So Monetarism joins the Phillips Curve? Economics (and by extension Investing) starts to look like Physics inasmuch as it seems the observer(s) affect(s) the outcome (pace there is no 'observer effect', only one vastly entangled quantum system). One hypothesis might relate to Globalisation: the inflationary effects of national money supply may be moderated by global money supply and international trade, including that in currencies. So maybe Monetarism is more like Schrödinger's Cat - neither dead nor alive until millions of entanglements resolve? Or at least, still twitching
The Austrians will argue that this is why praxeology is important. Logically, an increase in the money supply has to result in an increase in prices (ceteris paribus).
So taking that as a given, what could be stopping prices from rising:
- Velocity of money falling (which would make sense if money is held in the financial sector to shore up bank balance sheets or as government bonds rather than being allowed into the wider economy)
- Productivity has increased so much that prices are being forced down quicker than the money supply can force them up.
Or I'm just biased and have to accept that the logical relationship doesn't exist.
I am not an economist, but I have heard the following ideas:
(1) as well as the Quantity of money (M2 doubled in last 10 years), the Velocity is relevant (fallen from c. 2.2 x in late 1990s to under 1.2 x in 2020, and now is c. 1.37x I.e. lower Velocity in part counters growth in M2.
(2) the large increase in M2 from the GFC, in part caused by QE, has caused Inflation - in real assets eg stocks, real estate rather than goods & services.
(3) since 2020 (Coronavirus) there has been inflation in goods & services, because Government largesse in giving out ‘free money’, increased fiscal spending, so giving the money to the wider economy. The Deficit and increase in $ interest paid out on Treasuries could be harmful. Todd M above mentions this.
This is an observation on money supply, not an argument.
So, let's hand out a million dollars to all the citizens of the world, and everybody will live happy everafter? What you suggest defies gravity. I don't doubt the findings to which you refer, I just don't think they are correctly intepreted. I think a reasonable assumption is that the amount of FIAT money that allows for stable prices is related to the economic activity. If you step out of line, it must have consequences. By the way, thank you for a great blog.
Fully agree. After reading I wonder if one element that could be playing in the results are the constant changes to the way in which inflation is measured (always with the intent of trying to moderate it).
Since the 80's the increased productivity of tech prevented the higher inflation the theory predicted. At P&G, Plants used to shutdown for a month to retool until computers. Now it just takes a few days with a programer with 2 electricians to install any additional sensors needed. Systems that required a Field operator and a control room operator now have 1 operator running 2 systems. real world example
Perhaps I'm becoming a bit soft-headed in my dotage, but as an economics student in the early '80s, I was taught fiscal policy, just in time for that to be completely worthless for the rest of my 40-year investment career because it became all about monetary policy,
There has always been a view that returns on time deposits (mostlyinterest on bank time deposits) drove household asset allocation between stocks, bonds, and cash. But every single person I've met hasn't cared one whit about that ... all, equities, all day long, forever and forever, amen.
I watch a lot of TV, and am amazed to see moments in "The Crown" where the UK had to perform massive currency devaluations because they had South American-style foreign debt. Apropos, a lot of bank crises in the US involved third-world debt default. But when's the last time that happened?
The only place where interest rates seem to matter are for people with no money. Mortgage, car loan, and school debt rates seem to drive consumer behavior, because that has direct impact on household budgets.
Think about a working stiff in America who has to buy a pickup truck. He doesn't care about Ford or GM's solvency; as shown in the WFC, too big to fail. He doesn't care about where the money came to bail out Ford or GM; he pays taxes, and economic stability is something for which he pays. If that top-level distribution doesn't work, he'll buy a Toyota truck. If trade barriers are set up, Toyota will build car plants in the US and make trucks there ... and employ American working stiffs to make more trucks ... etc. etc. etc. If oil gets too expensive, we have dozens of aircraft carriers to keep it flowing, and if that doesn't work, we'll frack it out. Yen/dollar? Trade balances? Environmental concenrs/carbon pricing? "Fiat money" vs. bitcoin? Pffft. It all comes out in the wash. All he cares about is whether or not he can afford the monthly payments.
The macroeconomic impacts people pearl-clutch about move at *glacial* speed. So why do we even navel-gaze about it? Because it's entertaining, and makes all of us over-educated people feel as though "we really know what's going on". We're like people who go to car races syaing we like the competition, but secretely really only want to see a few firey wrecks. What if the world economy isn't F-1, with all sorts of teists, turns, and chicanes, but one team seems to always win, but rather just a bunch of boring NASCAR stock racers going around and around a ring continually turning left ... depreciating at roughly 3% per year as it's always done for centuries?
P.S. Once labor unions lost traction, inflation was no longer wage-push. That was a *huge* sea change from a temporary situation in the wake of WWII American manufacturing hegemony. I personally believe that globalization and increased raw materials extraction/manufacturing efficiency have been relentlessly deflationary, leaving only Jack Welch/HBS MBA "shareholder value creation"/"efficiency", rent extraction, and good old-fashined price-gouging as the only remaining drivers of consumer price inflation.
As always, you are a font of wisdom. Yes, debates about inflation theories are a form of entertainment . Which is why I normally don't write about economic theories except to present evidence that falsifies them. Because if you invest based on empirically falsified theories, the fun stops and you are going to lose money...
Or as the gambling ads in this country like to say: When the fun stops, stop.
If you think about monetarism, CAPM, etc. as a form of entertainment, be my gust. We can debate these until we are blue in the face. :-)
I believe that inflation is a function of market pyschology. If the economy is roughly in a non-inflationary equilibrium, businesses cannnot get price increases to stick because consumers will resist them by lowering their demand and substituting out of the product. If the labor market is in a rough equilibrium, wage increases are limited. However, when supply and/or demand shocks hit, like they did in the late 1960s and early 1970s, it sets off a catchup mentality whereby price increases are accepted and firms are willing to raise wages knowing that the market will accept the accompanying increase in prices. The Covid experience is another example of supply and demand shocks. Fortunately, the catchup psychology lasted a comparatively short time.
From 1985 to 2020 the world experienced 4 disinflationary and growth "miracles": 1. the collapse of the Soviet Union and a hard commodity supply surge. 2. China, facing similar economic circumstances as the Soviet Union but lacking commodities to sell, could only offer the world market its greatest resource: human capital. That extremely low cost 1-billion person labor pool enabled a massive global labor arbitrage. 3. The opening of previously denied areas to American business, not just Russia and China, but also Poland,, other former Soviet-orbit countries, as well as quasi-socialist nations in South America. 4.The fourth disinflationary growth event was the Internet. In 1994 and 1995 there was a figurative handful of people on the Internet globally. By 2005 there were 1 billion, now there are 5.4 billion, enabling the phenomenal growth of Amazon, Apple, Facebook, Google and otherinternet-based companies. In a world of 8 billion people, customer count can go from zero to 5.4 billion only ounce.
I submit that the disinflationary conditions of the time period, 1985 to 2020, completely overwhelmed the excessive growth in the monetary supply and we are likely to see a return to the older cause and effect of inflation, too much money chasing too few goods and services.
I respectfully disagree. While I think globalisation has led to lower inflation the effect is just about 0.5% per year. So even if I add this to the average of the last twenty years or so, we still have significant disinflation.
Friedman's basic claim was that inflation has always been caused by a more rapid increase in the quantity of money than in output. This is not to say that printing money automatically causes inflation.
The velocity of money is not constant? Big deal! Nobody said, it must be. Friedman said 'it tends to be', but this doesn't alter the argument anyway. How far can it fall? Zero? Probably not. Ex post, the basic equation of the quantity theory of money is tautological. So, nowhere to go, nowhere to hide.
As for the timeline: Friedman's famous book 'A Monetary History of the United States' was published in 1963 - quite some time before the alleged breakdown of monetarism.
What happened in the last 30 years? I don't know for sure. A smart business school professor once told me that if you don't know the answer in a classroom, it's usuall (a) China or (b) the internet. In this case, I would pick (a).
Fun fact: The term monetarism was (as far as I know) coined not be Milton Friedman but by Karl Brunner.
Map the S&P 500 against the M2 Money Supply. Now, do the same for housing prices. Notice the correlation? Consider also that the CPI has been underreporting for decades. Guess what? Money printing causes inflation.
There is a huge difference between asset prices and inflation.
Monetarists claim that expanding monetary base increases consumer price inflation not asset prices. That is empirically wrong.
I don’t dispute that increasing the monetary base increases asset prices like stocks or houses but that is not what monetarists claim and it is something different from claiming that printing money causes inflation.
Overall, I find it interesting how fervently some people try to defend this theory because it makes intuitive sense even though it is empirically falsified.
As a trained physicist, I find this very curious. In science the rule is that any theory that is empirically violated is abandoned in favour of a theory that better explains the real world.
In economics, this kind of evidence-based behaviour is unfortunately too often lacking. Instead of trying to develop a better theory of inflation we are spending decades trying to rescue monetarism and come up with ever changing excuses why the data doesn’t fit the theory. This makes no sense to me.
First, do we not have to buy assets like housing? Secondly, Shaddow Stats can be off while still realizing hedonic adjustments are skewing the CPI numbers and can be manipulated.
I think that your statement that we really don‘t know what drives inflation is refreshingly candid and honest. I must say that i only came across your blog some months ago and find it very educating and informative.
The regression analysis charts shed light on trends in many of the developed world economies, which share common economic characteristics, which are, i think, determinative of how money supply is soaked up without leading (bar some exogenous catalyst and bar irresponsible government expenditure) to inflationary conflagration.
I expect the conclusion would change if you included inflation in the price of financial assets as "inflation." The nature of the inflation was the result of more wealth flowing to the already wealthy. When money flows are directed to the lower and middle classes, as during the pandemic or during the heyday of unions, that is when you get CPI inflation.
So, flaw in monetarist theory or an issue with terminology?
Well, calling asset price inflation consumer price inflation is wrong on many levels. Inflation as a term asset price inflation is a complete misnomer and a bastardisation of the original meaning of inflation.
Plus, and this is important: Monetarists originally never claimed that printing money leads to asset price inflation. They insisted on higher prices for goods and services and only when that didn't work did they do a whataboutism and said: But look at asset prices.
I completely agree that strong unions and international capital flows mean that expanding the monetary base lows directly into the real economy and creates inflation. But we have left that world 40 years ago by busting the unions and increasing global freedom for capital to go where it can get the best returns (both are good things in my view, btw): https://klementoninvesting.substack.com/p/was-it-really-fed-policy-that-ended
This is why monetarism stopped working in the 1980s and 1990s, in my view and why I think it is a flawed theory. It worked for about 30 years when it was developed and explained the inflation of the 1970s, but it has completely lost its explanatory power since the 1980s.
In short, and forgive my rant but I am writing this as I have a terrible Monday morning: I think the theory was originally well-intended and worked relatively well. But it has since stopped working altogether but so many investors and politicians, cling to it with complete disregard for the evidence. It has become a religion and this is why I think it is so dangerous. Because it is a religion and not a theory that can be refuted anymore, it leads to all kinds of terrible policy prescriptions and people losing money.
Just think of the people who have been preparing for the massive inflation that never came after the financial crisis 2009. They were buying gold, commodities and real estate as protection against the coming inflation and meanwhile stock markets went through the roof.
Or think of all the politicians who argue that excessive government debt must lead to higher inflation to get rid of it. The result was that many countries between 2010 and 2020 had an opportunity to borrow at extremely low cost and invest the money in infrastructure to boost growth. Instead they chose to enter austerity programmes that we now know caused more damage than they did good in the form of reduced debt/GDP-ratios: https://klementoninvesting.substack.com/p/if-the-facts-change
That is what makes me angry.
And to conclude, I have said a couple of times that I think we have no theory of how inflation works and we should spend all our efforts to develop a proper, empirically validated theory of inflation. Instead we continue to argue about monetarism, nominal GDP level targeting or the fiscal theory of the price level. It is insanity: https://klementoninvesting.substack.com/p/musings-on-the-fiscal-theory-of-the
And here I end my rant and go back to a miserable Monday morning :-)
Thanks very much though for your comment and allowing me to vent some more. Please keep them coming.
Applause
So Monetarism joins the Phillips Curve? Economics (and by extension Investing) starts to look like Physics inasmuch as it seems the observer(s) affect(s) the outcome (pace there is no 'observer effect', only one vastly entangled quantum system). One hypothesis might relate to Globalisation: the inflationary effects of national money supply may be moderated by global money supply and international trade, including that in currencies. So maybe Monetarism is more like Schrödinger's Cat - neither dead nor alive until millions of entanglements resolve? Or at least, still twitching
Well, the economy and financial markets are dynamic stochastic reflexive systems which is even better than quantum systems.
;-)
The Austrians will argue that this is why praxeology is important. Logically, an increase in the money supply has to result in an increase in prices (ceteris paribus).
So taking that as a given, what could be stopping prices from rising:
- Velocity of money falling (which would make sense if money is held in the financial sector to shore up bank balance sheets or as government bonds rather than being allowed into the wider economy)
- Productivity has increased so much that prices are being forced down quicker than the money supply can force them up.
Or I'm just biased and have to accept that the logical relationship doesn't exist.
See here: https://klementoninvesting.substack.com/p/about-that-velocity-thing-again
There you go. It's the debt!
I am not an economist, but I have heard the following ideas:
(1) as well as the Quantity of money (M2 doubled in last 10 years), the Velocity is relevant (fallen from c. 2.2 x in late 1990s to under 1.2 x in 2020, and now is c. 1.37x I.e. lower Velocity in part counters growth in M2.
(2) the large increase in M2 from the GFC, in part caused by QE, has caused Inflation - in real assets eg stocks, real estate rather than goods & services.
(3) since 2020 (Coronavirus) there has been inflation in goods & services, because Government largesse in giving out ‘free money’, increased fiscal spending, so giving the money to the wider economy. The Deficit and increase in $ interest paid out on Treasuries could be harmful. Todd M above mentions this.
This is an observation on money supply, not an argument.
See the link I posted above
So, let's hand out a million dollars to all the citizens of the world, and everybody will live happy everafter? What you suggest defies gravity. I don't doubt the findings to which you refer, I just don't think they are correctly intepreted. I think a reasonable assumption is that the amount of FIAT money that allows for stable prices is related to the economic activity. If you step out of line, it must have consequences. By the way, thank you for a great blog.
Fully agree. After reading I wonder if one element that could be playing in the results are the constant changes to the way in which inflation is measured (always with the intent of trying to moderate it).
Not really. A lot of that story about inflation changes lowering official inflation rates has been debunked: https://www.fullstackeconomics.com/p/no-the-real-inflation-rate-isnt-14-percent
Since the 80's the increased productivity of tech prevented the higher inflation the theory predicted. At P&G, Plants used to shutdown for a month to retool until computers. Now it just takes a few days with a programer with 2 electricians to install any additional sensors needed. Systems that required a Field operator and a control room operator now have 1 operator running 2 systems. real world example
But then why do we not see the increase in productivity from tech in the productivity growth stats? See here for the UK: https://klementoninvesting.substack.com/p/a-boost-to-productivity-growth-from
And the third chart in this post on the decline in productivity growth since the 1990s for the US and Europe: https://klementoninvesting.substack.com/p/the-uks-productivity-problem-its
Perhaps I'm becoming a bit soft-headed in my dotage, but as an economics student in the early '80s, I was taught fiscal policy, just in time for that to be completely worthless for the rest of my 40-year investment career because it became all about monetary policy,
There has always been a view that returns on time deposits (mostlyinterest on bank time deposits) drove household asset allocation between stocks, bonds, and cash. But every single person I've met hasn't cared one whit about that ... all, equities, all day long, forever and forever, amen.
I watch a lot of TV, and am amazed to see moments in "The Crown" where the UK had to perform massive currency devaluations because they had South American-style foreign debt. Apropos, a lot of bank crises in the US involved third-world debt default. But when's the last time that happened?
The only place where interest rates seem to matter are for people with no money. Mortgage, car loan, and school debt rates seem to drive consumer behavior, because that has direct impact on household budgets.
Think about a working stiff in America who has to buy a pickup truck. He doesn't care about Ford or GM's solvency; as shown in the WFC, too big to fail. He doesn't care about where the money came to bail out Ford or GM; he pays taxes, and economic stability is something for which he pays. If that top-level distribution doesn't work, he'll buy a Toyota truck. If trade barriers are set up, Toyota will build car plants in the US and make trucks there ... and employ American working stiffs to make more trucks ... etc. etc. etc. If oil gets too expensive, we have dozens of aircraft carriers to keep it flowing, and if that doesn't work, we'll frack it out. Yen/dollar? Trade balances? Environmental concenrs/carbon pricing? "Fiat money" vs. bitcoin? Pffft. It all comes out in the wash. All he cares about is whether or not he can afford the monthly payments.
The macroeconomic impacts people pearl-clutch about move at *glacial* speed. So why do we even navel-gaze about it? Because it's entertaining, and makes all of us over-educated people feel as though "we really know what's going on". We're like people who go to car races syaing we like the competition, but secretely really only want to see a few firey wrecks. What if the world economy isn't F-1, with all sorts of teists, turns, and chicanes, but one team seems to always win, but rather just a bunch of boring NASCAR stock racers going around and around a ring continually turning left ... depreciating at roughly 3% per year as it's always done for centuries?
P.S. Once labor unions lost traction, inflation was no longer wage-push. That was a *huge* sea change from a temporary situation in the wake of WWII American manufacturing hegemony. I personally believe that globalization and increased raw materials extraction/manufacturing efficiency have been relentlessly deflationary, leaving only Jack Welch/HBS MBA "shareholder value creation"/"efficiency", rent extraction, and good old-fashined price-gouging as the only remaining drivers of consumer price inflation.
P.P.S. People keep wishing for a crushing Weimar Republic hyperinflation moment that never comes ... and they all end up looking like Millerites (no relation!) https://en.wikipedia.org/wiki/Great_Disappointment . In the wake of everything that's occurred since the WFC (now 15 years ago), if the "printing money must inevitably lead to high inflation" theory wasn't somehow flawed, why is inflation now back to normal again? https://assets.bwbx.io/images/users/iqjWHBFdfxIU/i5M6xQsrS7OQ/v0/pidjEfPlU1QWZop3vfGKsrX.ke8XuWirGYh1PKgEw44kE/-1x-1.png
As always, you are a font of wisdom. Yes, debates about inflation theories are a form of entertainment . Which is why I normally don't write about economic theories except to present evidence that falsifies them. Because if you invest based on empirically falsified theories, the fun stops and you are going to lose money...
Or as the gambling ads in this country like to say: When the fun stops, stop.
If you think about monetarism, CAPM, etc. as a form of entertainment, be my gust. We can debate these until we are blue in the face. :-)
I believe that inflation is a function of market pyschology. If the economy is roughly in a non-inflationary equilibrium, businesses cannnot get price increases to stick because consumers will resist them by lowering their demand and substituting out of the product. If the labor market is in a rough equilibrium, wage increases are limited. However, when supply and/or demand shocks hit, like they did in the late 1960s and early 1970s, it sets off a catchup mentality whereby price increases are accepted and firms are willing to raise wages knowing that the market will accept the accompanying increase in prices. The Covid experience is another example of supply and demand shocks. Fortunately, the catchup psychology lasted a comparatively short time.
From 1985 to 2020 the world experienced 4 disinflationary and growth "miracles": 1. the collapse of the Soviet Union and a hard commodity supply surge. 2. China, facing similar economic circumstances as the Soviet Union but lacking commodities to sell, could only offer the world market its greatest resource: human capital. That extremely low cost 1-billion person labor pool enabled a massive global labor arbitrage. 3. The opening of previously denied areas to American business, not just Russia and China, but also Poland,, other former Soviet-orbit countries, as well as quasi-socialist nations in South America. 4.The fourth disinflationary growth event was the Internet. In 1994 and 1995 there was a figurative handful of people on the Internet globally. By 2005 there were 1 billion, now there are 5.4 billion, enabling the phenomenal growth of Amazon, Apple, Facebook, Google and otherinternet-based companies. In a world of 8 billion people, customer count can go from zero to 5.4 billion only ounce.
I submit that the disinflationary conditions of the time period, 1985 to 2020, completely overwhelmed the excessive growth in the monetary supply and we are likely to see a return to the older cause and effect of inflation, too much money chasing too few goods and services.
cs
I respectfully disagree. While I think globalisation has led to lower inflation the effect is just about 0.5% per year. So even if I add this to the average of the last twenty years or so, we still have significant disinflation.
I like that we can disagree respectfully. Keep posting. I enjoy learning different perspectives.
cs
And please keep commenting and disagree agreeably. I love these exchanges :-)
Why this obsession with monetarism?
Friedman's basic claim was that inflation has always been caused by a more rapid increase in the quantity of money than in output. This is not to say that printing money automatically causes inflation.
The velocity of money is not constant? Big deal! Nobody said, it must be. Friedman said 'it tends to be', but this doesn't alter the argument anyway. How far can it fall? Zero? Probably not. Ex post, the basic equation of the quantity theory of money is tautological. So, nowhere to go, nowhere to hide.
As for the timeline: Friedman's famous book 'A Monetary History of the United States' was published in 1963 - quite some time before the alleged breakdown of monetarism.
What happened in the last 30 years? I don't know for sure. A smart business school professor once told me that if you don't know the answer in a classroom, it's usuall (a) China or (b) the internet. In this case, I would pick (a).
Fun fact: The term monetarism was (as far as I know) coined not be Milton Friedman but by Karl Brunner.
Map the S&P 500 against the M2 Money Supply. Now, do the same for housing prices. Notice the correlation? Consider also that the CPI has been underreporting for decades. Guess what? Money printing causes inflation.
There is a huge difference between asset prices and inflation.
Monetarists claim that expanding monetary base increases consumer price inflation not asset prices. That is empirically wrong.
I don’t dispute that increasing the monetary base increases asset prices like stocks or houses but that is not what monetarists claim and it is something different from claiming that printing money causes inflation.
And it is not what we are debating here.
Plus, when it comes to the so-called underreported inflation, that claim has long been debunked. I repeat my link from above: https://www.fullstackeconomics.com/p/no-the-real-inflation-rate-isnt-14-percent
Overall, I find it interesting how fervently some people try to defend this theory because it makes intuitive sense even though it is empirically falsified.
As a trained physicist, I find this very curious. In science the rule is that any theory that is empirically violated is abandoned in favour of a theory that better explains the real world.
In economics, this kind of evidence-based behaviour is unfortunately too often lacking. Instead of trying to develop a better theory of inflation we are spending decades trying to rescue monetarism and come up with ever changing excuses why the data doesn’t fit the theory. This makes no sense to me.
First, do we not have to buy assets like housing? Secondly, Shaddow Stats can be off while still realizing hedonic adjustments are skewing the CPI numbers and can be manipulated.
I think that your statement that we really don‘t know what drives inflation is refreshingly candid and honest. I must say that i only came across your blog some months ago and find it very educating and informative.
The regression analysis charts shed light on trends in many of the developed world economies, which share common economic characteristics, which are, i think, determinative of how money supply is soaked up without leading (bar some exogenous catalyst and bar irresponsible government expenditure) to inflationary conflagration.
I expect the conclusion would change if you included inflation in the price of financial assets as "inflation." The nature of the inflation was the result of more wealth flowing to the already wealthy. When money flows are directed to the lower and middle classes, as during the pandemic or during the heyday of unions, that is when you get CPI inflation.
So, flaw in monetarist theory or an issue with terminology?
Well, calling asset price inflation consumer price inflation is wrong on many levels. Inflation as a term asset price inflation is a complete misnomer and a bastardisation of the original meaning of inflation.
Plus, and this is important: Monetarists originally never claimed that printing money leads to asset price inflation. They insisted on higher prices for goods and services and only when that didn't work did they do a whataboutism and said: But look at asset prices.
I completely agree that strong unions and international capital flows mean that expanding the monetary base lows directly into the real economy and creates inflation. But we have left that world 40 years ago by busting the unions and increasing global freedom for capital to go where it can get the best returns (both are good things in my view, btw): https://klementoninvesting.substack.com/p/was-it-really-fed-policy-that-ended
This is why monetarism stopped working in the 1980s and 1990s, in my view and why I think it is a flawed theory. It worked for about 30 years when it was developed and explained the inflation of the 1970s, but it has completely lost its explanatory power since the 1980s.
In short, and forgive my rant but I am writing this as I have a terrible Monday morning: I think the theory was originally well-intended and worked relatively well. But it has since stopped working altogether but so many investors and politicians, cling to it with complete disregard for the evidence. It has become a religion and this is why I think it is so dangerous. Because it is a religion and not a theory that can be refuted anymore, it leads to all kinds of terrible policy prescriptions and people losing money.
Just think of the people who have been preparing for the massive inflation that never came after the financial crisis 2009. They were buying gold, commodities and real estate as protection against the coming inflation and meanwhile stock markets went through the roof.
Or think of all the politicians who argue that excessive government debt must lead to higher inflation to get rid of it. The result was that many countries between 2010 and 2020 had an opportunity to borrow at extremely low cost and invest the money in infrastructure to boost growth. Instead they chose to enter austerity programmes that we now know caused more damage than they did good in the form of reduced debt/GDP-ratios: https://klementoninvesting.substack.com/p/if-the-facts-change
That is what makes me angry.
And to conclude, I have said a couple of times that I think we have no theory of how inflation works and we should spend all our efforts to develop a proper, empirically validated theory of inflation. Instead we continue to argue about monetarism, nominal GDP level targeting or the fiscal theory of the price level. It is insanity: https://klementoninvesting.substack.com/p/musings-on-the-fiscal-theory-of-the
And here I end my rant and go back to a miserable Monday morning :-)
Thanks very much though for your comment and allowing me to vent some more. Please keep them coming.