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Noted economist predicts inflation over next 20 years.

Discussion in 'Too Hot for Swamp Gas' started by l_boy, Mar 9, 2022.

  1. l_boy

    l_boy 5500

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    Will Inflation Stay High for Decades? One Influential Economist Says Yes



    When the global economy tanked in March 2020, the rate of inflation looked like it was heading to zero. That made it a surprising moment for former U.K. central banker Charles Goodhart to predict that inflation would hit between 5% and 10% in 2021—and stay high.

    Mr. Goodhart reasoned that a seismic shift was under way in the world economy, one that fiscal stimulus and the post-pandemic recovery would only hasten. A long glut of inexpensive labor that had kept prices and wages down for decades, he said, was giving way to an era of worker shortages, and hence higher prices.

    “The coronavirus pandemic will mark the dividing line between the deflationary forces of the last 30 to 40 years and the resurgent inflation of the next two decades,” said the 85-year-old economist in an interview. He predicted that inflation in advanced economies will settle at 3% to 4% around the end of 2022 and remain at that level for decades, compared with about 1.5% in the decade before the pandemic.




    The guy has a pretty good track record and kind of makes sense. Basically saying low inflation was fueled by expanding work force with globalization, women working and baby boom. Over 30 years the workforce basically doubled. Now due to demographics that trend is reversing leading to labor shortages and more future inflation.

    He makes a lot of sense.
     
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  2. exiledgator

    exiledgator Gruntled

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    I get what he's saying, but I think there's enough cheap global labor to keep prices in check for a while. We just have to recover from covid disruptions.

    Longer term though I think he's right. There are two trends that portend issues and they're linked:

    1. Globalization brings a middle class to the hot-bed cheap labor pools which makes capital look elsewhere because labor costs rise. And as labor costs rise and a population gains affluence,...

    2. They stop havin' babies. Sub Saharan Africa is practically the only place on the globe that has a positive birth rate. We gonna run out of not just cheap labor, but labor.

    These are trends unlikely to reverse and pose serious global economic threats.

    And that's not even discussing automation. Which, actually may be our only way out of this pickle, but we'll need a new economic system first

    But, if we're luck enough to not blow ourselves up in the next few months, I'm sure we'll change our focus back to bathroom gender signs.
     
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  3. tampagtr

    tampagtr VIP Member

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    3-4% long term is not cause for alarm, especially during a substantial reordering and disruption
     
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  4. oragator1

    oragator1 Premium Member

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    He’s a better economist than me (espxiallymsince im not one) but an aging population in Japan haven't led to inflation for example. Not to mention we aren’t even all the way to globalization, Africa has barely been tapped for cheap labor.
    And automation replacing jobs will be the offset to the valid points he makes.
    But worst case, 3-4 percent is basically historical norms, so no biggie if he’s right.
    Jmo.
     
  5. dangolegators

    dangolegators GC Hall of Fame

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    Economists are notoriously bad at predicting inflation. Many of them have been consistently wrong until recently, which seems like that broken clock being right twice a day analogy.

    Good point on Japan. Automation and AI will reduce the labor shortage. And yeah, 3-4% inflation is fine anyway.
     
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  6. slightlyskeptic

    slightlyskeptic GC Hall of Fame

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    And here the administration kept telling us that it was all just transitory. o_O

    [​IMG]
     
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  7. l_boy

    l_boy 5500

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    He addresses Japan, as in China being close by and supplying plenty of cheap labor. It’s a world economy not just a single country.

    If it’s 3-4 I doubt it is linear. It will go up and down and maybe average 3-4.
     
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  8. tegator80

    tegator80 GC Hall of Fame

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    Inflation is going to ramp up, not because of "cheap labor deficits" but rather because of all the money printing. As of now, we have a racket of sorts in that we print it on one side and buy the debt on the other. If we suddenly decide that what we have is green, rough toilet paper because the amounts of money being printed has no validity to the size of our real wealth, the prices WILL go up.

    Deflation has always been the pandemic we fear the most. The vaccine of choice is more government spending/printing. Unfortunately the vaccine becomes the disease when it is taken too far.
     
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  9. AgingGator

    AgingGator GC Hall of Fame

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    Well said. Thank you!
     
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  10. rivergator

    rivergator Too Hot Mod Moderator VIP Member

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  11. oragator1

    oragator1 Premium Member

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    which is the point I also made, Africa hasn’t been tapped yet much at all for global cheap labor. So there’s a whole other round of globalization in goods and services coming at some point. Offshoring offices will be in Nairobi or Lagos instead of Hanoi or Manila. Cheap labor will be in Accra instead of Wuhan for example.
     
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  12. docspor

    docspor GC Hall of Fame

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    Well, if he’s right, the US running massive deficits for decades looks pretty damn smart
     
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  13. l_boy

    l_boy 5500

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    Yes and no. We have been able to “print” money in the past and it hasn’t been inflationary, at least in terms of CPI. The reason it hasn’t been is because of supply factors, including an expanding worldwide wide global labor force. Now, the argument goes, we may not be able to have an expansionist monetary policy as the supply dynamic changes.

    Also, for the record, I don’t think it is as much about “printing” money, it’s more about expansionary fiscal policy and our ability to absorb it, or not. When you have deficits 10-15% of gdp if supply is constrained you will have inflation. If it gets back to the “normal” range of 3-5% of GDP (approx $1 trillion deficit) previously we could do that and have 1-2% inflation. Going forward it may be 3-5% with supply constraints.

    There’s a lot we don’t know. Automation and technology can play a mitigating role. Energy is always a factor. On the good side technology is rapidly expanding our choices for energy. On the bad side our transitioning to clean energy could put price pressure on costs for a while.

    Also, is it possible that India and Africa could play the role China did in the past. India has been a mixed bag. Africa hasn’t shown a lot of promise.
     
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  14. tampagtr

    tampagtr VIP Member

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  15. dadx4

    dadx4 GC Hall of Fame

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    If you put 1,000 economists in a room and ask them ask them this question you will get a 1,000 different answers. It's an economist joke yet It's true.
     
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  16. VAg8r1

    VAg8r1 GC Hall of Fame

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    I recall an article on a study I read years ago regarding the accuracy of economic forecasts. Forecasts going beyond two years were notoriously inaccurate and even forecasts for shorter periods weren't all that accurate. Most forecasters are guilty of the fallacy of linear predictions, i.e. assuming that would happened recently would continue on into the future.
     
    Last edited: Mar 25, 2022
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  17. tarponbro

    tarponbro GC Legend

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  18. danmann65

    danmann65 GC Hall of Fame

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    Let's assume we have a consensus.
     
  19. avogator

    avogator VIP Member

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    Yes, all we hear on the job front is wholesale elimination of jobs as in self driving vehicles AI doing more and more work. Andrew Yang based his whole campaign on the need for Universal Basic Income on the coming loss of jobs.
     
  20. tampagtr

    tampagtr VIP Member

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    Morality of NAIRU. Discuss