It's simpler: people who were long oil make money (on paper) and those who were short oil lose money (on paper).
You were long oil if you are an oil producer, or, e.g., if you owned oil futures. You were short oil if you are an oil consumer, or, e.g., if you had sold oil futures. If you are both (e.g., airlines might hedge future oil consumption by buying futures, and producers might hedge future production by selling away their future production), then you need to net it out across the futures curve.
Price responses to supply shocks in theory serve to allocate resources appropriately (e.g., if your consumption did not matter that much, you might curtail it); if another person's consumption is more productive (i.e. profitable), then they're likely to eat the input cost and still buy it. In the long run, you might hope that high prices lead to more investment in producing the scarce good, or in more hedging activity to prevent future harms. The net effect of (long) hedging activity is generally to slightly increase the future price because folks buy futures / futures options, and market makers, in addition to selling the option, buy the underlying to remain market neutral. This potentially increases future supply because it can, in theory, push up the futures price, or estimates of future price, which can make new resource extraction economical.
Unfortunately, today, given the degree of inequality, it is mostly poor people whose consumption is curtailed when there are supply shocks. This is consistent with the above interpretation: the implication of wealth inequality is that the poor people matter less and are less productive to the capitalist machine. As a real example of this, the oil price would likely be higher even, if the oil consumption of Southeast Asian countries had not decreased because they could not afford the higher prices. This is the great thing about inflation in a highly unequal society: it is partially tempered because demand goes away as prices rise.
> Inflation is the result of devaluing the currency by creating money (i.e. deficit spending).
Though I agree that printing new money causes inflation (not all economists agree!), inflation does not have to be the result of new money creation. Shifts in behavior can lead to short term changes in price levels. All inflation is measured relative to a basket of goods. If prefs change for diff goods, then price levels (and thus inflation) can change.
> Oil prices do not cause inflation.
This is probably not true in the short term. If the input costs for everything go up, then price levels change, and the CPI basket likely changes (up).
If we more reasonably measured inflation as some notion of quality of life, then increases in energy prices (which factor into everything) would definitely reduce per capita material well-being.
> Increases in the price of X cause the demand for X to drop, as people shift their spending elsewhere.
My point is that if you have a collection of people who can just barely afford something, and the price of that thing goes up just a little, those people will not be able to buy it. A person who gets priced out of participating in society (and, e.g., dies) contributes nothing to inflation. On the other hand, folks who have some capacity to adjust their consumption or who have a savings /capital buffer, may be able to reallocate funds to the purchase of oil (or other goods whose prices are increasing). This can lead to a further rise in the price of goods (hence, inflation).
If you print $100 trillion in dollar bills and buried it on a moon of the solar system, inflation won’t be affected at all.
Printing doesn’t cause inflation, releasing it into the economy does. Giving it all to one person in a Brewster millions challenge is unlikely to, as they aren’t going to be able to spend much.
Gold didn't cause inflation while it sat in the ground, either. But the US experienced significant inflation during the California gold rush and the Alaska gold rush, as the gold flooded into the economy.
jsrozner · · focus · HN ↗
You were long oil if you are an oil producer, or, e.g., if you owned oil futures. You were short oil if you are an oil consumer, or, e.g., if you had sold oil futures. If you are both (e.g., airlines might hedge future oil consumption by buying futures, and producers might hedge future production by selling away their future production), then you need to net it out across the futures curve.
Price responses to supply shocks in theory serve to allocate resources appropriately (e.g., if your consumption did not matter that much, you might curtail it); if another person's consumption is more productive (i.e. profitable), then they're likely to eat the input cost and still buy it. In the long run, you might hope that high prices lead to more investment in producing the scarce good, or in more hedging activity to prevent future harms. The net effect of (long) hedging activity is generally to slightly increase the future price because folks buy futures / futures options, and market makers, in addition to selling the option, buy the underlying to remain market neutral. This potentially increases future supply because it can, in theory, push up the futures price, or estimates of future price, which can make new resource extraction economical.
Unfortunately, today, given the degree of inequality, it is mostly poor people whose consumption is curtailed when there are supply shocks. This is consistent with the above interpretation: the implication of wealth inequality is that the poor people matter less and are less productive to the capitalist machine. As a real example of this, the oil price would likely be higher even, if the oil consumption of Southeast Asian countries had not decreased because they could not afford the higher prices. This is the great thing about inflation in a highly unequal society: it is partially tempered because demand goes away as prices rise.
WalterBright · · focus · HN ↗
Inflation is the result of devaluing the currency by creating money (i.e. deficit spending).
Oil prices do not cause inflation. Increases in the price of X cause the demand for X to drop, as people shift their spending elsewhere.
jsrozner · · focus · HN ↗
Though I agree that printing new money causes inflation (not all economists agree!), inflation does not have to be the result of new money creation. Shifts in behavior can lead to short term changes in price levels. All inflation is measured relative to a basket of goods. If prefs change for diff goods, then price levels (and thus inflation) can change.
> Oil prices do not cause inflation. This is probably not true in the short term. If the input costs for everything go up, then price levels change, and the CPI basket likely changes (up).
If we more reasonably measured inflation as some notion of quality of life, then increases in energy prices (which factor into everything) would definitely reduce per capita material well-being.
> Increases in the price of X cause the demand for X to drop, as people shift their spending elsewhere. My point is that if you have a collection of people who can just barely afford something, and the price of that thing goes up just a little, those people will not be able to buy it. A person who gets priced out of participating in society (and, e.g., dies) contributes nothing to inflation. On the other hand, folks who have some capacity to adjust their consumption or who have a savings /capital buffer, may be able to reallocate funds to the purchase of oil (or other goods whose prices are increasing). This can lead to a further rise in the price of goods (hence, inflation).
hdgvhicv · · focus · HN ↗
Printing doesn’t cause inflation, releasing it into the economy does. Giving it all to one person in a Brewster millions challenge is unlikely to, as they aren’t going to be able to spend much.
WalterBright · · focus · HN ↗