Tuesday, August 03, 2021

What's Behind the Inflation Hall of Mirrors?

The global economy may have finally run up against hard limits of "infinite substitution" and "infinite expansion" funded by central-bank free money.

We are in an interesting Hall of Mirrors moment: prices are rising, yet we're assured by the Federal Reserve that this inflation is "transitory," and other voices are insisting the primary forces of the economy (globalization, debt and automation) are all profoundly deflationary, meaning prices of everything will eventually plummet as supply will outstrip demand. At this same moment, others are declaring the start of a new secular inflation that cannot be controlled with Federal Reserve interest-rate manipulation / bond-buying.

What do you see in the kaleidoscope of reflected images? Here's a few things I've seen in the Inflation Hall of Mirrors:

-- A package of three rib-eye steaks in Costco for $65

-- a Ford dealership with no new Fords on the lot and a scattering of used cars

-- A Nissan dealership with no Versas, Ultimas, Leafs, etc.

-- used cars with 140,000 miles carrying nosebleed asking prices

-- a basic breakfast in a restaurant for over $20

-- resorts charging $450/day, with surcharges and taxes on top

-- utility fees rising 10% to 20% annually

One can argue all of these are examples of temporary inflation generated by an imbalance of limited supply and high demand. Perhaps. But it may also be the case that the costs of production have increased in ways that are not temporary.

Consider wages. Once wages go up and benefit costs go up, they do not come down. Very few people will accept a pay cut as prices soar.

Consider coffee. Demand for coffee is typically stable. If prices rise 30%, most coffee drinkers will not switch to tea. They will pay the higher price. The three-pound tin at Costco for $10.99 may well go to $15.99, but the $5 extra will not induce most coffee drinkers to switch to some other beverage.

As frost and drought reduce the global coffee supply, what exactly is "transitory" about lost harvests and damaged trees? It takes many years to get a substantial yield off a coffee tree, and the harvesting process is labor-intensive. If labor isn't available, the crop rots.

Scarcity hasn't been a factor in decades. Globalization has institutionalized the idea that there is always "more" of everything available somewhere: more lithium, more cheap labor, more oil, more coffee, more wild fisheries, more fresh-water aquifers to tap, and so on. The possibility that "more" has morphed to "less" simply doesn't compute in an economy based on the secular divinity of infinite substitution: there is always a cheaper substitute somewhere in the world that can be tapped and funneled into the global supply chain.

So what happens when there are no cheaper sources, and no substitutes? In the secular religion of infinite substitution, this is "impossible," hence non-transitory inflation is "impossible." But perhaps this secular faith is no longer aligned with the real world.

Intensive Care Units (ICU) offer an insightful analogy. ICUs are a concentration of specially trained talent which can only be acquired through long years of experience. In the In the secular religion of infinite substitution, it's an article of faith that there is a pool of specialists that can be tapped if we just print enough money to buy them.

But printing money can't create a pool of specialized talent. This process is experiential and cannot be purchased off the shelf or ramped up with Fed stimulus. There is no pool of ICU experience in Lower Slobovia waiting to be tapped with Fed free money.

Fed free money might fund the construction of a new ICU ward and fill it with expensive equipment--itself a lengthy, multi-year process--but if there's no staff with the requisite experience, the new ward will fail to fill the scarcity as intended.

It's also possible that the existing pool of specialized talent might actually shrink as the imbalance of supply and demand burns out overworked staff.

In other words, the global economy may have finally run up against hard limits of infinite substitution and infinite expansion funded by central-bank free money. In the temples of this secular faith, accelerating, permanent inflation is "impossible."

All sorts of things that are viewed as "impossible" happen with remarkable regularity. What's behind the Inflation Hall of Mirrors may surprise true believers in "transitory inflation" and global deflationary forces.




If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

My new book is available! A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet 20% and 15% discounts (Kindle $7, print $17, audiobook now available $17.46)

Read excerpts of the book for free (PDF).

The Story Behind the Book and the Introduction.



Recent Videos/Podcasts:

The World Just Got a Lot Riskier (with Gordon Long, 36 minutes) (1:03 hrs)

My COVID-19 Pandemic Posts


My recent books:

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($5 (Kindle), $10 (print), ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 (Kindle), $8.95 (print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).



Become a $1/month patron of my work via patreon.com.




NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Chris H. ($100), for your outrageously generous contribution to this site -- I am greatly honored by your steadfast support and readership.

 

Thank you, Harvey D. ($100), for your outrageously generous contribution to this site -- I am greatly honored by your steadfast support and readership.


Thank you, Dan S. ($5/month), for your monumentally generous pledge to this site -- I am greatly honored by your support and readership.

 

Thank you, Kevin C. ($60), for your splendidly generous contribution to this site -- I am greatly honored by your support and readership.

Terms of Service

All content on this blog is provided by Trewe LLC for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information. These terms and conditions of use are subject to change at anytime and without notice.


Our Privacy Policy:


Correspondents' email is strictly confidential. This site does not collect digital data from visitors or distribute cookies. Advertisements served by a third-party advertising network (Investing Channel) may use cookies or collect information from visitors for the purpose of Interest-Based Advertising; if you wish to opt out of Interest-Based Advertising, please go to Opt out of interest-based advertising (The Network Advertising Initiative). If you have other privacy concerns relating to advertisements, please contact advertisers directly. Websites and blog links on the site's blog roll are posted at my discretion.


PRIVACY NOTICE FOR EEA INDIVIDUALS


This section covers disclosures on the General Data Protection Regulation (GDPR) for users residing within EEA only. GDPR replaces the existing Directive 95/46/ec, and aims at harmonizing data protection laws in the EU that are fit for purpose in the digital age. The primary objective of the GDPR is to give citizens back control of their personal data. Please follow the link below to access InvestingChannel’s General Data Protection Notice. https://stg.media.investingchannel.com/gdpr-notice/


Notice of Compliance with The California Consumer Protection Act
This site does not collect digital data from visitors or distribute cookies. Advertisements served by a third-party advertising network (Investing Channel) may use cookies or collect information from visitors for the purpose of Interest-Based Advertising. If you do not want any personal information that may be collected by third-party advertising to be sold, please follow the instructions on this page: Limit the Use of My Sensitive Personal Information.


Regarding Cookies:


This site does not collect digital data from visitors or distribute cookies. Advertisements served by third-party advertising networks such as Investing Channel may use cookies or collect information from visitors for the purpose of Interest-Based Advertising; if you wish to opt out of Interest-Based Advertising, please go to Opt out of interest-based advertising (The Network Advertising Initiative) If you have other privacy concerns relating to advertisements, please contact advertisers directly.


Our Commission Policy:

As an Amazon Associate I earn from qualifying purchases. I also earn a commission on purchases of precious metals via BullionVault. I receive no fees or compensation for any other non-advertising links or content posted on my site.

  © Blogger templates Newspaper III by Ourblogtemplates.com 2008

Back to TOP