredible considering we are living in a period of cultural shit. Cheers from Italy.
35:30 The UK didn't quite kick out Europeans. Many left due to the pandemic and decided not to come back (even though they were entitled to). The biggest issue is that instead of educating and investing in their own workforce the UK (and its businesses) have been mainlining on importing labour from abroad to compensate. At the very least the end of freedom of movement adds additional friction to this process, and of course there are even less native fruit pickers (seasonal farm labourers) in the UK than there are such in The Netherlands or Germany (etc.).
I feel like "team persistent" doesn't understand that the stimulus money was largely to maintain fixed costs that are passively created (rent, mortgage, utilities, etc) and to offset increased costs from the supply demands of the pandemic (childcare, shipping, food delivery, medical care, etc).
Thank you for this insightful video! Because of this video I noticed that I’m in a team permanent bubble. Great to hear some different arguments and views. Thanks!
This is excellent! My aim with this video was not to convince people (even though I clearly give my opinion). It is to provide different perspectives. So, that people can better make up their own mind. So, really happy to hear this from you.
This is an interesting video to look back on now where we see inflation has become more entrenched. There are significant new factors that have caused this ie russia invasion, but its still very informative to hear your guys views on the topic. This is definitely the one of the best economics channels on youtube. Rather than presenting one opinion as fact as many other channels do you present both and provide the cases for both. Really interested to continue to hear your thoughts as we progress through this time. Personally my view is inflation in North America is already well under control, the MoM figures show us this. But the fed is continuing to act based on the theory that inflation expectations lead to inflation. So by acting firmly they can temper expectations and thereby reduce the "risk" of inflation continuing. This is clearly having downsides though and will almost certainly lead to recession. Great job with the videos. Your academic approach to economics is so much more valuable than the click bait opinion pieces that fill this site.
Peter shiff is just another grifter trying to promote his store. Really can't stand listning to that guy lol. Anyway, the debt and inflation debate is far more complicated then most people are able to understand. In the end borowing is also necesary to grow the economy and to keep demand, investment up and to keep the money supply from shrinking. And in my opinion it is far better to rely on governmemts to borrow then to push it on the public as private debt. Government debt simply gets rolled over for 50 years until it has been eaten away by inflation. Private debt leads to masive problems both personal but also economicly is a big hazzard. Plus private debt gets payed off so requires constant replacement and forcing the public to take on more and more in order to avoid deflation. If wages don't keep up with the rising debt responsibility put on the public this will lead to lots of social issues like crime, substance abuse, home violence and homelessness etc. That obviously isn't a solution, especially if it can be avoided by having the government cary the responsibility to keep debt levels up. It's a very complicated subject.
Yea I think people don't understand that if the government had been tight-fisted with the money supply, that would've just been repeating how the Great Depression was handled, and that is to say, it would only exacerbate the economic fallout...
I think inflation is more akin to measuring the risk of debt in the economy. If the risky debt in the economy starts to rise, central banks have much greater control. What would count as risky debt? Not sure, but I am sure central banks could easily identify a way to measure and provide solutions. As it stands they are in the tricky situation where they cannot increase interest rates easily in boom times, but must drastically lower them to help counter economic woes. Ultimately it forces them into a position where central banks lose any leverage they had over the economy.
I think you're right based on currently used models and data. I however think economists need to go a bit more complex. This discussion is mainly about the US and EU economy. The world economy, I think you'll agree, is more like a series of interconnected economies and you can't say much about the world as a whole without oversimplifying so far that your predictions become quite unreliable. When saying something about global inflation I would therefore start with taking major players: USA, China, EU, Japan, India, Brazil, Indonesia and Russia, distinguish the major actors and factors on the height of their particular inflation, then describe how these economies interrelate and base the assesment on that. That would really give a proper analysis. Quite a few actors and factors you've mentioned, but the intereffects between economies is a major oversight (even though it's in line with current studies of the subject). One smaller oversight is the effect quantitative easing of the last twenty years has had on the current situation. That money went mostly to the supply side and with expected return on investment being low, many larger corporation hoarded that liquidity. When forced to increase the wages of workers, the following rise in the expectation of return on investment, because of increased consumer demand may result in a quite significant boom period, but also inflation. The current Dutch government seems to not be aware of this, overspending in this boom economy and working against efforts to tax big corporations more. Good video, I enjoyed it.
The problem here is that I couldn't really do the debate justice in a summary. Believe it or not, I tried my hardest to make this video shorter. But, okay, I will give it a try. Very difficult debate. Lot's of uncertainties. Inflation comes through different channels. Then question becomes how much per channel: then I would say fairly big role for supply chain issues, small role for money printing / stimulus, small role for overheating labour markets, big role for massive shift in spending patterns, not really a role for expectations (yet). Most of these will recede when pandemic ends.
@@MoneyMacro so in your opinion it mostly temporary but have parts of permanency? also yes it was a good sumary wich lead to want to hear the rest of the arguments
Aren't you contradicting yourself when you say that the money supply doesn't affect inflation that much but if the central banks change their ultra accommodative monetary policies then inflation should go down very rapidly?
If you raise interest rates to high enough rates, eventually you will crush credit creation and hence demand in the economy. So, that works through both demand pull channels at the same time.
In Friedman's defense he has been dead a long time, can't fault him on making models based on the Carter era inflation. We have since discovered that each inflation is unique.
I don’t have anything interesting or funny to add, but I know engagement means a ton to the RUclips algorithm. So I’ll just say, thank you for the channel and everything you’re doing. It’s a breath of fresh air.
Thanks Alexander! I appreciate it.
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Best (respectfully formulated) counterpoints will be featured in this thread (but please don't comment here).
Three notes. (1) The discussion with UE took place in November before we got the news about Omicron. (2) Transitory = till just after the pandemic ends (3) if you disagree with our takes, do let us know :), especially with proper arguments.
As user @DavieB noted, there is considerable controversy over what transitory actually means. In this video we have been (perhaps too) generous to team transitory in defining it as till after the pandemic ends.... Whenever that may be.
Noted by @AlbertS, the positions of people in team permanent are in general very different. Schiff, Weidmann, and Summers have very different world views and on what is driving inflation & might make it "permanent."
New data on labour markets in the US (EU much less) does seem to point to a labour market that is increasingly hot... the risk of this is that it could start feeding into expectations at some point. I'll keep an eye on it.
While the latest U.S. inflation numbers are consistent with what we said here (pandemic went on longer than we though in November), there are now signs that inflation is being driven by more mainstream categories. In other words, there are now more signs of demand-pull and expectation driven inflation.
Noted by viewer @Simon Bond: "As late as the 1970's the Merriam-Webster defined inflation as the increase in the money supply. "
So this is basically the age old economics problem of "How long is the short term?". Or to misquote a conversation I heard "In the long run, everything works out. But in the long run, we're all dead"
Yeah that is a big part of this debate for sure.
Love it! Thanks!
The problem with that quote is that it is misleading as if Keynes doesn't really care, but the full quote of John Maynard Keynes is:
But this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.
it really takes on a different meanings and more of a purpose for economists to understand the scheme of things.
@@peterkratoska4524 but it's still fundamentally wrong
@@Bolognabeef which part is wrong? That we're all dead in the long run or that economists should do more than tell us the storm has passed.
Bro, I have a degree in finance (with honors) and I work in asset management so I have some educational and professional background on the topic of economics. Its incredibly difficult to find purely educational content like this online without some sort of bias that's usually geared towards pitching some investment. I've seen two of your videos and I'm incredibly impressed. For one, I never realized just how much economics is theoretical which leads to a strong divide in opinions between world class economists. The only slight critique that I have is the inclusion of Peter Schiff who is always pandering gold as a good investment and as such his opinions are clearly biased. Otherwise, phenomenal job and thanks for the amazing dive into current economics from various points of view. Cheers!
Thanks. Love to hear that!
I feel that I had to include him because this is a RUclips video and he is massively popular in the YT space, not so much outside of it (partly for the reasons that you mention).
Absolutely agree, this is actually the one of the only RUclips channels about economics I actually watch even though my formation goes straight to economics, It's simply an extreme level of bias on social media, even those that I kinda like have too much bias (I more left wing shall we say, but I really don't like other left wings on economics, but I find right wing usually worst on bias [cof cof PragerU cof cof]).
There's an old saying - put two economists in a room, and you'll have three opinions.
@@davidchou1675 🤨
"Bro"?
This channel deserves 1 million subscribers. Thank you for making these Joeri! My word, an entire hour of inflation-talk. Better get the popcorn!
Mate...you make arguably the most exciting content around these economic related topics. I'm already anticipating your next one.
Wow. I can't believe how high quality this video is, and for free! Those animations and b-rolls with a quality researched script... You kick ass Joeri
It feels like this guy cares about the careful and considerate dissemination of pertinent information more than clicks.
As per today Team Permanent crushed Team Transitory 🤣10.in UK and 9.2 in USA… is called living in la la land 🤦🏻♂️in a note I like your down to earth economic teachings 👏🏻👏🏻
The more I learn about economics, the more I get the feeling that no one knows what is happening. Which is kinda funny but also super scary
You are experiencing the Dunning-Kruger effect :). Don't get discouraged by it. It is a good thing.
@@MoneyMacro i hope that's why, but it seems like every economist has a different opinion than the next. The only consensus is among the MMT folks, and while they have an interesting argument, i can't buy their framework.
Am i wrong on this outlook?
As a fellow economist, this was great. Very well made. Hopefully it will go viral (sadly dont think so, its more then 30 sec long after all), this needs to be show in schools or similar since way to many really do not understand the basics when it comes to inflation
The 30 sec think is too true. Sadly
@@Antowan So NOT true. I watched a full minute. (at 2x speed of course)
If I am 100% honest, I did think twice if I should watch a 1hour video and I almost skipped. But I am very happy that I didn't. Great video also for someone who is not an economist.
Bruh, you can't be saying that after 'The Line Goes Up' by Folding Human went viral. And this is almost on the same level of quality, it could happen.
Larsen Wrong, this is a simplistic, superficial, and inaccurate treatise of the subject. Find a dictionary from the 60's or the 70's and look up 'Inflation'. The term has evolved in error, to be synonymous with 'rising prices', and that is woefully simplistic, and erroneous.
Thank you so much for making non-sensationalized economics videoss that seriously teach people to consider multiple perspectives.
Your breaking the mould here and you should never stop mate
It's good to hear different perspective but this is not the place to hear different perspective. Even in the middle of trying to supposedly explain the other side, at 18:40, he's inserting "rebuttals" from Joseph Stiglitz.
As far as labor shortage, here in Colorado I see wages going up for ordinary jobs, but not as much as rent, gas, groceries, so these folks are not yet better off. Stimulus checks were a relative pittance compared to the stock market situation, where it should have cratered given decrease in the tangible economy, but instead has gone up. Massive amounts of residential construction, but it is split between luxury condominiums, single family housings, and now high end duplexes. Nothing serving the non-privileged first time buyer or the delivery truck drivers, the warehouse stockers, etc where there has been a big boom in employment. The fiscal and monetary stimulus has increased wealth disparity.
This discussion needs an update, it is still not transitory after the pandemic. And that leaves out only one cause, as discussed in this video. UE was right at the end that supply chains has not been researched enough and has probably been one of the most crucial part of inflation of past years. I am actually saying that the trade war USA started against China has been the main cause. Nobody in the West is daring to say this out loud though to the general public. I feel the scientific world needs to step up more about this issue and particularly you as well, Joeri, as truth must be told in both ways.
I think there's an important point about the labor market that's a bit subtle. If you look at the labour force participation rate (at least in the US) it's dropped radically and consistently since 2008. Now, one could attribute this to a wealthier society in which fewer people need to work, but there's more going on here. The unemployment numbers have behaved quite strangely since around 2008, much slower on the way down than they used to be. This is because there's a much larger "dark pool" of non-participating labour, ready to be tapped, but unable to get jobs, that doesn't jobseek (and therefore doesn't show up in the unemployment numbers) unless the labour market is exceptionably favorable.
So, what's the conclusion here? I think that we need to take drops in unemployment much more seriously when it happens in the 3.5-5% range, because they represent inflows (well, typically decreased net outflows) into the labour market as well.
I'm also a bit skeptical of the "early retirement" narrative for this reason. I'm sure plenty of people are reconsidering their relationship with work, but there's a big difference between leaving the labor force to enjoy your extended golden years vs leaving the labor market to enjoy your extended stay at the local drug den. The situations under which each of people in these circumstances return to the market are rather different.
fred.stlouisfed.org/series/NILFWJN
Homeless encampments everywhere. More “informal” jobs. That’s where the missing millions of working age men are.
@@alfinal5787 Homeless rates are down in the US since 2008.
The retirement theory matches what I have seen anecdotally. Not alot of people living on unemployment, but alot of grandparents no longer working.
When it comes to younger nonparticipation, it seems alot of that seems to be lower wage workers now providing familial childcare so higher wage warners can keep working without the interiptions of the chaotic daycare closures.
@@mikebaker2436 nonsense
The swap to 1099 status and not reporting it. Hence part of the reason probably for the new rules set forth by the IRS this year.
That 1 hour flew by. Had to check out your channel after seeing your collab with the plain bagel. I can't wait to binge the rest of your content!
Excellent video , I agree with all of your points. I have teachers from my master's in econ, who are literally obsessed with inflation and cant think of anything else. Sadly we still use the quantity theory of money, especially in undergraduate programs. They all support that the tapering should have already begun in last October-November. Maybe since in Europe we're used to having an inflation of 2% for so many years , now that it's around 5% they all think its the end of the world. And most of them seem to support that it's clearly a demand pull inflation, its demand's fault, not at all supply problems. And it's such a nuisance to try and argue with them since they don't accept any other explanation.
It was nice seeing Kalecki being mentioned, hopefully more people read his works.
Excited for the exchange rate video in the future, as well. Loved the collaboration.
Well, Joeri & Co. notwithstanding, the world seems to agree with your econ teachers. Inflation has continued, and gotten worse, exactly as Milton Friedman would predict. The quantity of money theory has proven itself, again.
Inflation is resuming due to the war now, not of supply chain problems. No heterodox or orthodox economist predicted such escalation. Also Friedman quietly assumes Full Employment, which is far from reality. Only in FE does QTM work. There have been papers which found a correlation between money supply and inflation, but no Granger causation. In the very long term , just as prof. Joeri said, QTM works. But no one can say that if you increase Ms by 5% then automatically π rises by 5% as well.
@@alex_2293 Well, at 3.9% unemployment in the US, full employment is as close as we will ever see. But you are clearly correct that the precision of money supply:inflation is pretty low.
Thanks for the high quality discussion. As mentioned by others, it's very difficult to come by such unbiased and deep exposition of a very complicated matter. I can't thank you enough!
I really appreciate your academic who is talking to an interested general public that has some background knowledge vibe/format.
I hope that you stick with your academic work and job because it allows you to keep this channel boring/non-spectacular, I really appreciate how the fact you don’t seem to be interested in making a main career out of RUclips or gathering a huge audience, seems to be letting you keep the absolute information content and density high.
Definitely agree with what you're saying. I love that he can just deliver the information straight and not get bogged down in issues of "will this affect my views" and such.
The price of houses is not included directly in consumer price indexes because it is not the house that is consumed. Rather it is the service flow the house provides. If you rent that is the price of the service. If you own then owners equivalent rent is an estimate of the implicit price you might pay for the service if you were renting the property to yourself.
“There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.”
― Warren Buffett
there is no class warfare.
people don't go around thinking "X people of my income range is my team" except if you're indoctrinated by Marxist ideology to do so (so if it does exist, it's being waged by the poor, not by the rich)
Back to the sane world, the way things actually works is everyone just seeks profits, and different people have differing levels of ability to get it.
The people that have great ability to get it are then post ex facto called a class. and that's the key part - post ex facto.
That makes this warfare paradigm is a tautology.
And that assumption underpins the rest of the theory.
So that's the intellectual equivalent of an elephant doing a balancing act on a tricycle being balanced on an apricot seed.
@@gwho do you like chelsea's, oxford's or mukluks? ruclips.net/video/Ezthd6A3tiw/видео.html
@@gwho Rich people doing what they can to stay rich by screwing over poor people IS class warfare. It's also the way capitalism works. If you don't have class warfare you don't have capitalism either.
The comment on Energy Markets underpinning the economy was so spot on. Of course no one expected Russia to invade Ukraine, but that callout ended up being completely accurate regarding the impact.
Thanks! Great video :) as an economics student I love to see this quality content on RUclips.
I think your videos are really good. Very well organized, concise, showing many points of view on the subject. Keep up the good work!
Thanks, will do!
:)
Eagerly awaiting your update specifically on current base effects on inflation. Honestly, I am surprised that this phenomenon is not given more attention as people, the markets, and even governments (especially govts?) seem to take CPI at face value and react rashly. I suppose it is currently very difficult to gauge base effects given the series of unexpected events that have occurred this year and how we're still experiencing consequences of supply/demand shifts from the pandemic. Still, I am very curious about the impact/role of base effects on inflation and the global economy today.
Thanks for the amazing videos!
here from Plain Bagel. good stuff.....i have watched a lot of RUclipsr's try to explain this topic but its mostly biased because they hold stocks, this channel looks legit!
Great video overall. I am on team "permanent", even though in the long term inflation is always transitory (Germany is no longer undergoing hyperinflation from 1921). I think another thing you might want to consider about Japan is that they are a large net exporter of goods, strengthening their exchange rate. They do in fact have a high savings rate ~20-25% vs ~2-10% in the western world (which you touched on), but also that the "inflation" of the money supply could be preventing their prices from going down, rather than causing the prices to go up. After all, a mature economy with the aging demographics of japan, coupled with a large trade surplus, one would expect deflation, but rather their prices have remained stable or slightly increased.
Exchange rate be damned exports are costs in REAL terms.
Just found this channel and it is my absolute favorite new channel. Working through Some of your older videos like this one, and they are great. Top tier. Good job. Learning lots. Thanks!
This is by far the best RUclips analysis of the current bout of inflation I've seen. I especially appreciate that you covered under-reported unemployment and rising wages. I think these factors don't come up enough in the inflation conversation. You also made an excellent point on inflation being driven in part by higher price stickiness in services than goods. This hadn't occurred to me and makes intuitive sense.
Thanks for all your hard work, Joeri! Your channel just keeps getting better and better. 🙂
The effect on wages is the only time I have ever agreed with Stiglitz. The obverse of higher labor costs is higher wages. IMHO, that is a good thing.
I also have an opinion about the difference in wage change in the US vs. EU. The US wage rate is closer to the supply/demand price point. This is due to the various labor laws throughout Europe, which cause a lower demand for labor relative to supply (this is manifested by the much higher unemployment rates in Europe vs. the US at the best of times). So raising the true demand for labor in the US increases wages. Raising true demand in Europe for labor has not brought price (wages) to the true price point. It should lower unemployment, though that is likely delayed.
Keeping the engagement train going, this is brilliant
I really, really liked this video. It covers so many arguments and pieces of evidence. Very good way to spend an hour.
Very happy to hear that.
28:20 CPI may not have inflated, but no one uses credit to buy food (yet). Stocks & real estate have seen double digit inflation- very bad if you are young & trying to acquire assets.
In science (economics not included apparently ;p), any number is virtually useless without an uncertainty attached to it. So, I was wondering what the uncertainty in the CPI is, and how it is calculated, considering the huge variations in prices of goods and services and their respective weights. Also, as a video idea, I think it would be great to discuss about the financialization of the western economies. Everything seems an "asset" nowadays (houses, bitcoin, nfts etc.), but when did this start and why?
Sadly this is almost impossible in macro because we don't have enough comparable data to generate confidence intervals.
In accounting, everything is either an asset or a liability. That has been true for at least a couple of centuries. Why it is now in more general usage, I don't know.
To the last question: I think the spreading of information through the internet, combined with better social safety nets and low interest rates, lead to a situation where people had the security (social safety) to take bigger risks with their money, further incentivices by consistent low interest rate (so saving becomes unappealing) and we also have the knowledge to teach people how to invest themselves instead of letting an institution do it. Or in bland terms; lower costs, higher pay-off relative to alternative and better access to various asset markets.
What is this 'quantitity theory of money' I speak of at 29:40?
Great work, I'm sure you put in the hours on this one. It gave structure to some thoughts I already had myself about this topic, and complemented them. Please keep up the more scientific approach (compared to many other channels). Thanks!
Glad you enjoyed it!
Amazing presentation and edits! Can't wait to see your channel grow more.
Wow such a big video. Thank you for your hardwork
Phewww this was sooo much work... hehe the conversations are from November... but I think they held up well enough.
is CPI a "good" metric? Some arguments J. Nitzan makes, make me skeptical
I was actually discussing this today with my friends at uni. Thanks M&M for this amazing video!
From your video, my votes are: (1) supply chain disruptions + (2) changes from services to goods being the main causes. The data isn't there for an employment side driven inflation. The quantity of money stuff is laughably discredited by decades of data. But that chart on the shift from services to goods was very convincing. I shifted to full time WFH and I doubt I will ever return to the office 5 days a week. Thus, my costco bills have to increase by the corresponding amount that I am not using my employer's services at the office. I need more things at home to take of things I used to be able to go the service sector to get.
So basically the "new normal" is that expanding money supply is fine, because asset prices do not matter. As long as the money supply does not spill over to consumer goods, everybody is happy. Japan is a role model, where all the new money went into government bonds and other long-term loans, and everybody is happy. Or are they?
The whole purpose of the monetary stimulus in the first place is based on a false promise that it is necessary to have inflation, because "deflation" is bad. However, nobody ever proved that a mild deflation actually decreases consumption and leads to an economic downturn. On the contrary - deflationary Japan still consumes like normal and all over the wold people keep buying the newest Iphones at their release date, rather than wait 1 year for a 30% price drop. Moreover, the reason why deflation was happening in the past during recessions, was that money back then (i.e. gold) was actually a good store of value. So if you had an increase in uncertainty, money was a safe bet.
So - it does not matter if there is a mild inflation, a mild deflation or none of the two - people will keep spending money and economy will grow as normal. The whole fixation with creating inflation is completely ill-founded. However - central banks managed to create a huge inflation in asset prices. And so far it seems that everything is fine... unless you want to buy a house - then you have to take a loan so large, that you will be paying it off for the rest of your life. "But at a low interest rate" you said. Yeah - but at a much greater risk (because you never know how much this interest rate will change in the next 40 years). Or - if you want to buy farming land and live off of farming. Good luck. Buying land for farming is unprofitable. Because the land is traded at such inflated prices that the only way to make a return on investment is to sell it at an even higher price. This is the classic case of stocks trading at 100x their earnings. "Expectations of future returns" - bullshit. Expectations of future money printing.
Has it happened before? Of course - every financial bubble before was fueled by a monetary expansion.
Is it different this time? Partly yes, it is different. Central banks have managed to create new bubbles every time one has burst. Dot-com bubble was replaced by housing bubble, which was replaced by commodities bubble, which has morphed partly back into housing bubble, and then expanded into crypto bubble. We don't have just one bubble today. We have a multi-bubble. Basically anything that resembles an investable asset is overpriced today.
So what about inflation? Yes - supply problems probably play a role here, as does the great resignation. But the fiscal stimulus in the form of government checks is probably the greatest contributor. We also don't know what is the impact of the asset-price inflation on the consumer-price inflation. After all there will come time, when at least a part of the crypto, stock and mortgage millionaires will want to cash out and start consuming their profits.
It is hard to say if inflation will be at current levels for a long time. What is certain is that the system is getting more unbalanced year after year. Maybe there will be no major crisis in the next 30 years, like in Japan there was no correction of the monetary expansion in the last 30 years.
But it will have to end eventually.
No. I don't think so. This is the tricky thing about these discussions. The "money printing" narrative is on to something. It is just often presented in an oversimplified manner. But, (see my video on QE), there are plenty of problems with our current model of trying to lower interest rates and increasing asset prices to chase growth.
@@MoneyMacro Thank you for replying to my comment. I have watched your QE video and also a few others on the structure of the financial system and money printing, etc. My thoughts are that it is important not to confuse debt with money. When you talk about financial core, bank money and financial crust, of course, I agree that many financial instruments are treated in _some specific circumstances_ as a _payment form_. However it does not mean that this is money.
Exchanging money is a risk-free transfer of value. On the other hand, bank loans, bonds, stocks, and other financial instruments are risk-bearing. It means that they are IOUs, or promissory notes. That's why they carry interest, which is dependent on the level of their risk. Government bonds, stocks or bank loans _are not money_. They are _promises_ to pay money in the future.
All money in the economy is dependent on the value this economy has already created. This is the basic concept of money. Money is the _already created_ value. At the beginning of trade people were bartering with already created goods and readily available services. Money was invented to facilitate this exchange. In this context bonds, stocks, etc are promises to pay money in the future, hence - they do not represent an already created value, good or service. They represent a promise to create that value _in the future_.
In order to deliver on those promises companies need economic resources - realistic amount of goods and services (skills, knowledge, creativity). This is where the problem with financial bubbles becomes apparent - the promises are false, too optimistic, undeliverable. Does this mean that every bubble is poised to burst? Theoretically not. Economic breakthroughs can happen (new technologies. etc) that will deliver the "promised" returns. At the time of bubble creation, however, this is rather betting on luck.
So I would even say that financial bubbles have two main levers - first the overinflated expectations stemming from low borrowing costs and visible in high asset prices. Already these expectations are untenable and are poised to eventually crash. Second - the systemic, economy-wide nature of these unrealistic expectations causes misallocation of resources (this is what the Austrain School is saying) to chase the dreams, what further makes the matter worse, as with misallocated resources, the economy is even less capable of delivering on the promisses.
How does it relate to loose monetary policy? Low interest rates inflate supply of loans (bank money), that increases the prices of investable assets. This is already a distortion in the economy, because investable asset prices should depend primarily on what realistic future value can be created by those assets (think Price / Earnings for stocks). If the assets become a hot tradeable commodity themselves, this is already a distortion in the market, that will eventually correct (once enough investors will want to cash out on their earnings).
QE is an extension of this mechanism to long-term loans. The central bank by buying bonds from banks and paying for them with reserves, enables these banks to buy even more bonds from bond issuers - both by lowering the risk of such purchases (banks will know that the central bank might buy new bonds from them in the future) as well as by lowering interest rates on these bonds (lower cost of borrowing for bond issuers). This way the amount of issued bonds is increasing, meaning that the amount of "promises" of future money is further increased. This further increases asset prices and creates an economy of inflated expectations, that eventually will have to crash.
@@stefaniastanoaie6616 when the fed will start increasing interest rates and rolling back QE for a longer period of time, say 6 months, I think a large portion of the house of cards might start collapsing. But predicting bubble burst has always been extremely difficult. There have been so many people saying for years now that the bubble will burst any moment, and they all have been proven wrong. I think the Fed is the key here. In a situation of multitude of "investable asset classes" it has been possible to create bubble after bubble with seemingly no side effects. If the Fed's recent interest rate hikes cause a too big correction, then it is very possible that the Fed will get scared and quickly go back to inflating bubbles.
Take a look at Canada. Our housing bubble has gotten so out of control. Our economy is like a snake choking on it's own tail. Canadians typically renew mortgages every 5 years, or you can go with a variable rate. The high housing costs are such a drag on growth. Think of what will happen when rates have to start going back up, the consumer is already being crushed. Our latest gdp was 80% contributed to government spending. What happens when the government can't afford to payout the high yields on bonds? Who will buy them? The central bank? That's inflationary. So imagine what is going to happen to the mass psychology once rates have to start going back up into even greater economic weakness. Canada has cut 3x already, short term relief at the expense of long term pain. It will be government spending that is the primary driver of inflation during the next wave. They will blame it on war, supply chains, mpox etc. Rates have been going down since 1981, so that psychology is tough to break. People are in for a rude awakening in Canada.
@@MoneyMacrodo you have any updated thoughts now. Do you think the fed is going to cut too early and stoke another round of inflation
25:40 what makes you assume strong unions cause inflation? I would argue inflation causes strong unions.
A lovely and really comprehensive Video. I would've liked to have seen the issue of decreased salience as brought up by blanchard, or the impact of downward nominal wage rigidities during the labour market segment. However I understand that this video is allready close to 1 hour long. For that alone you deserve some praise.
But the next time you upload such a comprehensive video please release it before I hand in my seminar paper :D.
I didn't come across the decreased salience issue by Blanchard. What is the title of the paper in which he talks about this? Or speech or blog?
@@MoneyMacro Blanchard talks about it in: Blanchard, O. (2018): "Should We Reject the Natural Rate Hypothesis?" Journal of Economic Perspectives, 32(1), pp.97-120. At page 114 he describes two possible explanations for the anchoring of inflation expectations. One of them is that stable and low inflation leads to a less frequent update of inflation expectation because prices and wages are changes less often. So it is basicly the idea of "sticky information".
Welp, finally got around to finish watching this video. Great content as always!
Very balanced take, I especially appreciate the reductionist approach of rigorously defining inflation before you talk about it. I'm hoping housing costs will be better accounted for in the CPI in this, the era of big data, as this is usually the single largest expense for the poorest households and is quite complicated to calculate. There's all kinds of confounding factors like mortgages, interest rates, localized rents, rent control, crowding, and maintenance costs being deferred that can really "move inflation around" or hide it entirely from CPI.
I don’t follow the base effects example.
Given that the CPI is based on a basket of goods, if some restaurants are closed, why would the projection on the basket of food prices change? You would have less data points, but presumably the same answer at the basket level, no?
Great video, thank you for the grounded discussion. I agree that higher wages are a good thing.
That said, one thing I just don't understand is why UE is "cautiously optimistic" about the fact that nobody cares about fiscal restraint any more, especially in the US. I get that economists tend to work from a theoretical perspective, and in this case theory suggests adding debt is good on balance. I also agree a welfare state, if you can afford it, is an ethical imperative. However, is there any practical understanding that unconditionally handing politicians a printing press while economists are doing their best to delegitimize opposition to massive deficits will have serious negative consequences down the road?
For all my life, I've heard many economists stress that (1) central banks must be independent and (2) fiscal policy must be anti-cyclical. Right now, the opposite is being established and most economists are cheering it on. It is crystal clear that Western central banks like the Fed and ECB are no longer independent. Their unofficial job is to monetize government debt in very large quantities. They have passed the point of no return, since if they were to take away the printing press now, they would cause an immediate debt crisis and economic implosion. Secondly, with all economies expanding, spending is ramped up even more. Budget deficits in many countries are so huge that no theoretical tax increases on the rich would come even close to meeting existing deficits, let alone spending increases. For example, right now the US is running a 2.8 trillion dollar deficit during an economic upturn! With Build Back Better, that'd probably be closer to 3.5-4.0 trillion. During the next recession, the deficit would get to that number easily. Oh, and the US gov't is sitting on a pile of 164 trillion dollars of unfunded liabilities, much of it is social spending due to demographic ageing. Not including dozens of trillions of underfunded pensions in the US. Just a great time to tell politicians they can just buy off their electoral problems and borrow as much as they want. There is zero appetite for budgetary restraint in both the population and its political leaders, and economists are legitimizing this status quo of endless debt increases.
We talk a lot about building a sustainable economy, but THIS is totally unsustainable. Long before we become carbon-neutral in 2050 we will go bankrupt. Please tell me, WHY are economists cheering for this? I don't want to insult you, but they look to me like educated fools that are leading us into the abyss. They are so educated they can rationalize away what is obviously unsustainable. The entire economy is over-indebted; debt is the highest in world history, but the answer is always more debt. Even if we can postpone the end like Japan has done, which seems unlikely, where has it brought them? 240+% of gov't debt to GDP and three decades of stagnation. Just great.
Sorry for the rant, it drives me nuts.
There is always uncertainty of the future, where we try to figure out if extra debt taken now will produce even more value before the debt needs to be paid. + the uncertainities, if others will be willing to give our country new debt cheaply enough in the future; if they trust us enough that we will (be able to) pay the debt + pay the determined interest payments back.
Taking extra debt is “risky business” for sure, but it’s a gamble that might pay off enourmously as well.
In that respect, it’s similar to the stock market (my day job).
So you might be right, but you also might be wrong… and it always depends what the nation’s goals are & how you predict the future will turn out, how much risk a country deems it can take + loads of other factors.
In essence, you described the risks, without describing the benefits. Both need to be looked at.
Good economists are paid well for a reason; this is all complex as hell ^^ :D
Cheers ❤️
Imagine it as if there are two countries haggling for a fair price at the veggie local market, instead of 2 people doing the same.
Or how you would haggle for conditions to loan money to your friends, depending on how shady they act & how they live their lives & what they say will they do with their money (as in, throw it all away or build a great business)
Countries are very similar, only on a country-level-of-scale (and therefore extra complexity, since consequences of error are that much more impacfull for many people)
It all started with "a welfare state is an ethical imperative"
@@rutessian Yes and no. Before the welfare state, countries and kingdoms went bankrupt due to expensive foreign wars, among other things. Pulling future consumption forward has always been too attractive. Also, if you want to be practical, abolishing welfare is impossible. And the richest countries are wealthy in part because the wealth is not just for the 1%.
@@rolandxb3581 Rich countries are rich because they produce more than they consume, or at least most of them used to. I know it's impossible to eliminate the welfare state. Bullshiters have been spreading the message that it's necessary for more than 100 years. This modern iteration started with Bismark, in Prussia, if I recall.
THANK YOU FOR YOUR QUALITY WORK AND EFFORT!!
YOUR VIDS ARE OF HUGE HELP
My old statistics teacher is yelling inside my head because the charts' scales don't start at 0 (and you compare two charts with different scales). :)
Otherwise this was very a informative and level-headed take on the issue. Thank you!
Thanks. You raise an important point. However, purely from a visual perspective it can be really hard to show pretty big changes now if your chart starts at 0 always.... Tricky.
@@MoneyMacro Charts can start at whatever value you need. No one shows temperature graphs with 0 Kelvin at the bottom because it would be pretty stupid in almost all cases. 0 is just a value that is sometimes useful and sometimes not. There is no silver bullet.
@@thedj67 I don't disagree, but what kind of temperature graphs use Kelvin as their unit of measurement instead of Celsius?
@@pascalausensi9592 old school solar physics papers
It is the job of major bankers and economists who are given major voices by the regime to maintain confidence in the regime. Their job isn't to give the masses accurate analysis or predictions, it is to manage expectations. Even if they believe catastrophe is ahead, they will never be allowed to public state it for fear of causing a panic.
I appreciate the video and it has given me a lot to think about. But I think it has a couple of big flaws.
I could not help but notice that it came across as left leaning. The comments regarding billionaires and climate change initiatives were not very relevant to supporting the main argument being made, that inflation is transitory. So the video felt tainted to me, and I knew the conclusion that would be reached would be that inflation is transitory.
The video goes great lengths to dispel that inflation will be "permanent". But I don't think anyone is claiming that the demand pull side will be permanent. So we are (mostly) left with the debate of how long the cost push side will persist. This is where the video really fails IMO, because it fails to make a convincing argument about why wages won't be sticky. You disproved that the demand pull side will persist since supply chain issues will go away, but you failed to effectively argue why the cost-push side won't persist.
The co-host mentions that it is because labor unions now exist in smaller numbers today compared to the 70s. That's quite a controversial statement that assumes a lot of things, including whether labor unions caused prices to stay sticky in the 70s, or whether unions can even be credited with wage growth to begin with. Instead of elaborating, we are left with this unsubstantiated one-liner.
One reason I can think why wages won't stay sticky is the continued globalization of the labor force, which is more evident than ever with remote work during the pandemic. This will ultimately create downward pressure on wages in wealthier countries. But no one mentioned anything about this, instead we get remarks about climate change and the rapacity of the wealthy.
To be clear, I do not believe climate change is a hoax, or do I even believe inflation is long term. I just feel that the conclusion the economists made in this video was disappointing for all of the reasons above.
@@whitneygoncalves3327 Thanks. Unfortunately it looks like it!
I notice that the Japanese stock market declined for 20 years starting in 1990, and only started rising for the last 10, which according to the chart of M3, is exactly when the money printer started going into hyper-BRR?... Do we have good data on the amount of money printing from 90-2010?
One thing to look out for with the 'money printing' narrative (I am guilty to this in this video as well) as that the vast majority of M3 money is 'printed' by the private sector. That being said, both UE and myself think that the quantity theory of money is valid. It is just not very easily to use it to make causal arguments because new money can also go into financial markets (velocity down) or into actual new productive capacity (Q up). I think the former happened in Japan.
Interesting video, seems to take a lot of aspects into account. Some of which was new for me. Thanks you for this.
I do think that one aspect, not considered now, will work towards a long-term inflation. That is that at least in Europe, social pressure is moving away from total flexibility jobs - like zero-hour contracts and so called self-employed jobs. These will obviously not disappear, but its portion of the total labour market seems set to decrease considerably. Add to that the ongoing and increasing inequality in the world and the dropping part of wages in the total economy - with the social pressures this brings - I think you will see an increase in wages in the upcomming 10 years.
Also the labour force is decreasing in Europe due to aging and it is not certain that efficiency increases can make up for the difference.
In my view, these points will lead to some increase in long-term inflation.
Those things also lower peoples reliance on debt, having a cooling effect on inflation.
Normally this is done by forcing interest rates in order to force a brake on new credit creation. But these things also slow down credit creation so also slow down the growth of the money supply without needing to raise interest rates.
And if the working population ends of shrinking it will also shrink the production and availability of goods and services keeping things in balance.
Personally I disagree with your point on flexible jobs. At least here in the UK, freelance work and flexible work is growing. I certainly can see this greater labour market flexibility becoming an integral part of many developed economies.
@@josephbrennan370 the entire economy is gearing up for a shift to a lot more decentralisation. Making people less reliant on masive corperations and enabling increasing numbers of people to walk away from the abuse.
Turning labour flexibility into a good thing for working people. At least eventually, i am sure it will be fought and tried to reverse at every oppertunity i'm sure.
Shouldn't stock prices and other investment mechanisms be included in the CPI? (People need to retire eventually, right?)
If so we're the case, wouldn't that affect much of the supposed decoupling between money supply and inflation (e.g., comparing money supply vs new CPI with assets/investments/retirement costs included).
Going a bit further, shouldn't even some quality of life items be included in inflation calculations? e.g., flights, gold/jewelry, etc.
If that's too "hard" to do, aren't we just deluding ourselves with the CPI given that investment assets/recreation items are arguably a key measure of the purchasing power of a currency?
Seems team permanent made a big comeback...
Looking back on this a year later, The pandemic is over, And we are seeing persistent inflation. Do you think this impacts any of the comments about "we're not seeing that inflation" showing them to be premature? And do you think today's perspective gives more weight to the transient or the persistent side?
This is clearly written by Europeans who want government. Rather than quoting a competent opposing economist, they quoted Peter Schiff, who has predicted economic catastrophe every year since at least 2005. These two have clearly been shown to be wrong.
Joeri showed graphs of the US and EU money supply vs. inflation which showed identical graphs, then said they are different. What??
Furthermore, the Dark Knight said inflation was coming down in the US. This was in January. Well, in March, inflation hit a new 40 year high. The statements quoted by Yellen are especially ridiculous. So Team Transitory is WAY off the mark.
As a physician, I am used to dealing with highly buffered systems. Economists don't appear to be. For instance, you can remove one kidney in most people, and there will be no change in the kidney function laboratory values. Long term, there are consequences, however. Take out half of the remaining kidney, and effects are observable. Analogously, you can print a lot of money short term, with no obvious effect in the next months. But go to extreme, as the Fed and Congress have done with money printing, and the deleterious effects overwhelm the buffers. Inflation is here, permanent, and is once again proving Milton Friedman correct.
It's great to see a more nuanced discussion on the current state of inflation.
What I always find interesting is how the words inflation/deflation are often weaponized depending on how it's being applied. It's often praised the inflation of stock market value while never acknowledging the often corresponding deflation of workers wages, regulatory safety bodies, Public Services, etc. As pointed out, we have some of the talking heads that are actually complaining that workers wages are actually it causing inflation while ignoring the systemic economic structural issues or the opportunist price gouging.
Thank you for providing a balanced academic viewpoint on this that is backed up by evidence in real world economies. I really wish this kind of balanced analysis was more common among mainstream new sources.
You talked a bit about expectations of future inflation being low in this video. How is this metric measured and is this a reflection of institutional or individual expectations? I can see institutions being convinced that central banks will control inflation using monetary policy, but most individuals seem to be swayed by the money supply arguments of the permanent inflation camp, even if they're not grounded in evidence.
Expectations are measured through surveys. So, they ask people as well as professional forecasters.
The most important discussion I have come across in recent times. Excellent work.
This is a collab I was very much waiting to see happen
It's been nine month but what I found was missing in the discussions was the impact of price gouging made by different companies. There have been recording of executives stating that they are using the cover of the inflation to find their highest price point for their commodities. Many sectors have been showing record profits. I believe it is exacerbating the impact of the supply chain constraints and the covid monetary policies.
Can you explain why Turkey's economy isn't burning up in a depression with inflation through the roof?
Goods are priced in money. So would it not make sense to think that changing the supply of money would also change the price of goods? Especially when the supply of money is being changed a lot in a short period of time? What explains changes in the velocity of money?
Calling Team transitory ''Transitory'' when Powell has dropped the term seems a bit dense 2 me but that's beside the point . Also putting Larry summers in with Peter schiff seems a bit weird since Peter has been calling for like massive hyper inflation for basically since QE started following the GFC, but Larry is just saying that with an amount of transitory inflation we shouldn't discount the idea that there is much more permanent inflation underneath. I think there is absolutely no way of arguing currently that Larry is wrong I think he is by far the most right out of all 6 people mentioned whereas for example Peter Schiff is wrong on his inflation takes in a lot of areas which you guys mentioned, it feels slightly straw manned from my point of view because instead of attacking Larry's very nuanced views you are more or less attacking Schiff's positions which are truly outlandish and so much easier to debunk or at least to make seem stupid because I don't think he's wrong on everything.
Whatever all the complex reasons for the current inflation the idea that the central bank has given all governments a free pass 2 run massive budget deficits is probably rather inflationary, just as a way of saying it we have stopped doing anti cyclical fiscal policy and instead are now just always doing expansionary fiscal policy (America hasn't run a budget surplus in 20+ years), this is pretty much purely achieved through central banks suppression of interest rate on bonds by buying them in actually absurd quantities. I think therefor the fiscal side is responsible for the inflation but they are only capable of creating this inflation through the actions of the central banks, and this takes long because of the massively indirect way they do it.
Added to this channel of inflation I also think people are massively sleeping on the demographic factors, I think aging and the accompanying decreasing size of the labour pool as a % of the population or functionally as a % of consumers will also be a problem. I have heard predictions as long ago as 2010 for 2020 to be a transition year in which we would finally feel our aging because it is the start of the great retirement of the boomer generation. I think this aging also means there is now more normal people money in assets (retirement funds and savings )which means the asset inflation which I agree with you on the Central banks are creating also causes a stronger wealth effect which probably also pushes inflation more during asset bubbles, and probably pushes a bunch of people into retirement as their portfolios grew enough that they thought they had enough sooner.
Basically I agree with most of the points raised by both of you apart from the fact that I just completely disagree on the idea that we can keep spending like this as governments a thing which I believe I heard mostly your guest argue for at some points, I think the tightness in the labour market can be a very good thing although not if pushed to the absolute extreme of course. And I disagree on the conclusion that central banks do not have a massive role in creating this inflation because from my point of view anti cyclical policy works because a lower demand for goods/services from consumers gets turned into higher savings and bond buying which the government then uses to spend more, if it is done by printing instead it is massively inflationary because the governments spend all the money they can get their hands on (especially if it doesn't need to tax its voters for said money at least not directly).
Also some extra thinking right, you guys shoved aside the idea that supply side inflation is something the central banks have to do something about because basically you guys internally except the idea that the total productive capacity of the economy has not lowered it has probably increased just like normal but that doesn't at all have to be the case with a shrinking labour force, and the massive problem of immense changes in society without the economy being allowed to go into ''creative destruction'' and so a lot of productive capacity being wasted on stuff that is not wanted and so decreasing the supply of the goods people want therefor creating inflation (companies just burning money for the fun of it, consuming resources without producing a profit so in essence destroying productivity in the economy and destroying value at least in the short term because of course all these companies will become tesla or amazon).
Good point noting that it was very hard to group people on team permanent. They have pretty different positions. I do stand behind the choices in that these are the most prominent voices. I'll feature this in the main thread at the top.
Yet the enigma of Japan persists
Or Powell could be wrong, but thanks for that fallacious appeal to authority.
@@MBarberfan4life look up fallacy fallacy
20:15 Aren't they just looking at what stores are asking for certain goods rather than what people have paid for it? Should be the same, but in one case you don't have to snoop into someone's bank account.
I kinda feel that team permanent has been vindicated two months later
Pandemic is far from through with global supply chains. Shenzen just emerged from a massive lockdown while many major Chinese cities are still in lockdown.
Still, I think Jens Weidmann from team permanent did the best job in predicting supply issues would last longer. Although, he didn't predict the link to the war in Ukraine.
43:42 But that is aggregate consumption of services? not goods, correct? So a bit misleading, but I see you discuss goods vs services later. Still, I think you undersold the money supply theory a bit but great video overall!
I'd love to see a video about the current and future effects of asset price inflation apart from "i can't afford my dream house"
LMAO I loved your avatars & backgrounds when your conversation began, thank you both for the great video
I love your videos! I hope you can live off making these in-depth videos!
Thanks! At the moment not yet. But, I will take the plunge anyway and make more of them and see where it takes me. Too much fun.
I don't quite understand your math where you mentioned that according to Alberto Cavallo, we are underestimating inflation by .8% during the Covid era. If that is correct, then you should add 0.8% to the official 6.2% inflation figure of 2021 instead of subtracting. Am I missing something?
Investing in different streams of income in other not to depend on government for funds and avoid all the chitchat about the inflation bla bla bla
Interesting. I have a lump sum doing absolutely nothing at all in my bank account, I wanna get something started with it, any reasonable ideal
There are platform where you can invest and they trade your money. Then pay you profit either weekly or monthly. That's investing.
Thanks you for this. Will definitely reach out to him now. Thanks again
Crypto is bringing a different revolution in the world economy. People who are optimistic investors earn consistently….Others will just sit and watch
Great video, though was hoping to hear more about longer-term factors like green energy costs, ageing and de-globalisation effects which might cause elevated inflation after the pandemic stuff is sorted. thanks
Thank you for the content ! Love the video. I was mostly on camp permanent, but the arguments you provided were very insightful. I think the inflation expectation is greatly undermined, but i understand its something that is very hard to capture and very hard to see whats the influence off. I had a question for housing. From i understand, housing is not included in the CPI mostly because its also an investment. But, in a way, housing does have an indirect impact on CPI since if interest rates rises up, people who had to take a huge loan will suddenly have less purchasing power hence, impact goods/service consumption. Do you know if there is any proof of what i am saying or my take makes no sense ?
Also, i kinda wish housing was taking into account for CPI even though its partly an investment. They should maybe include only the price of only first time home buyer ? That could be a way to differentiate people who see housing as an investment to those who need to live, but i could also see that being not a good to way to include housing since you will also have people buying a bigger house than they need in the CPI.
Anyway, thank you for your time and your video !
Shouldn't the money printing section be renamed to money creation? I'm not an expert, but I believe money printing refers to the physical act of creating currency, while money creation refers to all acts of creating money.
Yes I agree. But, I wanted to make it clear where this video relates to more sensationalist types of videos.
I have an alternate explanation for why inflation expectations remain low right now: most people have bigger things to worry about and are suffering from bad news fatigue.
Whether inflation expectations increase depends on what people are listening to. It's a measure of information control.
I think a lot of people will watch this video and think “oh, so prices will come down, thank goodness” when that can’t possibly be the argument. When have you ever seen rent prices go down? When have milk and eggs become less expensive? When has an iPhone become less expensive? People are begging for a reason to raise prices. Just like many companies were begging for reasons to abuse their workers, and both got their wish.
Great stuff
Why not then not just have CPI but also an index to measure asset inflation to gauge how much money growth has siphoned toward asset inflation? Would that help in getting both sides to agree? Since no one should argue that inflation can only show up in goods.
I have no idea how in the world Economic Explained is the channel about economics with the most subscriber while your videos are waaaaay better (I know the bar is low). Seriously, this is the best content in english went it comes to economics, and it's a pleasure to see that some of your videos seems to really take off !
(btw, team transitory of course, always loyal to lord Stiglitz)
I was waiting to come back to comments like these, this guys videos on inflation never age well
@@fraliv5526 Well, I'd argue that it isn't really the job of economists to predict that Putin would go psycho mode and blast Ukraine, but it's true that the video didn't age well at all. Economists can argue over and over about long term macro dynamics, when a war starts, I agree that all this reasoning become pretty much useless.
Well here we are seeing the rises in prices that Schiff predicted
You are great guys. When I will start to have a stable income, I sustain you immediately. What you do is just incredible considering we are living in a period of cultural shit. Cheers from Italy.
I can't thank you enough for this valuable information. Never stop please..
Lol yea inflation doesn’t exist oh sorry I’m from 10 months later and interest rates are 7%
35:30 The UK didn't quite kick out Europeans. Many left due to the pandemic and decided not to come back (even though they were entitled to). The biggest issue is that instead of educating and investing in their own workforce the UK (and its businesses) have been mainlining on importing labour from abroad to compensate. At the very least the end of freedom of movement adds additional friction to this process, and of course there are even less native fruit pickers (seasonal farm labourers) in the UK than there are such in The Netherlands or Germany (etc.).
I feel like "team persistent" doesn't understand that the stimulus money was largely to maintain fixed costs that are passively created (rent, mortgage, utilities, etc) and to offset increased costs from the supply demands of the pandemic (childcare, shipping, food delivery, medical care, etc).
I feel like you don’t understand economics hahah
Great content! It is a pleasure to start my mornings with good quality research
Thank you for this insightful video! Because of this video I noticed that I’m in a team permanent bubble. Great to hear some different arguments and views. Thanks!
This is excellent! My aim with this video was not to convince people (even though I clearly give my opinion). It is to provide different perspectives. So, that people can better make up their own mind. So, really happy to hear this from you.
hello, how about remaking this discussion now after two years of developmnet of situation?
Brilliant breakdown and explanation!!
This is an interesting video to look back on now where we see inflation has become more entrenched. There are significant new factors that have caused this ie russia invasion, but its still very informative to hear your guys views on the topic. This is definitely the one of the best economics channels on youtube. Rather than presenting one opinion as fact as many other channels do you present both and provide the cases for both.
Really interested to continue to hear your thoughts as we progress through this time. Personally my view is inflation in North America is already well under control, the MoM figures show us this. But the fed is continuing to act based on the theory that inflation expectations lead to inflation. So by acting firmly they can temper expectations and thereby reduce the "risk" of inflation continuing. This is clearly having downsides though and will almost certainly lead to recession.
Great job with the videos. Your academic approach to economics is so much more valuable than the click bait opinion pieces that fill this site.
Peter shiff is just another grifter trying to promote his store. Really can't stand listning to that guy lol.
Anyway, the debt and inflation debate is far more complicated then most people are able to understand. In the end borowing is also necesary to grow the economy and to keep demand, investment up and to keep the money supply from shrinking.
And in my opinion it is far better to rely on governmemts to borrow then to push it on the public as private debt. Government debt simply gets rolled over for 50 years until it has been eaten away by inflation. Private debt leads to masive problems both personal but also economicly is a big hazzard.
Plus private debt gets payed off so requires constant replacement and forcing the public to take on more and more in order to avoid deflation. If wages don't keep up with the rising debt responsibility put on the public this will lead to lots of social issues like crime, substance abuse, home violence and homelessness etc.
That obviously isn't a solution, especially if it can be avoided by having the government cary the responsibility to keep debt levels up.
It's a very complicated subject.
Yea I think people don't understand that if the government had been tight-fisted with the money supply, that would've just been repeating how the Great Depression was handled, and that is to say, it would only exacerbate the economic fallout...
These companies will often just refinance and do stock buybacks. MMTers just won't admit that this is inflation.
I think inflation is more akin to measuring the risk of debt in the economy. If the risky debt in the economy starts to rise, central banks have much greater control. What would count as risky debt? Not sure, but I am sure central banks could easily identify a way to measure and provide solutions. As it stands they are in the tricky situation where they cannot increase interest rates easily in boom times, but must drastically lower them to help counter economic woes. Ultimately it forces them into a position where central banks lose any leverage they had over the economy.
This didn't age well
because the ukraine invasion
or special military operation some might call
This videos was made before Russians invasion of Ukraine and OPEC working with Russia to keep inflation going
I think you're right based on currently used models and data. I however think economists need to go a bit more complex. This discussion is mainly about the US and EU economy. The world economy, I think you'll agree, is more like a series of interconnected economies and you can't say much about the world as a whole without oversimplifying so far that your predictions become quite unreliable. When saying something about global inflation I would therefore start with taking major players: USA, China, EU, Japan, India, Brazil, Indonesia and Russia, distinguish the major actors and factors on the height of their particular inflation, then describe how these economies interrelate and base the assesment on that. That would really give a proper analysis.
Quite a few actors and factors you've mentioned, but the intereffects between economies is a major oversight (even though it's in line with current studies of the subject).
One smaller oversight is the effect quantitative easing of the last twenty years has had on the current situation. That money went mostly to the supply side and with expected return on investment being low, many larger corporation hoarded that liquidity. When forced to increase the wages of workers, the following rise in the expectation of return on investment, because of increased consumer demand may result in a quite significant boom period, but also inflation. The current Dutch government seems to not be aware of this, overspending in this boom economy and working against efforts to tax big corporations more.
Good video, I enjoyed it.
i think a last sumary would have been good, because some people (like me rn) want an "answer" because of time and then see the full analisis
The problem here is that I couldn't really do the debate justice in a summary. Believe it or not, I tried my hardest to make this video shorter.
But, okay, I will give it a try.
Very difficult debate. Lot's of uncertainties. Inflation comes through different channels. Then question becomes how much per channel: then I would say fairly big role for supply chain issues, small role for money printing / stimulus, small role for overheating labour markets, big role for massive shift in spending patterns, not really a role for expectations (yet). Most of these will recede when pandemic ends.
@@MoneyMacro so in your opinion it mostly temporary but have parts of permanency? also yes it was a good sumary wich lead to want to hear the rest of the arguments
Aren't you contradicting yourself when you say that the money supply doesn't affect inflation that much but if the central banks change their ultra accommodative monetary policies then inflation should go down very rapidly?
If you raise interest rates to high enough rates, eventually you will crush credit creation and hence demand in the economy. So, that works through both demand pull channels at the same time.
In Friedman's defense he has been dead a long time, can't fault him on making models based on the Carter era inflation. We have since discovered that each inflation is unique.
Thank you for this video, love your collaboration, hope there will be more coming!