Shortcomings of Keynesian Economics

[Dglgmut]

There's no Economics forum, so I thought this might be the best one to post in. This is actually a question, or a request.

So there is an Austrian idea that inflation of the money supply will necessarily cause inflation. I don't think this is actually true, as just because money is out there doesn't necessarily mean it's being spent. So velocity has more of an impact on inflation than the actual supply (of course increased supply could very well increase volatility).

But the real question for me is, rather than focusing on where the money is going, where is the wealth, or the value, going? How has inflation been kept in check despite the money supply being jacked up by the trillions?

I believe economic stimulus is a crock, that leads to malinvestment and moral hazard, but what is the real cost to everyday people? The threat has always been inflation... but again, how has that been avoided for so long? Just because people are still holding USD?

Thanks for any explanation of this!

[Jon Letendre]

Hi Calvin.

Austrians hold that expansion of money supply in excess of economic growth is inflation. They do not use “inflation” for higher prices, they use “inflation” for expansion of money supply in excess of economic growth. Higher prices they just call higher prices. I don’t think any of them hold that inflation must every time right away lead to higher prices.

Productivity of labor is always growing and I think its extent can be covered-up, somewhat. The implication is that prices of most goods and services should have dropped substantially over the past few decades when instead, because of inflation, they have held steady or even risen.

[Dglgmut]

Well, the consensus among Austrians is that massive price inflation is coming, and they definitely connect it to the size of the money supply. But I'm just curious about how that inflation will start. Is it more extreme inflation of the money supply that they anticipate? Or is all the money that's already out there being held onto, and will turn into a game of hot potato at a certain point?

 

[Jon Letendre]

Trump is crashing the dollar, the Fed, the banks, the entire system, intentionally, that’s how it is going to start. You are watching it start.

[ThatGuy]

4 hours ago, Jon Letendre said:

Trump is crashing the dollar, the Fed, the banks, the entire system, intentionally, that’s how it is going to start. You are watching it start.

Now, see...this is where the Q conspiracy gets interesting and frustrating to libertarians, Objectivists, and basically free-market types..
The bailouts, etc, on the surface, would seem to betray everything Trump has said about American "never being a socialist nation." But we all know, by know, that the world isn't going to become a "Galt's Gulch" overnight. And we know that the powers that be, the Deep State, etc, aren't just going to hand over power after hearing a logical argument or Galt's speech. (Which is why the "Gulcher" had to go in, gun's ablazin' to rescue Galt...) So something like the Q plan to overturn the Deep State would be needed. Yet, it's hard to take on faith. Thomas Massie's efforts today were both noble and futile, but understandable from a principled, free-market perspective. But if Q is right, and that Trump is doing something else that we don't know about...well, that goes to my analogy elsewhere on the forum to the "Assignment: Earth" episode of STAR TREK, where Kirk had to make a choice between trusting the enigmatic Gary Seven or acting on what was in front of him...both sides, two sets of good guys getting in the way of each other in fighting an "invisible enemy"...

Anyway, here's the latest going round the "Q continuum" about what Trump is supposedly doing re: the bailout package, how it's not what it seems...

https://twitter.com/StormIsUponUs/status/1243645254294790148?s=20

https://twitter.com/StormIsUponUs/status/1243645872329678848?s=20

[ThatGuy]

This thread speculates that Trump just "Ended the Fed" and plans to put us back on a gold standard...
 

e 

[ThatGuy]

Hmmm...The Twitter link below was just given by a new Q drop, today...the Q post says "this is not another 4-year election"

https://qmap.pub/read/3904
 

 

[Dglgmut]

I should have titled this thread something else because I want to ask questions now that I'm having a problem getting the answers to.

 

My big question is: when does price inflation start? Of course there has been steady price inflation of consumer goods for a while, which is a consequence of credit expansion and spending on capital, then trickling down. But when liquidation of capital starts, does that money necessarily make its way into consumer goods (causing price inflation)?

Or is the inflation we will experience more likely because of supply chain issues?

Or is the real issue going to be a decline of confidence in the dollar (and would that necessarily lead to hyper inflation--the scales tipping completely to high time preference)? Also, is there enough money in circulation already for massive inflation, or would hyper inflation have to be caused by a panicked response from the Fed?

[Michael Stuart Kelly]

4 hours ago, Dglgmut said:

But when liquidation of capital starts...

D,

In the modern world, capital is never liquidated.

It is transferred.

You and I just don't get to see where it landed except for glimpses.

However, I have lived in a country where capital was liquidated. During Brazil's hyperinflation years, the Central Bank would keep issuing money to see if that would help the government pay its bills as the government invented one index after another (all running at the same time) as mechanisms for getting its hands on the new money without the public going crazy and taking it down. When things would get too awful, they would simply change the name of the currency and lop off zeroes. What was once one million cruzeiros, for example, would suddenly become one thousand cruzeiros novos.

The older currency was liquidated dead and gone and defunct. The paper was physically burned up. And with it went a hell of a lot of capital as a "cut our losses" new beginning was instituted.

Michael

[Dglgmut]

By liquidated capital I mean people selling capital for a fraction of the original cost--stocks, equipment, land and buildings.

I hope the hyper inflation you describe is not going to happen in North America. I'm not sure how many $ trillion would have to be in circulation for that to be possible... but if the Fed keeps injecting stimulus at some point the game of hot-potato could start. It would just take one economically prominent country to start trading with a gold backed currency.

I'm more curious how exactly, say, 20% or 30% price inflation could happen without a proportional change in the money supply. The proportions of money supply to consumer good prices has heavily favored money supply for decades now... but at what point do those proportions balance out and how? (Austrian economists all seem to think this crisis is definitely going to lead to this correction, but I just don't understand the mechanics.)

[Dglgmut]

When called out on the increase in money supply and how that could lead to inflation, Keynesians say, "But it doesn't matter how much money is out there if people aren't spending it!"

So why isn't the money being spent and what exactly would cause the money to be spent in a way that would start inflation running away from the central planners?