The Psychology of Inflation

NYP-

There’s a simple reason why inflation is increasing: If the money supply rises while the demand for goods and services stays steady, the value of money will go down, which means that the price of everything else will go up. 

And with the federal government issuing stimulus checks and unemployment bonuses, while the Federal Reserve buys up trillions in government bonds to keep interest rates from rising, the money supply has gone through the roof since the pandemic hit 17 months ago. 

But there is another factor at work here too: expectations. 

Inflation tends to be a self-fulling prophecy. If people expect inflation to increase, they will buy goods now rather than wait, driving up prices. The Fed has been trying hard to tamp down expectations of increasing inflation, while the mainstream media have been trying to play along. 

Consumers see what’s happening. Gasoline was $1.87 when President Trump left office. It’s now over $3. Lumber has seen a big increase in prices in recent months. So has food, in general, and beef, in particular

And inflation tends to beget inflation, again because of human psychology. Once inflationary expectations take hold, they are hard to stop. In the last big inflation, in the 1970s, it took a very steep recession, the worst since the Great Depression, to bring it under control. 

more

6 Comments on The Psychology of Inflation

  1. “In the last big inflation, in the 1970s, it took a very steep recession, the worst since the Great Depression, to bring it under control.”

    …well, that, and getting rid of Carter and replacing him with the Greatest Republican President Ever…

    11
  2. Fun’s just starting, wait until the petrol-dollar is no longer the reserve currency. Hope those democommies like dumpster diving.

    5
  3. “With malice aforethought” keeps coming to mind.
    Perhaps Atlas should shrug.

    izlamo delenda est …

    5
  4. Project Zimbabwe is underway in America thanks to the gov’t. The entire gov’t. It is not just the democrats. Trump wanted the fed to print and the senate republican banking committee would not confirm judy shelton because she stood for sound money.

    The avg man has NO friend in wash dc.

    2
  5. There is also the supply side impact i.e. less workforce means less production, not enough supply to meet demand = increased prices.

    1

Comments are closed.