You sure inflation isn’t here?

Houses are up massively, land, cars, stocks, crypto, etc.

The inflation measurement is off. But the inflation is here.

You list assets, which have generally always gone up in value over time. Inflation, i.e. CPI, is (roughly) about cost of living through a basket of goods:

* https://awealthofcommonsense.com/2021/01/inflation-truthers/

* https://news.ycombinator.com/item?id=25644580

If you don't believe the government-published CPI you can confirm their work, as others have done:

* https://en.wikipedia.org/wiki/MIT_Billion_Prices_project

For your items:

* Monthly carrying costs haven't changed much: prices up, but mortgage rates are down. Plus average square footage has gone up, so you're getting more.

* Land depends on location, and urban prices have gone up because it's more cool to live in the city now than in the 1970s and 1980s. I live in Toronto, so I know all about land/housing prices over the last 10-15 years.

* Modern cars have more power, while burning less fuel, and being safer, and on average lasting longer, for the same money. I own a 2003 Golf that I paid $30K for (in 2003). What's available for $30K is a lot better, and the equivalent dollars today is closer to $40K—which gets you some sweet things.

* I was invested in 2008: I've seen stocks go up and down.

* Crypto is a Ponzi scheme.

I think your analysis is right, but if cars and houses are things that people buy with borrowed money, it does seem like interest rates being low would drive prices up. And it might increase the price of inflation proof assets like crypto. Is there a framework we should be describing this with besides the broad “inflation” term?

Cars are lasting longer, and how many cars can the average person own? There's also depreciation, so cars aren't 'quite' an asset, so trade-in is also limited if people want to rotate vehicles (unless one leases).

> Is there a framework we should be describing this with besides the broad “inflation” term?

If asset prices are higher than what they "should" be, then one generally calls that a bubble.

There's a practically unlimited supply of cars. If people start buying more manufacturers will produce more.

But they can only be produced at a finite rate, which may cause competition amongst buyers in the short term as they bid against each other for the finite number that are on the lot.

Further, the resources needed as raw material are finite (unless we start asteroid mining), as is the energy needed in the process: we have only so many gigawatts we can produce at one time.

More plants can be built, but those take resources as well: some of the very same resources that are needed to build the cars we're talking about.

>* Crypto is a Ponzi scheme.

I agree but that doesn't explain why Bitcoin had multiple bubbles and survived all of them. Bitcoin is highly deflationary. Bitcoins are lost all the time. The supply is only growing very slowly. It's also an "immature" asset compared to gold so a large influx of a new class of investors can drive the price up.

> I agree but that doesn't explain why Bitcoin had multiple bubbles and survived all of them.

For the same reason people still go to astrologers or think that during the playoffs the can't shave or their favourite team will lose: cognitive biases and wishful thinking.

* https://en.wikipedia.org/wiki/List_of_cognitive_biases

The fact that the bubbles happen so often and and so drastically is another reason that I avoid it: volatility is generally a proxy measurement of risk, and what reward am I gaining by taking on this risk?

Everyone is bullish on it at >US$ 40K, but people seem to have forgotten that it dropped by half in two days in March 2020:

* https://www.cnbc.com/2020/03/13/bitcoin-loses-half-of-its-va...

If someone wants to have it in their 'portfolio' at some small percentage as part of their "play money" that's one thing, but to make it a significant portion seems foolish to me.

I do feel a bit of FOMO, and may eventually create a trading account with like 5% of my portfolio for playing around in WSB and Crypto and such, but right now I'm fully invested in index and bond funds (80/20), so don't really have spare cash available for any of these temptations.

> Crypto is a Ponzi scheme.

I've never heard anybody educated on the matter make this statement. It's always from someone that doesn't understand it and therefore thinks it's a scam.

What purpose, exactly, does crypto serve? What problem does it solve?

It has failed as a payment system, as a currency, as a reserve currency, a remittance channel, a timestamping service, a settlement layer, a bank for the "unbanked", a cypherpunk liberator, a money laundering tool, a drugs-by-mail tool, a unit of accounting, a store of value, and as a "disruptive" fintech technology.

What exactly is the value in holding Bitcoin (or whatever)? My only hope is having someone in future come along and take it off my hands at a higher value than I bough it.

When I think of crypto/Bitcoin, I am reminded of Warren Buffett's view on gold:

> Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A.

> Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?

[…]

> A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.

* https://www.berkshirehathaway.com/letters/2011ltr.pdf

Since crypto pays no return on profits it cannot meet the definition of a Ponzi.

It is more akin to tulip mania, dependent on inflated futures with diminishing utility.

Presently though, it's better than cash, which finds itself in a similar position.

There is no crypto economy. It doesn’t create value so it should not be considered an asset.

Do contract lawyers add value?

If everyone was honest then no. Unfortunately we don't live in such a world so we have to trust a third party.

Presumably he's talking about asset inflation.

Valuations go up until they go down. See 2008, and 2000 before that, and ...

As someone with another couple of decades until retirement I'd love a crash about now so that I could "buy low".

How many miles on that 2003 Golf?

Not a lot.

I bought it when I graduated and my first job was in an office park with little transit. Since then I've mostly worked in more urban areas, so I've been able to take transit or pedal, and so mostly use the car on weekends.

Inflation is absolutely here. Assets are way up because "safe" stores of value - what money was supposed to be - haven't been keeping pace with inflation since 2008, so you have to either join the casino or watch your savings erode.

A lot of younger people don't seem to realize that this is new. That you used to be able to put your money in a bank and not lose it. While rock-bottom interest rates are good in some ways, I don't see this as a positive trend overall, especially given how shark-filled the financial waters are for most people. I'm a big fan of the Vegas dictum - "there's a patsy at every table, and if you don't know who the patsy is, it's you". As a retail investor, you're pretty much always the patsy.

Money is not supposed to be a "safe" store of value. It's supposed to be a stable one. Too low of inflation is bad because it means less investment in the physical economy. The Fed prints money to try to keep people from just hoarding cash. They want some inflation (and definitely not deflation) because a deflationary spiral means more and more money gets stuffed into mattresses instead of physical investments.

Unfortunately we're seeing land prices and stock prices and crypto (etc) bid up instead of, say, a massive build out of factories and solar farms and multistory houses. (EDIT: We are seeing lots of houses being built, actually. Lumber is near all-time highs.)

> Too low of inflation is bad because it means less investment in the physical economy

But why did this apparently only become the case after 2008? Positive real returns without gambling were acceptable before that, and we still got a gigantic speculative bubble, so why does it suddenly become reasonable to encourage bubbles even more? Was it just a coordination problem? An initial panic reaction to slash to zero, and then no central bank being willing to go first and unwind it?

As you say, the other major part of this problem is the inability or unwillingness to steer money toward productive investment rather than speculation. Here in the UK it's housing that's the killer; my suspicion is that governments have become addicted to the jam-today enabled by the money created for mortgage loans, which will then have to be paid off on some other poor sucker's watch.

You can blame the Fed for one thing, and only one thing. They provided way too much money on the wrong side.

The Fed provides loans to banks who then provide loans to companies so that they can grow faster. It's about increasing efficiency, not about total possible upside.

However, there is a point after which businesses have enough loans for all the investments they have planned. Every single dollar after that is too much and does nothing.

The next step is to spend money in a way that creates more investment opportunities for those companies. In short you want to balance supply and demand.

The simplest spending target would be to pick a industry that is not in competition with private industry. My personal favorite are renewables and other infrastructure because you will not displace existing companies through government spending.

Carbon taxes also create an incentive to borrow more money and do productive work but they do gnaw at CO2 spewing private industry which is the entire point but there are vested interests that don't want to lose their money.

Yeah, one of the most powerful levers the federal government could have with respect to climate is to provide financing support for renewables. If you reduced the cost of capital for solar, wind, and batteries (or nuclear for that matter) to the price of 30 year US treasuries, it’d crush all fossil fuel power plants and provide a spur to the economy. In addition, cheap electricity would be a huge long-term boost to the economy, it’d drive electrification of transport/heating/industry, and the cost to taxpayers would be almost nil.

No, there is no inflation. When the Fed talks about inflation it talks about CPI inflation. Why is the CPI inflation rate important? Because unlike stocks and houses and other assets CPI tracks the real economy. If unemployment or underemployment is high then CPI inflation is low which tells you that the economy is doing very poorly. Most economies had their highest growth during years with moderate inflation. Maybe 4-5%.

What you are calling inflation is actually the opposite. It's deflation. When hoarding assets becomes more profitable than working, the real world economy starts dying and CPI reflects that very well.

Workers benefit from inflation because inflation is generally followed by productive investments. Driving prices of consumer goods up makes it profitable to produce them which makes it profitable to employ people to produce them.

Deflation makes it harder to run a profitable business but it also makes it easier to run a non profitable business (that also includes overvalued businesses that do not earn enough to justify their valuation).

Presumably housing appreciation is somewhat offset by drops on commercial real estate: office space, video game storefronts, etc.

Unfortunately, Keynesians also made predictions (like fiscal spending moving rates off the zero bound, austerity hurting economic growth, etc) which did not turn out to be true, due to monetary offset. That is, Keynsians tend to over-focus on fiscal policy and ignore the monetary side, but in practice central banks end up sterilizing most if not all of what's going on the fiscal side, as far as I can tell.

The only group I have seen making predictions over the last 10+ years who seem to be successful are the people suggesting that central banks do NGDP level targeting instead of what they're doing right now.

In the last 10+ years fiscal spending has been half-hearted and anemic. As Krugman wrote back in 2009:

> I see the following scenario: a weak stimulus plan, perhaps even weaker than what we’re talking about now, is crafted to win those extra GOP votes. The plan limits the rise in unemployment, but things are still pretty bad, with the rate peaking at something like 9 percent and coming down only slowly. And then Mitch McConnell says “See, government spending doesn’t work.”

* https://krugman.blogs.nytimes.com/2009/01/06/stimulus-arithm...

Austerity does hurt economic growth:

* https://krugman.blogs.nytimes.com/2012/04/24/austerity-and-g...

From what I've read on the topic, it's hardly ever been a good idea, especially in depressed economies:

* https://en.wikipedia.org/wiki/Austerity:_The_History_of_a_Da...

> That is, Keynsians tend to over-focus on fiscal policy and ignore the monetary side

AFAICT, Keynesians are both-and thinkers. Monetary is done first, but once you hit zero rates, then what more can you do from that angle? Printing money is only useful when you also have velocity, which has at first decreased and lately fallen off a cliff:

* https://fred.stlouisfed.org/series/M2V

At that point you have to move to fiscal. Krugman examined this in 1998 when Japan entered the quagmire before everyone else:

* https://www.brookings.edu/bpea-articles/its-baaack-japans-sl...

> are the people suggesting that central banks do NGDP level targeting instead of what they're doing right now.

Who is writing publicly on this topic, either in weblogs, articles, or Tweets?

> In the last 10+ years fiscal spending has been half-hearted and anemic

See, this is one of those claims that is interesting to me because I never see anyone proposing what a "non-anemic" level would look like. No matter what gets proposed for fiscal spending, the response is "that won't be enough; we should spend more", without quantifying more.

As a scientific claim, it's unfalsifiable, fundamentally, which makes it hard to work with usefully.

> Austerity does hurt economic growth:

First off, there's a lot of cherry-picking going on. The US did "austerity" things, people claimed the result would be disastrous.... and it wasn't. Europe did austerity, but _also_ very tight central bank policy at the same exact time; results were not great, but it's hard to blame this on just "austerity" given the central bank behavior.

Just to be clear, I am not claiming that austerity _improves_ economic growth, which seems to be what the wikipedia link you post is about. I'm claiming that the specific predictions made about austerity by adherents of specific economics intellectual movements in the last 10-15 years did not in fact match what actually happened.

> but once you hit zero rates, then what more can you do from that angle?

Tons, if you want to, because you are not limited to short-term rates as your policy instrument. Those rates are correlated with monetary policy (in the short term; anti-correlated in the long term), not causative.

Note that at the point when we hit "zero rates" central banks were doing all sorts of monetary tightening (positive interest rates on reserves!, the Fed raising its policy rate 9 times over the course of a few years and consistently missing its inflation target on the low side in the process, etc).

https://en.wikipedia.org/wiki/Negative_interest_on_excess_re... is absolutely a thing you can do to increase V when you hit "zero rates". But more importantly, a large part of monetary policy is expectations management. If people expect you to undershoot your inflation targets, they act accordingly and it actually gets harder to hit the targets.

> Who is writing publicly on this topic, either in weblogs, articles, or Tweets?

https://www.themoneyillusion.com/ has been writing about it for a while now. Less recently, as the idea has gained more widespread traction; a lot more around the 2008 financial crisis and aftermath.

Is the real question here "what is this and why is it supposed to be a good idea" or "who are these people who are making better predictions"?

Assets have been inflating.

Velocity of money is a measure of economic activity. If Q is the GDP and constant, prices will go up if economic activity goes up. So only if economic activity does not pick up, will the prices not go up.

CPI has been kept down because of electronics and other manufactured goods like automobiles, things like healthcare, college education and textbooks and real estate have increased dramatically.

The Bloomber Commodity Index (BCOM) is at the same level now as it was in 1990:

* https://www.marketwatch.com/investing/index/bcom?countryCode...

Real estate is an asset: the CPI measures carrying costs, and those are fairly level. You get more automobile now for your money than in the past: I paid $30K for my 2003 Golf, and for the same $30K I get more safety, more horsepower, and better mileage.

I agree that health care and education (in the US) are the main areas where costs have risen.

If that money was used to build new housing then it would drive economic growth. I'm still split on college education. In theory professors should see higher salaries and thus drive up CPI inflation. In practice universities overproduce professors and can hire them for the lowest salary possible.