Unmasking Inflation: Why the Conventional Wisdom is Failing Us
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- Опубліковано 20 чер 2023
- Dive into the complexity of inflation and its impacts from a heterodox perspective, exploring its historical journey, social implications, and potential remedies.
Professor Matías Vernengo (@BucknellU) navigates the complex topic of inflation, discussing its implications on workers, and the economic policies that can potentially mitigate these effects. He explains the inflation of the 1970s and compares it to the more recent inflationary scenario provoked by global events. Vernengo evaluates the mainstream explanations - demand-pull and cost-push theories - and presents an alternative, heterodox explanation that views inflation as a result of distributive conflict and corporate power. While he acknowledges the role of corporations, he emphasizes that it's the effects of inflation, primarily on workers' real wages, that require addressing. He argues that the best policy would be to compensate workers for these effects. Vernengo's analysis covers not just the American context, but also examines inflation in peripheral economies like Argentina and Turkey, identifying a link to exchange rates. He also critiques the "one-size-fits-all" theory approach to understanding inflation, underscoring the need for a heterodox economics perspective that could offer more nuanced insights and potential solutions.
Learn more about his work at www.bucknell.edu/fac-staff/ma...
One of the most stunning things I learned about modern economies is that money is created out of thin air when someone takes out a loan and goes into debt. I was well into my forties when I learned this about modern money. At first I did not believe it and it is certainly not what I was taught about money in my younger days. The money is created by entering numbers into the borrower’s account when the borrower takes out the loan. As the loan is paid back, the money that was created for the loan is eliminated and no longer exists, but the banks that created the money get to keep the interest that was paid. So, the more debt there is, the more money there is and the more interest that is paid to the banks. Modern money is mostly about getting governments, corporations, businesses and people into debt and there is also quite a bit of smoke and mirrors involved.
On the international level, debt has been used as a tool to gain power, status and influence over other countries for centuries. In the past century, the US perfected this technique. In the 21st century, China and some other countries have also learned this trick. The idea is to keep the borrowers continuously in debt so they can continuously keep paying interest to the “lenders”. The joke is that the money given out for the loans that make up this debt does not exist. It is basically a “fake loan” and to make the joke even better, to get a loan like this, most of us including governments of other countries have to put up some collateral, so if you default, they can take ownership of your collateral. So basically, they get whatever collateral you put up for free and with no risk since the money they “lent” you did not exist. Supposedly, this has been determined to be a legitimate way to do business! This is how the US has been able to be the dominant player in the world economy but is now being challenged.
The Gross Domestic Product (GDP) represents the size of the economy which is the amount of money the economy is worth. When the economy is continuously growing, the GDP is also continually growing. Similar to any addiction, more and more borrowing is needed to have the same effect on economic growth. When the government debt starts to become greater than the value of the Gross Domestic Product (GDP), technically it will no longer be possible to pay back the government debt. If it continues, inflation will start to sky rocket and the buying power of money will start to be significantly reduced and if the government debt starts to become several more times higher than the GDP, the money and financial systems will probably collapse. If this happens, the system is reset and the cycle is repeated. During the run up there will be some good times but, after the reset, times will probably not be good and war is also a possibility. This cycle has been repeated continuously throughout history from the Chinese Dynasties to the Roman Empire to Germany after World War One and to Argentina, Venezuela and to many African and Asian nations in the 21st century. Not sure if the US can avoid this cycle. If they can, they would be the first.
The idea and thinking that the economy always has to grow for there to be innovation, progress and prosperity may be a problem on a finite planet with limited resources and the focus now needs to be on sustainability not on growth! Presently if the economy is not growing, it is considered a failure. This type of thinking cannot go on uninterrupted on a finite planet with finite resources. There needs to be flexibility in the system for the economy to expand and contract and for a contraction to be considered normal and not a problem or a failure. The contraction needs to be just as prosperous and productive as the expansion. For this type of thinking to work, there needs to be some new economic theories and models developed along with some new types of money and financial systems based on economic sustainability not on economic growth and money inflation. I am sure there will be some Nobel prizes awarded to the academics, economists, corporate CEO's and business leaders and of course politicians and government officials that can figure out how to make a sustainable economy work and how not to devalue the nation’s money in the process.
Our leaders need to stop encouraging and promoting magical thinking and use reason, rationality and critical thinking and learn that the wellbeing and happiness of others benefits everyone and is the bases for morality. The way this can begin and improve peace and fairness at the same time is when our government officials, corporate board members, bank executives, entrepreneurs, academic and military leaders along with our wealthiest and brightest and smartest among us can learn to be much more truthful and honest and the levels of trust and respect among humans can rise to a point where all nations will no longer feel the need to spy on its citizens or on each other. Nations also need to stop manufacture weapons that can wipe out most of the life on this planet and from there start working towards reducing and eventually stopping the manufacturing of any weapons of war.
I do not think it matters if the value of money is tied to gold or if it is pieces of paper, silver coins, metal tokens or if the transactions are entered into accounting books or tracked by numbers in computers. If the trust, honesty, discipline and responsibility of governments, banks , businesses and financial markets is not there, the money and financial systems will always end in some type of collapse or reset regardless of whatever money and financial systems are used or developed in the future.
Governments can create all the money they need to run the nation without borrowing any money from private banks. Whether governments borrow money that banks create or create the money themselves, there is no real value in this money. It will have value because we will probably have faith in the government and would be willing to work and exchange good and services for this money. This money will also have value because we will need it to pay our taxes. If our trust and faith in the government goes, so will our trust and faith in the money they create. If we do not have trust and faith in the government, we will not have a civil nation nor a civil economy and there will be some type of black market or anarchy based economy. I do not think this would represent progress. Managing and controlling the nation’s money is how the government gets its power and is one of the most import jobs the government has right up there with national defense and protecting us from criminals and protecting our privacy.
The privilege of creating the nation’s money should only be reserved for the government. Private banks should only be allowed to lend money that they actually have. If the banks do not have money to lend to businesses and corporations, the government can create this money and lend it to them instead of the private banks and the interest on these loans can be paid to the government, not to the private banks, which would be a nice source of government revenue and would probably result in lower tax rates. If the government needs money for national defense or to build infrastructure or for any other government operations, they can simply create it themselves without borrowing money that the private banks create and going into debt and paying interest to the private banks. If the government creates all the money it needs, the government will not have a national debt and will not have to pay interest on the money it created.
This extended discourse would function very well as a primer, on, say, UA-cam.
In school we were taught that this was how it works. That they print money which banks borrow while also keeping a fraction of it in the central banks as reserve. They then lend it to entrepreneurs, who use the money for business, pay wages and other suppliers. They make profits, pay the debts owed to banks who in turn pay the debts owed to government. Who in turn spend their surpluses for development, social services and administration. Which creates this cyclical nature of the economy.Turns out to be more of theory than practice.
Cool A.I.
@@barryhouben2904 I have never used A.I. to write something for me and do not plan to. This is what I learned over my lifetime and my thinking on how to make the system better. Please to the research and learn.
Sorry, that is total nonsense. Borrowing money does NOT create "new money".
Calling price gouging inflation doesn't get at the source. But, calling it inflation and harming people in the name of fighting inflation adds injury to injury.
You don't think corporate/share holder greed is a source? Raising interest rates won't address this source of inflation, but windfall profit taxes in extreme cases would be appropriate.
What gets lost in the inflation debate is the supply chain shocks from the pandemic and sanction ramifications from the Russian war. This makes the core inflation figures sticky. Using monetary policy alone would have severe downstream effects on the low income households in the economy. The Philips curve thinking is outdated at this point
Great nuanced discussion
The use of the word "heterodox" when referring to economic theories that diverge from the norm was very interesting. In my mind, it seams to create a very clear comparison with religion, as it can also be made with any other schools of thought I believe, but specifically with religion in the sense that an orthodox thinking can lead to an overall intolerance to non-traditional thinking. Love your channel! It is very insightful and intellectually colorful!
He also didn't mention the fact the higher and more aggressive the fed rate hikes, the larger the gov interest payments to treasury bondholders which primarily benefit those with higher income levels. Its just another form of regressive stimulus and its sad that conventional thinking won't change in that sense. The rate of inflation has come off its peak and its has zero to do with the fed rate hikes.
Explain how the retreat of inflation has zero to do with interest rate hikes?
Great analysis. I agree with almost all of it except for one point:
4:47 This type of supply shock can almost entirely be reduced to energy prices which are currently set internationally by the gas and oil exporting countries. So of course there is one thing that can be done to reduce the risk of that type of inflation and that is: get independent of fossil fuel imports and expand green renewable energy production in your own country. Easy as that. And it could have been done many years ago. Of course because we are very late to the party now we can't do much about the current inflation but we can prevent that kind of fossil fuel price inflation from happening if we really start to do the obvious thing: Transform the energy system to independent sustainable green energy. And that will likely have to involve heavy government investment. #IRA
Does all spending cause inflation?
Nope. Luxury goods markets have remained stable despite increased wealth and demand from their natural consumer demographics. Algorithmically generated rent prices get so high that they knowingly reduce units below peak occupancy, and they keep going up.
Equitable income in relationship to the Cost Price Index and Cost of Living Index. However its important that consumer cost must be regulated to the point of a fair corporate profit. Keep inn mind that American labor is the ultimate producer of the Gross National Product (GNP). A pretty good example would be what would happen if the entire working class America, including those in the ranks of the military were to stay home for an indeterminate time frame. The current, future, and retired labor of America represents, and growing in numbers, 98% of all eligible voters. What would happen if we all showed up at the polls to vote in our own best interest. Not that of any politician, corporation, institution, just the bread and butter issues that affect every moment of our lives, and out of human need extract the lions share of our limited time laboring for the those others. Are you happy. Are you fullfilled. Do you have everything your imcome and tax dollars should provide for. I suggest you the minute or so to read our Constitutions Preamble, and reflect. Peace and tranquility all.
Greedflation.
While the economic orthodoxy doesn't recognize the fact and continue to think in the old models there will be no solution.
Economics seems more and more a religion
Yet, the conventional wisdom is working for inflation. The raising of interest rates is bringing inflation under control.
And inflation does NOT disproportionately adversely impact workers, it’s typically a boon to workers because job opportunities increase in inflationary periods. Look at real wage growth over the last two years. Real wages only drop if workers stay with their current employers.
Inflation adversely impacts the wealthy - those who lend their money and get paid back in depreciated dollars. This is why the wealthy hate government spending so much…they’re desperately afraid of inflation.
Interesting that he points to “excessive demand” while down playing down the monetary explanation. Excessive demand can’t exist without excessive availability of money.
We don't have Capitalism now, we have Monopoly Capitalism where the huge companies gobble up the small businesses. We are well on the way to an Oligarch controlled economy unless economic professionals come up with a fairer system.
By it's very nature unregulated capitalism will ALWAYS cannibalize itself into an Oligarchy, which I believe is the same as what you are saying. The proof of you statement can be seen in the FED flooding America with dollars from 2008 till 2019 and never reaching their target inflation rate of 2%. That is because the rich were taking too much of the economy. Covid for the first time in 40 years had the Government putting more money in the hands of people who needed it. That money showed right back in the economy and because of supply chain issues it spurred worse inflation than other wise would be. With that for the first time in 25 years labor has power. The fed in the name of inflation now is working to crush labor's power. Which begs this question be asked, why does the FED feed the rich with dollars when they are taking too much of the economy. But willing to crush labor that helps people climb the social ladder?
that's the natural end of capitalism: the consolidation of private capital means the consolidation of private power. It's only natural to assume that the "larger fish" with gobble the smaller fish, until both industry and the public sector is "owned" (in all but name) by a small collection of entities. there is no mechanism within capitalism that fixes this. capitalism allows it.
@@DantheManMonty that means the end of democracy.
@@marianhunt8899 What Democracy?
@@marianhunt8899 sure. Capitalism opposes democracy
It's supposed to fail us?
Does everyone remember the era of "Great Moderation"? What about the zero lower bound that lasted so many years? The zlb, to me, was the sign of an economy undergoing a bout of the blues... An economy that as just lying in bed all day, not having the spunk to go out and fight the good fight.
Inflation, on the other hand, is a low-grade fever accompanying an excited economy. As long as it doesn't go out of control, inflation is inspiration -- people are having a good time, and there is excitement in the air.
Yes, I am a liberal -- I hate unemployment far more than inflation. James Tobin was right; you need a little inflation to grease the wheels of commerce...
Even Helmut Schmidt who played a big role in starting neoliberal reforms in germany once said: "I'd rather have 5% inflation than 5% of unemployment".
4:21 Profits margins go up is not the cause of inflation but because of inflation ?
Seriously ? An oil cartel decides to reduce the extraction of oil with the intention to drive the price up within the global market. This higher price is inflation and causes others to raise their prices to cover this rising expense which is also inflation.
Compensating the working class is not a solution for combating inflation, it is a short term "bandaid" to mask the true problem of billionaire plutocratic greed.
The working class also do not drive inflation, they can, willingly or unwillingly, Feed inflation, feed the greed of the richest of us.
Self Sustainability is also another key factor in inflation, if we continue to rely of foreign powers to supply us with what we need, we will always be at their mercy of their greed or any natural or unnatural shocks to their system ( hurricanes or war ). Take the latest war in ukraine, they are providers of food for many other countries so when their country has to deal with this horrific shock, not only do they suffer but many others that are dependent also suffer. If those other countries were more self sufficient in food production, not only will the shock on the ukrainian war be minimalized, but other countries would be in a better position to help. Don't put put all your egg's into the same foreign basket. The "egg's" should be in many smaller baskets throughout your own countries.
Yeah he lost me when he glibly dismissed profiteering in oil and gas.
Us Dollar effects another currency is it?
But its mot affect another developing and underdeveloped country
prices of daily are very rapidly than incomes
So, does anybody benefit from inflation? Who?
The Fed raises "interest rates", which is actually the rate at which capital obtains its returns. Labor has a "wage rate", capital has an "interest rate". So when interest is high, the interest rates increase, and anybody who utilizes repayments on capital sees their income increase. Banks, debtors, the financial sector.
The ppl who own the goods that are increasing in prices. Let's say u buy raw material at low prices and by the time u sell your product the market prices have increased for your product
Might take interest in an analysis lens called Differential Accumulation as proposed by Nitzan and Bichler (Capital as Power).
@@TeheHehe-xp8to searched it and the summary of the concept prefaces that it's a must read, thanks
@@josiasnkwana9282 Not sure that works. Are you saying these goods-owners can somehow raise prices more than the rate of inflation. If the sales prices only raise by the inflation rate, it seems there would be nothing for them to gain in the sale.
FIRST WE THINKS ABOUT PEOPLE POVERTY AND STANDARD OF LIVING IN AFRICAN CONTINENT AND ASIA
And south America too
📞🙏🏡🕷🦜🦅🐧🦟🐝🥬
Why would prices come down? Companies raised prices to make up for losses during the pandemic. Or it's price gouging. Why would companies pay their workers more? Keeping down labor costs is the only way to control expenses. That's why jobs are outsourced, robots are used in assembly lines, half of the workforce is fired and the remaining workforce works twice as much, worker's real wages are stagnant. These are the policies of neo-liberals. They are the ruling class. They own most of the stocks and bonds. They run the banks. They have created an elitist society, at the expense of the workers. The labor unions are weak. The middle class cant afford homes, cars, college, at the same time that loans will never be paid off. Start your own business or invest in the stock market is the only solution offered from Wall Street. It's just another "pull yourself up by your bootstraps" solution. Elites horde all the money, so how is that possible?
Like everybody else, this guy has lost track of the eternal truth that widespread price inflation is always a reflection of monetary inflation, which is itself defined as "Raising the ratio of the amount of money in circulation to the amount of goods and services (aka GDP) in the marketplace".
P R O M O S M
He talks for 20 minutes and doesn’t explain very much. A lot of jargon, no mention of the concentration of wealth, enormous power of banks, etc. maybe she should change work.
Sounds like you have a lot of preconceived notions about inflation and little understanding of it.
Read William Greider’s Secrets of the Temple. It’ll catch you up on the jargon.
@@NaesGalaxy then offer an explanation that better aligns with the data on inflation. But nothing that’s happened over the last two years has undermined the conventional wisdom on inflation one iota.
And complaining about the use of “jargon” is just a cheap excuse to have an uninformed opinion.
that is major problem ...
I am predicted that greatest Inflation coming in international economies in 2023 September last....
it really is a struggle just listening to him. slowing the video down didnt help. and he really didnt explain anything useful
MAKE A OFFICIAL CURRENCY IN THE WORLD