[pcai]

inflation is only initially caused by money supply. once inflation expectations become embedded, it becomes a self-reinforcing perpetual motion machine.

e.g. imagine you negotiate a 13% raise because inflation was 13% last year (btw so did everyone else). congrats - everyone just guaranteed that they will have enough money to create 13% inflation next year, when the cycle will repeat

unemployment solves this because it's a "-100% raise" and takes spending power out of the economy

and inflation is generally considered bad because among other things it distorts markets for savings and loans

[barry-cotter]

> it becomes a self-reinforcing perpetual motion machine.

Only until expectations catch up with the reality of the money supply. If there isn’t enough money in the business’s account to pay that 13% raise people get fired or the contract gets renegotiated, or the business goes under.

[pcai]

once inflation is embedded in the economy the velocity of money matters more than the supply, because the sticky price effect causes a spiral.

there will be enough money in that business's account because they will do the obvious thing and increase prices by 13% - after all, their costs are up and their customers are making more money so they can easily absorb the increase.

here is a simplified illustration of the phenomenon https://archive.nytimes.com/krugman.blogs.nytimes.com/2008/0...