> Resume student loan payments and inflation goes down in a couple of months.
But... inflation already has gone down. Oh, yeah, everyone cites the headline 12-month trailing inflation, but if you look at the monthly data, the high inflation period was sometime in 2021 (where depends on if you look at CPI, as is most often cited, or PCE, which the Fed uses) through the first half of 2022.
Only due to shifts in food and energy prices, which are both highly volatile. Exclude those, and there is still 0.3% month-on-month inflation, or 3.6 annualized, which is still almost 2x the target.
> If the high-inflation period had ended in the first half of 2022 as you said, then the 12-month rate would already be back to normal. It's not.
It would be absent in the first release in which the high inflation period was 12+ months in the past. That would be the release covering June 2023; the most recent release. covers March 2023.
Kind of weird that you’d answer “in which month would the high inflation ending in Jun 2022 be just part of the baseline prices and not a factor in the 12-month trailing increase?” with some answee that is March 2023 or earlier, and not June 2023.
While I don’t think it would fix the problem, the fact that I’ve yet to hear a single source in the media take the Biden administration to task for this is absolutely ludicrous. Feeding gas the the fire for votes is absolutely appalling.
They've couldn't take him to task for not resuming payments earlier because they were all-in on the plan to forgive student loans. It would have undermined the narrative if they'd wanted both.
If millions of people have to restart spending a chunk of their income on loan payments they will have less money to purchase other goods and services. That will reduce demand in many areas leading to relatively lower prices.
Consumer price inflation is generally driven by demand. Decrease N people’s monthly budget by $X, and you decrease aggregate demand by Nx$X. Student loan payments is one of the few tools the federal government has to manipulate large swaths of the population’s budgets.
So what’s this, if some people make more money it’s fine, but if everyone makes more money the entire economy tumbles? The system cannot handle actual increases in wealth for everyone? Our goal should be to have MOST people be poor so that some can remain rich?
Wealth is measured by how much material objects and services you can buy, not by the actual numbers in your bank account. If you literally added a zero to everyone's bank account overnight, what would happen? There'd be some turmoil, but essentially pretty quickly a zero would be added to every price in every store, and we'd be exactly back to square 1.
When the government suspended student loan payments (and started paying extra time for staying home, and other pandemic benefits), it indirectly put cash in the hands of people who were used to living month-to-month. No doubt some were fiscally responsible and put the money in stocks, which made the stock market have a crazy big rally, but that's a different story. Most just went out and bought things they might not have bought otherwise, or which they had been waiting/saving for. But the supply of things didn't increase--in fact if anything the supply went down because of part shortages. What happens when demand goes up and supply goes down? Prices skyrocket. And this is measured as increased consumer prices (aka inflation).
Now the supply shortage has been mostly worked out, but prices remain high. They are sticky--that's the actual, technical term. A demand shock is required to unstick prices, a core part of getting inflation under control. Suddenly reducing the available monthly budget of those same people who were driving inflation in the first place would do that. So resume student loan payments.
There's no way it'll happen before the next presidential election, however.
Your example undermines your point — in the face of actual, material ability of people to live more than month-to-month and have an actual nice thing, well, we have widespread shortages lasting for years.
Supply shortages lasted months, not years, and are largely over. Chip shortages are an exception. People did buy a lot more than they had been buying previously. This is very well documented.
It's been three years and prices have yet to come down. Interest rates have soared, and who knows how that's going to make new stuff appear. It's quite probable prices will never return to 2018 levels, and somehow this is the result of a temporary increase in people buying stuff. The system is fucked.
That’s inflation and sticky prices for you. The prices won’t go down. There was too much free money given away in the pandemic for that. But steps could be taken to reduce interest rates, if there was political will. Resuming student loan payments (and interest) would go a long way towards that.
Wealth is increased by what money can buy (availability and accessibility of goods), not by the number on the currency you hold.
If that was the case, then Zimbabwe made a massive mistake when switched to the US dollar after having had to print 1, 10 and 100 trillion dollar notes because inflation was pushing 230,000,000 percent.
Well, unfortunately, yes. It's a sad fact that economy, or wealth in general, builds upon inequalities, otherwise there is no need to put regards between the rich and the poor, and there is no need to compare each other.
Currently set to resume in June or July, I believe.
But I find this line of thinking dubious. It costs more than $1700/month for 10 years just to pay for med school? ($160k total cost at 5% interest — and both of those values are at the low end.) That’s an incredibly stupid situation for our economy to be in. That is a massive barrier to entry for a some very important careers.
And on top of that, we’re saying that these massive payments are crucial to getting inflation in check?
Maybe you’re right that this “helps” superficially reduce inflation. But the root problem is much deeper, which is that our economic system cannot handle people making a decent money.
The root cause is likely a lot closer to big companies jacking prices of basic goods and services, blaming inflation, and making record profits in the meantime.
Our economy can handle a lot more people making more money. It just can't handle it suddenly. Especially during and right after a global economic shutdown.
Companies are still catching up with supply. Lots of chemicals and other base materials are still in short supply. A lot of this stems from China still having shutdowns and taking a long time to recover.
Companies also don't want to spend tons of money expanding production when they don't believe the increased demand will continue forever and especially while interest rates are increasing. After supplies catch up, and student loans resume, they likely expect demand to return to pre-pandemic levels.
I think there are factors there that is going to cause permanent reductions of production capacity in many economies, though:
1) Demography: Boomers have started retiring in large numbers, and a lot more retire in the next 5-10 years. There are not enough young people to fill all of the openings they leave behind. Also, work participation rate among young people is falling for various reasons. Unlike their parents, the boomers have a lot of saved up wealth and less of the frugality of those who remembered the 30s, meaning many will continue to have high levels of consumption into their retirement.
2) Reversion of globalism: Covid made many realize that global supply chains are fragile during emergencies, and many countries are re-shoring essential and strategic production, such as medical supplies, chips/electronics and agricultural products. The cost of this improved resilience is lower efficiency.
3) Increased world tension: With the invasion of Ukraine and the possibility of war between the US and China over Taiwan, world spending on armaments is going up, taking production capacity away from consumer goods. The same tension is already causing reduced trade.
4) Populism/socialism/environmentalism: There appears to be a surge in populist, socialist radical environmentalist sentiments in many places, with demands to "tax the rich" and other actions that will make investments less attractive.
In sum, I think these factors will have noticable effects on the supply side in many years to come, causing inflation and/or interest rates to stay elevated for 10 years or more.
Unless there is a sudden surge in automation, of course.
> But the root problem is much deeper, which is that our economic system cannot handle people making a decent money.
The value of money is defined by what you can buy for it. If there isn't enough stuff to buy, either prices go up or there will be shortages of those products. If I have to chose between paying 20% more for the bread or to find the shelves empty half the time, I prefer to pay 20% more.
In "other economic systems", meaning socialism, empty shelves are pretty common.
