Inflation

Total sales are rising ten percent a year in nominal terms.    Surprise surprise, shadowstats estimates ten percent inflation per year if we use the measure of inflation that was used in the the 1980s.    Hawaiian Libertarian reports that that is pretty much what he is seeing when he puts his money down.

So what is the true rate of inflation?

There is no one true rate of inflation, since to estimate inflation, one has to compare apples and oranges, and there is no one valid way of doing this.

But if inflation is substantially less than ten percent a year, we are consuming substantially more goods this year than last year.  Do you think we are consuming substantially more goods this year than last year?

But whatever the true rate of inflation might be, it is increasing.  It is not increasing fast as I expected, not increasing very fast at all.  It is increasing at about two percent a year, so if this year inflation was not ten percent, but eight percent, next year it will be ten percent a year, and the year after that, twelve percent a year.  The rate at which prices increase, is itself increasing.

This does not sound all that terrifying, but recall that hyperinflation begins as the collapse of a paper bubble.  Everyone wakes up one morning realizing that inflation is a lot higher than they thought and will only get worse, so they all try to unload their paper at the same time for tangibles:  Land in productive use, gold, ammo, guns, non perishable food items, alcohol,  and suchlike, also overseas non tangible assets, paper assets regulated by solvent governments.

Only to discover that they cannot all unload their paper money at the same time.

If the rate of inflation is high and increasing, sooner or later, it suddenly starts to increase a lot faster.  Suppose inflation this year was seven percent, then next year it will nine percent, which is not imminent doom.  If people are not panicking today, they are unlikely to panic tomorrow. The end is not nigh.  But the end, nonetheless, is in sight.

 

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7 Responses to “Inflation”

  1. Euro says:

    Hey Jimbo, if you wouldn’t mind, and when you get a chance, I’d like for you to look at an article. I’m interested in your reaction to it and would greatly appreciate any commentary you would care to offer regarding it.

    Here it is:

    http://michael-hudson.com/2011/10/simon-patten-on-public-infrastructure-and-economic-rent-capture/

    It contains some criticism of Georgism, which seems quite reasonable to me. The author is a Marxist, but he seems to be a fairly intelligent and honest one. Thanks in advance.

    • jim says:

      Georgism worries that the evil land speculator makes unearned income on land. Marxism deems all income unearned, and therefore deserving of savage punishment. From time to time people start proposing positions intermediate to these.

      But the problem with the intermediate positions is the same as the problem with Georgism and Marxism: The state must substitute for the evil speculator.

      So the state must from time to time decide that one use of land is inefficient, and another efficient, and move people off.

      Which in practice it does extraordinarily badly. Observe almost any location that has been subjected to eminent domain for examples.

  2. Euro says:

    P.S. Apologies for the off-topic comment.

    • jim says:

      People are buying substantially fewer cars, and driving substantially fewer miles, while total cash value of stuff sold rises ten percent a year. It is hard to believe that people are buying fewer cars and driving fewer miles while buying more stuff.

      This supports the proposition that the true inflation rate is something like ten percent.

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