Thermodynamics in economics.

[Koolau]

So, no, QE does not ineluctably lead to inflation.

Had to look that one up. Amazing what I learn here.

 

[RobLJ]

I think trying to translate thermodynamics into economics is a doomed quest.
Friedman's meme that inflation is always monetary, I think, is partly right and partly wrong, so wrong.
Demographics, for example, have a great deal to do to explain inflation.
We, like Europe, are in negative demographics. We can avoid disinflation, but I'll be interested to see how that all works.
I'm a boomer, like most on here. Our population, along with the after WWII/Korean unleash of demand, along with the Vietnam War unleashed inflation. But mostly, I suspect, it was the unleashed demand of an unheralded number of kids and the demand unleashed. Spending on Wars and stimulus also contributed, big time, but it was demand from all the families with kids.
We will see what happens in the next year, but I think post-COVID inflation is largely slayed, now.
As I told a couple yewts at the local pub complaining about prices, slow inflation is one thing. If you want Tall Paul giving you 16% interest rates, that will cause deflation and 10% unemployment. Be careful what you wish for. But I don't think most Americans understand what lowering prices means; I mean my Okie granddad in the Depression knew what that meant, but it was 30% unemployment in Oklahoma. He worked for the FDR works and sent the money back to Grandmother and my father, then pieced together 3 jobs to pay for them and his two sons after the works jobs trailed off (dams, roads and other projects). Unfortunately, my 3 year old uncle died in the cotton fields after having an appendicitis attack, so he only had to provide for one kid. But I am meandering about deflation here, which no-one takes seriously.

Off deflation, I think inflation rates are coming down to the normal and fear the danger is the Fed keeping interest too high too long, but I suspect the Fed will cut in September. Was it quick enough? Who knows?

 

[Route246]

When banks lend, they literally create money from thin air and the overall money supply grows. QE increases the banks' reserves, so they can lend more money if there is a demand for more loans. If the economy is in a condition such that businesses collectively do not want to increase borrowing, then the reserves just sit there on the banks' balance sheet. The money supply does not expand and inflation is not generated. They call this condition "pushing on a string". So, no, QE does not ineluctably lead to inflation.

I believe you are describing the multiplier effect regarding money supply growth from bank lending tied to the reserve rate, etc. Inflation is a non-linear multivariate condition that favors borrowers if I remember correctly.

 

[SecondAttempt]

First law of thermodynamics: Energy cannot be created or destroyed, only transformed from one form to another. The total energy of an isolated system remains constant.

First law of thermodynamics in economics:
Total value of monetary system can’t be created, but it can be destroyed.

In lament term:
Printing money or engaging in quantitative easing will inevitably lead to inflation. The more money you print or the longer you continue with quantitative easing, the higher the inflation will be over an extended period.

I can't prove it, but it is true thus far.

I don't agree with you.

There has been a vast expansion of the money supply since 2008 yet inflation has been minimal over that period. "Normal inflation" has for a long time been 3% which mimics 10-year treasuries with an unemployment rate of 6%. Aside from a covid supply-chain driven spike (and possibly both Trump and Biden stimulus payments of the same magnitude so no politics here), inflation has been in line with norms. I even question the Fed's goal of 2% which I think should be 3%.

I'm an engineer so I get thermodynamic analogies. But energy is not the appropriate analogy. You need to look at entropy laws. Entropy is always increasing as is money.

 

[Qs Laptop]

I'm an engineer so I get thermodynamic analogies. But energy is not the appropriate analogy. You need to look at entropy laws. Entropy is always increasing as is money.

So are things to buy. And so is the population. Just consider the stuff we have around the house now that we didn't have 20 years ago. I'd be willing to say that most people 20 years ago didn't have smartphones, inkjet printers, Alexa, home security cameras and security systems, tablets, routers, blood pressure monitors, etc. in the home. Now extend this thinking to other areas, like safety and optional equipment on automobiles (and the resultant increase in components manufactured), internet infrastructure, health care equipment, etc.

Always more stuff to buy and more people, therefore more money supply needed. This is the intuitive argument against a gold standard (but that's another topic.)