What is Inflation?

What is Inflation?


One of the oddest things about economic life is that the prices for things keeps rising? Incomes and prices in the past were amazingly different from what they are today [in] Pride and Prejudice, Mr. Darcy supposed to have [been] one of the richest people in britain It’s 1813 and his income is 10,000 pounds a year today That’s less [than] [half] of what a primary school teacher straight out of college would earn in sense and sensibility [there’s] an argument about whether an income of 20 pounds a week is enough to make you well-off and the answer is yes It’s there in living [memory] to a cinema ticket was 30 p in 1970 today It’s 13 pounds, so what does inflation happen and should we worry if it does? Government’s track inflation, obsessively and try to keep it low there’s a vast amount of [data] collected all the time to ensure [that] governments can say with amazing precision how the Inflation rate is going is it on track for two point three percent per annum [or] Might the increase of low point three eight percent in February be a cause for alarm This is in big historical terms a relatively new concern In the 17th century the Spanish Empire essentially collapsed from inflation without even realizing it was occurring So over time societies have become obsessed with measuring [inflation] and very focused on managing it So why is there inflation? What makes it happen there are basically three reasons? The first is what economists call cost-Push inflation This is where the costs to businesses rise and are then passed on [to] customers There can be a lot of reasons for these rises firstly raw materials Especially oil might get more expensive for a very nice reason because a lot of countries are developing and doing well secondly workers might be asking [for] more money and Succeeding either because they’ve organized themselves well politically or because schools and colleges haven’t been training enough workers in the skills that companies need Thirdly land rents might be increasing because not enough factories and offices have been built which tends to come down to political Failures around building permits the result of all this is that businesses then push their extra on to the consumer by raising prices They don’t want to it’s a scary move but they have no choice. They’d go out of business otherwise The second kind of inflation is called demand inflation This is when there are increases in the number of people who want something whose supply can’t keep up The most common cause of demand inflation is an otherwise rather nice thing that people are getting richer and have more money to spend That’s why government can cause inflation by lowering taxes everyone loves tax breaks because they raise disposable income But in the longer term raising demand can also cause price rises thereby negating some of the initial boost of the tax break similarly a fallen interest rates may cause short-term pleasure and long-term inflationary pressure if Interest rates on loans or mortgages fall we might be tempted to take out a loan [to] buy the new car We’ve always wanted but the car company sensing solid demand will soon enough Jack up the price if banks and governments inject more cash and credit into the economy people have more money to spend But if they’re all chasing the same number of goods as before [it] just means they can all offer more for the same This is what happened around housing in the uk particularly in London They were broadly the same number of houses there were 25 years ago, but they all costs an absurd amount more The third classic cause of inflation is government’s printing money There’s a deep logic behind this idea which can at [first] sound almost criminal Governments often want to stimulate the economy to create more jobs So they print more money this can be done literally by increasing the number of notes in circulation Or they can do it by increasing government Debt or by letting banks make bigger loans on the same security in all these cases the amount of money in circulation Increases, but there’s a big problem because after a while it means the worth of every note starts to fall because more notes are Chasing the same number [of] things to buy. There’s more money about but it doesn’t buy you more it just pushes up prices However, there is a possibility here spotted by the economists and [Philosopher] John Maynard Keynes It takes time for the value of money to fall so for a little while There can [be] more cash around and prices haven’t yet risen this is a window of opportunity [that] economies can with a lot of luck [cease] At such Goldilocks moments people can actually increase their consumption Firms can afford to hire more workers and buy new machinery and once they’ve done that production will increase There will be more stuff to buy before inflation is eaten up the [gain] So there’s a real expansion a bit of inflation can grow the economy That’s a big but contested idea The argument is that it doesn’t matter if prices are going up [ten] percent every year [if] wages are going up 15 percent So deliberate government-led inflation can be a mechanism for growing the [economy] But it’s a very risky move which is often backfired and been attacked by the great enemies of the Keynes ian’s economists people we now know as the Monetarists who believe that anything which increases inflation is always going to [be] an issue and must be avoided at all costs whatever the short-term So why is inflation such a problem the real problem? Is that not everything inflates at exactly the same rate if Everything went up by hundred percent a year and so did everyone’s income and it was all totally steady and predictable It would be weird But it wouldn’t actually do any harm the harm comes from the fact that not everything changes at the same rate in 1941 in Hungary inflation reached [150,000] percent each day a jelly bean that [cost] 10 p on Monday morning would therefore cost the equivalent of 150 pounds on Tuesday morning, and 225,000 pounds on Wednesday morning, that’s incredibly complicated But it’s a problem [only] [because] other things would not be increasing as fast If you kept your life savings under the mattress you’d be wiped out in a day [or] two The money that could have bought you a house on Monday would get you a jelly bean on Wednesday This is the Ultra Extreme case, but it illustrates a basic point Inflation is bad for savings There’s no point in putting money aside, and that’s a pity because saving money the attitude of saving up for things before you buy them Is an admirable? characteristic keeping inflation Low rewards prudence It helps long-term planning because you can know what your money will be worth in the future and this rewards taking care around costs Ultimately what inflation reflects is the instability of the world and of life itself? Prices rise because we can’t yet keep the complex system known as the economy under control There’s always something going wrong or growing or falling or failing somewhere Ideally would keep inflation under control with a more or less fixed amount of money chasing a more or less stable amount of Goods But in reality [low] inflation is extremely difficult to achieve because so many factors can derail it cost of Materials cost of [Labour] productivity Taxes falling or rising exchange rates again falling or rising a growing domestic economy a neighboring economy. That’s growing Falling interest rates the buying of government bonds or the printing of money in the end we may have to accept that? Inflation is a bit like the weather or our own moods something that’s inherently rather unstable something whose ups and downs We must endure even as we try to mitigate the extremes learning to live with inflation belongs to wisdom

100 comments

  1. Damn this was an amazing video !!!! I really loved how this was explained and detailed i was glued to the screen. Love it

  2. Instead of printing money, governments should impose a savings tax. Let’s say 10% a year on yearly savings. That way people won’t save and keep spending, keeping the money in circulation. In Islam it’s called ‘zakaat’ money.

  3. Wait, doesn't "demand" inflation mean that there are "more" consumers? Not "they're richer"… and I don't understand how a government can go bankrupt when they can literally make more money?

  4. when the Federal Reserve prints money and steals your savings.

    "cutting taxes will help the rich and case inflation"
    what socialist drugs are you on?

  5. Hello, I helped to translate it to Portuguese and I'm looking to spread it to my undergraduate students because it have a good perspective in the end but still waiting for your approval. Thanks.

  6. Under a true gold-backed currency standard, inflation does not exist. Under a free floating currency standard Price DOES NOT equal value.

  7. This is really nicely made mini-lecture. I wonder how can I do something animation like that, anyone can help me?

  8. That moment when you cant say the main reason behind inflation is greed….
    Because economics is not about moral judgements ^-^

  9. “learning to live with inflation belongs to wisdom” lol say that to venezuelans and their 1.000.000% inflation grow per month

  10. Why is it that I am still paying the same amount of money for weed ?, weed quality is better than ever but is still the same price as I paid 20 years ago. This is what happens when government isn't involved..

  11. Inflation can be good if your sole purpose is to pay off debt as a government. Say you owe another country £1 million. Just print £1 million like a madman. Sure, you will fuck up the economy of your country and piss off citizens of your country and the government you owe your debt to but it's one way to pay off debt instantly.

  12. You Keynesian are soy wrong about inflation 🤣🤣🤣 inflation is just the expansion off credit and printing more papers, no inflation in fact is good for the economy

  13. What is inflation? It is a thing Satan invented when people rejected ask and receive not asking amiss to consume whatever upon your own lusts. Fear God.

  14. Well when you take the dollar off the gold standard, your currency becomes just paper
    So of course there is major inflation around the world
    All of it is fiat currency just based on faith

  15. The 3rd reason is the reason, but it's not by Government, but by member Banks. Printing money, the physical stuff, makes up less then 3% of the money supply.

    To really answer this question you have to ask, what inflates?

    The money inflates. Too much money.

    More money there there are goods, services and assets to turnover, means more people will compete for these goods, services and assets.

    The next question is where does money come from?

    Since the world staggered off the Gold Standard, it moved to a Fiat Finance Model which is Debt based. Now it isn't not correct that money isn't pegged to something, it's meant to be created against new people entering an economy – Babies, Migrants.

    When they enter, they are going to need goods and services too, so Banks have a signal to lend out more money ahead of this.

    It is better to have more money, with inflation, then not enough, which is what the Gold Standard did.

    However, it's Banks that create the money, not Government. The exceptions is when they do, but as to bail out the banks by ensuring liquidity. However, when they do this it is through the Central Banks and Member Banks who create the money and Buy Bonds. This is the Financing, making Government a competitor for credit with Non-Government.

    As was mentioned early, Banks create credit then lend it out. People and Business are the borrows. If the Money is used to spend that leads to increases in productivity, creating efficiencies or new business to met new demand, new tech, then the inflation is short and actual leads to growth……..When the growth expands the economy, it requires more money because of the increases in economic activity, thus the money that existed ahead of it is caught up and inflation disappears.

    This is positive money method. Which Government is best suited for as it can build infrastructure, set out on programs to increase productivity, manage programs that develop new methods, systems etc for government and non-government to find efficiencies, implement new tech, like automation.

    However, since the 1970s, Government and Business don't use revenue to pay for future costs of operations. Inside they borrow first to cover expenses, then use revenue to pay off the borrowing, run it down. Governments do this by taxation and counter any short falls, deficit spending by selling more bonds – Businesses just borrow more, like overdrafts, but if they are small and their revenue shrinks, Banks tend not to lend.

    This type of lending is lending for Consumption. Money already exists for the goods and service, but more money is created an added to the money supply. This means that the prices will go up. Cheap Chinese goods have masked this, but you can see inflation in the services, health, education, insurance etc.

    If you went to do a course and there was one seat left and another just came from a business for training. The course running has two people competing for the same course, they are going to raise the price to see what they can get.

    Lending for consumption is long term inflationary – is bad

    The other form Banks like lending for is assets. Property or Housing. This is good because there is a physical asset (house) of value. If a business goes under, aside from some office chairs, expensive and likely obsolete equipment, there is not a lot they can recover against the Loan……..A house on the other hand, if you can't pay your mortgage, the bank takes what you have already paid, plus the house..

    The bank will have defaults on the books. Numbers in the red, but they will also have assets. So they have something to show the government regulators when they come knocking. Even if it's value has dropped. It will go up again because BANKS are the ones telling Governments to import more people………..Immigration isn't about the humanity, it's about the economics……..

    Same with the goods and service for consumption, the money already exists for the value of this house, but banks go and create new money for it anyway.

    The theory is on less house of the market, with demand still there, drives housing construction, which means jobs and economic growth. But all it does is drive speculation because people don't borrow to buy the house out in the sticks, the main borrowing that causes inflation is investment property – especially interest only….also the cause of bubbles and busts.

    Too much money and all of it has compound debt, which is exponential.

    There is a way out of this though.

    It has to do with restructuring Monetary and Physical Policy as well as using tech like BlockChain.

    First they need to cease lending for Consumption and Existing Assets. Force Banks to offer depositors, retirement funds, people with existing saved money to hand over their cash assets for this financing. It's risky, but banks are set up for risk.

    Then they need to implement Block Chain credit creation so they can follow where the money ends up. This allows for monitoring of potential hidden inflation – It's not hidden, all profit makes it's way to the Capital and Financial Markets; Wall Street, City of London.

    Which leads with the last solution. It would still be wise to tax profits, that's the common wealth that allows for nice things, however,, income taxes, sales taxes, payroll taxes and all other excises, rates, fees, charges by government need to be scrapped for a simple Automated Transaction Fee.

    This Fee acts like Interest Rates, but is applied to primary to primary transactions. So all economic turnover in the real economy and speculative markets will see it. However, it's there to shave of the excess inflationary cash. If it is Blockchained it can be married up with the issuing number and destroyed on collection.

    This will stablize the economy. Reduce boom and bust. If Government wishes to set policy for inflationary spending to cause an artificial boom, it can do so, if planned and on a time line – still using Member Banks, but it's better to create credit for productive purposes, not consumption or existing asset purchases.

    It will also improve the value of the dollar, meaning, you'll see that what you could by for $20 in the 1970's, you can now do, even more, given the efficiencies made.

    Infact, a manufactured inflation program can be useful if the non-government economy is getting fat, lazy and inefficient. Run it on 7 year cycles or so.

  16. When I win the lottery I am just going to buy gold. So when the dollar does crash I will still have stuff that is valuable.

  17. Macroeconomics in a nutshell

    Money is a social unit of account having a fiscal/tax relation between the issuer of the currency and its users, where spending precedes taxation.

    Government expenditures and not taxes pay for entitlement/discretionary spending and interest on the debt. Demanding that taxes be paid, and in dollars, insures the validity of the dollar as the means of exchange.

    Deficit Spending is the government spending more money into the economy then it taxes back out. Government deficits provide the liquidity essential for an economy to function.

    Taxes are vital for restraining concentrations of wealth and include capital gains, dividend, corporate, inheritance, estate and a progressive income tax.

    The National Debt is the amount in dollars spent into the economy that the government buys back in exchange for Treasury securities, essentially transferring money from checking to savings.

    Inflation is a rise in prices across the economy due to a shortage of resources and/or productive capacity.

    Hyperinflation is a collapsing value of the currency across the economy due to a collapse of resources and/or productive capacity.

    Stagflation is a rise in prices, compounded with a decline in economic activity due to the scarcity of a vital resource, or concentrating pocket of wealth, relative to the overall economy.

    Recessions are cyclical contractions of liquidity across the economy that cause a corresponding decline in economic activity.

    Depressions occur when the government runs a surplus, starving the economy of liquidity that cause deep and systemic unemployment, and an unsustainable escalation in private debt.

  18. easy way to understand :
    Normal : you need one paper bill to buy a coke.

    Inflation : you need two paper bill to buy a coke.

    the cost of production is always the same never change. only the money value change.

  19. Not every rise in the prices is inflationary. For example, an increase of prise when the quality is improved is not inflation.
    Bankers give loans even when they do not have money for that – fractional reserve banking. The market is inflated with money for which the society did not have goods and services for – the central banks "calculate" the inflation rate for the relevant quarter end make it public. The manufacturers raise the prices even though the cost did not go up yet. Here we go – fake inflation as a result of fake loans with fake money. Only the wages do not go up until the workers do not go on strike.

  20. Why do you have to raise the price if there is high demand? Just keep the price stable and run out of stock. You can then use the money you made to make more stuff. Its all about greed.

  21. QE1/2/3 has caused astronomical inflation, if you dont believe, look at assets! Homes are now 6x the median salary.

  22. Inflation is the expansion of the money supply, the usual effects of expanding the money supply, is rising prices or preventing prices from falling. The definition of inflation has recently changed in the early 1970's. If you have an very old Websters Dictionary, look it up. These academics of today are too smart for their own good. Inflation will serve debtors while punishing savers. During the industrial Revolution, we experienced almost a century of deflation. So when these so called academics talk about the need for inflation for fear of avoiding a deflationary spiral, they needs to study history.

  23. This video contains a lot of crap that is false. Lowering Taxes does Not increase inflation since taxes are spent by government to take resources from the private sector. Raising taxes increases cost to consumers and producers and the argument of cost push then applies..
    The Keynesian explanation is false since there is no evidence that inflation grows the economy in real terms. A example is the failure of the Keynesian school who warned the US government not to cut spending by the 50 % it intended to in the budget after the end if WW2. They claimed it would cause a recession due to ceasing millions of dollars that it had been spending and this would cause a flow on effect and unemployment would rise dramatically with the recession. The US government ignored their warning and cut spending by the massive 50%. There was no recession but the opposite happened and growth expanded the economy.
    Government spending more money does not increase the GDP.

  24. About saving, You can save money by buying gold. Unlike paper dollars or coins gold can not be produced thus it keeps it's value. So if you want to save and protect yourself from inflation buy gold.

  25. inflation is in the interest of the govt at the cost of the people's time and freedom. so, be watchful and protect yourselves, and shift your monetary wealth to a deflationary system when you should.

  26. I think in my opinion for the solutiob to this would be make the manufacturing of goods and necessities more automation so everyone will be able to buy thing s cheaply and readily available even when the demand is extreme. But i know not many people would like the idea because greed of some people.

  27. Who established the Rules of the Economics Game and the Inflation Card for which ‘we the people’ are told to hold the ‘government’ i.e. ‘we the electorate’ responsible?

    Guaranteed, the rule creation is not the work of citizens that get zero inheritance from their parents!

    Guaranteed, only minor portions of the ‘shake order’ are put into the rule book by citizens that had the down payment on their first residence, or for their post-secondary tuition, which was gifted to them by their mother or father.

    The above citizens are either too busy making a living, or perhaps planning for retirement, while playing the personal entertainment game, to investigate the origin of the rules of Economic Monopoly.

    For those that are wealthy by inheritance, staying rich is their life purpose…and manipulating the rules for acquiring the artificial construct of currency, along with the rules for the use of the power card by using the power card, make them the de facto winners of the inflation play.

    That is not to say that some non-wealthy beginner cheats don’t find a seat at the table, however, a deep dive into the history of economics divulges who and how the house rules were established and are maintained.

    Who are the winners and the losers whenever the inflation card is played…or not played?

    Who is John Galt and her friends?

  28. How are these motherfuckers simply allowed to print money on their own as if it's nothing. Ridiculous, yeah Gold is worth a lot more than paper money.

  29. First two reasons of inflation are not inflation at all. They are rises of prices of specific goods. The only reason for inflation is producing money, whether by plainly printing money or creating more debt. If you raise the central banks interest rates above the intrest rate of the most expensive loan on the market, you will stop the process of creation money for profit. Then, if you disallow the government to go into debt, you have sorted 99% of inflation. This has been practiced in many countries for centuries, but history these days is a bunch of lies, so nobody knows this.

  30. First video of your channel I've seen and I'm amazed how in such a short period of time you managed to speak coherently on Inflation and it's causes as well as you got me hooked too.
    P.S. Sorry if I made a grammar mistake anywhere!

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