Resist Inflation Phobia Coup

Yves here. I can’t recall Jomo Kwame Sundaram getting this agitated. But as we’ve written, emerging economies, which are often if not entirely accurately called the Global South, are whipsawed by hot money inflows and outflows when the Fed and other large economy central banks jack up interest rates. And do not forget that even though more and more workers are suffering from inflation in fuel, food, cars, and construction goods, those are all due to specific factors outside the Fed’s control, like crappy harvests and staff shortages at food processing plants. Raising interest rates hits a lot of innocent bystanders while not doing much to address the really painful price increases.

However, there is a real risk that inflation will give Larry Summers a new lease on life. His wreckage of the Harvard endowment, his not punishing Andrei Shleiffer, a Harvard economist buddy who took while giving Russia dreadful neoliberal advice that paved the way for the rise of America’s public enemy #1, Putin, and of course the wee sin of nearly destroying the world financial system, should make him a permanent exile. Summers has been screeching that inflation is here to stay. He may be right for all the wrong reasons, as was Milton Friedman with the 1970s inflation.

By Anis Chowdhury, Adjunct Professor at Western Sydney University and University of New South Wales (Australia), who held senior United Nations positions in New York and Bangkok and Jomo Kwame Sundaram, a former economics professor, who was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought. Originally published at Jomo Kwame Sundaram’s website

Calls, even screams, to fight inflation above all else are getting shriller. Thankfully, even The Economist (5 Feb. 2022) reminds all, Fighting inflation could put the world in a slump.

No Inflation Consensus

International Monetary Fund (IMF) Managing Director Kristalina Georgieva doubts the world faces a runaway inflation threat. She urges policymakers to carefully calibrate fiscal and monetary policies, with more “specificity”, as not ‘one size fits all’.

Widespread reversal of COVID-19 spending and low interest rates threaten recovery. Similarly, Bank of England chief economist Huw Pill stressed the central bank was not going all out to tighten monetary policy.

Instead, like Georgieva, he advocates a more nuanced approach, reasoning, “As the pandemic recedes and the level and composition of global demand and supply normalise, these inflationary pressures should subside”.

US Inflation Phobia

Inflation hawk Larry Summers – Clinton’s last Treasury Secretary and Director of the National Economic Council during Obama’s first two years – claims it is “wishful thinking” that current inflationary pressures will subside.

He insists, “The painful lesson of the 1960s, 1970s and the 1982 recession is that excessive demand stimulus leads not just to inflation, but to stagflation and ultimately recession, as inflation must eventually be brought under control”. But Summers’ economic history is partial, tendentious and misleading.

Draconian policy prescriptions supposedly inflict ‘short-term pain for long-term gain’, but care little for their ramifications. Summers has nothing to say about how the early 1980s’ interest rate hikes pushed nations into default, triggering debt crises, and over a decade of stagnation in much of the global South.

Most governments can do little to tackle rising commodity, especially fuel and food prices. Conventional monetary tightening reduces overall inflation, typically by inflicting much unemployment, without affecting international sources of inflation.

Recent US Wage Growth

The recent US wages growth that Summers is obsessed with is actually very different in cause and consequence from the pay rises in the decades he decries. Europeans have also been quick to point out how different inflation on their continent has been.

First, recent wages growth is not due to workers’ collective bargaining, as in the 1960s. Or ‘wage-indexation’, linking wage growth to inflation during the 1970s.

Workers’ bargaining power has declined greatly since the 1980s, with labour market deregulation increasing casualization.

Meanwhile, foreign direct investment has accelerated offshoring, while technological changes have reduced labour needs. Many have changed to self-employment, informal work and other ‘off-the-books labour’. By 2020, there were more than two billion in informal work, mostly in developing countries.

The pandemic has greatly increased ‘gig work’, especially in higher income countries. More piecework remuneration and illusions of independence barely compensate for less bargaining power, and greater labour, work and income insecurity. Working from home increases unpaid overtime work as ‘wage theft’ becomes more widespread.

Second, apparent wage rises may be a statistical anomaly. An estimated third of the total US non-farm workforce, many low-paid – quit their jobs in 2021 for health and safety reasons while better paid workers remained in employment.

IMF research also found labour supply declined in the US and the UK as older workers and mothers with young children quit due to pandemic related challenges. This changing composition of employment has raised the average wage.

Consider a job market with three workers – A, B and C, with hourly wages of $10, $20 and $60 respectively. The average hourly wage is $30. If worker A quits, the average hourly wage – for workers B and C – will be $40. This raises the average hourly wage by $10 – not due to wage growth, but the changing workforce composition.

The higher reported US wages reflect the one-time impact of increased minimum pay, especially when paid by major employers with a nationwide presence such as Target, Southwest Airlines, CVS Health and Walgreens.

Bleak Prospects

The IMF’s October 2021 World Economic Outlook saw bleak prospects for low-skilled and young workers. This seems consistent with why low paid workers are reluctant to work for a pittance at great personal risk to themselves.

Many younger workers face special difficulties, e.g., parents of young children due to inadequate childcare facilities and pandemic school disruptions. The mismatch between available jobs and what people want has also grown.

Current inflationary pressure resembles the post-World War Two situation, with pent-up demand for consumer goods unleashed before war-disrupted supplies were restored. Inflation reached nearly 20% in 1947 before collapsing.

Current consumption demand still faces supply chain disruptions due to the pandemic. But such situations are very unlike the episodes Summers cites to make his alarmist case for prioritizing inflation.

Conventional anti-inflationary policies – e.g., fiscal austerity, raising interest rates and credit tightening – are not only inappropriate for dealing with current inflationary pressures, but can be very harmful – as the IMF chief warns.

Understanding Inflation

The pandemic has triggered large price increases – notably for food, clothing, fuel and communications. The mismatch between labour supply and demand in some sectors has also become more acute.

Meanwhile, US government data show US non-financial corporations raked in their largest profits ever since 1950 in the second half of 2021 despite rising labour costs. But Summers denies that monopolistic corporate behaviour has contributed to price increases.

Overall corporate profits rose 37% from the previous year while employee compensation only increased 12%, despite “the second year of a pandemic which began by wiping out 20 million jobs”.

US Senator Sherrod Brown (Democrat-Ohio) has asserted that “prices are high because corporations are raising them – so they can keep paying themselves with ever-larger executive bonuses and stock buybacks”.

Rising house prices and accommodation rentals are also raising living costs. Following the 2008-2009 global financial crisis (GFC), governments ill-advisedly abandoned fiscal recovery efforts early. Unconventional monetary policies became the main policy tool since.

This has encouraged real estate and financial asset speculation, instead of investing in productive capacity. Fiscal austerity and continued reliance on market solutions also deter government actions to address key supply chain bottlenecks.

Lack of effective coordination between fiscal and monetary authorities – e.g., in responding to the pandemic – has exacerbated such situations. Instead, commodity and real estate speculation has been much enabled.

Such perverse incentives have undermined needed investments in information and communications technology (ICT), renewable energy, sustainable agriculture, healthcare and education. Businesses have even paid out dividends and bonuses with COVID relief funds. Thus, billionaires got billions more.

Nuance and Specificity

Effective coordination between fiscal and monetary authorities is vital for a nuanced approach to ensure sustainable, inclusive and resilient recovery. Fiscal-monetary policy coordination is also needed for a range of long-overdue reforms to address structural factors exacerbating inflationary tendencies and pressures.

But earlier reforms to ensure central bank independence and strict ‘fiscal rules’ in favour of market solutions have undermined government fiscal and monetary capacities to act effectively. Thus, such policies and related ones – e.g., inflation-targeting – must be irreversibly consigned to the policy garbage bin.

Knee-jerk responses to fear mongering by inflation hawks will derail global recovery which the IMF deems “disruptive”. The Fund is also concerned about “divergent” recoveries between rich and poor nations.

Instead of the new Cold War preference for economic sanctions at the slightest pretext, much better and more sustained international cooperation and policy coordination are needed. They must address global supply chain disruptions, stabilize international commodity prices and minimize harmful policy spill overs.

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  1. timbers

    While it’s not perfect and has exceptions count me as one who generally agrees with “inflation is always and everywhere a monatatary phenomenon.” But only because rising stocks (bubbles) and real estate are inflation just not usually counted as such. If the Federal Reserve stopped spending so much to inflate housing and stocks – which where already threatening to push actual inflation (not gamed govt inflation figures) into double digits BEFORE Covid – inflation is transitory due to supply issues. And Fed spending money inflating assets is probably where a lot of hot money flow comes from.

    1. juno mas

      Yes, the Fed QE, and implementing essentially negative interest rates, has made the FIRE sector explode, again. While increasing interest rates will harm debtors, so does rising housing costs. There needs to be a balance in interest rates that encourages borrowing for tangibly productive use and discourages the Casino economy of Wall Street.

      There is no way the Proletariat are going to escape inflation with just their wages.

      1. jsn

        This is a really interesting Blyth presentation.

        In it he shows Vanguard, Blackrock and State Street own at least 20% of everything, meaning they can no longer choose to sell because there’s no one rich enough to buy (except the Fed, which does so in the occasional pinch). “Asset Manager Capitalism” makes it’s money off of rents and fees and does not invest in actual productive capacity for anything real. On the occasion that still happens it typically happens out of retained earnings. So the concentration of ownership has become so great the owners can no longer get out, even when they know their assets are trash. But they can and do advise the Fed on how to create perpetual asset prices growth, which is of course nothing but inflation because the price rise is untethered to any real increase in capacity for anything but money.

        So now we see a tug of war where the Fed wants out, but the whole house of cards depends on it as the “growth” simulator of last resort. Interest rate hikes are all it knows how to do and the whole ruling class is freaking out about the quits situation so I expect it will hike and, kind of like the Russia stand off, deal with whatever comes out of first contact in a generation with reality. Dammed if I know what that’ll be!

        1. Yves Smith Post author

          This focus on Blackrock and Vanguard is a remarkable distortion of who has power and makes money. You have been conned.

          These fund managers overwhelmingly run index funds. They get paid itty bitty minuscule amounts on very big portfolios. They are paid to do the best possible job of index replication at the cheapest possible cost.

          They “choose” to sell all the time to keep matching the index and to deal with inflows and outflows. Your basic premise is all wrong.

          They also do not “own” the companies. Separate funds do. In many, the fund clients retain the rights to vote the shares. And even when they don’t, these managers are not paid to be activists. They do not have any influence even if they wanted too because their individual shareholdings are too small and the companies know they have to own them.

          Private equity has created easily 100x the super rich as index fund managers. And they DO control the companies they own. And they have done far more damage to ordinary people, ranging from headcount cutting at acquired companies to balance billing to jacking up prices for ambulances and dialysis and single family rental homes to many many niche products.

          You have been totally snookered by worrying about Blackrock and Vanguard and not the real bad guys that it isn’t funny.

          1. jsn

            Okay, I buy that they’re not really the bad guys, and I’ve been snookered.

            That happens a lot. I stay out of the financial market because I know I don’t understand it.

            The concentration of ownership does seem to create a market distortion, however. “They “choose” to sell all the time to keep matching the index and to deal with inflows and outflows”, yes, but their incentives now are to manage the share prices up independent of any outside reality. And, they couldn’t “get out” if they wanted to without creating a massive down draft, a collapse.

            So, in combo with the Fed, with whom they consult, we have the appearance of a market that in reality is untethered to anything but itself and the money supply. The underlying productive assets are all burdened with layer upon layer of rents from the ground up to all the predators you focus on, but nothing is improving that real productive base on the ground.

            I wasn’t clear in my comment, I’m not particularly interested in who the villains are, for my purposes lumping them into a class is fine. What I’m trying to sort out is institutional implications: a market “simulation” with concentrated ownership talking to the manufacturer of money. The money guy appears to want the market simulators to start investing in real productive capacity to allow him to not have to sustain values through money creation. But the whole thing floats a decade and a half above reality on QE, how does it get back to ground?

            Like the MIC that’s been fighting guys with AK47 in sandals so far this century and is now confronted with Russia, there are underlying realities those in charge in finance refuse to address. How it looks to me anyway.

            1. Yves Smith Post author

              What about “passive investor” don’t you understand?

              The ownership is not concentrated. No one fund owns as much as 1%.

              Looking at it at the fund group level is all wrong analytically.

              And these fund groups offer retail brokerage. Those shares are reported in street name, as in the registered HOLDER is the broker, but they don’t own it. My mother held more in equities at Vanguard as individual stocks in her brokerage account than through equity funds.

              If you want to worry about something with respect to these names, worry about Blackrock’s position in running ETFs. Worrying about “power” with respect to index funds, where the investors cannot exercise discretion, is barking up the wrong tree.

              What you need to worry about is how liquid stock markets INHERENTLY result in unaccountable execs, not about any excess of influence. This bad feature exists whether or not big fund groups run a whole lotta index funds:


  2. Louis Fyne

    –International Monetary Fund (IMF) Managing Director Kristalina Georgieva doubts the world faces a runaway inflation threat—

    I don’t think that we’ll have Weimar-hyperinflation, but I do think 2022 will be bad, another 7% year. With, as the post mentions, stagnant nominal wages, especially for less skilled labor. What a dumpster fire!

    …Rents, fertilizer costs, fuel, diesel stocks are nearing cyclical lows, heating costs, grains, animal feed, plastics, Everything is going up with no end in sight.

    Aggravating ties w/Russia is making things worse as guess what…Russia is the #1 #2 or #2 producer in pretty much every basic commodity that makes first world civilization function.

    But I also agree w/the intro….with the leadership vacuum in the White House, the interest groups are ready to swoop in. either 10%+ inflation or Dem. wipeout at the polls + 7%+ inflation.

  3. vlade

    Re Summers – he’s a broken clock whose time has, unfortunately, come. He’d have been kicked out way, way earlier, but as you say, it sounds like he’ll now dance with “I told you so”s.

  4. Hayek's Heelbiter

    Instead of the new Cold War preference for economic sanctions at the slightest pretext, much better and more sustained international cooperation and policy coordination are needed.

    Does anybody know how military expenditures, especially in the US, are factored into inflation predictions?

    1. Susan the other

      My guess is that military expenditures are completely off the books except for the nominal 800bn/year – which is just barely enough to be believable. The rationalization might be that that is the amount that can be offset by arms sales around the world. Otherwise it’s nonsense. Actually it’s nonsense either way because we subsidize the military-industrial corporations above and beyond the military budget. So how Larry can claim to be upset by a spread sheet of nonsense-numbers is yet another question.

  5. Canadian Canuck

    Long time lurker here but I really dont get this stance from Yves on still “transitory” inflation. I dont know where she does her shopping. I wished she would elaborate because in my corner of the woods, things are out of control. 7% inflation is a bad joke, its more north of 15% and this is almost everything.
    Housing and rents alone are up more than 20%.
    I am sure there is a particular cause for these increases, but do people dismissing inflation as “trasnitory” think prices will come down to pre-pandemic levels?
    Because if they dont, the average worker was just taxed 7 to 15% in one year.
    Looks like now Yves is hedging her bets with “summers can be right for the wrong reasons” but unless prices go down to where they were, people got taken to the cleaners, and its hard not to blame the Fed and her policy of zero interest rates, still buying MBS with housing boiling hot and financing government largesse without restraint.
    Milton will be proven right as he always does, inflation is a monetary phenomenon in the end, and Summers, hateful as he maybe, notwithstanding his past failures, was prescient on this one.

    1. Yves Smith Post author

      Rents did drop in many cities during Covid, Wolf Richter documented this at length. They even fell in NYC pre Covid nearly 20% due to an apartment construction boom.

      They are for the most part coming back up but rents can and do go down. Depends on the local economy. Rentals in Birmingham have fallen 21% in the past year: According to Zestimate (not really reliable in terms of exact price but indicative of trends), the price of the house I live in down over 15% from Peak Covid.

      And you are completely misrepresenting my point. I did not make an argument about transitory. I said it is hitting certain sectors and those loom particularly large because people buy them often and those categories are essentials. You can cut back and buy cheaper (fewer nice cuts of beef, more beef chili) but you can’t do without.

      I have seen no increases in nearly all of my medical charges, both NY and here (most of my doctors are in NYC and I have had a lot of medical in the last 18 months due to having a bilateral hip replacement and now a vaccine reaction, attributed in my medical records as a vaccine reaction, which will require me to have a procedure): MD, physical therapist, and chiropractor fees, imaging and blood test charges, and the few meds (admittedly generic and not for anything serious) I buy. This is over the last three years. I have seen no general price increases in hotels in NYC from pre-Covid to now despite tourism being back in NYC. The new yardman is actually cheaper than the old one even though we did not go looking for cheaper. Fast food prices are not up. Flights are generally at the same level on the routes I buy if I buy them early, this DESPITE fuel prices having gone up. Phone and internet costs are the same. Property taxes here are the same over the last five years.

      In other words, people are so shell shocked by the stunning price increases in the categories they can’t avoid and buy regularly, fuel and food, that they are not seeing the prices that are flattish or only back up to pre-Covid levels.

  6. Dave in Austin

    I’ll only comment on inflation in housing prices.

    The US population has grown significantly in the past 30 years and housing has not kept pace with the increase for a number of reasons. First, the average home has increased in size because of buyer preference; where are the 1,200 sq ft 3 bedroom 1 ½ bath houses of yore? Second municipalities and their residents simply refuse to change zoning to encourage smaller units for families. This may be distasteful but it isn’t irrational; it preserves green space, keeps out poorer and often more disruptive people and leads to higher tax revenues/person with the advantages that bring.

    Those are the institutional limiting factors but I think the resource factors play an even bigger role. US houses are build with lumber and concrete. The US lumber supply peaked almost 70 years ago. So now with more than twice the population we have less lumber and more ersatz lumber; dimensioned lumber was replaced by plywood and plywood by chipboard and Zip panels, beams replaced by trusses, wooden trim replaced by plastic. Every step leads to higher costs so as demand has gone up and supply stays steady the market takes over and bids up prices. There simply isn’t enough wood to build more houses at the American (low) cost.

    Concrete is the same. It is energy and transport intensive. Nobody wants a sandpit dug next door so the sand and gravel here in Austin arrives by railroad hopper car and so does the cement. The prices are way up. Copper for pipes is replaced by plastic; paint, high efficiency windows and insulation prices rise. Visit you’re local Home Depot and see for yourself. The $1, 8 foot-long 2×4 of 1995 is now worth’ $4.

    So inflation may-or-may not be primarily a monetary phenomenon but when an increase in money supply meets a finite supply of a good is that monetary inflation or something else?

    1. meadows

      Watch, when this economy goes bust, the housing deficit slowly become the housing glut. Why? Housing being treated as asset speculation because of QE, low interest rates, low mortgage standards and low capital gains.

      It’s a myth that the main way out of the housing debacle is to build more and build more densely. It’s a palliative, taking the pain out of a terminal ideology of upside down neoliberal financial gimmickry.

      1. exBroker

        RE: Housing gluts.

        I’m sure that most have seen the dramatic statements from life insurance companies of the recent unheard of death rates among the 18-60 AGE group. The experience is a 40% increase. 10% is an anomaly; 40% is off the charts. If the death rate continues, there will be a lot of empty houses and many broke insurance companies whose reserves will be decimated. Or will the lawyers find a way not to pay out due to non-approved medical treatments; i.e. vaccines.

        Perhaps time to short insurance companies who also were the biggest investors/buyers of malls and major office buildings in and around the largest cities that are experiencing ever declining occupancy rates, if not already technically under water.

    2. Canadian Canuck

      The issue with housing is not supply, our population didnt increase, and if you account for all covid deaths probably we should get more supply.
      The issue imo is that housing is being hoarded as an inflation protection asset.
      It is the only asset class where the working people can get decent interest rates and significant leverage.
      It was hoarded pre-pandemic as an airbnb investment and now as an inflation hedge.
      When the tide goes out, you will see that the amount of people who own 3, 4 and more houses will be staggering.

      1. Amfortas the hippie

        my low pop., isolated county is an object lesson, in this.
        population decline, over long term…but the several barrios are being gentrified by a handful of rich folks, deploying weaponised zoning and permits and even dog catchers.
        then they…or their proxies…come in, tear down, and build a fancy appearing house(built w/ substandard materials(i know many of the workers))…and put it on the market for half a mil.
        it’s pure flip/speculation, based on dreams of sky’s the limit…just like last time.
        also just like pre-’08, the number of realtors around here has exploded.
        every other wannabe boughie suddenly has a reator’s lic.
        meanwhile, the workers that are left…or the poors who can’t move away…are stuck with rising rents, and a predatory regulatory system.
        i reckon you can scale these phenomena up to the whole country.
        so, no…it ain’t real inflation…it’s something else…rhymes with “need”, but starts with a “gr”.

        it’s funny, but the Summers of the world never seem to notice the inflation in, say, the S&P.
        nightmares about wage inflation is what they really worry about.

  7. KD

    An unnecessary world recession is a small price to pay to get the proles off the idea that the U.S. Government can just send them checks, especially if it leads to a general revival of Milton Friedmann’s selectively false economic ideas.

  8. Susan the other

    “Inflation is always a monetary phenomenon.” Well, maybe if you are deaf, dumb and blind. Inflation is more like a basic law of nature. It could well be a basis for all of physics, let alone hysterical monetary analysis. Why should we get so twisted up over inflation? Well, because we were so stupid in the first place as to make the value of money static. The big obvious solution would be to make money as dynamic as necessary, a true moveable feast – a token that can adjust to scarcity without a hitch. And scarcity will happen. Which means we all have to get real and at some point because scarcity – not money – will have to be addressed by regulating our economy. Adapt. Innovate. Scarcity of resources, natural resources, is a hardship that no amount of “money” can alleviate. Certainly no level of interest on money. That’s looney; it’s the opposite of a solution.

    1. Wukchumni

      Why should we get so twisted up over inflation? Well, because we were so stupid in the first place as to make the value of money static.

      It may come as a surprise, but there was historically really no inflation when money was truly static in our country from 1795 to 1933, nor really in the past.

      An English Sovereign first minted in 1489 was worth about $5 and 400 odd years later was worth the same $5.

      1. Yves Smith Post author

        That is completely false. Do not Make Shit Up and force me to waste time debunking you.

        There was a long deflation in the late 1800s, due to inadequate money supply growth. It devastated farmers, who were more important to the economy then than now. It also led to the campaigns of William Jennings Bryan, who campaigned against the gold standard (his famous “Cross of gold” speech).

        That period had occasional years of high inflation, over 10%. Big changes in inflation rates were typical, which made it very hard for businesses to plan and operate.

        And sovereigns were subject coin clipping. Issac Newton, who was broke, was assigned to the English Mint as a way for him to make money (which he did) and he was an avid pursuer of counterfeiters and clippers. Got quite a few killed and relished going to their executions.

        Deflation is a disaster for debtors and many farmers were debtors. If money really were static over 400 years, it would imply disastrous deflation

        Some examples:

        1813 13.7%
        1814 8.6%
        1815 -12.7%
        1816 -7.3%
        1818 -4.2%

        Or how about:

        1862 11.1%
        1863 23.3%
        1864 27.0%


        1874 -5.6%
        1877 0.0%
        1879 -3.4%


        1917 17.8%
        1918 17.3%
        1919 15.2%
        1920 15.6%
        1921 -10.9%

        1. Wukchumni

          My point is more along the lines that an ounce of gold was worth about $20 for an awful long time, and gold was money, not subject to change in value.

          A $20 FRN would’ve bought me 80 gallons of gas in 1965, and now the very same banknote is good enough for 4 gallons. That’s a loss of 95% of the currency’s value over just 3 generations. That simply didn’t happen back in the day when we weren’t under a strictly fiat monetary system.

          I mentioned nothing about deflation, and oh boy was there some!

          The introduction of machine minted milled coinage and lettering on the edge in the 17th century in the UK did away with coin clipping, which was a scourge since the Lydians came up with the concept of coins which had no borders essentially and were struck by hammer for close to 2,000 years, but it hasn’t been an issue in like forever.

          Contemporary counterfeits of the era tended to be of just awful quality and just what were you going to use in lieu of silver or gold?

          Lead makes for a really lousy looking silver-might fool a few people, and just how were they were going to fake gold? the only metal that comes to it’s specific gravity (heft) is platinum.

          1. Yves Smith Post author

            You really do not get it.

            Having money not change in value over a period when there is economic growth mean that there is deflation on average. You are arguing for crushing debtors. Static value of money is extremely undesirable.

            Plus despite that, countries cheated on the gold standard all the time, so that was not static either. And the gold standard period was shorter than you suggest, from the 1870s to World War I. It broke down due to the inability to ship gold during the war. The effort to restore the gold standard was what caused the Great Depression, see Peter Temin’s Lessons from the Great Depression. We did finally go back on it with Bretton Woods, despite Keynes unsucessfully trying to get his less destructive Barcor system implemented at Bretton Woods.

            1. Wukchumni

              This was my bone of contention in responding to Susan, in that under the auspices of fiat currency, the money has been anything but static. Thought i’d clean up a misconception.

              Why should we get so twisted up over inflation? Well, because we were so stupid in the first place as to make the value of money static.

              What’s the difference between crushing debtors under the Au standard or crushing savers currently under a strictly fiat monetary system?

              They are merely different extremes that come with the territory…

              1. skippy

                “What’s the difference between crushing debtors under the Au standard or crushing savers currently under a strictly fiat monetary system?”

                Glad you asked Wuk …

                Seems both can be administered to enrich a few and pauperize everyone else … hay … so why all the myopia on the physical token that represents state law – AND – not the ideological cool-aid the administers of sovereign fiat drank. Seriously.

                Why do you think so much effort has been put into unpacking all the wing nut economic fashion e.g. Summers et al. Basically if you have a human tool user problem using the drunk looking for their car keys under the street lamp method is an epic fail at onset. You have to contend with the human aspect first and foremost e.g. something AET, neoclassical, neo/new Keynesian just won’t do.

                How does bimetallism solve any of the core problems built up during the neoliberal era and whats the point of blowing everything up to return to some romantic notion of the past. None of it deals with the power dynamics and how it shapes all the rest.

                1. Wukchumni

                  Ever correlate the rise of limitless fiat money with the rise in population?

                  Admittedly all of us within this viewing space ought to be happy we’re here, but it has brought our global society to the edge, the very precipice where only by doling out more amounts of ginned up money to do crippling things to this good Earth, can we keep on keeping on.

                  Something’s gotta give, and vlade’s energy based manna while similar to #79 in terms of difficulty of capture, has no longevity in it’s favor in terms of storage, and how much 87 octane can a safe deposit box hold?

                  Nobody wants the Au standard to come back, myself included.

                  We’ve (developed countries) had the easiest lives of any humans that called this orb home in the last 54,000 years, I hope to ride out the skein, a fiat accompli.

                  1. skippy

                    Money and population ratios are not correlated going back before tokens were a thing and trade was a word of mouth contract. Come on Ag and Domestication of live stock proceeds any token and even today tokens regardless of QTY or form are just numeric symbolism in the completion of contracts.

                    Goodness just recently there has been some discussion of quality over quantity in the creation of money/credit being more impactive on the financial scene. This goes all the way back to the little clay tablets used denote quantity and quality of a good for trade – its what everything else is built on. So the accuracy of that tablet was more important than anything else in satisfying the contract, even if a pure barter trade. I would think you would understand that basic view point considering your old job – everything is about quality first and foremost save a few rare or special cases.

                    So if you have dramas with the money created by the FIRE sector or companies issuing stock don’t blame the Fiat … blame the humans that trotted out pro free market economics and those that payed them to do so …

              2. skippy

                Oops I should have noted that the term savers in orthodox economics is basically bond holders et al and not the moralistic romanticized notion of individualistic saving [deferred spending] for a rainy day between the 20 odd jobs one will experience before turning 50 these days or the increase in outflows for pay to play or skin in the game memes.

                Barely a blip on the radar unless wages go up ….

                Punishing bond holders ~~~~ aka free money ….

              3. vlade

                Under metallic system, the choice of who gets crushed is severely limited by the production of the metal – which, TBH, historically meant that the metallic system was an image to keep the plebs in place, and as an emergency store of value when the wars were 13 to a dozen.

                Fiat system allows crushing both sides again, based on the actions on CBs and fiscal responsibilities (or not). It also goes both ways re the government, since fiat and unstable govts are mutually exclusive really (although the crypto-crowd tries to show different, except that they miss the finer points, from the word go by insisting that crypto is not fiat).

                Personally, I’d like energy based currency, but we’re not going to get that anytime soon, if ever.

                1. anon y'mouse

                  isn’t crypto a weird kind of “energy based currency”, of the kind that represents a strange virtual “hard money” aspect? in theory, anyway?

                  1. skippy

                    Yeah that was exactly what I was thinking when I read vlades comment. Huge amounts of energy and resources are deployed to extract/pluck this HPM money into existence, almost like a religious ritual to satisfy some notion of its divine status – oh wait that is how gold/silver got its start as currency, religious iconography, I digress …

                    Still it does not contend its all just symbolism for satisfying contracts within some notion of a normative reality here today and within the near future – because after that its all a crap shoot.

                    I mean lmmao at some nation having crypto in its basket of FX currency, then having some algo using VaR to risk weigh it … good times …

                    Anyway whens the last time some inanimate object compelled humans to stop being humans and always do the right thing on an individual level let alone a national level. Then some are ruffled at the term money crank.

          1. Yves Smith Post author

            Yes, and your assertion was regarding the period before Newton to well after, so I don’t understand why you are acting as if you are disproving what I said when nothing you have said is inconsistent.

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