More Justification for False Inflation


The Economics Explained YouTube channel explains in detail the mechanisms of inflation.

The speaker states that price differences at different locations is the true inflation, not the reduction in the value of money, because these places are in the same country and use the same currency.

This is wrong because it is like saying that the price of a Rolls Royce car is much higher than a Toyota because of inflation. Then the speaker proceeds to explain the reasons why there are price differences between California and Michigan, which are similar to the reasons for car prices at the same time and place.

Prices of Rolls Royces have increased so it can be called inflation. After all, the usual definition of inflation is just the increase in the price of goods and services. Strictly speaking, it should be applied on a specific product at the same place but at different time, but this is rarely used. They lump groups of products together.

No matter how ridiculous the view that price differences between cars at the same time and place are, it can still be viewed as inflation, but surely a false one, so rightly called false inflation.

Rolls Royce prices are high because of production issue, at least mostly, because demand is also high because of the quality. You can reduce their prices by solving the supply problem, build better machines that are as good as skilled humans. You can also reduce their prices by reducing demand by reducing money supply, also explained in the video. However, Toyota prices will also drop.

Similarly for the prices of oil. Using interest rates to reduce money supply will only lead to the reduction in prices of other goods and services, while increasing rental and production costs. In Turkey, interest rates were so high, above 100% and yet inflation was still high.

There are better ways of controlling money supply such as buying back currencies in circulation. Switzerland has defended the value of its currency. It could do it by not overprinting money.

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