I spent two hours last evening watching some young guys explore abandoned hotels and luxury villas in China, all built in the last decade and some never occupied at all. The scale of these capital "investments" is beyond belief. Economic theory has nothing to say to me at all.
There is a problem with monetary theory that you are skipping over. The two parts of the equation are M - the money supply and V - the velocity of money within the economy. V has always been presumed to be constant; until we hit the US "Quantitative Easing" and lo and behold, massive increases in the money supply don't drive massive inflation. The middling inflation we've had the last few years is but a fraction of what we should have been experiencing for a decade or more - if V were anywhere near constant.
Personally I find that the fairly sound principles of micro-economics don't justify a lot of the nonsense in macro. Somewhat like weather, local conditions are what matter.
Assuming V was constant (or k, if one prefers) was Milton Friedman’s mistake. It is not a necessary assumption, merely a statistical regularity he lent on. Indeed, the failure of the assumption led to the formulation of Goodhart’s Law.
No with the increase in supply there was a seemingly corresponding decrease in velocity (it moved slower through the economy) - hence no inflation when it would've been expected. With Friedman it is a core assumption, not just a convenience - which is why his emphasis on controlling supply.
It may have been core to Friedman, but it is not necessary. Hence the subsequent development of market monetarism, with its emphasis on the importance of expectations.
There is no necessary reason that M and V should match in a way that perfectly cancels out. Indeed, the record of the c.1480-c.1650 Price Revolution, and of the 1821-1914 gold standard—with its alternating periods of deflation (when economies moved onto the gold standard) and inflation (when gold rushes ramped up gold production)—shows that it often doesn’t. Hyperinflation episodes make it even more obvious.
How do business cycles relate to inflation cycles and immiseration cycles?
Very little. Business cycles are much shorter tempo. In the modern world, they mostly occur due to some monetary shock.
https://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States#Great_Depression_onward_(1929%E2%80%93present)
I spent two hours last evening watching some young guys explore abandoned hotels and luxury villas in China, all built in the last decade and some never occupied at all. The scale of these capital "investments" is beyond belief. Economic theory has nothing to say to me at all.
Perhaps one might enquire about the incentives that led there? (Also, look up the stone money of Yap.)
https://en.wikipedia.org/wiki/Rai_stones
But I agree that bounded rationality is a much better way to think about human agents than complete information, full rationality, utility maximisers.
There is a problem with monetary theory that you are skipping over. The two parts of the equation are M - the money supply and V - the velocity of money within the economy. V has always been presumed to be constant; until we hit the US "Quantitative Easing" and lo and behold, massive increases in the money supply don't drive massive inflation. The middling inflation we've had the last few years is but a fraction of what we should have been experiencing for a decade or more - if V were anywhere near constant.
Personally I find that the fairly sound principles of micro-economics don't justify a lot of the nonsense in macro. Somewhat like weather, local conditions are what matter.
Assuming V was constant (or k, if one prefers) was Milton Friedman’s mistake. It is not a necessary assumption, merely a statistical regularity he lent on. Indeed, the failure of the assumption led to the formulation of Goodhart’s Law.
https://en.wikipedia.org/wiki/Goodhart%27s_law
It was also why I included “2. the rate at which money is being used has gone up“.
No with the increase in supply there was a seemingly corresponding decrease in velocity (it moved slower through the economy) - hence no inflation when it would've been expected. With Friedman it is a core assumption, not just a convenience - which is why his emphasis on controlling supply.
It may have been core to Friedman, but it is not necessary. Hence the subsequent development of market monetarism, with its emphasis on the importance of expectations.
There is no necessary reason that M and V should match in a way that perfectly cancels out. Indeed, the record of the c.1480-c.1650 Price Revolution, and of the 1821-1914 gold standard—with its alternating periods of deflation (when economies moved onto the gold standard) and inflation (when gold rushes ramped up gold production)—shows that it often doesn’t. Hyperinflation episodes make it even more obvious.