Economics: Why The Inflation Fears Are Overblown

 

(Drivebycuriosity) - There is a lot ado about inflation. The Iran war pushed oil prices higher and amplified the price jumps caused by the tariff hikes. But I suppose that both influences are just temporary and the inflation hike will teeter out.

                  Helicopter Money 

We learned from Milton Friedman that "inflation is always and everywhere a monetary phenomenon". The money volume, the amount of money available in the whole economy, restricts how much people can spend for goods & services. If they - for in instance - pay higher prices for imported goods, then they purchase fewer of them or they spend less for other goods & services.

Friedman`s insight got confirmed by the recent inflation wave. It was caused by a deluge of money in the years 2020 & 2021. In 2020 & 2021 the government flooded the economy with stimulus checks in the value of trillions of dollars to fight the Covid19 recession (American Rescue Plan). The government checks got financed with massive bond purchases by the Federal Reserve (Quantitative Easing known as QE1,QE2 & QE3).

The government money landed directly on the bank accounts of the Americans, blowing up the money volume M2 (bank notes & coins & deposits at banks). Milton Friedman described this as helicopter money (cato ). As a result in 2021 & 2022 the US money supply M2, the engine of the inflation, jumped 40%. 

Unfortunately the money deluge met a constrained supply of goods & services partly - partly because of Covid19. So the price level inevitably had to jump and the inflation rate (first derivation) went up.

                         Causal Relationship

The causal relationship between the money supply and inflation was already recognized by Nicolaus Copernicus! The astronomer explained in the year 1517 why "too much money" causes inflation. Copernicus` "quantity theory of money" is based on observations: Early in the 16th century Spain conquered today`s Latin America and looted the silver stocks. The Spaniards send the precious metal to Europe where it was printed into coins and used as money.

As a result the European money supply jumped, but the supply of goods & services did not change much. The flood of money raised suddenly the demand for scarce goods & services and caused a jump of the price level.

Elaborated studies by Milton Friedman, Karl Brunner, Allan Meltzer and many other economists (known as Monetarists) confirmed Copernicus & the quantity theory of money. They described in the 1960s elaborately how and why the inflation rate follows the growth rate of money with a time lag (causal connection).
 

 

 ( source)

 

But the money deluge has ended. Today the US inflation is constrained by the slowly growing US money supply. In the recent months M2, the engine of inflation, grew just 4.7%. Simultaneously the US economy, represented by the GDP, advanced 1.6%. There is not much space for price hikes and inflation will run out of fuel.

  

  

Economics: Why America`s Housing Obsession Is Like Cancer

 

 (Drivebycuriosity) - It seems that the public is obsessed with housing. Politicians, pundits and the media claim that America has not enough one family houses, calling this a housing crises, with the plead to construct more houses.

I beg to differ. When I drive through America I get annoyed by the vast sprawl; the sheer endless row of flat houses, parking places, malls & gas stations. Above you can see the sprawl around Chicago. This was once green land; trees, bushes, shrubs, grass, flowers, weeds - now everything is buried below concrete.

 

Unfortunately the sprawls are spreading like cancer. They are not just unaesthetic. The construction of more and more flat houses, parking places, malls & gas stations, connected by a labyrinth of streets, destroys nature. The trees, bushes and other plants, that once turned carbon dioxide (CO₂) into oxygen and stored water, get wiped out. The concrete also seals the ground, therefore not enough rain water can be stored, causing either floods or droughts. 

To make things worse the settlers in the sprawls need to drive long ways to commute to working places, to shop, to visit restaurants etc. etc.. This way the growing sprawls are producing even more green house gases and reducing the air quality in general. The growing sprawls are making global warming worse. 

There are other - and more intelligent - ways to supply lower income people with affordable accommodations. When I visited Vancouver I was impressed by the plenty of high rises, all surrounded by green. They are the result of Vancouver´s three-decade-old Higher Buildings Policy ( dailyhive). These buildings keep a large part of the population in the city and protect the surrounding rain forests from being replaced by vast suburbs. 

Apartments in high rises are much more affordable than the majority of free standing houses. Their tenants don`t  need to take expensive mortgages with the risk to overburden themselves. America`s obsession with houses lead to the 2008 mortgage crisis, because people often took loans to purchase houses they could not afford. In 2008 many of these home owners weren´t able to service their debts, which brought the banks into trouble and lead to a chain reaction on the financial markets.

America´s housing obsession is the real housing crisis. 

Books: Fine Structure By QNTM

 (Drivebycuriosity) -  - QNTM - the pen name for Sam Hughes, a British programer - belongs to the rising stars on the firmament of science fiction. I was amazed by his novella "There Is No Antimemetics Division" ( my review ) and his short story collection "Valuable Humans In Transit And Other Stories"  ( drivebycuriosity). Both books are cutting edge hard science fiction with weird but well developed and plausible ideas.

"Fine Structure" by QNTM is a very ambitious work ( amazon). I am not sure if the book is a novel or a selection of very short stories. Some of the stories are connected, some are not. 

What happens when humans play with the laws of physics & mathematics? The author has a lot of fancy and clever ideas, the best what contemporary scifi has to offer, but as usual he also overshoots and becomes bizarre & apocalyptic. Apparently during writing he got intoxicated by his own ideas:

"The Federated Shiftship Kardashev V passes the first advance warning beacon at a record-breaking velocity of almost one hundred and fifty thousand universes per second-- so fast that the second and third warning beacons are warning beacons are dopplering into its wake long before the ship's communications array has had time to decode, process and handle the first warning, let alone present it to the ship's captain for consideration and action". 

But I enjoyed QNTM`s slick style anyway: "as the newly-discovered equation is installed into established ones, the delta grows and morphs and squares and never completely vanishes and generally makes a nuisance of itself without ever saying anything useful".

I plan to read more by him.