So trying to see what effect immigration has on inflation is fundamentally misguided—if immigration increases supply, which one might think would reduce prices, it’s entirely possible that the government will react by creating more money, undoing this effect, since they can now do so without inflation going up.
This remains my primary question i.e. I definitely wouldn’t think immigration is the only thing that creates inflation. But if we think its possible that immigration can impact price, then understanding if and how it could create “inflationary pressure” or “inflationary relief” would be quite useful to understand. Even if the government undoes it with other policies.
So, did the steadily declining immigration rate in the early 20th centuary contribute to the inflation Ameirca saw in the 70s—in addition to the increase in money supply and other policies? Was that stark dip, and then rise for the latter half of the centuary purely independant coincidence, or related somehow to inflation? And if so, what role did it play? Similarly, has the recent downward trend in immigration contributed this time?
All of these seem like fairly reasonable and important questions to ask, even if we find the answer to be inconclusive or in the negative. I guess finding it mostly missing from the conversation, even as we talk about supply chains, willingness to work etc. seemed a bit odd to me.
Finally, I was a little confused by:
Deep in the footnotes of the academic papers claiming this, you may see an acknowledgement that the spiral can continue only if the central bank “validates” the price increases by creating more money.
I thought the typical response, even according to Keynesians, is to increase interest rates, therefore reducing money supply, rather than creating more money. The mechanism could be people buying more treasuries thereby removing money supply in circulation. Or people starting consuming less since borrowing rates are high—especially housing, cars etc.
While some people ask for price or wage controls, it seems like its a fairly fringe view, even amongst those considered “left leaning economists”. Am I misunderstanding something here?
Allowing, say, able Mexican workers to move the US where they can be matched with appropriate capital, allowing them to be more productive, could indeed increase the productivity of the economy, which if everything else stayed the same would reduce prices. In this respect, it’s similar to any sort of technical innovation, which also would tend to increase supply. But inflation or the lack of inflation can exist in an economy regardless of whether or not such productivity improvements are taking place, just due to government policy on money creation. To think of the economic effect of immigration in terms of inflation seems odd, just as it would be odd to think of the economic effect of inventing a more efficient electrical motor in terms of inflation—in both cases, it’s more useful to think in terms of the effect on people’s real standard of living.
“I thought the typical response, even according to Keynesians, is to increase interest rates, therefore reducing money supply, rather than creating more money.”
That would be the typical response if they were actually trying to reduce inflation. Keynesians aren’t totally stupid. They know perfectly well that Milton Friedman was right. They just don’t want to stop inflation.
“While some people ask for price or wage controls, it seems like its a fairly fringe view”
Price and wage controls were in fact instituted in the 1970s, in the US and in Canada. They did not stop inflation, of course. Inflation stopped only when the money creation stopped.
This remains my primary question i.e. I definitely wouldn’t think immigration is the only thing that creates inflation. But if we think its possible that immigration can impact price, then understanding if and how it could create “inflationary pressure” or “inflationary relief” would be quite useful to understand. Even if the government undoes it with other policies.
So, did the steadily declining immigration rate in the early 20th centuary contribute to the inflation Ameirca saw in the 70s—in addition to the increase in money supply and other policies? Was that stark dip, and then rise for the latter half of the centuary purely independant coincidence, or related somehow to inflation? And if so, what role did it play? Similarly, has the recent downward trend in immigration contributed this time?
All of these seem like fairly reasonable and important questions to ask, even if we find the answer to be inconclusive or in the negative. I guess finding it mostly missing from the conversation, even as we talk about supply chains, willingness to work etc. seemed a bit odd to me.
Finally, I was a little confused by:
I thought the typical response, even according to Keynesians, is to increase interest rates, therefore reducing money supply, rather than creating more money. The mechanism could be people buying more treasuries thereby removing money supply in circulation. Or people starting consuming less since borrowing rates are high—especially housing, cars etc.
While some people ask for price or wage controls, it seems like its a fairly fringe view, even amongst those considered “left leaning economists”. Am I misunderstanding something here?
Allowing, say, able Mexican workers to move the US where they can be matched with appropriate capital, allowing them to be more productive, could indeed increase the productivity of the economy, which if everything else stayed the same would reduce prices. In this respect, it’s similar to any sort of technical innovation, which also would tend to increase supply. But inflation or the lack of inflation can exist in an economy regardless of whether or not such productivity improvements are taking place, just due to government policy on money creation. To think of the economic effect of immigration in terms of inflation seems odd, just as it would be odd to think of the economic effect of inventing a more efficient electrical motor in terms of inflation—in both cases, it’s more useful to think in terms of the effect on people’s real standard of living.
“I thought the typical response, even according to Keynesians, is to increase interest rates, therefore reducing money supply, rather than creating more money.”
That would be the typical response if they were actually trying to reduce inflation. Keynesians aren’t totally stupid. They know perfectly well that Milton Friedman was right. They just don’t want to stop inflation.
“While some people ask for price or wage controls, it seems like its a fairly fringe view”
Price and wage controls were in fact instituted in the 1970s, in the US and in Canada. They did not stop inflation, of course. Inflation stopped only when the money creation stopped.