I read this article on zero hedge.
http://www.zerohedge.com/news/2016-08-0 ... and-proven
I'm slightly confused as to the source of inflation. The author says (as far as i can understand) that increase in money supply is the only source of inflation. Now consider a scenario where one of the 10 people on the island is unemployed. He has a new idea and people are ready to buy his product/service. So, now he too has some money which he can spend. So, if we assume that the other 9 people who would save money are now spending money and this 10th person also can spend money on the same set of things. Would this not lead to higher demand and thus higher inflation ?
I know the answer might depend on the definition of money supply but can someone please help
Serving the Quantitative Finance Community
Re: Sources of Inflation
There are many factors affect inflation. They probably focus on pure financial factor. On the other hand economic factors are also even more important as finance can be considered as a part of economic. The primary economical factor is overproduction. Your factor is a human they probably interpret it as a second order or subjective factor for inflation phenomena.
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- Martinghoul
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Re: Sources of Inflation
You should know better than read articles on HeroZedge... Such activity has been known to cause long-term damage to mental capacity.
Re: Sources of Inflation
I can't confidently speak to all ZH articles, but this one most definitely has been sourced from the lunatic fringe and can safely be ignored.
Re: Sources of Inflation
I'm closer to the great Austrian economists than to the Chicago school, but
Milton Friedman has said that "Inflation is always and everywhere a monetary phenomenon."
Milton Friedman has said that "Inflation is always and everywhere a monetary phenomenon."
Re: Sources of Inflation
Is it " monetary phenomenon" suggests only that inflation is expressed itself in money?I'm closer to the great Austrian economists than to the Chicago school, but
Milton Friedman has said that "Inflation is always and everywhere a monetary phenomenon."
Re: Sources of Inflation
I nearly threw in that quote myself, but decided that any elaboration would negate the recommendation to ignore the whole thing to begin with.I'm closer to the great Austrian economists than to the Chicago school, but
Milton Friedman has said that "Inflation is always and everywhere a monetary phenomenon."
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- Traden4Alpha
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Re: Sources of Inflation
The unemployed person might have more money, but the other 9 have less. And to the extent that the unemployed person keeps some of their earnings as cash, the island's banks will have less to lend.
In general, wouldn't innovation be deflationary? Innovation increases the variety goods, diluting the amount money available per item. Moreover, innovation also increases consumer surplus so that even if consumers are willing to pay higher prices for the new products, it's not inflation in that their money has bought them something of greater value.
In general, wouldn't innovation be deflationary? Innovation increases the variety goods, diluting the amount money available per item. Moreover, innovation also increases consumer surplus so that even if consumers are willing to pay higher prices for the new products, it's not inflation in that their money has bought them something of greater value.
Re: Sources of Inflation
There was a lot of angst with QEx and hyperinflation. Arguably one reason this didn't happen was the the low velocity of money.I'm closer to the great Austrian economists than to the Chicago school, but
Milton Friedman has said that "Inflation is always and everywhere a monetary phenomenon."
Deflation seems to the issue du jour. Also not sure the Phillips Curve holds up anymore.
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- Nimbus3000
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Re: Sources of Inflation
This is very interesting. Might take me some time to get my head around the idea.In general, wouldn't innovation be deflationary?
Re: Sources of Inflation
Fracking, digital media, communications…..This is very interesting. Might take me some time to get my head around the idea.In general, wouldn't innovation be deflationary?
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- Nimbus3000
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Re: Sources of Inflation
Yes Agreed, but we also create things that we didnt know we needed and spend money on them. This adds to the household expenses but I'm not sure if they would be inflationary over all. Thats what I'm thinking about !!Fracking, digital media, communications…..This is very interesting. Might take me some time to get my head around the idea.In general, wouldn't innovation be deflationary?
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- Traden4Alpha
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Re: Sources of Inflation
They are deflationary, not inflationary. If inflation occurs when too much money chases too few goods, what happens when the variety of goods expands through innovation?Yes Agreed, but we also create things that we didnt know we needed and spend money on them. This adds to the household expenses but I'm not sure if they would be inflationary over all. Thats what I'm thinking about !!Fracking, digital media, communications…..This is very interesting. Might take me some time to get my head around the idea.
E-commerce is an especially interesting meta-innovation -- no longer is the variety of goods limited by what can be economically handled at the local retail level (r.g., the typical 10,000 - 100,000 different item carried for local demand in a brick and mortar store). Now people can choose among literally millions of different items -- more goods than money -- which makes affordability an issue and makes consumers more price sensitive. And e-commerce spurs direct and easy price comparisons -- adding more downward pressure on prices.
Re: Sources of Inflation
Managing personal health (or lack of it) and health care costs – adds to household expenses and can be inflationary.Yes Agreed, but we also create things that we didnt know we needed and spend money on them. This adds to the household expenses but I'm not sure if they would be inflationary over all. Thats what I'm thinking about !!Fracking, digital media, communications…..This is very interesting. Might take me some time to get my head around the idea.
Re: Sources of Inflation
Except quality, fit (clothing), returns, vendor service are issues with buying online, so people stick to brands.They are deflationary, not inflationary. If inflation occurs when too much money chases too few goods, what happens when the variety of goods expands through innovation?Yes Agreed, but we also create things that we didnt know we needed and spend money on them. This adds to the household expenses but I'm not sure if they would be inflationary over all. Thats what I'm thinking about !!Fracking, digital media, communications…..
E-commerce is an especially interesting meta-innovation -- no longer is the variety of goods limited by what can be economically handled at the local retail level (r.g., the typical 10,000 - 100,000 different item carried for local demand in a brick and mortar store). Now people can choose among literally millions of different items -- more goods than money -- which makes affordability an issue and makes consumers more price sensitive. And e-commerce spurs direct and easy price comparisons -- adding more downward pressure on prices.
E-commerce is a massive margin optimization problem – the opportunity cost between bricks and mortar and online shopping – cost/volume relationships, rents, free returns, shipping and labor costs.