Why the 2% inflation target? (2023)(sites.lsa.umich.edu)
sites.lsa.umich.edu
Why the 2% inflation target? (2023)
https://sites.lsa.umich.edu/mje/2023/09/04/why-the-2-inflation-target/
614 comments
>2% was a good way for companies to be able to adjust labor costs down if needed (if you don't give someone a raise when inflation is 2%, you're effectively lowering their salary)
This is EXACTLY the issue. The economy is rigged such that in the absence of any positive action, workers' purchasing power goes down over time by default. This obviously isn't a problem for the rich, whose money is stored almost entirely in assets which by definition rise in value with inflation. Meanwhile, everyone else whose income comes primarily from a wage must constantly struggle for more concessions just to earn the same real amount they did last year.
This is EXACTLY the issue. The economy is rigged such that in the absence of any positive action, workers' purchasing power goes down over time by default. This obviously isn't a problem for the rich, whose money is stored almost entirely in assets which by definition rise in value with inflation. Meanwhile, everyone else whose income comes primarily from a wage must constantly struggle for more concessions just to earn the same real amount they did last year.
>The economy is rigged such that in the absence of any positive action, workers' purchasing power goes down over time by default. This obviously isn't a problem for the rich, whose money is stored almost entirely in assets which by definition rise in value with inflation.
Look, I'm sensitive to the struggles of the less well off, and that we are in a particularly rough part of a cycle. I don't believe the economy is at all optimal.
But your comment implies that people are getting poorer over time, and it flies in the face of reality, doesn't it? Society has become significantly wealthier, despite the absurdities of inflation and interest rates.
Look, I'm sensitive to the struggles of the less well off, and that we are in a particularly rough part of a cycle. I don't believe the economy is at all optimal.
But your comment implies that people are getting poorer over time, and it flies in the face of reality, doesn't it? Society has become significantly wealthier, despite the absurdities of inflation and interest rates.
> But your comment implies that people are getting poorer over time, and it flies in the face of reality, doesn't it? Society has become significantly wealthier, despite the absurdities of inflation and interest rates.
I think you are confusing two entirely different things. You can have a society that's getting wealthier and still people getting poorer. In fact, you have just that in the real world. It's as simple as seeing how the median salary and average salary compare and evolve. It's as simple as comparing how minimum wages evolved with inflation.
It's no coincidence that even in the US, humanity's apex in economic development and wealth, the average Joe cannot afford a house while a few decades back it could.
I think you are confusing two entirely different things. You can have a society that's getting wealthier and still people getting poorer. In fact, you have just that in the real world. It's as simple as seeing how the median salary and average salary compare and evolve. It's as simple as comparing how minimum wages evolved with inflation.
It's no coincidence that even in the US, humanity's apex in economic development and wealth, the average Joe cannot afford a house while a few decades back it could.
People are not getting poorer because productivity has been going up to compensate. As in, we're milking more and more out of the labor and middle classes. (Ok also technology papers over the problem as commerce becomes somewhat more efficient)
The family is not too much less wealthy but also we have families with two incomes, breadearners working overtime, stressed out family dynamics, and student going into deeper and deeper debt to be credentialed enough to participate in the sophisticated workforce.
If you look at the "wtf happened in 1970" chart, the y axes are productivity and real wages.
It turns out 2% inflation is enough to steal the productive increase of labor and middle classes and transfer it to the politically connected, wealthy, and financial sectors. At some point it's just going to be impossible to wring more gains out of labor and technology improvements. We're probably really close.
The family is not too much less wealthy but also we have families with two incomes, breadearners working overtime, stressed out family dynamics, and student going into deeper and deeper debt to be credentialed enough to participate in the sophisticated workforce.
If you look at the "wtf happened in 1970" chart, the y axes are productivity and real wages.
It turns out 2% inflation is enough to steal the productive increase of labor and middle classes and transfer it to the politically connected, wealthy, and financial sectors. At some point it's just going to be impossible to wring more gains out of labor and technology improvements. We're probably really close.
I don't think we're "really close" insofar as I feel that's been side continuously since the 1600s say. Always another thing comes.
People say "everyone is richer" because the cost "nice things" generally drops with time due to efficiency. So nobody is in fact financially richer, just richness from a quality of life perspective versus someone living in a cave - it's kind of a cop-out and a twist on words.
Indeed the top 1% of the top 1% of the top 1% of the US holds over 95% of the wealth, it's actually completely insane. most people are poor, relatively and comparatively. A common sense wealth / net worth tax, 5% per year for 5 years, 2% per year thereafter, would ameloriate this.
People say "everyone is richer" because the cost "nice things" generally drops with time due to efficiency. So nobody is in fact financially richer, just richness from a quality of life perspective versus someone living in a cave - it's kind of a cop-out and a twist on words.
Indeed the top 1% of the top 1% of the top 1% of the US holds over 95% of the wealth, it's actually completely insane. most people are poor, relatively and comparatively. A common sense wealth / net worth tax, 5% per year for 5 years, 2% per year thereafter, would ameloriate this.
This was so insightful, thanks.
Are you talking about a timescale of 100 years or 30? People are poorer than they were in 1990, especially the mid to lower classes.
This is not true: https://fred.stlouisfed.org/series/A939RX0Q048SBEA
This is real GDP per capita
GDP says almost nothing about what individuals lives are like, just look at the various petroleum states. As to poor people’s lives in the US, it’s basically flat with wage growth or loss depending on how you calculate inflation over the last 40 years.
The median income earners in Q1 1990 made 408$/week, one inflation source puts that at 951.17$/week in Q1 2023, vs 1095$ so is what the actual dividing line was. https://fred.stlouisfed.org/series/LES1252881500Q https://www.usinflationcalculator.com/ So 0.3% annual growth over that timeframe with many ups and downs so numbers also look different depending on what exact dates are chosen.
The line between 1st and 2nd quartile is again basically flat, though the data doesn’t go before 2000. https://fred.stlouisfed.org/series/LEU0252916100A
Though again there’s many ways of calculating inflation, and many of them show that hypothetical person worse off. And of course individuals aren’t going to stay at exactly the same income band so many many people really are significantly worse off.
The median income earners in Q1 1990 made 408$/week, one inflation source puts that at 951.17$/week in Q1 2023, vs 1095$ so is what the actual dividing line was. https://fred.stlouisfed.org/series/LES1252881500Q https://www.usinflationcalculator.com/ So 0.3% annual growth over that timeframe with many ups and downs so numbers also look different depending on what exact dates are chosen.
The line between 1st and 2nd quartile is again basically flat, though the data doesn’t go before 2000. https://fred.stlouisfed.org/series/LEU0252916100A
Though again there’s many ways of calculating inflation, and many of them show that hypothetical person worse off. And of course individuals aren’t going to stay at exactly the same income band so many many people really are significantly worse off.
This doesn't address the claim oblio was making - 'People are poorer than they were in 1990, especially the mid to lower classes' - real GDP per capita could double but it all be captured by the top quartile, for example.
(I think the claim is still wrong, and that all quartiles are doing better in real terms, but that's a tougher thing to measure)
(I think the claim is still wrong, and that all quartiles are doing better in real terms, but that's a tougher thing to measure)
https://wtfhappenedin1971.com/
Annual wages are about 15% higher today compared to 1971 in real terms. Real terms is a bit suspect in this case as wage earners are more likely to pay nominal rent then owner equivalent rent. It may well be accurate that the average wage earner is worse off today then they were in 1971.
I'd venture a speculation that this is reflected in media, sitcoms of the 70s rarely had roommates - and the 80s/90s poked fun of those who lived in their parents basements. Roommates are relatively common in shows today.
Annual wages are about 15% higher today compared to 1971 in real terms. Real terms is a bit suspect in this case as wage earners are more likely to pay nominal rent then owner equivalent rent. It may well be accurate that the average wage earner is worse off today then they were in 1971.
I'd venture a speculation that this is reflected in media, sitcoms of the 70s rarely had roommates - and the 80s/90s poked fun of those who lived in their parents basements. Roommates are relatively common in shows today.
Shared living arrangements have been prevalent long before the 70s, boarding houses and the like. I wouldn't rely on film and television industry to be exactly that representative of the times.
Well forget that facile analysis and go back to your parents generation. They afforded houses, current generation cannot afford houses. It’s obvious that the current generation got gypped.
> Annual wages are about 15% higher today compared to 1971 in real terms.
Since 1971, the cumulative inflation rate was around 700%, with an average annual inflation being well over 3%.
So while wages increased 15%, the price of everything else around us increased over 700%.
Since 1971, the cumulative inflation rate was around 700%, with an average annual inflation being well over 3%.
So while wages increased 15%, the price of everything else around us increased over 700%.
Mean GDP per capita, real or nominal, is a useless metric for almost all purposes. When we're talking about average people's lives, it's worse than useless.
As someone alive 30 years ago, it isn't as clear cut as the biased graph.
Gasoline was roughly 1/3rd the price, but 4 years of state college was 20k, not 100k.
A house I grew up in, while 30 years newer, cost 80k compared to 300k now, even though it needs a lot more work.
Minimum wage there went from 4.25 an hour 30 years ago to 7.5.
Health care costs have gone up way more than double.
So maybe people make twice as much cash, but their costs for the things they actually need, without bullshit fake adjustments, cost 3 to 4 times more than they used to.
One could argue for better, lik how react is "better" than html forms. But it isn't really worth the cost to me.
Excite was about as good at getting me search results for what I am looking for as google has enshittified itself to now.
Gasoline was roughly 1/3rd the price, but 4 years of state college was 20k, not 100k.
A house I grew up in, while 30 years newer, cost 80k compared to 300k now, even though it needs a lot more work.
Minimum wage there went from 4.25 an hour 30 years ago to 7.5.
Health care costs have gone up way more than double.
So maybe people make twice as much cash, but their costs for the things they actually need, without bullshit fake adjustments, cost 3 to 4 times more than they used to.
One could argue for better, lik how react is "better" than html forms. But it isn't really worth the cost to me.
Excite was about as good at getting me search results for what I am looking for as google has enshittified itself to now.
GDP per capita is a poor measure of general wellbeing since it doesn't account for changes in the cost of living and is skewed by funny business in stock markets.
Most importantly, it's measured using something that is halving in value every ten years.
https://fred.stlouisfed.org/series/M2SL
https://fred.stlouisfed.org/series/M2SL
Real GDP is supposed to account for that with the GDP deflator. Whether it actually does or not is a different story since I'm not knowledgable to know the details of that calculation, but I agree with your sentiment. Per-capita GDP has nothing to do with wealth distribution and with a depreciating currency, those at the bottom get the short end of the stick.
As with most calculations in Keynesian economics, it doesn't take into account the devaluation of the monetary unit, at best it only looks at CPI which is extremely misleading. CPI is misleading because it doesn't consider the devaluation of the basket of goods - it assumes they've stayed the same value - and it completely ignores hard assets like housing even though that's something everyone wants to buy.
Money supply expansion (total debt), or price increases of hard assets is a much better indicator of devaluation of the monetary unit, but that doesn't provide the figures they want the public to see.
"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning." Henry Ford
"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning." Henry Ford
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Real GPD...
Real GDP uses CPI as a correction factor making it highly misleading.
CPI is thoroughly flawed. It doesn't take into account that consumables are actually falling in value by 5%/year due to ever increasing efficiencies of production, and it only includes a carefully selected basket of goods which notably doesn't include hard assets like real estate. It's algorithm is even changed through years and if we use algorithms from previous decades, they produce much higher figures.
It completely ignores the fact that the fiat currencies are devalued through money supply inflation (the real inflation)
CPI is thoroughly flawed. It doesn't take into account that consumables are actually falling in value by 5%/year due to ever increasing efficiencies of production, and it only includes a carefully selected basket of goods which notably doesn't include hard assets like real estate. It's algorithm is even changed through years and if we use algorithms from previous decades, they produce much higher figures.
It completely ignores the fact that the fiat currencies are devalued through money supply inflation (the real inflation)
GDP is a terrible metric to illustrate your point. People have less disposable income because living costs have increased far quicker than wages, it’s really that simple. The majority of adults know this through lived experience, it’s extremely obviously that people are poorer on average than in the 90’s. That you’re having to search for statistics to answer this question reveals something about your living situation.
You're measuring GDP in something that's being devalued by half every ten years through supply expansion.
https://fred.stlouisfed.org/series/M2SL
https://fred.stlouisfed.org/series/M2SL
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What data are you drawing this conclusion from?
While society has gotten wealthier, have average people, at least in America, gotten wealthier? Technology has advanced so there's things that people can own now that they couldn't before, but if you look at things that are constant (e.g. housing) then it looks to me like people have gotten poorer.
> but if you look at things that are constant (e.g. housing) then it looks to me like people have gotten poorer.
If housing were constant then people would not be any poorer with respect to housing. They would be in the exact same position. But housing is not a constant. The average US house has have more than doubled in size over the past 50 years. The average US home also has one less person living in it as compared to 50 years ago. People today are way richer in housing.
If housing were constant then people would not be any poorer with respect to housing. They would be in the exact same position. But housing is not a constant. The average US house has have more than doubled in size over the past 50 years. The average US home also has one less person living in it as compared to 50 years ago. People today are way richer in housing.
How can people be richer in housing if they can't own a house. That doesn't make sense to me.
Homeownership rate over time has moved around within a fairly narrow range.
https://fred.stlouisfed.org/series/RHORUSQ156N
https://fred.stlouisfed.org/series/RHORUSQ156N
> Homeownership rate over time has moved around within a fairly narrow range.
I don't think your graph says what you think it says.
The graph shows a time series of the rate of homes which are owner-occupied to those that aren't. When the average Joe buys a house, they tend to stick with it for life. However, the graph you linked clearly shows this rate plummeting from 2004 to 2016, with the nosedive amounting to around 6%.
This means that in a short span of a decade, the amount of home owners living in their own home dropped 10%.
You have a small spike around 2020 which I bet was caused by WFO allowing people to live in places cheap enough that they could finally afford their home, but that stagnated already.
Also, it's interesting how such a meteoric drop happens in an indicator that tracks home ownership, which is something people do for life. You need a very radical change in the people's ability to afford a house to see so many people stop affording them in such a quick timespan.
I don't think your graph says what you think it says.
The graph shows a time series of the rate of homes which are owner-occupied to those that aren't. When the average Joe buys a house, they tend to stick with it for life. However, the graph you linked clearly shows this rate plummeting from 2004 to 2016, with the nosedive amounting to around 6%.
This means that in a short span of a decade, the amount of home owners living in their own home dropped 10%.
You have a small spike around 2020 which I bet was caused by WFO allowing people to live in places cheap enough that they could finally afford their home, but that stagnated already.
Also, it's interesting how such a meteoric drop happens in an indicator that tracks home ownership, which is something people do for life. You need a very radical change in the people's ability to afford a house to see so many people stop affording them in such a quick timespan.
You can't own social interaction, but some people are rich socially. Rich is not defined by ownership.
> have average people
You mean median person. If society gets wealthier the average nearly definitionally gets better (modulo population increase)
You mean median person. If society gets wealthier the average nearly definitionally gets better (modulo population increase)
FYI average is actually an ambiguous term that can mean mode, median, or mean.
I can agree with that. It is like the frog in slowly boiling water, just the other way around, people don't realize and appreciate, in what wealth they live and that we all make it constantly better for everyone, consciously or unconsciously.
But people look at other people who are visibly better off, compare themselves against those and get tricked into believing, that it is no just. How he can have more? Must be evil! Stolen from the people! Typical divide and conquer, to play with ego and greed, that causes misery and anger among our fellows. It makes me sad to see the same scheme being played out everytime.
But people look at other people who are visibly better off, compare themselves against those and get tricked into believing, that it is no just. How he can have more? Must be evil! Stolen from the people! Typical divide and conquer, to play with ego and greed, that causes misery and anger among our fellows. It makes me sad to see the same scheme being played out everytime.
If you mean what you say, I'll trade you all my modern conveniences in return for a small patch of land with a house in 1970s standard or 1960s standard. Deal? If offered this, a large majority of young people and people without real estate would gladly accept and happily live without iphones or AC.
I believe that's what they'd say but they actually wouldn't want to do that.
Do you know the size of houses in 1960s and how many people lived in how much space? Today people are priced out of the housing market because everyone expects opulent luxury.
Do you know the size of houses in 1960s and how many people lived in how much space? Today people are priced out of the housing market because everyone expects opulent luxury.
No, that's not true. And I don't think you really believe that yourself either. It's just an easy cop out to not have to think about a very serious issue that is crushing your fellow man right now.
It is the home sellers who put "opulent luxury" prices on worn down homes in need of repair. It is the sellers who renovate homes for 100 000 to increase the asking price with 500 000.
Imagine if this was the market for cars or any other goods.
It is the home sellers who put "opulent luxury" prices on worn down homes in need of repair. It is the sellers who renovate homes for 100 000 to increase the asking price with 500 000.
Imagine if this was the market for cars or any other goods.
I guess it all depends on where/when and other specifics.
The reality is that in the fifties large families used to live packed quite tightly in a small space, and now, they... don't?
The reality is that in the fifties large families used to live packed quite tightly in a small space, and now, they... don't?
This seems extremely unlikely. I'd rather give up indoor plumbing than my phone.
> Society has become significantly wealthier, despite the absurdities of inflation and interest rates.
Are you two talking about different time scales? Individuals in the workforce get poorer as their buying power drops, but each generation lives in a wealthier society as more innovation improves life.
Are you two talking about different time scales? Individuals in the workforce get poorer as their buying power drops, but each generation lives in a wealthier society as more innovation improves life.
People are demonstrably poorer, medical bankruptcies, the homeless pile up in fetid camps, but everyone has access to multiple lifetimes worth of social media content and fake AI waifus.
Your comment ignores that "richer" in this context mean basically breadcrumbs in comparison to all the other assets poor people can't realistically invest in. If economy in general goes up 20x and your own wealth increases 1.5x, yeah you got wealthier compared to before, but poorer compared to everything else.
This sounds fine to me if "your own wealth increases 1.5x" means an increase in purchasing power as opposed to the 1.5x being wiped by inflation. E.g. if housing costs quadruple you can't use that extra cash to buy a nicer house/rent a nicer apartment than before, and probably you want to save the extra money as a result of the higher housing costs rather than buying better food (assuming it didn't also rise significantly in price)
We like to hand wave and approximate costs via a single "inflation" number but smart phones are infinitely more cheap than 20 years ago - they didn't exist back then - whereas they don't solve basic needs like food & shelter. So we need better metrics.
So I have to hand wave a bit but if the economy grows such that everyone has better purchasing power, but the top 5% or 1% benefit 100x more than everyone else, I think that's a win; it'd of course be better if the new wealth was spread closer to equally, but the main thing is to make sure as much as practical that everyone is better off.
I'm not actually sure we know what the right economic policies to promote this sort of goal are.
We like to hand wave and approximate costs via a single "inflation" number but smart phones are infinitely more cheap than 20 years ago - they didn't exist back then - whereas they don't solve basic needs like food & shelter. So we need better metrics.
So I have to hand wave a bit but if the economy grows such that everyone has better purchasing power, but the top 5% or 1% benefit 100x more than everyone else, I think that's a win; it'd of course be better if the new wealth was spread closer to equally, but the main thing is to make sure as much as practical that everyone is better off.
I'm not actually sure we know what the right economic policies to promote this sort of goal are.
Considering how difficult it has become (even pre-COVID) for young people to buy a home, your argument flies in the face of reality, doesn't it?
Buy a home where? In the area of a thriving city? Where everyone wants to live?
Anywhere. Young people have to move to thriving cities to get better paying jobs and education for better paying jobs, because they cannot afford homes where they were born with the salaries and opportunities there.
Because there is no absence of any positive action. That's one of the main benefits of the free market.
What do you mean "Society has become significantly wealthier"? When I think of wealth I think of an individual's assets to liabilities. If we look at the total value of an individual's assets with respect to the labor it can purchase, I don't think society has gotten all that wealthier. Maybe you're conflating quality of life with wealth?
Better quality and more abundant goods with decreasing marginalized labor costs is what we should expect since technology is naturally deflationary. If anything, the oddity is that food prices ever increase over time when quality is stagnant. The book "The Price of Tomorrow" does a good job giving a perspective on this.
There's also the problem of misguided/fraudulent capital investment which is when governments and corporations raise costs under the guise of technological improvements. This is when they say they add in extra processes for quality when they're really just lining their pockets. Think medical schools and doctors (https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6288618/), the FDA processes(https://en.wikipedia.org/wiki/Criticism_of_the_Food_and_Drug...), etc.
Better quality and more abundant goods with decreasing marginalized labor costs is what we should expect since technology is naturally deflationary. If anything, the oddity is that food prices ever increase over time when quality is stagnant. The book "The Price of Tomorrow" does a good job giving a perspective on this.
There's also the problem of misguided/fraudulent capital investment which is when governments and corporations raise costs under the guise of technological improvements. This is when they say they add in extra processes for quality when they're really just lining their pockets. Think medical schools and doctors (https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6288618/), the FDA processes(https://en.wikipedia.org/wiki/Criticism_of_the_Food_and_Drug...), etc.
> Society has become significantly wealthier, despite the absurdities of inflation and interest rates.
That is the issue with the absurdities of inflation and interest rates - how do you tell whether we're better off if the yardstick for measuring value is being purpose fully distorted? And the way we measure the distortion seems to be unreliable;I don't see how inflation is supposed to rise faster than wages but asset prices seem to be inflating substantially faster than the inflation rate making it harder to save. GDP also disassociated from energy use in the 1970s so I don't see why it going up means I'm better off either - I need cheap energy to be comfortable. All the stuff GDP measures is nice, but rising energy prices are a massive problem that we don't focus on as much as we did when they were driving GDP growth despite the fact that they are still a major part of existing.
Asia is better off in real terms. A friend of mine was talking about how he went home to his ancestral village and they had toilets now which is a massive QoL step change. So if "society" is global, yes.
If we're talking English speaking countries, you can tell me I'm better off, but I'm not sure what metrics you're using or why we believe they matter. I have access to much better electronic equipment than my parents, and our ability to cure ailments has improved markedly. But a bunch of people I know had to leave the city because they literally couldn't afford to live here. Debt seems to be out of control. We're seeing political discontent in the UK and US that seems to be linked to people who don't believe that they are becoming better off, and I tend to believe people when they say that.
TLDR; maybe. But you're making a claim that is vaguer than you might think. We're a much smarter society than we were 50 years ago, but it is less obvious who it is that is "significantly wealthier" and what that means.
That is the issue with the absurdities of inflation and interest rates - how do you tell whether we're better off if the yardstick for measuring value is being purpose fully distorted? And the way we measure the distortion seems to be unreliable;I don't see how inflation is supposed to rise faster than wages but asset prices seem to be inflating substantially faster than the inflation rate making it harder to save. GDP also disassociated from energy use in the 1970s so I don't see why it going up means I'm better off either - I need cheap energy to be comfortable. All the stuff GDP measures is nice, but rising energy prices are a massive problem that we don't focus on as much as we did when they were driving GDP growth despite the fact that they are still a major part of existing.
Asia is better off in real terms. A friend of mine was talking about how he went home to his ancestral village and they had toilets now which is a massive QoL step change. So if "society" is global, yes.
If we're talking English speaking countries, you can tell me I'm better off, but I'm not sure what metrics you're using or why we believe they matter. I have access to much better electronic equipment than my parents, and our ability to cure ailments has improved markedly. But a bunch of people I know had to leave the city because they literally couldn't afford to live here. Debt seems to be out of control. We're seeing political discontent in the UK and US that seems to be linked to people who don't believe that they are becoming better off, and I tend to believe people when they say that.
TLDR; maybe. But you're making a claim that is vaguer than you might think. We're a much smarter society than we were 50 years ago, but it is less obvious who it is that is "significantly wealthier" and what that means.
But a bunch of people I know had to leave the city because they literally couldn't afford to live here.
Haven’t people always done that though? America’a history is one of constant migration.
Searching for general stats on labor mobility, it seems that Americans are moving to find work (surely the same thing as moving because the place they are is unaffordable for the lifestyle they want?) _less_ now:
E.g. https://www.philadelphiafed.org/the-economy/regional-economi...
In recent decades, as land across the U.S. filled with development—particularly along the coasts—highly mobile cities became increasingly populated by people born there. As an example, in 1960, 20 percent of U.S.-born residents of Los Angeles were from California, while by 2010, 70 percent were. At the same time, population growth rates have converged and are now similar across all regions. Coate and Mangum theorize that these two trends are connected by home attachment, or “rootedness”—that is, people prefer to live near family and social connections.4 Despite individual differences in the intensity of home attachment, the authors find a preference for home among the young and the old, and for both college- and noncollege-educated workers.
Haven’t people always done that though? America’a history is one of constant migration.
Searching for general stats on labor mobility, it seems that Americans are moving to find work (surely the same thing as moving because the place they are is unaffordable for the lifestyle they want?) _less_ now:
E.g. https://www.philadelphiafed.org/the-economy/regional-economi...
In recent decades, as land across the U.S. filled with development—particularly along the coasts—highly mobile cities became increasingly populated by people born there. As an example, in 1960, 20 percent of U.S.-born residents of Los Angeles were from California, while by 2010, 70 percent were. At the same time, population growth rates have converged and are now similar across all regions. Coate and Mangum theorize that these two trends are connected by home attachment, or “rootedness”—that is, people prefer to live near family and social connections.4 Despite individual differences in the intensity of home attachment, the authors find a preference for home among the young and the old, and for both college- and noncollege-educated workers.
> We're seeing political discontent in the UK and US that seems to be linked to people who don't believe that they are becoming better off
I think there's a section of people in this demographic who have been seeing how much better off _others_ are (thru social media etc), and thus feel discontent. This is exacerbated by the fact that such type of discontent inducing content is clickbait and gets people emotional (therefore, engagement).
There's some truth, perhaps, to the idea that some people were better off in the seventies than today, but the majority of people are likely living a wealthier life today. They just dont feel it, because there exists an even wealthier class that is now very visible, and it has been ingrained into the youths that modern society has moved past feudalism and classism.
I think there's a section of people in this demographic who have been seeing how much better off _others_ are (thru social media etc), and thus feel discontent. This is exacerbated by the fact that such type of discontent inducing content is clickbait and gets people emotional (therefore, engagement).
There's some truth, perhaps, to the idea that some people were better off in the seventies than today, but the majority of people are likely living a wealthier life today. They just dont feel it, because there exists an even wealthier class that is now very visible, and it has been ingrained into the youths that modern society has moved past feudalism and classism.
Their comment is about the math, which has to be true. There can still be countervailing effects, but the math still works out the way it works out.
its really not. the math is a distant abstraction of a social subject
And inflation is a result of an increasing money supply, which if it were not the case the poor would be absolutely subjugated.
There was this great chart that I wish I could find which kind of explained it well for me.
Things we consume have gotten cheaper - flights, electronics.
Things related to wealth - assets but also things like education have all gotten more expensive.
So we all get to live a more "experiential" life but good luck passing anything on, if you care about those kinds of things...
EDIT here we go - similar (if not the same) chart:
https://www.washingtonpost.com/news/wonk/wp/2016/08/17/the-s...
Things we consume have gotten cheaper - flights, electronics.
Things related to wealth - assets but also things like education have all gotten more expensive.
So we all get to live a more "experiential" life but good luck passing anything on, if you care about those kinds of things...
EDIT here we go - similar (if not the same) chart:
https://www.washingtonpost.com/news/wonk/wp/2016/08/17/the-s...
You haven't understood the issue. If a firm needs to lower costs, the alternatives to mild inflation are:
* Negotiating actual salary cuts, or * Job losses
Ideally in a market, prices adjust up and down freely. Obviously this is not a sensible approach to salaries. Given the bias towards loss aversion, having mild inflation make mild losses is preferable to having, say: 5% deflation, 7% salary cut.
This concept is from Econ 101. And it doesn't mean everyone's wage drops. It means struggling firms can adjust wages less painfully.
Your alternatives to 2% are:
* active deflation, with actual wage cuts
* higher inflation, where you have active salary negotiations each year to predict inflation and negotiate higher or lower than inflation, like in the 70s
* Negotiating actual salary cuts, or * Job losses
Ideally in a market, prices adjust up and down freely. Obviously this is not a sensible approach to salaries. Given the bias towards loss aversion, having mild inflation make mild losses is preferable to having, say: 5% deflation, 7% salary cut.
This concept is from Econ 101. And it doesn't mean everyone's wage drops. It means struggling firms can adjust wages less painfully.
Your alternatives to 2% are:
* active deflation, with actual wage cuts
* higher inflation, where you have active salary negotiations each year to predict inflation and negotiate higher or lower than inflation, like in the 70s
Why should firms get a free 2% cut in salaries paid? Generally, firms are in a stronger negotiating position about salary, especially for the lowest skill labor and poorest people.
If there's a downturn, then everyone will have to tighten belts, and firms can make that case to employees.
Making a real 2% salary cut the universal default is cruel, and if your typical hourly wage-earner understood clearly the choice being made on their behalf, they'd be pissed.
Deals shouldn't be altered without agreement, but that's what 2% inflation targets do. If you agree to a salary, then nobody should be specifically putting their thumb on the scale one way or the the other.
Professionals and job-hoppers have less problem negotiating to keep up with inflation. It's the poor people who get screwed.
Also, inflation is less steady the farther away from zero it is, I'd wager. So we have inflation spikes sometimes, like we've seen. There's always a time lag between spikes in price increases on goods, and wage increases (which require negotiation). During that lag period before a compensating wage increase, savings get used and real loss is suffered. I highly doubt that the loss in savings is generally recovered, and the Fed never even aims to recover that loss. The most vulnerable people lose the most, and are impeded from building wealth as a result, and probably come to depend on government more.
If there's a downturn, then everyone will have to tighten belts, and firms can make that case to employees.
Making a real 2% salary cut the universal default is cruel, and if your typical hourly wage-earner understood clearly the choice being made on their behalf, they'd be pissed.
Deals shouldn't be altered without agreement, but that's what 2% inflation targets do. If you agree to a salary, then nobody should be specifically putting their thumb on the scale one way or the the other.
Professionals and job-hoppers have less problem negotiating to keep up with inflation. It's the poor people who get screwed.
Also, inflation is less steady the farther away from zero it is, I'd wager. So we have inflation spikes sometimes, like we've seen. There's always a time lag between spikes in price increases on goods, and wage increases (which require negotiation). During that lag period before a compensating wage increase, savings get used and real loss is suffered. I highly doubt that the loss in savings is generally recovered, and the Fed never even aims to recover that loss. The most vulnerable people lose the most, and are impeded from building wealth as a result, and probably come to depend on government more.
It's not a "free 2% cut in salaries", it apply to everything else. If there is 2% inflation the company will have to pay everything more and will have probably have to negotiate to get higher price from its client too or it will not get its 2% more revenue to compensate the increase of everything.
Additionally, usually workers have too take debts too buy their house. If there is a little inflation and the salaries are following inflation the debts becomes comparatively lower every year.
It's not just against workers. There are upsides and downsides for everybody.
Additionally, usually workers have too take debts too buy their house. If there is a little inflation and the salaries are following inflation the debts becomes comparatively lower every year.
It's not just against workers. There are upsides and downsides for everybody.
You’re imagining every firm gets 2% savings every year. That isn’t how it works.
Most firms have rising real wages: real wages rose during the 2% inflation period.
But sometimes a firm needs to lower costs. Having a small bit of inflation lets a firm do so without either firing people or actually cutting nominal wages.
Most firms have rising real wages: real wages rose during the 2% inflation period.
But sometimes a firm needs to lower costs. Having a small bit of inflation lets a firm do so without either firing people or actually cutting nominal wages.
> real wages rose during the 2% inflation period
There is no consistent "2%" inflation period. If a year were to have 6.5% inflation (like with year 2022-2023), most firms will not raise real wages to match it. Over the last decade we've had a 2.82% average inflation rate with 4.41% variance showing how much we overshot both metrics.
source: https://www.usinflationcalculator.com/inflation/consumer-pri...
There is no consistent "2%" inflation period. If a year were to have 6.5% inflation (like with year 2022-2023), most firms will not raise real wages to match it. Over the last decade we've had a 2.82% average inflation rate with 4.41% variance showing how much we overshot both metrics.
source: https://www.usinflationcalculator.com/inflation/consumer-pri...
Econ 101: index to 2% inflation, tolerate mild losses.
Elon 101: hire aggressively until product finds PMF, then fire aggressively.
Elon 101: hire aggressively until product finds PMF, then fire aggressively.
It’s the old county fair analogy: the rich kids get shots on goal until they hit. Middle class kids get one shot. The poor get no shots, they’re working the fair. There are progressively fewer middle class kids getting their one shot. And some of them used to get two.
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So you're saying that it's government's responsibility to let firms be shitty to their employees with stealth pay cuts?
I would MUCH rather a firm have to face the music and reputational damage of cutting employee pay or firing employees. It's far more honest and the actual other option is gasp don't cut your employees wage and instead take a hit to your margins.
I would MUCH rather a firm have to face the music and reputational damage of cutting employee pay or firing employees. It's far more honest and the actual other option is gasp don't cut your employees wage and instead take a hit to your margins.
Layoffs still happen, sometimes from healthy companies too, I doubt they’d think twice about any reputational damage over margin cuts.
if you were the one whose jobs' being cut, would you make that very same argument?
Firms can do uniform pay cuts (say 2%) instead of targeted layoffs. That way all employees are in it together, and yet there's still market discipline in whether to cut.
I've been let go. It was fine.
The premise of your quip is nonsensical, since people are let go anyways. You wouldn't know that you were the marginal human that was cut because we are in inflation or not.
The premise of your quip is nonsensical, since people are let go anyways. You wouldn't know that you were the marginal human that was cut because we are in inflation or not.
You haven't understood the issue. The issue is involuntary dilution created by fractional reserve banking. When a new loan is created, the bank and (especially) the borrower benefit from the increased money supply. That increased money supply dilutes everyone else. The rich get loans to pay for college, buy houses, expensive cars, and own stock in companies that use leverage to grow faster, whereas the poor get loans to buy mobile homes and cheap cars. Overall, the poor wage earners experience a net dilution compared to the rich.
But isn't that money multiplier due to fractional-reserve banking essentially a one-shot deal, and doesn't continue to expand over long time periods?
So if banks keep 10% in reserves, then a cash deposit gets multiplied by 1/.1 = 10 times, and that factor does not grow with time. Even if there were no law against continually lowering reserve ratios (and therefore increasing this multiplier), the market would tend to create a bound, for otherwise the bank would have greater risk of collapse from runs and unexpected loan defaults.
By contrast, if the central bank (Fed) keeps increasing its balance sheet (by buying assets using money it created from thin air), we have continual growth in the money supply (since the folks who sold the assets have new money in their accounts, granted magically by the central bank).
In fact, if we had a law that banned fractional-reserve banking for all commercial banks, so that all commercial banks had to have 100% / full reserves, eliminating your dilution, the central bank could still perform open market operations and buy assets with printed money, and thereby continue to increase the money supply. Full reserve for private/commercial banks is still compatible with money printing by a central bank.
So I know fractional-reserve gets a lot of heat by sound money folks, but the continual inflation observed since the 70s is not primarily a fractional-reserve problem, but a central bank money printing problem.
So if banks keep 10% in reserves, then a cash deposit gets multiplied by 1/.1 = 10 times, and that factor does not grow with time. Even if there were no law against continually lowering reserve ratios (and therefore increasing this multiplier), the market would tend to create a bound, for otherwise the bank would have greater risk of collapse from runs and unexpected loan defaults.
By contrast, if the central bank (Fed) keeps increasing its balance sheet (by buying assets using money it created from thin air), we have continual growth in the money supply (since the folks who sold the assets have new money in their accounts, granted magically by the central bank).
In fact, if we had a law that banned fractional-reserve banking for all commercial banks, so that all commercial banks had to have 100% / full reserves, eliminating your dilution, the central bank could still perform open market operations and buy assets with printed money, and thereby continue to increase the money supply. Full reserve for private/commercial banks is still compatible with money printing by a central bank.
So I know fractional-reserve gets a lot of heat by sound money folks, but the continual inflation observed since the 70s is not primarily a fractional-reserve problem, but a central bank money printing problem.
> The economy is rigged such that in the absence of any positive action, workers' purchasing power goes down over time by default.
In Belgium, nearly all wages and salaries are "indexed" automatically in order to avoid social unrest [0]. If the government notices that prices of an index of goods have increased with 2% or more since the last increase, all wages, benefits and rents go up with the same number. The exact details could fill whole books though.
Indeed, if it weren't for such a mechanism, you would need to see strikes way too regularly in order to fix the runaway inflation against fixed wages (which is bad for productivity, which causes even more inflation).
It creates a setting where most people (who don't understand inflation anyway) don't need to care about inflation too much either. In fact, I have found most Belgians react incredulous when you point out it's pretty much the only country that handles inflation this way.
[0] https://en.m.wikipedia.org/wiki/Consumer_price_index_(Belgiu...
In Belgium, nearly all wages and salaries are "indexed" automatically in order to avoid social unrest [0]. If the government notices that prices of an index of goods have increased with 2% or more since the last increase, all wages, benefits and rents go up with the same number. The exact details could fill whole books though.
Indeed, if it weren't for such a mechanism, you would need to see strikes way too regularly in order to fix the runaway inflation against fixed wages (which is bad for productivity, which causes even more inflation).
It creates a setting where most people (who don't understand inflation anyway) don't need to care about inflation too much either. In fact, I have found most Belgians react incredulous when you point out it's pretty much the only country that handles inflation this way.
[0] https://en.m.wikipedia.org/wiki/Consumer_price_index_(Belgiu...
If you check some annual studies on well-being and similar, last year Belgium jumped quite significantly in most of these lists simply because it is the only country that indexed the 10% inflation for everyone's salary.
I have this picture burned on my retina with the union reps toasting champagne after successfully negotiating 2% this while my rent went up by 5% using the same arguments.
I'm highly critical of the Federal reverse and I think they suppress wages in other ways, but the 2% inflation target in my opinion has no impact on wages broadly.
Assets don't automatically rise in value with inflation. If you own shares in a business generating $100,000 in profit in the current year, then it won't automatically generate $102,000 the next year. In fact, because of inflation it will probably generate less profit because costs are always going up. And if profits are decreasing then so should the value of the company.
Hard assets are slightly different, they will generally go up with inflation, but notably the same is true in the reverse. If you're very poor and have a lot of debt, inflation is great because the value of that debt will be devalued.
And for these two reasons I'm not sure it's as simple as saying inflation is good for the rich. Inflation is bad for companies with high variable costs.
Finally one of the core drivers of inflation is wages. It's very hard for inflation to rise without wages rising, because demand in an economy is ultimately a product of the purchasing power of consumers which is tightly coupled to wages. Without wage growth to get inflation you'd probably need some other driver of demand such as demographics (immigration, high birth rates, etc), fiscal deficits (more public borrowing), or accommodative interest rates (more private borrowing).
Assets don't automatically rise in value with inflation. If you own shares in a business generating $100,000 in profit in the current year, then it won't automatically generate $102,000 the next year. In fact, because of inflation it will probably generate less profit because costs are always going up. And if profits are decreasing then so should the value of the company.
Hard assets are slightly different, they will generally go up with inflation, but notably the same is true in the reverse. If you're very poor and have a lot of debt, inflation is great because the value of that debt will be devalued.
And for these two reasons I'm not sure it's as simple as saying inflation is good for the rich. Inflation is bad for companies with high variable costs.
Finally one of the core drivers of inflation is wages. It's very hard for inflation to rise without wages rising, because demand in an economy is ultimately a product of the purchasing power of consumers which is tightly coupled to wages. Without wage growth to get inflation you'd probably need some other driver of demand such as demographics (immigration, high birth rates, etc), fiscal deficits (more public borrowing), or accommodative interest rates (more private borrowing).
> It's very hard for inflation to rise without wages rising
for inflation caused by external factors - such as a war and spiralling high energy prices - it can rise without wages rising.
for inflation caused by external factors - such as a war and spiralling high energy prices - it can rise without wages rising.
An under-appreciated benefit of inflation is that it reduces the value of debts. All things being equal (and of course they aren’t), inflation is good for debtors and bad for debt-holders. If you owe $500k on your mortgage, inflation at 5% annually is reducing your debt load substantially without you needing to do anything.
But all things are not equal; lenders take expected inflation into account when evaluating the interest rate they'll demand on their loans. Only unexpected inflation is good for debt holders.
Another important distinction to make for those that might not be aware: in the US, mortgages mostly are a set-rate when the loan is issued, usually either at 15-years or 30-years. In most of the rest of the world, I'm told, mortgages are typically variable rate
This is a bit like saying earnings going up isn't good for stockholders, because they would have been charged a higher price to buy the stock if people had known the earnings were going to go up.
Once you've taken out a fixed-rate mortgage, inflation absolutely has the effect of reducing the value of the debt you owe. It's more if you're about to take out a mortgage that you're rooting against (expectations of) inflation, as lower inflation will also serve to decrease the prevailing interest rate.
Once you've taken out a fixed-rate mortgage, inflation absolutely has the effect of reducing the value of the debt you owe. It's more if you're about to take out a mortgage that you're rooting against (expectations of) inflation, as lower inflation will also serve to decrease the prevailing interest rate.
Excessive debt is not good. Encouraging debt by the effective subsidy of inflation tends to be coupled with varying interest rates to control that inflation, and therefore there are periods of low interest rates. Savvy investors try to borrow heavily during these low interest periods creating a boom, even though the enterprises they might invest in are no more worthy of investment. This is malinvestment, because real physical capital (including skilled labor) becomes reallocated into more risky ventures because of the influx of easy money. When reality returns and it's clear that many of those risks don't pan out, there is upheaval, bankrupcy, layoffs, etc., a "bust". This is a bad thing for economic stability and human happiness.
Debt should not be encouraged nor discouraged. Interest rates should be natural, based on market forces about the time value of money.
Homeowners don't deserve a mortgage subsidy paid via inflation. If there is a subsidy, make it explicit through law.
Debt should not be encouraged nor discouraged. Interest rates should be natural, based on market forces about the time value of money.
Homeowners don't deserve a mortgage subsidy paid via inflation. If there is a subsidy, make it explicit through law.
That's only true if wages keep up with inflation. Which they haven't done in decades.
Honestly, it wouldn't be surprising to see the US government manipulate inflation in such a way that once the debt load becomes unbearable, it just simply inflates away the debt rather than do austerity or a debt jubilee.
I hate to break it to you, but the rich are taxed on nominal gains, not real.
Holding assets during inflationary periods means paying a higher percentage of your real gains as taxes.
Holding assets during inflationary periods means paying a higher percentage of your real gains as taxes.
Not if you borrow against your assets, using nominal gains to obtain more and more loaned money. That's tax free and with hard assets such as real estate, the nominal gains far outweigh the interest.
I wish I knew how to play that game. It's a game primarily played by the rich, and is part of the reason that the primary losers from inflation are poor.
America is rigged to benefit the business owner. This used to make more sense where in the first couple hundred years the end goal of a profession was being the head of your own shop.
But it is still true that a lot of people, including all stripes of middle class, are self employed or have income other than wages (I shared a chairlift recently with someone who spent 1/3 of the year ranching his cattle, 1/3 of the year farming a crop with his grandfather and a hired hand, and 1/3 of the year as a ski bum - 3 types of seasonal hard labor that gave him the freedom he wanted)
But it is still true that a lot of people, including all stripes of middle class, are self employed or have income other than wages (I shared a chairlift recently with someone who spent 1/3 of the year ranching his cattle, 1/3 of the year farming a crop with his grandfather and a hired hand, and 1/3 of the year as a ski bum - 3 types of seasonal hard labor that gave him the freedom he wanted)
You’re missing the ‘if needed’. The idea is not that wages will permanently lag inflation, we can see from the figures that this has not been the case. Workers know what the inflation rate is and what it means when they negotiate wages. It’s that if there is an economic downturn employers can mitigate some of the impact by freezing wages instead of having to sack employees (or as many, anyway). If needed.
This is also not the only reason for targeting inflation at some low but positive level. Another is that you _really_ don’t want persistent deflation, so aiming for modest inflation reduces that risk. Inflation also erodes unproductive savings, encouraging investment, which supports jobs and growth.
This is also not the only reason for targeting inflation at some low but positive level. Another is that you _really_ don’t want persistent deflation, so aiming for modest inflation reduces that risk. Inflation also erodes unproductive savings, encouraging investment, which supports jobs and growth.
Hasn’t it been the case? Most people make the same or less than 50 years ago, except the upper class, which has captured almost everything
I’m not arguing there isn’t increased inequality at all. There is. But it’s not due to the 2% inflation target. It’s mostly down to the high returns on investments.
>"This obviously isn't a problem for the rich, whose money is stored almost entirely in assets which by definition rise in value with inflation."
This isn't true (at least not by definition); no common measure of inflation uses the assets of the rich as a primary input. The closest thing you will find is OER, but that's unrelated to the stock market or other common assets used by the rich to park wealth.
This isn't true (at least not by definition); no common measure of inflation uses the assets of the rich as a primary input. The closest thing you will find is OER, but that's unrelated to the stock market or other common assets used by the rich to park wealth.
The issue is much more complex than devalued wages.
It's worth asking where the inflated money goes. It doesn't go to your bank account, it doesn't get sent out in checks to every citizen. It goes directly into the pockets of people who take out loans to fund business ventures -- capitalists/owners. That's what the interest rate is, interest on loans. When you have socialism for the rich as we do in America, that further compounds the corruptive damage of inflation, because those loans that are given out are then not defaulted on, so inflation then becomes a direct handout to the rich free from the consequences of risk. This makes both the rich richer and the poor poorer.
Inflation fuels wealth inequality, which fuels corruption, which destroys rule of law, which destroys innovation, which shrinks the economy, which requires more inflation.
Ray Dailio's Principles for Dealing with the Changing World Order talks about why the problem is so much more complex and worse than you think it is (45min): https://www.youtube.com/watch?v=xguam0TKMw8
It's worth asking where the inflated money goes. It doesn't go to your bank account, it doesn't get sent out in checks to every citizen. It goes directly into the pockets of people who take out loans to fund business ventures -- capitalists/owners. That's what the interest rate is, interest on loans. When you have socialism for the rich as we do in America, that further compounds the corruptive damage of inflation, because those loans that are given out are then not defaulted on, so inflation then becomes a direct handout to the rich free from the consequences of risk. This makes both the rich richer and the poor poorer.
Inflation fuels wealth inequality, which fuels corruption, which destroys rule of law, which destroys innovation, which shrinks the economy, which requires more inflation.
Ray Dailio's Principles for Dealing with the Changing World Order talks about why the problem is so much more complex and worse than you think it is (45min): https://www.youtube.com/watch?v=xguam0TKMw8
Yeah, it angers me to hear people argue that inflation is good because it encourages people to invest instead of hoarding cash.
1. It's your money, so it's not for others to control.
2. You may have a good reason for keeping money under your mattress. For example, you're poor and inexperienced with investing and have heard how people lose their shirts if they don't know what they're doing. There is a lot of complexity to investing, and scary contracts and qualifiers, and then you find out that you don't really own clear title to the stocks you've bought, and hear stories that brokerage firms transfer stock that they don't even have, but will protect favored rich clients if push comes to shove.
3. Maybe there's real risk in the economy, so recklessly investing despite that danger shouldn't be forced one someone with the threat of stealing value.
4. The rich can afford advisors who will help them invest so that they don't have to hold onto inflating cash, and know of ways to preserve value. Only the poor have a sizeable portion of their wealth in cash.
1. It's your money, so it's not for others to control.
2. You may have a good reason for keeping money under your mattress. For example, you're poor and inexperienced with investing and have heard how people lose their shirts if they don't know what they're doing. There is a lot of complexity to investing, and scary contracts and qualifiers, and then you find out that you don't really own clear title to the stocks you've bought, and hear stories that brokerage firms transfer stock that they don't even have, but will protect favored rich clients if push comes to shove.
3. Maybe there's real risk in the economy, so recklessly investing despite that danger shouldn't be forced one someone with the threat of stealing value.
4. The rich can afford advisors who will help them invest so that they don't have to hold onto inflating cash, and know of ways to preserve value. Only the poor have a sizeable portion of their wealth in cash.
This is backward. Workers' benefit from (wage) inflation. The rich do not.
You are viewing inflation narrowly from a worker perspective. Inflation is there to also spur economic activity in a way that encourages people to keep their cash moving and invest their money in a similar way to how companies start losing out if they slow down and rest on their laurels (e.g. stop innovating or growing). In any other case people would just start hoarding their cash. So it’s a way to keep the economy chugging just like purposefully keeping a couple of percent of unemployment always there (even if full total employment would be possible). It tends to keep people on the edge, active and moving.
But there are other useful reasons for inflation too. It enables stable expansion of currency and funding of deficits, money printing and overall economic expansion (or funding of wars for political ends) despite all the inconsistencies when allocating this added money supply, and particularly the outright morally bankrupt socialistic rescue of large ”systemically important” banks etc. The same governments that create and manage the money supply may also introduce millions of large deviations and problems with the price formation on goods and services or investment such as IRA sucking the world dry to get all the investment and manufacturing capacity back to the US.
It’s a complex topic, but you have to keep in mind that central banks are the mystical force that keeps this whole game running. If you corrupt this system too much it tends to fail and I’d like to remind that the US Fed is the third central bank attempt in the US alone. It’s just crazy how it is all set up this way and people remain fascinated by it.
In the end it comes down to trust and military firepower and compulsion (as well as tax collection in that currency, i.e. legal tender) to keep everything legitimate and workable… I could go on and on but you get the point. You are just a cog in the machine, so don’t worry too much if your salary buys you a tad less than before, we gotta work with it somehow and that’s the intention. If you upskill and work hard enough, you can ask for more salary. Or if you’re closer to the source, then you have have nothing to worry about (govt. contracts, even something like large venture capital during the zero interest rate time, or just close and cozy with banks).
But there are other useful reasons for inflation too. It enables stable expansion of currency and funding of deficits, money printing and overall economic expansion (or funding of wars for political ends) despite all the inconsistencies when allocating this added money supply, and particularly the outright morally bankrupt socialistic rescue of large ”systemically important” banks etc. The same governments that create and manage the money supply may also introduce millions of large deviations and problems with the price formation on goods and services or investment such as IRA sucking the world dry to get all the investment and manufacturing capacity back to the US.
It’s a complex topic, but you have to keep in mind that central banks are the mystical force that keeps this whole game running. If you corrupt this system too much it tends to fail and I’d like to remind that the US Fed is the third central bank attempt in the US alone. It’s just crazy how it is all set up this way and people remain fascinated by it.
In the end it comes down to trust and military firepower and compulsion (as well as tax collection in that currency, i.e. legal tender) to keep everything legitimate and workable… I could go on and on but you get the point. You are just a cog in the machine, so don’t worry too much if your salary buys you a tad less than before, we gotta work with it somehow and that’s the intention. If you upskill and work hard enough, you can ask for more salary. Or if you’re closer to the source, then you have have nothing to worry about (govt. contracts, even something like large venture capital during the zero interest rate time, or just close and cozy with banks).
> The economy is rigged such that in the absence of any positive action, workers' purchasing power goes down over time by default.
It's not rigging. Here's a few observations from a study in 1776.
> It is not the actual greatness of national wealth, but its continual increase, which occasions a rise in the wages of labor.
> China has been long one of the richest, that is, one of the most fertile, best cultivated, most industrious, and most populous countries in the world. It seems, however, to have been long stationary. [...] The accounts of all travellers, inconsistent in many other respects, agree in the low wages of labor, and in the difficulty which a laborer finds in bringing up a family in China. If by digging the ground a whole day he can get what will purchase a small quantity of rice in the evening, he is contented. The condition of artificers is, if possible, still worse.
> The liberal reward of labor, therefore, as it is the necessary effect, so it is the natural symptom of increasing national wealth. The scanty maintenance of the laboring poor, on the other hand, is the natural symptom that things are at a stand, and their starving condition that they are going fast backward.
At risk of derailing the conversation, your post is an excellent demonstration of how conspiracy theories come about. You notice some basic social truth, and since it's a harsh and unpleasant one, you blame it on some sort of deliberate action.
It's not rigging. Here's a few observations from a study in 1776.
> It is not the actual greatness of national wealth, but its continual increase, which occasions a rise in the wages of labor.
> China has been long one of the richest, that is, one of the most fertile, best cultivated, most industrious, and most populous countries in the world. It seems, however, to have been long stationary. [...] The accounts of all travellers, inconsistent in many other respects, agree in the low wages of labor, and in the difficulty which a laborer finds in bringing up a family in China. If by digging the ground a whole day he can get what will purchase a small quantity of rice in the evening, he is contented. The condition of artificers is, if possible, still worse.
> The liberal reward of labor, therefore, as it is the necessary effect, so it is the natural symptom of increasing national wealth. The scanty maintenance of the laboring poor, on the other hand, is the natural symptom that things are at a stand, and their starving condition that they are going fast backward.
At risk of derailing the conversation, your post is an excellent demonstration of how conspiracy theories come about. You notice some basic social truth, and since it's a harsh and unpleasant one, you blame it on some sort of deliberate action.
> Another interesting thing that happened under Greenspan is how inflation is computed (hedonics, replacements, etc... conceptually, think "if I can't buy a porterhouse steak anymore, I'll get the lesser hanger", meaning inflation is underreported).
Inflation calculations (in the US) did not happen under Greenspan, or under any other Federal Reserve chair, because the calculations are not done by the Fed, but by the Bureau of Labour Statistics (BLS: https://www.bls.gov/cpi/).
The 1990s change to the CPI were done under the auspices of the US Senate Boskin Commission:
* https://en.wikipedia.org/wiki/Boskin_Commission
* https://www.ssa.gov/history/reports/boskinrpt.html
One of the conclusions was (AIUI) that the CPI then-methodology actually resulted in numbers too high.
This is true in many (most?) countries: e.g., in Canada CPI is calculated by StatCan and various types are used by the Bank of Canada (BoC):
* https://www.statcan.gc.ca/en/statistical-programs/document/2...
* https://www.bankofcanada.ca/rates/indicators/key-variables/k...
* https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=181002...
Inflation calculations (in the US) did not happen under Greenspan, or under any other Federal Reserve chair, because the calculations are not done by the Fed, but by the Bureau of Labour Statistics (BLS: https://www.bls.gov/cpi/).
The 1990s change to the CPI were done under the auspices of the US Senate Boskin Commission:
* https://en.wikipedia.org/wiki/Boskin_Commission
* https://www.ssa.gov/history/reports/boskinrpt.html
One of the conclusions was (AIUI) that the CPI then-methodology actually resulted in numbers too high.
This is true in many (most?) countries: e.g., in Canada CPI is calculated by StatCan and various types are used by the Bank of Canada (BoC):
* https://www.statcan.gc.ca/en/statistical-programs/document/2...
* https://www.bankofcanada.ca/rates/indicators/key-variables/k...
* https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=181002...
StatsCan under-reports to a hilarious degree.
Your rent went up by 30%, groceries went up by 20%, but fuel went down by 10% and a new TV went down by 30%. Also people stopped buying steak because it went up 50% so we'll drop that from the basket. Let's see... if we run the numbers by dropping goods that are experiencing rapid inflation, and then weight things in a way that has no correlation with the increase in cost of living experienced by 99% of the population we get... oh look at that! 4.1%! Great news for the person who buys a new TV with their groceries every week!
Your rent went up by 30%, groceries went up by 20%, but fuel went down by 10% and a new TV went down by 30%. Also people stopped buying steak because it went up 50% so we'll drop that from the basket. Let's see... if we run the numbers by dropping goods that are experiencing rapid inflation, and then weight things in a way that has no correlation with the increase in cost of living experienced by 99% of the population we get... oh look at that! 4.1%! Great news for the person who buys a new TV with their groceries every week!
> Your rent went up by 30%, groceries went up by 20%, but fuel went down by 10% and a new TV went down by 30%. Also people stopped buying steak because it went up 50% so we'll drop that from the basket.
Do you understand how StatCan calculates the CPI? What their methodology is?
The CPI you see in the headlines is made of of various components (Shelter, Food, Transportation, etc), the proportions of which are determined by spending surveys:
* https://www.statcan.gc.ca/en/survey/household/3508
As people change their buying habits the items that are tracked also change to reflect what consumers are spending. Here are the items in each category:
* https://www.statcan.gc.ca/en/statistical-programs/document/2...
* https://www.statcan.gc.ca/en/statistical-programs/document/2...
You can see the list of changes going back to 1913 at:
* https://www.statcan.gc.ca/en/statistical-programs/document/2...
Do you think the CPI should reflect reality—i.e., track what people actually buy—or be some arbitrary list of stuff that has no relevances to people's actually basket of goods (e.g., coal and lard were removed/replaced in 1956; 35mm film removed in 2013; video rental removed in 2015).
It should also be noted that the number reported in the headlines is the national average, while the prices can vary widely depending on your location. So in the report for February 2024, the national number was 2.8%, but Alberta had 4.2% while Manitoba had 0.9%:
* https://www150.statcan.gc.ca/n1/daily-quotidien/240319/dq240... (Chart 5)
* https://www150.statcan.gc.ca/n1/pub/71-607-x/2018016/cpi-ipc...
* https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=181000... (searchable by province)
StatCan has a "Personal Inflation Calculator" where you can enter your own numbers/budget and find a number that may be closer to what's happening around you:
* https://www150.statcan.gc.ca/n1/pub/71-607-x/71-607-x2020015...
Remember: the CPI is a model of reality, and not reality itself. It is used as a guide, and to use the words of [Alfred Korzybski](https://en.wikipedia.org/wiki/Alfred_Korzybski):
* [The map is not the territory.](https://en.wikipedia.org/wiki/Map–territory_relation)
* https://fs.blog/map-and-territory/
Or those of statistician George Box:
* [All models are wrong but some are useful.](https://en.wikipedia.org/wiki/All_models_are_wrong)
> Great news for the person who buys a new TV with their groceries every week!
If you don't like televisions being a part of the 2.25% of the CPI that is "Household equipment":
* https://www150.statcan.gc.ca/n1/pub/71-607-x/2018016/cpi-ipc...
Then tell the average Canadian to stop buying televisions so that it does not show in spending surveys. If people stop consuming televisions it will stop being part of the Consumer Price Index, QED.
Meanwhile Food is 11% of the CPI because that is on average what the average Canadian spends on their average basket of goods per the spending surveys that StatCan gets.
Do you understand how StatCan calculates the CPI? What their methodology is?
The CPI you see in the headlines is made of of various components (Shelter, Food, Transportation, etc), the proportions of which are determined by spending surveys:
* https://www.statcan.gc.ca/en/survey/household/3508
As people change their buying habits the items that are tracked also change to reflect what consumers are spending. Here are the items in each category:
* https://www.statcan.gc.ca/en/statistical-programs/document/2...
* https://www.statcan.gc.ca/en/statistical-programs/document/2...
You can see the list of changes going back to 1913 at:
* https://www.statcan.gc.ca/en/statistical-programs/document/2...
Do you think the CPI should reflect reality—i.e., track what people actually buy—or be some arbitrary list of stuff that has no relevances to people's actually basket of goods (e.g., coal and lard were removed/replaced in 1956; 35mm film removed in 2013; video rental removed in 2015).
It should also be noted that the number reported in the headlines is the national average, while the prices can vary widely depending on your location. So in the report for February 2024, the national number was 2.8%, but Alberta had 4.2% while Manitoba had 0.9%:
* https://www150.statcan.gc.ca/n1/daily-quotidien/240319/dq240... (Chart 5)
* https://www150.statcan.gc.ca/n1/pub/71-607-x/2018016/cpi-ipc...
* https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=181000... (searchable by province)
StatCan has a "Personal Inflation Calculator" where you can enter your own numbers/budget and find a number that may be closer to what's happening around you:
* https://www150.statcan.gc.ca/n1/pub/71-607-x/71-607-x2020015...
Remember: the CPI is a model of reality, and not reality itself. It is used as a guide, and to use the words of [Alfred Korzybski](https://en.wikipedia.org/wiki/Alfred_Korzybski):
* [The map is not the territory.](https://en.wikipedia.org/wiki/Map–territory_relation)
* https://fs.blog/map-and-territory/
Or those of statistician George Box:
* [All models are wrong but some are useful.](https://en.wikipedia.org/wiki/All_models_are_wrong)
> Great news for the person who buys a new TV with their groceries every week!
If you don't like televisions being a part of the 2.25% of the CPI that is "Household equipment":
* https://www150.statcan.gc.ca/n1/pub/71-607-x/2018016/cpi-ipc...
Then tell the average Canadian to stop buying televisions so that it does not show in spending surveys. If people stop consuming televisions it will stop being part of the Consumer Price Index, QED.
Meanwhile Food is 11% of the CPI because that is on average what the average Canadian spends on their average basket of goods per the spending surveys that StatCan gets.
The OP and your reports agree: the Boskin committee changed the way inflation is calculated. The new way says there is less inflation than the old measure said.
So, if the new measure is actually wrong, then inflation is underreported now, when it used to be correctly reported before. The Boskin committee believes it was overreported before and it is now correctly reported.
So, if the new measure is actually wrong, then inflation is underreported now, when it used to be correctly reported before. The Boskin committee believes it was overreported before and it is now correctly reported.
You are absolutely correct that the BLS publishes CPI, but this still happened in the Greenspan era (and that's what I meant by "under Greenspan"). I remember reading (IIRC, in Bill Fleckenstein's book), that the Boskin commission was not free of interference and/or had an intent going in.
Either way, especially in recent years, it's pretty clear that CPI has been a flawed metric. I remember this episode fondly: https://www.wsj.com/articles/SB10001424052748704893604576199...
Either way, especially in recent years, it's pretty clear that CPI has been a flawed metric. I remember this episode fondly: https://www.wsj.com/articles/SB10001424052748704893604576199...
> One of the conclusions was (AIUI) that the CPI then-methodology actually resulted in numbers too high.
How is this any different from saying they changed the methodology to make the numbers look better? In my opinion the old methodology was better, but I realize this is a complex issue and there is no "correct" answer.
How is this any different from saying they changed the methodology to make the numbers look better? In my opinion the old methodology was better, but I realize this is a complex issue and there is no "correct" answer.
The way I read it, it’s actually the opposite of what you wrote. You suggested that the Fed relied on inflation numbers that it knew to be too low — i.e. that inflation was understated due to failure to account for substitution effects and the like. In fact, the Boskin commission concluded the opposite — i.e. that inflation figures were overstated in aggregate due to failure to account for things like quality changes and the substitution effect.
No, they suggested it now relies on inflation numbers that it knows to be too low. They said that inflation numbers used to be more realistic, but they have recently been lower than real inflation that consumers experience.
> How is this any different from saying they changed the methodology to make the numbers look better?
Define "better": is a higher CPI better, or is a lower CPI better?
Because the Boskin Commission found that the CPI numbers out of the BLS were too high and they changed the methodology to lower them after the Commission's report. Pre-Boskin CPI was being overstated.
Define "better": is a higher CPI better, or is a lower CPI better?
Because the Boskin Commission found that the CPI numbers out of the BLS were too high and they changed the methodology to lower them after the Commission's report. Pre-Boskin CPI was being overstated.
A lower CPI is better for the government because it makes it look like inflation is a smaller problem than it is. So you're agreeing with me - they changed it to make the numbers look better.
You didn't answer their question: Define "better": is a higher CPI better, or is a lower CPI better?
Why is a lower CPI better for the government?
In what way does the CPI calculation translate to a "problem" and why does lower CPI = "smaller problem"?
Why is a lower CPI better for the government?
In what way does the CPI calculation translate to a "problem" and why does lower CPI = "smaller problem"?
I did answer the question - I said a lower CPI is better for the government because it makes it look like inflation isn't as bad as it is. Do you think it's better to report 5% inflation or 10% inflation? Regardless of what you report, the inflation is what it is. Modern politics is about pretending to solve problems, not actually solving them.
> I said a lower CPI is better for the government because it makes it look like inflation isn't as bad as it is.
Let me guess, you think anything other than 0% inflation is "bad"?
Let me guess, you think anything other than 0% inflation is "bad"?
You sure are presumptuous. I don't think 0% is ideal. But for most of my life the US government has had an incentive to say inflation is lower than it is. And their methodology reflects their bias.
You really think it's a coincidence when inflation is peaking they change the formula and it just happens to be lower?
You really think it's a coincidence when inflation is peaking they change the formula and it just happens to be lower?
> […] they changed it to make the numbers look better.
They changed the number because the number was not modelling reality as accurately as it could have.
Perhaps actually read the Boskin Report:
> 5. Changes in the CPI have substantially overstated the actual rate of price inflation, by about 1.3 percentage points per annum prior to 1996 (the extra 0.2 percentage point is due to a problem called formula bias inadvertently introduced in 1978 and fixed this year). It is likely that a large bias also occurred looking back over at least the last couple of decades.
> 6. The upward bias creates in the federal budget an annual automatic real increase in indexed benefits and a real tax cut. CBO estimates that if the change in the CPI overstated the change in the cost of living by an average of 1.1 percentage points per year over the next decade, this bias would contribute about $148 billion to the deficit in 2006 and $691 billion to the national debt by then. The bias alone would be the fourth largest federal program, after social security, health care and defense. By 2008, these totals reach $202 billion and $1.07 trillion, respectively.
> 7. Some have suggested that different groups in the population are likely to experience faster or slower growth in their cost of living than recorded by changes in the CPI. We find no compelling evidence of this to date (in fact just the opposite) but further exploration of this issue is desirable.
* https://www.ssa.gov/history/reports/boskinrpt.html
* https://en.wikipedia.org/wiki/Boskin_Commission
Feel free to point out any errors in the methodology and logic that they used.
Here's a paper from 2006 to get you started:
> This paper provides a retrospective on the 1996 Boskin Commission Report, Toward a More Accurate Measure of the Cost of Living, and its famous estimate that the CPI in 1995-96 was upward biased by 1.1 percent per year. The paper summarizes the report's methods, findings, and recommendations, and then reviews the criticisms that appeared soon after the Report was issued. Post-Boskin changes in the CPI are summarized and assessed, as is recent research on related issues. The paper sharply distinguishes two questions. First, with what we know now, what should the Commission have concluded about CPI bias in 1995-96? Second, what is the bias now after the many improvements introduced into the CPI since the Commission's Report?
> About the first question, my own recent research on apparel and rental housing indicates a substantial downward bias in the CPI over much of the twentieth century, diminishing in size after 1985. Incorporating these findings into the Boskin matrix would reduce its 0.6 percent annual upward bias due to quality change and new products to a smaller 0.4 percent bias. However, this is more than offset by the stunning discrepancy over 2000-06 in the chain-weighted C-CPI-U compared to the traditional CPI-U, indicating that the Commission greatly understated the magnitude of upper-level substitution bias. This retrospective evaluation suggests that the Boskin bias estimate for 1995-96 should have been 1.2 to 1.3 percent, not 1.1 percent.
> Current upward bias in the CPI is estimated to have declined from the revised 1.2-1.3 percent in the Boskin era to about 0.8 percent today. Yet the Boskin report, like most contemporary studies of quality change, failed to place sufficient value on the value of new products and on increased longevity. Allowing for these, today's bias is at least 1.0 percent per year or perhaps even higher.
* https://www.nber.org/papers/w12311
They changed the number because the number was not modelling reality as accurately as it could have.
Perhaps actually read the Boskin Report:
> 5. Changes in the CPI have substantially overstated the actual rate of price inflation, by about 1.3 percentage points per annum prior to 1996 (the extra 0.2 percentage point is due to a problem called formula bias inadvertently introduced in 1978 and fixed this year). It is likely that a large bias also occurred looking back over at least the last couple of decades.
> 6. The upward bias creates in the federal budget an annual automatic real increase in indexed benefits and a real tax cut. CBO estimates that if the change in the CPI overstated the change in the cost of living by an average of 1.1 percentage points per year over the next decade, this bias would contribute about $148 billion to the deficit in 2006 and $691 billion to the national debt by then. The bias alone would be the fourth largest federal program, after social security, health care and defense. By 2008, these totals reach $202 billion and $1.07 trillion, respectively.
> 7. Some have suggested that different groups in the population are likely to experience faster or slower growth in their cost of living than recorded by changes in the CPI. We find no compelling evidence of this to date (in fact just the opposite) but further exploration of this issue is desirable.
* https://www.ssa.gov/history/reports/boskinrpt.html
* https://en.wikipedia.org/wiki/Boskin_Commission
Feel free to point out any errors in the methodology and logic that they used.
Here's a paper from 2006 to get you started:
> This paper provides a retrospective on the 1996 Boskin Commission Report, Toward a More Accurate Measure of the Cost of Living, and its famous estimate that the CPI in 1995-96 was upward biased by 1.1 percent per year. The paper summarizes the report's methods, findings, and recommendations, and then reviews the criticisms that appeared soon after the Report was issued. Post-Boskin changes in the CPI are summarized and assessed, as is recent research on related issues. The paper sharply distinguishes two questions. First, with what we know now, what should the Commission have concluded about CPI bias in 1995-96? Second, what is the bias now after the many improvements introduced into the CPI since the Commission's Report?
> About the first question, my own recent research on apparel and rental housing indicates a substantial downward bias in the CPI over much of the twentieth century, diminishing in size after 1985. Incorporating these findings into the Boskin matrix would reduce its 0.6 percent annual upward bias due to quality change and new products to a smaller 0.4 percent bias. However, this is more than offset by the stunning discrepancy over 2000-06 in the chain-weighted C-CPI-U compared to the traditional CPI-U, indicating that the Commission greatly understated the magnitude of upper-level substitution bias. This retrospective evaluation suggests that the Boskin bias estimate for 1995-96 should have been 1.2 to 1.3 percent, not 1.1 percent.
> Current upward bias in the CPI is estimated to have declined from the revised 1.2-1.3 percent in the Boskin era to about 0.8 percent today. Yet the Boskin report, like most contemporary studies of quality change, failed to place sufficient value on the value of new products and on increased longevity. Allowing for these, today's bias is at least 1.0 percent per year or perhaps even higher.
* https://www.nber.org/papers/w12311
This is why I think CPI numbers are all hogwash
All the younger people I know in less than stellar jobs are really hurting. These people were never well off but were comfortable before the pandemic.
But now they’re making hard decisions for basic necessities and grinding down the quality of their lives.
All the younger people I know in less than stellar jobs are really hurting. These people were never well off but were comfortable before the pandemic.
But now they’re making hard decisions for basic necessities and grinding down the quality of their lives.
The lowest income workers have seen the largest wage gains over the course of the pandemic.
But the lowest income workers are also hit hardest by rising costs.
I suspect the person you’re responding to is not really talking about truly low paying jobs - more likely entry level out of college jobs. (Not that I expect those are in aggregate underwater either.)
I remember from even better days than today, but the entry job out of college had become an unpaid internship.
Which effectively limited them to people that already had very stable and financially supportive family situations.
Part of the reason that class mobility is going down. Although I think most of the production in class mobility is due to the disappearance of the high paid blue collar job in manufacturing
Supposedly manufacturing will be re- onshored in the next decade depending on who you talk to. So the tide may be turning?
Which effectively limited them to people that already had very stable and financially supportive family situations.
Part of the reason that class mobility is going down. Although I think most of the production in class mobility is due to the disappearance of the high paid blue collar job in manufacturing
Supposedly manufacturing will be re- onshored in the next decade depending on who you talk to. So the tide may be turning?
Meaningless when housing costs have soared. They've made wage gains because it's literally not worth it to work for $8/hr anymore and companies were unable to find workers.
Wages for the lowest quintile have gone up in real terms, meaning adjusted for inflation (including shelter costs). None of your economic beliefs are grounded reality, you just make up beliefs that flatter your politics and downvote everyone who disagrees with you.
It would be good to get real numbers, the problem is inflation does not hit everyone equally; for example my house is paid off, the housing components do not affect me at all. So if they are growing faster than the rest of the basket it does not reflect in my life.
So real gains may or may not exist without looking at the individual or individual cohort you are talking about.
So real gains may or may not exist without looking at the individual or individual cohort you are talking about.
I never downvote, your ad hominem is false and shows your emotionally charged mentality.
> None of your economic beliefs are grounded reality
If you think reality is defined in economic reports I have a bridge to sell you.
> None of your economic beliefs are grounded reality
If you think reality is defined in economic reports I have a bridge to sell you.
right but they're still made poorer due to M2 increasing and not being able to leverage into assets with debt.
The meaningless rhetoric of imbeciles.
If you're drowning in the ocean 100 ft below the surface, saying you managed to go 80 ft so you're still 20 ft below the surface is remarkably stupid and fails to appreciate the gravity of the situation.
If you're drowning in the ocean 100 ft below the surface, saying you managed to go 80 ft so you're still 20 ft below the surface is remarkably stupid and fails to appreciate the gravity of the situation.
Have they? Or are they all just taking on multiple part time jobs?
So what do you use that's better? Your personal experiences don't tell us much about the other 320+ million people.
They’re making a valid point, don’t shout them down by calling it a one off.
Quality of living is plummeting and inflation on things you actually care about is way more than the headline rate. Housing, for example takes up a vast proportion of income and the increase has been way over inflation.
I don’t think it’s headline news to state that the headline rate of inflation is not all that reflective of reality.
Quality of living is plummeting and inflation on things you actually care about is way more than the headline rate. Housing, for example takes up a vast proportion of income and the increase has been way over inflation.
I don’t think it’s headline news to state that the headline rate of inflation is not all that reflective of reality.
> Quality of living is plummeting
Massive citation needed.
Massive citation needed.
Go ask literally anyone you know that doesn’t work in tech and isn’t rich.
Or read any one of many articles about it.
https://www.theguardian.com/business/2022/jul/19/uk-living-s...
https://www.theguardian.com/business/2022/nov/17/obr-confirm...
https://www.cnbc.com/id/44962589
https://www.economist.com/graphic-detail/2022/09/08/global-l...
Or read any one of many articles about it.
https://www.theguardian.com/business/2022/jul/19/uk-living-s...
https://www.theguardian.com/business/2022/nov/17/obr-confirm...
https://www.cnbc.com/id/44962589
https://www.economist.com/graphic-detail/2022/09/08/global-l...
Who are you gonna trust: the government report, or your own lying eyes? No one I know outside of tech will ever be able to afford a home, but the TV says things are fine, so...
> Who are you gonna trust: the government report, or your own lying eyes?
The CPI is a national average for an average basket of goods; your local conditions may be different. It has zero connection to your personal budget.
In Canada the headline national number was 2.8%, but the province of Alberta (as a 'whole') had 4.2%, while Manitoba had 0.9%:
* https://www150.statcan.gc.ca/n1/daily-quotidien/240319/dq240... (Chart 5) * https://www150.statcan.gc.ca/n1/pub/71-607-x/2018016/cpi-ipc... * https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=181000... (searchable by province)
StatCan has a "Personal Inflation Calculator" where you can enter your own numbers/budget and find a number that may be closer to what's happening around you:
* https://www150.statcan.gc.ca/n1/pub/71-607-x/71-607-x2020015...
Remember: the CPI is a model of reality, and not reality itself. It is used as a guide, and to use the words of [Alfred Korzybski](https://en.wikipedia.org/wiki/Alfred_Korzybski):
* [The map is not the territory.](https://en.wikipedia.org/wiki/Map–territory_relation) * https://fs.blog/map-and-territory/
Or those of statistician George Box:
* [All models are wrong but some are useful.](https://en.wikipedia.org/wiki/All_models_are_wrong)
The CPI is a national average for an average basket of goods; your local conditions may be different. It has zero connection to your personal budget.
In Canada the headline national number was 2.8%, but the province of Alberta (as a 'whole') had 4.2%, while Manitoba had 0.9%:
* https://www150.statcan.gc.ca/n1/daily-quotidien/240319/dq240... (Chart 5) * https://www150.statcan.gc.ca/n1/pub/71-607-x/2018016/cpi-ipc... * https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=181000... (searchable by province)
StatCan has a "Personal Inflation Calculator" where you can enter your own numbers/budget and find a number that may be closer to what's happening around you:
* https://www150.statcan.gc.ca/n1/pub/71-607-x/71-607-x2020015...
Remember: the CPI is a model of reality, and not reality itself. It is used as a guide, and to use the words of [Alfred Korzybski](https://en.wikipedia.org/wiki/Alfred_Korzybski):
* [The map is not the territory.](https://en.wikipedia.org/wiki/Map–territory_relation) * https://fs.blog/map-and-territory/
Or those of statistician George Box:
* [All models are wrong but some are useful.](https://en.wikipedia.org/wiki/All_models_are_wrong)
My personal experience makes me miserable because I see so much misery around me
I couldn’t care less what’s happening in some government statistical bureau. That doesn’t affect the quality of my day to day life.
But when I catch up with old friends, see young colleagues, talk to cashiers at the store, and they all have tales of misery, I feel miserable.
I couldn’t care less what’s happening in some government statistical bureau. That doesn’t affect the quality of my day to day life.
But when I catch up with old friends, see young colleagues, talk to cashiers at the store, and they all have tales of misery, I feel miserable.
> So what do you use that's better?
If the government would stop trying to micromanage the economy, then it wouldn't need to find some aggregate statistic to use, no matter how misleading or counterproductive it was.
If the government would stop trying to micromanage the economy, then it wouldn't need to find some aggregate statistic to use, no matter how misleading or counterproductive it was.
>>government would stop trying to micromanage the economy
Right, but some of us are not religious, so proposals needs a little bit more than the blind faith of "take your hands off the wheel and I'm sure everything will magically be better for everybody, particularly the poor".
Right, but some of us are not religious, so proposals needs a little bit more than the blind faith of "take your hands off the wheel and I'm sure everything will magically be better for everybody, particularly the poor".
Deregulation has not lead to a utopia of competition in free markets, rather virtually every market is a cartel or monopoly with heavy regulatory capture.
This is probably the best example of government lack of regulation, considering that their ample laws against monopoly's, cartels and duopolies from the days of Teddy Roosevelt's administration
They are effectively not enforced, or if enforcement is attempted corporate legal departments now have an effective means of defeating them since the Microsoft trial
This is probably the best example of government lack of regulation, considering that their ample laws against monopoly's, cartels and duopolies from the days of Teddy Roosevelt's administration
They are effectively not enforced, or if enforcement is attempted corporate legal departments now have an effective means of defeating them since the Microsoft trial
> Deregulation has not lead to a utopia of competition in free markets, rather virtually every market is a cartel or monopoly with heavy regulatory capture.
You're contradicting yourself. You can't have "regulatory capture" and "deregulation" at the same time.
As a matter of actual fact, we do have lots of regulatory capture, which has resulted in huge swaths of regulation that favors large corporations who can afford lobbyists, and disfavors smaller business that actually are the most productive part of our economy. With what results, we see.
> They are effectively not enforced
Antitrust law enforcement has indeed been irregular since they were passed--but what enforcement has been done has done more harm than good. The classic cases of antitrust enforcement, such as Standard Oil or Alcoa Aluminum, resulted in higher prices and scarcer products for consumers--i.e., a negative impact, not a positive impact.
However, antitrust laws are a very small part of the total body of regulations that affect businesses. It's just that most of those regulations are written by executive branch bureaucrats instead of Congress. The Federal Register is much larger than the United States Code, and includes much more detailed micromanagement of all kinds of business activities. Which, again, favors the large corporations that bought those regulations in order to hamstring their competitors, smaller businesses who are more productive but less able to absorb the costs of compliance with that huge mass of regulations.
You're contradicting yourself. You can't have "regulatory capture" and "deregulation" at the same time.
As a matter of actual fact, we do have lots of regulatory capture, which has resulted in huge swaths of regulation that favors large corporations who can afford lobbyists, and disfavors smaller business that actually are the most productive part of our economy. With what results, we see.
> They are effectively not enforced
Antitrust law enforcement has indeed been irregular since they were passed--but what enforcement has been done has done more harm than good. The classic cases of antitrust enforcement, such as Standard Oil or Alcoa Aluminum, resulted in higher prices and scarcer products for consumers--i.e., a negative impact, not a positive impact.
However, antitrust laws are a very small part of the total body of regulations that affect businesses. It's just that most of those regulations are written by executive branch bureaucrats instead of Congress. The Federal Register is much larger than the United States Code, and includes much more detailed micromanagement of all kinds of business activities. Which, again, favors the large corporations that bought those regulations in order to hamstring their competitors, smaller businesses who are more productive but less able to absorb the costs of compliance with that huge mass of regulations.
I am not contradicting myself. Laws that breaks up companies that are too large is totally different than complex approval/regulatory commissions where internal lobbying and various other advantages give you the keys to the castle
The only regulatory capture in play against antitrust is bribery of the judicial system officials, which we now know is rampant, and employing executive and congressional pressure on the DoJ, which obviously exists.
The only regulatory capture in play against antitrust is bribery of the judicial system officials, which we now know is rampant, and employing executive and congressional pressure on the DoJ, which obviously exists.
[deleted]
It worked really well historically, before central banks, Keynes, Friedman ...
I genuinely don't know if that's extremely snarky sarcasm or extremely earnest opinion.
(if I said it it would be completely sarcastic, but some people do idealize the far past and probably mean it honestly, presumably because they mentally imagine / assume they wouldn't be in one of the sucky classes of society)
(if I said it it would be completely sarcastic, but some people do idealize the far past and probably mean it honestly, presumably because they mentally imagine / assume they wouldn't be in one of the sucky classes of society)
Government likes to terrify people with stories of depression (and fascism and climate change) in order to grab more power for themselves and the elite. If you play the game then you too can get paid - get a PhD, keep your eyes down and march like they say, and they'll pay you to play with numbers that make them look credible.
But people are waking up. The Internet has democratized information (sorry, it's popularized it), and now the elite gatekeepers in colleges can't stop anyone from gathering economic data with their own eyes and doing economic analysis. I can see how much a loaf of bread costs; I can see my basket of goods and my supermarket receipt.
Just kidding. I really think the lack of humanities education, especially history and literature, makes people - especially in SV and the wider less-educated world - very vulnerable to this nonsense. It's transparent nonsense if you understand it, but if you toss away generations of understanding about its technique and manipulative power and effects, you are a babe in the woods.
"Not to know what happened before one was born is always to be a child." - Cicero
But people are waking up. The Internet has democratized information (sorry, it's popularized it), and now the elite gatekeepers in colleges can't stop anyone from gathering economic data with their own eyes and doing economic analysis. I can see how much a loaf of bread costs; I can see my basket of goods and my supermarket receipt.
Just kidding. I really think the lack of humanities education, especially history and literature, makes people - especially in SV and the wider less-educated world - very vulnerable to this nonsense. It's transparent nonsense if you understand it, but if you toss away generations of understanding about its technique and manipulative power and effects, you are a babe in the woods.
"Not to know what happened before one was born is always to be a child." - Cicero
The tricky bit is interwebs make sarcasm really hard to detect, especially when today there's ample real and honest examples of extreme opinions along any given scale. I may be socially inept, but I'm still perplexed as to which of the couple of different points of view separated by "just kidding" phrase you are genuinely putting forward; apologies if I'm being obtuse, it is not deliberate.
'Just kidding' refers to what's above it. Sorry for the confusion; it wasn't intended but I can understand it.
So people should ignore their expenses going way up, and not bother plotting them or whatever because...?
You might be posting to the wrong subthread?
We've done that before... the boom bust cycles were far worse.
Yep, societies just don't function until you establish a central bank with fiat currency and fractional reserve banking. It's a law of human nature.
> the boom bust cycles were far worse.
No, they weren't. The worst depression in history, the Great Depression of the 1930s, occurred after the Federal Reserve was in place in the US, and similar central banks were in place in other developed countries.
No, they weren't. The worst depression in history, the Great Depression of the 1930s, occurred after the Federal Reserve was in place in the US, and similar central banks were in place in other developed countries.
> All the younger people I know in less than stellar jobs are really hurting.
And? It has always sucked to be poor / have less. That doesn't mean that the measurement of prices via CPI is inaccurate.
The fact that capitalism has run amok and income inequality is growing doesn't mean the statisticians at the BLS are wrong or are cooking the books.
And? It has always sucked to be poor / have less. That doesn't mean that the measurement of prices via CPI is inaccurate.
The fact that capitalism has run amok and income inequality is growing doesn't mean the statisticians at the BLS are wrong or are cooking the books.
That would have been true if CPI was a purely economic issue. But it’s also a political issue and once politics is involved, there is vast incentive to fudge and massage the data to fit a narrative.
> But it’s also a political issue and once politics is involved, there is vast incentive to fudge and massage the data to fit a narrative.
[citation needed]
The CPI has been verified over and over again. There's open source software where you can do things yourself:
* https://en.wikipedia.org/wiki/MIT_Billion_Prices_project
It is probably the most looked at number that the government releases. There are economics professors/researchers, statistics professors/researchers, economists at hedge fund, economists at pension fund, economists at labour unions, bond traders, equities traders, etc, looking at the numbers every month. No one professionally involved with it thinks it's fudged.
There are certainly different methodologies, and that is often debated (e.g., how best to measure Shelter for homeowners versus renters), but for the current system, I'd like to see which non-tin foil hat wearing people (i.e., not Shadowstats.com) think it is being fudged and how.
[citation needed]
The CPI has been verified over and over again. There's open source software where you can do things yourself:
* https://en.wikipedia.org/wiki/MIT_Billion_Prices_project
It is probably the most looked at number that the government releases. There are economics professors/researchers, statistics professors/researchers, economists at hedge fund, economists at pension fund, economists at labour unions, bond traders, equities traders, etc, looking at the numbers every month. No one professionally involved with it thinks it's fudged.
There are certainly different methodologies, and that is often debated (e.g., how best to measure Shelter for homeowners versus renters), but for the current system, I'd like to see which non-tin foil hat wearing people (i.e., not Shadowstats.com) think it is being fudged and how.
I don't believe leading economists didn't see this coming. Even if they didn't originally, it's been clear now, for decades.
This is the system working as intended, making government spending easy and gradually worsening poor's people lives.
This is the system working as intended, making government spending easy and gradually worsening poor's people lives.
One neat feature of ignorance is the ability to hold incorrect ideas with sincerity, I not only think economists are generally wrong, but the most dim amongst them are the most likely to be promoted to prominence.
> One neat feature of ignorance is the ability to hold incorrect ideas with sincerity, I not only think economists are generally wrong, but the most dim amongst them are the most likely to be promoted to prominence.
As you reject ignorance (which I applaud), what knowledge is that based on?
As you reject ignorance (which I applaud), what knowledge is that based on?
Are poor people's lives objectively worse now than they were, say, 40 years ago?
Technology and innovation has made people’s lives better at the same time that politicians and bankers have made them worse. Just because the politicians and bankers failed to totally eclipse technology does not mean they are not a severe detriment.
> Technology and innovation has made people’s lives better at the same time that politicians and bankers have made them worse.
That's the SV fantasy!: I'm awesome and a super-genius, everyone else is useless, dumb and annoying, and therefore I should be all-powerful!. It's like they're all still 13 year olds hacking on their computers, where they finally feel really powerful. It's almost as if they've never learned anything more about the world - humanities are just entertainment for the wealthy - leaving themselves vulnerable to the most obvious self-deception.
One might say that technology and innovation have turned our world into a hellscape, with massive social and political breakdown, massive mis/disinformation, and climate change. Maybe some innovation can build us new supersonic jets, better oil extraction, more effective automated online persuasion, or some snazzy financial tech - like CDOs, crypto, and private equity.
On the other hand, our political institutions did an amazing job of getting the US through a global pandemic without even a recession. There are serious problems, such as housing and education prices, but I don't think anyone could have predicted how well things went economically.
That's the SV fantasy!: I'm awesome and a super-genius, everyone else is useless, dumb and annoying, and therefore I should be all-powerful!. It's like they're all still 13 year olds hacking on their computers, where they finally feel really powerful. It's almost as if they've never learned anything more about the world - humanities are just entertainment for the wealthy - leaving themselves vulnerable to the most obvious self-deception.
One might say that technology and innovation have turned our world into a hellscape, with massive social and political breakdown, massive mis/disinformation, and climate change. Maybe some innovation can build us new supersonic jets, better oil extraction, more effective automated online persuasion, or some snazzy financial tech - like CDOs, crypto, and private equity.
On the other hand, our political institutions did an amazing job of getting the US through a global pandemic without even a recession. There are serious problems, such as housing and education prices, but I don't think anyone could have predicted how well things went economically.
Technology is the only reason the economy could somewhat continue during the pandemic. Did you hear about working from home?
Technology is how we got a vaccine so quickly.
Technology is how we tracked the spread. Technology is how we notified of potential exposure.
Nobody with a humanities background did anything meaningful to help compared to the last pandemic. It was all technology, engineering, medicine, and science that let us approach this one differently.
Technology is how we got a vaccine so quickly.
Technology is how we tracked the spread. Technology is how we notified of potential exposure.
Nobody with a humanities background did anything meaningful to help compared to the last pandemic. It was all technology, engineering, medicine, and science that let us approach this one differently.
> Nobody with a humanities background did anything meaningful
If you learned a bit about it, you wouldn't show off rigid tunnel vision or you might express yourself clearly and without the blind destruction of hyperbole.
Why did people make or not make vaccines? Humanities (and social science). How were they funded, regulated, etc.? Ditto. What is the scientific method? Humanities (really). Why did the US and EU as expected, but not, e.g., Russia make the most effective vaccines? Humanities. Why did people take or not take vaccines? Humanities, or not enough humanities, or they were owned by people who mastered messaging and mass political communication, which is humanities.
If you learned a bit about it, you wouldn't show off rigid tunnel vision or you might express yourself clearly and without the blind destruction of hyperbole.
Why did people make or not make vaccines? Humanities (and social science). How were they funded, regulated, etc.? Ditto. What is the scientific method? Humanities (really). Why did the US and EU as expected, but not, e.g., Russia make the most effective vaccines? Humanities. Why did people take or not take vaccines? Humanities, or not enough humanities, or they were owned by people who mastered messaging and mass political communication, which is humanities.
They were funded by other scientists and medical professions who became heads of the CDC, etc. People from humanities are ill quipped to select grant recipients for any real research.
The scientific method is philosophy, but the majority of humanities never go anywhere near the scientific method other than to convince themselves that doing a qualitative oral survey of some classmates is just as much a “science” as the falsifiable ones.
> Why did people take or not take vaccines? Humanities,
The failure of humanities to produce any meaningful predictive behavior of humans is a pretty good example of why it’s a failed branch of inquiry.
> mastered messaging and mass political communication, which is humanities.
The people who have done this are completely outside of the grasp of the humanities taught in US universities. Every Ivy League economist, sociologist, social psychologist, etc that was in US leadership for the last 20 years has done nothing but flounder.
The scientific method is philosophy, but the majority of humanities never go anywhere near the scientific method other than to convince themselves that doing a qualitative oral survey of some classmates is just as much a “science” as the falsifiable ones.
> Why did people take or not take vaccines? Humanities,
The failure of humanities to produce any meaningful predictive behavior of humans is a pretty good example of why it’s a failed branch of inquiry.
> mastered messaging and mass political communication, which is humanities.
The people who have done this are completely outside of the grasp of the humanities taught in US universities. Every Ivy League economist, sociologist, social psychologist, etc that was in US leadership for the last 20 years has done nothing but flounder.
I can't tell if this is satire, either way I had a good laugh.
Yeah, I was torn but his last paragraph is 100% satire
> On the other hand, our political institutions did an amazing job of getting the US through a global pandemic without even a recession. There are serious problems, such as housing and education prices, but I don't think anyone could have predicted how well things went economically.
Just wait lol ..
> On the other hand, our political institutions did an amazing job of getting the US through a global pandemic without even a recession. There are serious problems, such as housing and education prices, but I don't think anyone could have predicted how well things went economically.
Just wait lol ..
As of this week the yield curve has been inverted for a longer period than ever before in history, that's how you know the economy is healthier than ever
Nostradamus will be right eventually
I predict that a recession is coming. It's not all bad news though; I also predict really low beer prices.
They still running clearance sales on Bud Light? Or are they going to give a free can to another person that annoys their snowflake customers?
So no debate on the merits? We agree! :)
Feel free to laugh, if that's what makes you happy.
Feel free to laugh, if that's what makes you happy.
I have a feeling that such a debate will not be productive and have decided to abstain.
Or you have nothing to say. Either way, why comment?
They can objectively afford less housing, education, healthcare and such things than 40 years ago. They can afford better computers, but that is just thanks to technology, other than technology making things cheaper their lives are worse.
"Housing" ... mostly a NIMBY problem. AKA not a small group of capitalists ruining it for everyone else, but a bunch of soccer moms who hate any densification and insist that their neighborhood must stay the same forever, weaponizing environmental laws to stop any development. Notably, cities that build nonetheless, be it Austin, TX, or Warsaw, Poland, buck this otherwise very widespread trend.
"Education, healthcare" ... depends on the country involved, plus the extent of healthcare you can now get is vastly bigger due to scientific progress. Forty years ago, HIV infection was a death sentence and most cancers too.
"Education, healthcare" ... depends on the country involved, plus the extent of healthcare you can now get is vastly bigger due to scientific progress. Forty years ago, HIV infection was a death sentence and most cancers too.
At any given time of year there are ~23 empty housing units for every single homeless person in the US, even close to 3 per homeless person in Los Angeles and New York City; somehow the constant, coordinated line of "supply constraints" and "grr NIMBYs!" doesn't hold up to the actual data
Vacant doesn't mean available. Apartments that are being shown to renters are vacant. Houses for sale are vacant. Houses that have sold or rented but haven't been moved into are not available.
It would be impossible to house homeless in vacant houses. Sellers and landlords would never accept it because would make it hard to find people. The short-term rentals would be hard to mange, not good for the homeless to always be moving, and easily go wrong. Is the government going to compensate for damages? For delayed moving into new house? It is almost certainly cheaper to build the homeless housing.
It would be impossible to house homeless in vacant houses. Sellers and landlords would never accept it because would make it hard to find people. The short-term rentals would be hard to mange, not good for the homeless to always be moving, and easily go wrong. Is the government going to compensate for damages? For delayed moving into new house? It is almost certainly cheaper to build the homeless housing.
Certainly in their ability to buy homes.
> Since 1963, inflation has risen 896%, while housing prices have risen by more than 2,350%.
> For example, between 1984 and 2021, home prices in Massachusetts rose by 469.89% while incomes increased by 221.10%.
ETC, ETC
https://www.investopedia.com/ask/answers/correlation-inflati...
> Since 1963, inflation has risen 896%, while housing prices have risen by more than 2,350%.
> For example, between 1984 and 2021, home prices in Massachusetts rose by 469.89% while incomes increased by 221.10%.
ETC, ETC
https://www.investopedia.com/ask/answers/correlation-inflati...
Land zoned for development is the one thing you cannot produce in factories. No wonder that densely populated areas feel the shortage.
Zone more land for denser development, and you will see the rents and home prices fall, or at least stagnate. That is why people started building skyscrapers immediately after reasonably developed lift technology was available.
Zone more land for denser development, and you will see the rents and home prices fall, or at least stagnate. That is why people started building skyscrapers immediately after reasonably developed lift technology was available.
40 years ago I could work a summer job at minimum wage and earn enough to pay a full year's tuition at UCSD. Doing the same thing in 2023 paid for less than 1/3 of the tuition.
That has more to do with California not funding the UC system as well as they used to.
Prop 98 in 1988 shifted funding away from UC and CS systems towards community colleges. The UC system went from about 6% of the budget to a bit over 2%.
That amounts to a loss of ~$15,000 per student in today's dollars.
Prop 98 in 1988 shifted funding away from UC and CS systems towards community colleges. The UC system went from about 6% of the budget to a bit over 2%.
That amounts to a loss of ~$15,000 per student in today's dollars.
That's still inflation. It doesn't matter why the prices went up, it matters that they did.
Yes, but a summer of minimum wage today would be enough to pay for tuition at UCSD had funding been maintained at prior levels.
Notably, minimum wage in California has increased faster than inflation since 1984.
Notably, minimum wage in California has increased faster than inflation since 1984.
Sure, it maybe would, but it isn't. That people are poorer than they were is still true.
People don't compare how well they were off 40 years ago vs today, they remember how things were in recent history - i.e. 3-4 years ago and then decide if they are better or worse off.
Inflation is a killer for the poor and most of the middle class - and a boon for the wealthy (who own appreciating assets) - everyone I know who is not wealthy enough to not care, is feeling it.
Inflation is a killer for the poor and most of the middle class - and a boon for the wealthy (who own appreciating assets) - everyone I know who is not wealthy enough to not care, is feeling it.
The only way to answer this question is with data, not anecdote. And the people in this discussion thread are saying they don't trust the inflation data.
I trust the data, and the data shows their lives are better. If you don't trust the data, it's impossible to know.
I trust the data, and the data shows their lives are better. If you don't trust the data, it's impossible to know.
A read of the data shows that, but it's not the only read nor the only data.
So we can say wages have increased to keep up with inflation, but left out is all the money lost during the time lag before wages caught up. And whose wages caught up? If you use average wages, then you can hide the details. You really need to look at different income levels, or at least the median wage and the inflation experienced for that median person, bare minimum.
So we can say wages have increased to keep up with inflation, but left out is all the money lost during the time lag before wages caught up. And whose wages caught up? If you use average wages, then you can hide the details. You really need to look at different income levels, or at least the median wage and the inflation experienced for that median person, bare minimum.
What was the middle class’ rate of home ownership then vs now?
you need to make adjustments for the question to make since, was the lowest earning quartile of the population worse off relative to the upper quartile 40 years ago verses the lower compared to the upper today.
Yes, for living arrangements.
Pretty sure they have a steady poor people target rate as well (unemployment rate roughly) so no need to worry.
This is key. Due to hedonics/replacements inflation hasn't reflected what people actually feel for a while now.
> Due to hedonics/replacements inflation hasn't reflected what people actually feel for a while now.
The hedonics/replacements occur in the data because what is looked is taken from surveys of what people buy:
* https://www.bls.gov/respondents/cpi/
I just happened to answer a question on the CPI in Canada in another forum: The CPI you see in the headlines is made of of various components (Shelter, Food, Transportation, etc), the proportions of which are determined by spending surveys:
* https://www.statcan.gc.ca/en/survey/household/3508
As people change their buying habits the items that are tracked also change to reflect what consumers are spending. Here are the items in each category:
* https://www.statcan.gc.ca/en/statistical-programs/document/2...
* https://www.statcan.gc.ca/en/statistical-programs/document/2...
You can see the list of changes going back to 1913 at (coal and lard were removed/replaced in 1956):
* https://www.statcan.gc.ca/en/statistical-programs/document/2...
It should also be noted that the number reported in the headlines is the national average, while the prices can vary widely depending on your location. So in the report for February 2024, the national number was 2.8%, but Alberta had 4.2% while Manitoba had 0.9%:
* https://www150.statcan.gc.ca/n1/daily-quotidien/240319/dq240... (Chart 5)
* https://www150.statcan.gc.ca/n1/pub/71-607-x/2018016/cpi-ipc...
* https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=181000... (searchable by province)
StatCan has a "Personal Inflation Calculator" where you can enter your own numbers/budget and find a number that may be closer to what's happening around you:
* https://www150.statcan.gc.ca/n1/pub/71-607-x/71-607-x2020015...
Remember: the CPI is a model of reality, and not reality itself. It is used as a guide, and to use the words of [Alfred Korzybski](https://en.wikipedia.org/wiki/Alfred_Korzybski):
* [The map is not the territory.](https://en.wikipedia.org/wiki/Map–territory_relation) * https://fs.blog/map-and-territory/
Or those of statistician George Box:
* [All models are wrong but some are useful.](https://en.wikipedia.org/wiki/All_models_are_wrong)
The hedonics/replacements occur in the data because what is looked is taken from surveys of what people buy:
* https://www.bls.gov/respondents/cpi/
I just happened to answer a question on the CPI in Canada in another forum: The CPI you see in the headlines is made of of various components (Shelter, Food, Transportation, etc), the proportions of which are determined by spending surveys:
* https://www.statcan.gc.ca/en/survey/household/3508
As people change their buying habits the items that are tracked also change to reflect what consumers are spending. Here are the items in each category:
* https://www.statcan.gc.ca/en/statistical-programs/document/2...
* https://www.statcan.gc.ca/en/statistical-programs/document/2...
You can see the list of changes going back to 1913 at (coal and lard were removed/replaced in 1956):
* https://www.statcan.gc.ca/en/statistical-programs/document/2...
It should also be noted that the number reported in the headlines is the national average, while the prices can vary widely depending on your location. So in the report for February 2024, the national number was 2.8%, but Alberta had 4.2% while Manitoba had 0.9%:
* https://www150.statcan.gc.ca/n1/daily-quotidien/240319/dq240... (Chart 5)
* https://www150.statcan.gc.ca/n1/pub/71-607-x/2018016/cpi-ipc...
* https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=181000... (searchable by province)
StatCan has a "Personal Inflation Calculator" where you can enter your own numbers/budget and find a number that may be closer to what's happening around you:
* https://www150.statcan.gc.ca/n1/pub/71-607-x/71-607-x2020015...
Remember: the CPI is a model of reality, and not reality itself. It is used as a guide, and to use the words of [Alfred Korzybski](https://en.wikipedia.org/wiki/Alfred_Korzybski):
* [The map is not the territory.](https://en.wikipedia.org/wiki/Map–territory_relation) * https://fs.blog/map-and-territory/
Or those of statistician George Box:
* [All models are wrong but some are useful.](https://en.wikipedia.org/wiki/All_models_are_wrong)
Well, no matter how the 2% figure was arrived at as a matter of historical happenstance, 2% is actually a very good number to shoot for.
First of all, a rate of zero would be ideal, but, lets face it, like any measurement, this is going to have some error. So, if you are going to err, on which side do you want to err? In favor of a little bit of inflation, or a little bit of deflation?
Well, inflation is painful, sure, but it's not nearly as bad as deflation. Let's exaggerate the numbers to make this point: if we had 50% deflation, your paycheck--the dollar amount you brought home--would be cut in half. However, your car payment, your mortgage, and your credit card bills would stay at the same nominal value.
So all of a sudden, you'd be financing twice as much debt, in real terms. A Calamity. You'd lose your car, your house, your credit. Cf with 50% inflation. You'd be paying back your debts with inflated dollars, which is hard for banks--but remember, they are also paying back their creditors with inflated dollars too...
So, given that inflation is bad but deflation is worse, and given that the Fed probably can't measure and-or even control the inflation rate to a sub 1% precision, shooting to keep inflation at 2% is a good strategy.
First of all, a rate of zero would be ideal, but, lets face it, like any measurement, this is going to have some error. So, if you are going to err, on which side do you want to err? In favor of a little bit of inflation, or a little bit of deflation?
Well, inflation is painful, sure, but it's not nearly as bad as deflation. Let's exaggerate the numbers to make this point: if we had 50% deflation, your paycheck--the dollar amount you brought home--would be cut in half. However, your car payment, your mortgage, and your credit card bills would stay at the same nominal value.
So all of a sudden, you'd be financing twice as much debt, in real terms. A Calamity. You'd lose your car, your house, your credit. Cf with 50% inflation. You'd be paying back your debts with inflated dollars, which is hard for banks--but remember, they are also paying back their creditors with inflated dollars too...
So, given that inflation is bad but deflation is worse, and given that the Fed probably can't measure and-or even control the inflation rate to a sub 1% precision, shooting to keep inflation at 2% is a good strategy.
> if we had 50% deflation, your paycheck--the dollar amount you brought home--would be cut in half. However, your car payment, your mortgage, and your credit card bills would stay at the same nominal value.
Society doesn’t need to operate with so much debt. Usury is a financial tool that benefits the rich.
Society doesn’t need to operate with so much debt. Usury is a financial tool that benefits the rich.
We do have way too much debt---and when we have too much debt, the inevitable result is inflation. Thank you, President Trump, for adding $8.4 trillion to the national debt and for financing the deficit by printing money.
But that doesn't mean that debt is intrinsically bad, or must always benefit the rich at the expense of the poor. Like any other tool, it depends on how you use it.
But that doesn't mean that debt is intrinsically bad, or must always benefit the rich at the expense of the poor. Like any other tool, it depends on how you use it.
> your paycheck--the dollar amount you brought home--would be cut in half. However, your car payment, your mortgage, and your credit card bills would stay at the same nominal value.
Not necessarily. If the transition to a deflationary economy is slow and planned, then expected deflation would start to be considered in the interest rates of your car payment, mortgage, etc. i.e. interest rates would become negative not long after inflation becomes negative.
If employers are capable of negotiating deflation adjusted salaries, then market pressure is capable of forcing companies to adjust their prices and interest rates to deflation.
Not necessarily. If the transition to a deflationary economy is slow and planned, then expected deflation would start to be considered in the interest rates of your car payment, mortgage, etc. i.e. interest rates would become negative not long after inflation becomes negative.
If employers are capable of negotiating deflation adjusted salaries, then market pressure is capable of forcing companies to adjust their prices and interest rates to deflation.
> If the transition to a deflationary economy is slow and planned,
If your money is guaranteed to grow in value--and without the risk of actually investing it--that would starve the economy of investment, which would reduce economic growth. People would hold back on their consumption (why buy it today, when tomorrow it will be cheaper??), further reducing demand, which would further depress prices, etc in a doom cycle.
That conclusion wasn't reached by extensive investigation of economists belly-buttons. Its observed fact and lived experience in every deflational economy ever observed.
And if you think Banks are just going to forgive your debt if your salary decreases, you are nuts.
If your money is guaranteed to grow in value--and without the risk of actually investing it--that would starve the economy of investment, which would reduce economic growth. People would hold back on their consumption (why buy it today, when tomorrow it will be cheaper??), further reducing demand, which would further depress prices, etc in a doom cycle.
That conclusion wasn't reached by extensive investigation of economists belly-buttons. Its observed fact and lived experience in every deflational economy ever observed.
And if you think Banks are just going to forgive your debt if your salary decreases, you are nuts.
We should use debt only as much as necessary. Normalization, promotion, even subsidy of debt leads people to make poorer choices and to think in the short term. It destabilizes the world, and sets up traps for the many naive people, traps that benefit lenders.
Well, an influx of money can be a bad thing too: 1/3rd of lottery winners go bankrupt within 5 years of winning...I knew somebody who gave their kid a sports car on his 16th birthday...a week later he and his car were pulled out from under a semi truck...
Whether something is good or bad depends on how well or how poorly you use it. Its not intrinsically good or bad.
Whether something is good or bad depends on how well or how poorly you use it. Its not intrinsically good or bad.
On a individual level, your examples may not representative of younger generations who have less liabilities. This demographic of course are more likely to rent and buy a cheaper car (or no car at all), consequently they would likely have a higher liquid/non-liquid asset ratio and therefor would probably benefit in the short term to deflation. In the long term they would fair better than older generation for the reasons you mention, plus the fact they can change their living situation faster (new location, rental, job etc) at the detriment of their landlord or other leasing companies.
Regarding inflation, I would argue that younger people are more susceptible. Their free cash flow will drop, and at higher rates could lead to negative flow which over an extended period would be financially deadly especially for NEETs or other people at risk.
Regarding inflation, I would argue that younger people are more susceptible. Their free cash flow will drop, and at higher rates could lead to negative flow which over an extended period would be financially deadly especially for NEETs or other people at risk.
> your examples may not representative of younger generations
Well, first of all, let me heartily agree with you that the young adults are being and have been being screwed for about 20 years now.
But remember in 2008, when middle aged and old farts like myself were being thrown out of their houses by the millions? That had absolutely no ill effect on young adults?
> plus the fact they can change their living situation faster
Yeah....but isn't that pretty much saying "lets screw the younger generation--they can take it better than we can!!" I mean, the younger generation shouldn't be always scrambling to find a new job at a lower salary, moving out of apartments they can no longer afford, etc etc. They should have the security to enable them to build a wonderful future for themselves.
> Regarding inflation, I would argue that younger people are more susceptible.
True. Inflation is bad. But it's important to realize that the inflation we are currently suffering didn't come about by the Federal reserve mucking around with interest rates. It was caused by Trump adding $8.5 trillion to the deficit, and financing that largely by printing money.
The young, of course, are screwed both ways: they have to endure the present inflation, and then they have to pay back that debt, while they are trying to keep their parents in a decent nursing home at the same time they are trying to pay for their kids college education.
The only reason they aren't rioting in the streets demanding better from us is that most of them are too young to even remember an economy which works the way it should.
Well, first of all, let me heartily agree with you that the young adults are being and have been being screwed for about 20 years now.
But remember in 2008, when middle aged and old farts like myself were being thrown out of their houses by the millions? That had absolutely no ill effect on young adults?
> plus the fact they can change their living situation faster
Yeah....but isn't that pretty much saying "lets screw the younger generation--they can take it better than we can!!" I mean, the younger generation shouldn't be always scrambling to find a new job at a lower salary, moving out of apartments they can no longer afford, etc etc. They should have the security to enable them to build a wonderful future for themselves.
> Regarding inflation, I would argue that younger people are more susceptible.
True. Inflation is bad. But it's important to realize that the inflation we are currently suffering didn't come about by the Federal reserve mucking around with interest rates. It was caused by Trump adding $8.5 trillion to the deficit, and financing that largely by printing money.
The young, of course, are screwed both ways: they have to endure the present inflation, and then they have to pay back that debt, while they are trying to keep their parents in a decent nursing home at the same time they are trying to pay for their kids college education.
The only reason they aren't rioting in the streets demanding better from us is that most of them are too young to even remember an economy which works the way it should.
>if we had 50% deflation, your paycheck--the dollar amount you brought home--would be cut in half. However, your car payment, your mortgage, and your credit card bills would stay at the same nominal value
If your contract says you make $5000/month in salary, then why would the number of dollars decrease? They wouldn't increase due to inflation unless the employer chose to "give you a raise" (just adjusting for inflation perhaps), but they can't unilaterally decrease your salary (in countries that don't suck, anyway).
If your contract says you make $5000/month in salary, then why would the number of dollars decrease? They wouldn't increase due to inflation unless the employer chose to "give you a raise" (just adjusting for inflation perhaps), but they can't unilaterally decrease your salary (in countries that don't suck, anyway).
> If your contract says you make $5000/month in salary, then why would the number of dollars decrease?
Well, deflation means everything costs less. And "everything" includes wages and salaries, even yours. If we had 50% deflation, that means the boss could hire somebody who was as productive as you for 50% less. This is elementary, right? That's what deflation means.
So either you are going to renegotiate that contract, or the boss will just fire you and hire somebody else.
"But I have a contract--how can he fire me??" Do you have a contract with your employer? If so, take another look at it--it will say you can be fired at any time for any reason.
There was a time in America when unions were strong enough that they could demand contracts for you which limited the conditions under which you could be fired. But (thank you, Ronald Reagan) those days were half a century ago. Some call it bullshit, some call it "efficient capitalism".
But the more efficient capitalism is, the faster your salary would decrease in lockstep with deflation. You would very rapidly not be able to pay your car payment, mortgage and credit cards. And if you think the banks are going care about your sob story, remember in 2008, the last time that large numbers of people couldn't pay their mortgages, they were kicked out into the street by the millions.
> (in countries that don't suck, anyway).
Well, two points, 1) America is a country that sucks, in that sense, and 2) Countries that don't suck do not let themselves fall into a deflationary trap.
Well, deflation means everything costs less. And "everything" includes wages and salaries, even yours. If we had 50% deflation, that means the boss could hire somebody who was as productive as you for 50% less. This is elementary, right? That's what deflation means.
So either you are going to renegotiate that contract, or the boss will just fire you and hire somebody else.
"But I have a contract--how can he fire me??" Do you have a contract with your employer? If so, take another look at it--it will say you can be fired at any time for any reason.
There was a time in America when unions were strong enough that they could demand contracts for you which limited the conditions under which you could be fired. But (thank you, Ronald Reagan) those days were half a century ago. Some call it bullshit, some call it "efficient capitalism".
But the more efficient capitalism is, the faster your salary would decrease in lockstep with deflation. You would very rapidly not be able to pay your car payment, mortgage and credit cards. And if you think the banks are going care about your sob story, remember in 2008, the last time that large numbers of people couldn't pay their mortgages, they were kicked out into the street by the millions.
> (in countries that don't suck, anyway).
Well, two points, 1) America is a country that sucks, in that sense, and 2) Countries that don't suck do not let themselves fall into a deflationary trap.
Secular deflation existed in the late 19th century during growth periods.
Deflation associated with debt deleveraging can be bad. But the problem is that we got into debt. Debt was not nearly as high in the 19th century. Debt addiction is relative modern.
Our inflationary 2%++ regime tends to encourage debt, and the Trumps of the world can leverage their lives to the hilt. Poor people have much more difficulty juggling debt and fail spectacularly. Debt growth increases economic instability.
Deflation associated with debt deleveraging can be bad. But the problem is that we got into debt. Debt was not nearly as high in the 19th century. Debt addiction is relative modern.
Our inflationary 2%++ regime tends to encourage debt, and the Trumps of the world can leverage their lives to the hilt. Poor people have much more difficulty juggling debt and fail spectacularly. Debt growth increases economic instability.
Ah, but if inflation is underreported with a 2% target, it's also likely to be underreported with a 0% target.
On the other side, fiscal hawks have an incentive to overreport inflation.
On the other side, fiscal hawks have an incentive to overreport inflation.
fiscal hawks, like who? and with what power?
That's not new or controversial (in economics circles).
This really took off in the Reagan years where real wages stagnated [1]. It was from the 1980s where you started to hear statements like "wage incresaes should be tied to productivity increases" [2]. If you parse that statement, it means no cost-of-living increases ie a decrease in real wages.
All of this is wealth transfer to the very rich and entirely intentional.
[1]: https://www.epi.org/publication/charting-wage-stagnation/
[2]: https://www.epi.org/productivity-pay-gap/
This really took off in the Reagan years where real wages stagnated [1]. It was from the 1980s where you started to hear statements like "wage incresaes should be tied to productivity increases" [2]. If you parse that statement, it means no cost-of-living increases ie a decrease in real wages.
All of this is wealth transfer to the very rich and entirely intentional.
[1]: https://www.epi.org/publication/charting-wage-stagnation/
[2]: https://www.epi.org/productivity-pay-gap/
"Real" wages are driven by the "real" supply and demand of labor, not by nominal numbers.
If the number of qualified workers increases significantly, you will end up with lower real wages. There were three major factors increasing labor supply around this time in the US. Immigration from Mexico, women continuing to enter the labor force, and reduction in demand/increase in (global) supply for lower skill labor via globalization of manufacturing
Not casting any judgment on whether these things are good, but they are far more likely to be the primary factor than inflation.
If the number of qualified workers increases significantly, you will end up with lower real wages. There were three major factors increasing labor supply around this time in the US. Immigration from Mexico, women continuing to enter the labor force, and reduction in demand/increase in (global) supply for lower skill labor via globalization of manufacturing
Not casting any judgment on whether these things are good, but they are far more likely to be the primary factor than inflation.
> women continuing to enter the labor force.
One thing that's occurred to me recently is that demands for a 4 day working week seem entirely reasonable in the context that the labour force has, if not quite doubled, dramatically increased (due to more women participating) over the last few decades (and that time has been taken away from time that was previously available for the completion of domestic chores).
One thing that's occurred to me recently is that demands for a 4 day working week seem entirely reasonable in the context that the labour force has, if not quite doubled, dramatically increased (due to more women participating) over the last few decades (and that time has been taken away from time that was previously available for the completion of domestic chores).
This is the solution to the "two-income trap".
Wouldn't a 2.5 day work week actually be the solution to the "two-income-trap"?
but you would be out-competed by people who work 5 days. The reason things like housing is expensive is because there are lots of people willing to pay higher. This implies that those people _have_ become wealthier. You would not hear them complain about being poorer (or it's an insincere form of complaint).
Oh look, enough time in the week for 2 jobs!
That only works if it is a global change in work practices.
I don't think that's true. We already have significantly varied working hours between countries. China has 996. The US has a 40 hour standard work week and the culture is such that people often work longer hours. Whereas in Europe 35 or 37.5 hours or even less is common. Different countries have different numbers of public holidays, etc.
and we didn't even get the productivity increase, if we had the computer revolution should have massively increased everyone wages due to increased efficiency.
> massively increased everyone wages due to increased efficiency
a computer won't increase the wage of someone whose work is unrelated to the procurement of the computer/system (even if their work was made more efficient).
For example, a checkout clerk now dont need to compute, because of the efficient Point-of-Sale system (when previously they'd need to recall prices). So even if the output of the clerk is now higher, they could be less skilled and so the supply increases, leading to lower wages.
The people whose job is to procure the computer systems _do_ get increased wages. That's why so many software engineers are rich.
a computer won't increase the wage of someone whose work is unrelated to the procurement of the computer/system (even if their work was made more efficient).
For example, a checkout clerk now dont need to compute, because of the efficient Point-of-Sale system (when previously they'd need to recall prices). So even if the output of the clerk is now higher, they could be less skilled and so the supply increases, leading to lower wages.
The people whose job is to procure the computer systems _do_ get increased wages. That's why so many software engineers are rich.
One can always argue the computer is doing more of the work. Sitting there watching the production line doesn't look very productive or challenging?
Labour productivity in economics is output per labour hour, it doesn't matter what is doing the work. As an extreme example, if robots took over and human labour is no longer required for anything then (human) labour productivity would be infinite, it doesn't matter if no humans are actually doing any labour.
Enabling or keeping productivity going is also important. That is what people watching line and fixing minor things are paid for. Alternative is that someone would be pinged from home and they would drive to line each time. While during time productivity of line was lost.
Did the computer revolution really make things that much more efficient? Great savings and new possibilities on many fronts, but also enormous expenses and a whole lot of lost flexibility and individual agency.
I'm sure it is an efficiency win on the total, but perhaps not as gigantic as often assumed.
I'm sure it is an efficiency win on the total, but perhaps not as gigantic as often assumed.
Do you see typing pools in every large office anymore? Nope, word processors replaced all of them. Do accountants spend several weeks calculating desk sized spreadsheet by hand anymore? no because excel and other digital spreadsheets are able to tabulate data automatically. that's all major efficacy savings
Yep, major savings from those two things. But then someone in this efficient office decides to automate a few more workflows and spend 200k building a digital paper form that is used four times per year and misses a crucial field so that is not "supposed to be needed", so that every use of the form requires a phone call or five. This would not have happened with a paper form and human first recipient.
There is an efficiency gain in total, but a lot of losses that eat at the actual wins.
There is an efficiency gain in total, but a lot of losses that eat at the actual wins.
I mean, how much we talking here? We're not in Atlantis with flying cars, but there's immense efficiency gains in logistics.
That is a tricky one. I've been told early on that in most discussions one may not ask netzen to do anything for you.
We could have been mowing your lawn or filling my taxes. That is how I remember it anyway. If you just help drink my beer we both get things out of it.
We could have been mowing your lawn or filling my taxes. That is how I remember it anyway. If you just help drink my beer we both get things out of it.
GOOD point!
Why are inflation truthers so resistant to spending even the tiniest amount of time learning how inflation is computed instead of repeating nonsensical conspiracy theories that match their ideological priors? Replacing porterhouse with hanger steaks in the basket simply means giving the change in price of hanger steaks a higher weight than the change in price of porterhouse steaks in the basket. It does not mean recording the difference in price between a porterhouse and hanger steak as a decrease in the price index. If porterhouse and hanger steaks both go up by 5% then switching from porterhouse to hanger steaks will not lower inflation, even if hanger steaks are cheaper. And of course that’s the correct way to compute inflation, if people stop using typewriters and start using computers why would you still include typewriters in the consumer basket.
It’s not even true in general that the trend has been switching towards lower quality products. Despite all the ahistoric whining about how much better the old days were, Americans have gotten richer over the past several decades and have been buying bigger cars, dining out instead of eating at home, spending more on travel etc.
It’s not even true in general that the trend has been switching towards lower quality products. Despite all the ahistoric whining about how much better the old days were, Americans have gotten richer over the past several decades and have been buying bigger cars, dining out instead of eating at home, spending more on travel etc.
> nonsensical conspiracy theories that match their ideological priors
People's lived experiences in many parts of the country don't match what they're being told. If macro trends go one way but microtrends all over the country go the other way, then the macrotrend analysis is functionally meaningless for millions of people. That's not a conspiracy theory, and hand-waving so many people's lived experiences away because it doesn't match YOUR ideological prior is not taking the discussion seriously and fundamentally and possibly wilfully misunderstanding the issue. Insisting that people everywhere saying life is harder than it was pre-pandemic or 10 years ago or whatever are wrong "because the charts say so" is silly.
People's lived experiences in many parts of the country don't match what they're being told. If macro trends go one way but microtrends all over the country go the other way, then the macrotrend analysis is functionally meaningless for millions of people. That's not a conspiracy theory, and hand-waving so many people's lived experiences away because it doesn't match YOUR ideological prior is not taking the discussion seriously and fundamentally and possibly wilfully misunderstanding the issue. Insisting that people everywhere saying life is harder than it was pre-pandemic or 10 years ago or whatever are wrong "because the charts say so" is silly.
I think people get too hung up on the aggregate numbers which can hide large populations experiencing things differently. Wage growth may have been higher than inflation for some quintiles overall, but for literally millions of people in those quintiles who didn’t job hop and got typical raises or got laid off or whatever, the average experience wasn’t their experience. And when prices are obviously going up, most people will feel like they are falling behind even if they objectively are treading water.
The official inflation numbers have shown high inflation over the past few years. If you feel like prices have gone up a lot the CPI does not contradict your lived experience in any way.
I'd argue that talking about averages at all is arguing in bad faith; there are only a few economic buckets people fit into and they're well defined.
Is there a point of view where not primarily discussing "bucket 1" even makes sense, given everyone's stated intentions?
Is there a point of view where not primarily discussing "bucket 1" even makes sense, given everyone's stated intentions?
They must be the 7% of the population not covered by BLS stats when working out the CPI, assuming they're from US, or living in a remote area. Agree that overall, the population has been growing richer for several decades. But what about us folks who subsisted off of GPUs and used cars in 2021-2022? The reality for us is way different.
Inflation is meaningless if you don’t include substitutes as part of defining your basket.
The price of typewriters, film or rotary phones are completely irrelevant to the cost of living today and would be meaningless to include.
You don’t substitute beef with beef. You substitute elk with beef, if elk used to be a stable but now isn’t.
The price of typewriters, film or rotary phones are completely irrelevant to the cost of living today and would be meaningless to include.
You don’t substitute beef with beef. You substitute elk with beef, if elk used to be a stable but now isn’t.
Those monetary tricks only work for a short time, in this case until workers realize that not getting a rise roughly matching inflation is effectively the same as a getting paid less (i.e. Rational Expectations).
This argument goes back to Keynes IIRC: inflation was good to keep wages reduced.
It's hard to imagine a deflationary world where bosses had to negotiate with workers to reduce their salary annually, which kind of shows how powerful this idea is...
It's hard to imagine a deflationary world where bosses had to negotiate with workers to reduce their salary annually, which kind of shows how powerful this idea is...
Exactly. By changing the composition all the time of the CPI you're underreporting inflation. We all know about shrinkflation being common as well but shitflation is the worst one of them all because now you can't even spend a few more cents for the quality your favourite products have been turned into shit by means of substituting ingredients, worse customer service, tricks like subscription seat-heaters and so on.
One of example of many is dairy products. The common yoghurt brands in my locale have started taking all the fat out of their so-called yoghurt, adding thickening agents and in a very small font labelling it 'low-fat'. Well that's not really yoghurt which is milk+culture is it? I can see why Germany has their beer purity law maybe a yoghurt purity law is in order too.
The word supposedly is doing a lot of work there.
Did that actually happen? What's the evidence that Yellen told Greenspan that?
Did that actually happen? What's the evidence that Yellen told Greenspan that?
Ludwig Von Mises is laughing, he was so right. It's not even funny.
The more money the banks print, the richer they get, with the side-effect that prices rise (they make the monetary units less scarce and worth less).
2-3% just happens to be the most they can get away with in the long term without the population getting concerned.
What the general population don't realise is that the value of goods and services are going down over time, due to efficiency increases, at a rate of around 5% / year. The banks can print enough money to soak that up unnoticed, and then an extra 2% just because they can. It's essentially a stealth transfer of wealth from the people to the banks and it's been going on for decades/centuries (before fiat, it used to take the form of coin shaving, impure metals etc).
You really see the effect when you look at house prices. They are roughly the same price in gold as they were in the 1970s. Rather than housing going up in value since then, it has been the monetary units going down in value, due to the supply roughly doubling every decade (look up M2 USD).
You can understand the incentive to print money when you realise that every year the banks are collecting interest on every dollar/euro/pound etc. in existence. And the banks don't really own any of them - they printed them out of thin air as loans and have to destroy them when the loans are repaid, but total debt only increases every year...
2-3% just happens to be the most they can get away with in the long term without the population getting concerned.
What the general population don't realise is that the value of goods and services are going down over time, due to efficiency increases, at a rate of around 5% / year. The banks can print enough money to soak that up unnoticed, and then an extra 2% just because they can. It's essentially a stealth transfer of wealth from the people to the banks and it's been going on for decades/centuries (before fiat, it used to take the form of coin shaving, impure metals etc).
You really see the effect when you look at house prices. They are roughly the same price in gold as they were in the 1970s. Rather than housing going up in value since then, it has been the monetary units going down in value, due to the supply roughly doubling every decade (look up M2 USD).
You can understand the incentive to print money when you realise that every year the banks are collecting interest on every dollar/euro/pound etc. in existence. And the banks don't really own any of them - they printed them out of thin air as loans and have to destroy them when the loans are repaid, but total debt only increases every year...
> They are roughly the same price in gold as they were in the 1970s
So you're implying that there was no inflation between 2011 and 2022 (gold prices were basically the same) or that prices increasing 8 times or so between 2000 and 2011 because gold got a lot more expensive?
Gold is just a random commodity affected by market supply/demand just like every other commodities (or bitcoin). Implying it's some sort of a "hard currency" or can be used to compare prices of goods/services/housing over long periods of time is just absurd.
> when you realise that every year the banks are collecting interest on every dollar/euro/pound etc
That doesn't work that well when the real interest rates (i.e. after you subtract inflation) are negative or close to negative (as they were in the Eurozone between around 2012 and 2022).
So you're implying that there was no inflation between 2011 and 2022 (gold prices were basically the same) or that prices increasing 8 times or so between 2000 and 2011 because gold got a lot more expensive?
Gold is just a random commodity affected by market supply/demand just like every other commodities (or bitcoin). Implying it's some sort of a "hard currency" or can be used to compare prices of goods/services/housing over long periods of time is just absurd.
> when you realise that every year the banks are collecting interest on every dollar/euro/pound etc
That doesn't work that well when the real interest rates (i.e. after you subtract inflation) are negative or close to negative (as they were in the Eurozone between around 2012 and 2022).
> So you're implying that there was no inflation between 2011 and 2022 (gold prices were basically the same)
He doesn't mean the price of gold in dollars, he means the price of houses in gold. In dollar terms, he's just saying that the price of gold and the price of houses have inflated by the same amount.
> Gold is just a random commodity affected by market supply/demand just like every other commodities (or bitcoin). Implying it's some sort of a "hard currency" or can be used to compare prices of goods/services/housing over long periods of time is just absurd.
Not as absurd as printing money and then spending it on things that nobody wants, and then claiming that that "stimulates the economy". Which is what our current monetary regime has been doing for decades now.
He doesn't mean the price of gold in dollars, he means the price of houses in gold. In dollar terms, he's just saying that the price of gold and the price of houses have inflated by the same amount.
> Gold is just a random commodity affected by market supply/demand just like every other commodities (or bitcoin). Implying it's some sort of a "hard currency" or can be used to compare prices of goods/services/housing over long periods of time is just absurd.
Not as absurd as printing money and then spending it on things that nobody wants, and then claiming that that "stimulates the economy". Which is what our current monetary regime has been doing for decades now.
> In dollar terms, he's just saying that the price of gold and the price of houses have inflated by the same amount.
They might be saying, it's just not really true:
http://www.goldchartsrus.com/chartstemp/free/USHomePricesAU0...
In gold houses are about 3x cheaper now than they were back in 1970. Yet in the mid 2000s they were even more expensive than in 1970. What can we make of that besides that the price of gold is very unstable and increase in money supply is not the primary reason of that? (e.g. compare 2000s and 2010s..)
There is nothing special about gold, it's just a highly speculated commodity with very volatile price and that's it. We might as well do the same experiment and use the prices of oil/wheat/etc. and it would make a lot more sense.
They might be saying, it's just not really true:
http://www.goldchartsrus.com/chartstemp/free/USHomePricesAU0...
In gold houses are about 3x cheaper now than they were back in 1970. Yet in the mid 2000s they were even more expensive than in 1970. What can we make of that besides that the price of gold is very unstable and increase in money supply is not the primary reason of that? (e.g. compare 2000s and 2010s..)
There is nothing special about gold, it's just a highly speculated commodity with very volatile price and that's it. We might as well do the same experiment and use the prices of oil/wheat/etc. and it would make a lot more sense.
We also mine gold every year adding to the supply, thereby reducing the price of the current supply.
> Gold is just a random commodity affected by market supply/demand just like every other commodities (or bitcoin). Implying it's some sort of a "hard currency" or can be used to compare prices of goods/services/housing over long periods of time is just absurd.
It's sensible to use gold or housing as a measure of value - they are both extremely mature markets with a relatively constant supply/demand ratio. It's no coincidence that after 50+ years they are still the same value relatively to each other. I'd argue that using the dollar as a measure of value would be absurd, given that it's demand is relatively constant but it's supply is doubling every decade.
> That doesn't work that well when the real interest rates (i.e. after you subtract inflation) are negative or close to negative (as they were in the Eurozone between around 2012 and 2022).
The banks are playing a much longer game. While the interest rates are held low, they increase the number of people indebted to them. When they turn the interest rates back up, they get their reward. I recommend reading the short book "The Great Taking" (https://thegreattaking.com/)
It's sensible to use gold or housing as a measure of value - they are both extremely mature markets with a relatively constant supply/demand ratio. It's no coincidence that after 50+ years they are still the same value relatively to each other. I'd argue that using the dollar as a measure of value would be absurd, given that it's demand is relatively constant but it's supply is doubling every decade.
> That doesn't work that well when the real interest rates (i.e. after you subtract inflation) are negative or close to negative (as they were in the Eurozone between around 2012 and 2022).
The banks are playing a much longer game. While the interest rates are held low, they increase the number of people indebted to them. When they turn the interest rates back up, they get their reward. I recommend reading the short book "The Great Taking" (https://thegreattaking.com/)
> It's sensible to use gold or housing as a measure of value - they are both extremely mature markets with a relatively constant supply/demand ratio. It's no coincidence that after 50+ years they are still the same value relatively to each other.
Have you actually examined these numbers? From my quick check, it doesn't seem to be anywhere near true. In 1970, Gold was $35.96/oz in 1970 USD. The average house was $23,400 in 1970USD. So 650 oz of gold would get you a house. Today, 1 oz of gold is $2,063.76 in 2024 USD. An average house costs $395,100 or 191 oz of gold. Houses are significantly cheaper with respect to gold today than they were in 1970.
Have you actually examined these numbers? From my quick check, it doesn't seem to be anywhere near true. In 1970, Gold was $35.96/oz in 1970 USD. The average house was $23,400 in 1970USD. So 650 oz of gold would get you a house. Today, 1 oz of gold is $2,063.76 in 2024 USD. An average house costs $395,100 or 191 oz of gold. Houses are significantly cheaper with respect to gold today than they were in 1970.
There's something else going on here.
Gold is great for people who already have wealth. (Those people also have had other good investment options.) Gold is useless for people trying to earn money to pay for a mortgage for housing today.
Also, houses built today are much more valuable (cheaper per "foot" or "room") than houses built new in 1970-- they are much larger.
Gold is great for people who already have wealth. (Those people also have had other good investment options.) Gold is useless for people trying to earn money to pay for a mortgage for housing today.
Also, houses built today are much more valuable (cheaper per "foot" or "room") than houses built new in 1970-- they are much larger.
> today are much more valuable
not to mention new materials and insulations/energy efficiency, fireproofing etc. All of these things are improvements - it's just "invisible" because people who claim the opposite just don't see it as an improvement (aka, they take it for granted).
It is the same with a lot of other "wealth" increases - it's invisible because that wealth is available to everybody. They only see it as wealth when said wealth is made only available for themselves (or wealth that someone else has that they themselves don't have).
not to mention new materials and insulations/energy efficiency, fireproofing etc. All of these things are improvements - it's just "invisible" because people who claim the opposite just don't see it as an improvement (aka, they take it for granted).
It is the same with a lot of other "wealth" increases - it's invisible because that wealth is available to everybody. They only see it as wealth when said wealth is made only available for themselves (or wealth that someone else has that they themselves don't have).
There's an enormous difference between things you "value", and economic value.
We probably value air more than anything else, but it's worthless.
Economic value = demand / supply. Simple.
It can be useful to think of economic value as a more abstract form of energy - a "monetary energy" - with the same conservation-of-energy properties. For example, if I create a TV that's better than all the existing TVs, the economic value of my TV is sucked from all the existing TVs which are suddenly worth less and contain less economic value.
We probably value air more than anything else, but it's worthless.
Economic value = demand / supply. Simple.
It can be useful to think of economic value as a more abstract form of energy - a "monetary energy" - with the same conservation-of-energy properties. For example, if I create a TV that's better than all the existing TVs, the economic value of my TV is sucked from all the existing TVs which are suddenly worth less and contain less economic value.
It depends heavily on which year of the 70s you look at (I was using 1974), but yes, it's true, at the very start of the 70s, houses were 3x the price they are now (measured in gold).
http://www.goldchartsrus.com/chartstemp/USHLSPOG.php
You're right - this is even stronger evidence that whereas most people believe houses have increased in value over the last 5+ decades, they have at best remained the same value, and the price increases have simply been the devaluation of the dollar (which incidentally increases in supply at the same rate as house prices increase - roughly double each decade)
http://www.goldchartsrus.com/chartstemp/USHLSPOG.php
You're right - this is even stronger evidence that whereas most people believe houses have increased in value over the last 5+ decades, they have at best remained the same value, and the price increases have simply been the devaluation of the dollar (which incidentally increases in supply at the same rate as house prices increase - roughly double each decade)
> It's sensible to use gold or housing as a measure of value - they are both extremely mature markets with a relatively constant supply/demand ratio
Look at how the price of gold changed between 2000 and 2020. It's not at all constant (it's actually more volatile than the dollar)
> I'd argue that using the dollar as a measure of value would be absurd,
Perhaps. Still less absurd than using gold for that.
> When they turn the interest rates back up, they get their reward
When the interest rates go up the price of bonds goes down. If you're holding a lot of bonds and interest rates go up you're certainly not in a good position (that's how the Silicon Valley Bank went bankrupt). Just basic math. Of course if we're talking about variable rate debt then you do have a point (however almost all household debt in the US is fixed rate, it varies by country though).
Look at how the price of gold changed between 2000 and 2020. It's not at all constant (it's actually more volatile than the dollar)
> I'd argue that using the dollar as a measure of value would be absurd,
Perhaps. Still less absurd than using gold for that.
> When they turn the interest rates back up, they get their reward
When the interest rates go up the price of bonds goes down. If you're holding a lot of bonds and interest rates go up you're certainly not in a good position (that's how the Silicon Valley Bank went bankrupt). Just basic math. Of course if we're talking about variable rate debt then you do have a point (however almost all household debt in the US is fixed rate, it varies by country though).
> Look at how the price of gold changed between 2000 and 2020. It's not at all constant (it's actually more volatile than the dollar)
It's pretty rich for you to be using the word "absurd" to describe what other people are posting, when you come out with this.
Let me translate into actual plain English: the price of gold in dollars has gone up quite a lot between 2000 and 2020. (But note that it still hasn't reached the peak value it reached around 1980, after the huge inflation of the 1970s.) That is not because anything about gold has changed: it has the same industrial and other uses (such as jewelry) as before. The reason the price of gold in dollars has been so volatile is that dollars are volatile--because the government keeps monkeying with them. From 2000 to 2020, the government was printing dollars. In the early 1980s, by contrast, the government was destroying dollars (under Volcker), and the gold price in dollars dropped significantly.
Not only that, but this observation isn't limited to gold. It's true of, well, basically everything that isn't money. For instance, houses, as npoc observed. And cars. And food. And clothes. And...
The obvious conclusion from observations like this is that what is absurd is using dollars as any kind of measure of value, because the thing they are actually measuring has nothing to do with value to us, producers and consumers, and everything to do with how the government is messing with the money supply. Any commodity that has an actual use independent of government manipulation of the money supply--gold, wheat, whatever--is a better measure of value than money.
It's pretty rich for you to be using the word "absurd" to describe what other people are posting, when you come out with this.
Let me translate into actual plain English: the price of gold in dollars has gone up quite a lot between 2000 and 2020. (But note that it still hasn't reached the peak value it reached around 1980, after the huge inflation of the 1970s.) That is not because anything about gold has changed: it has the same industrial and other uses (such as jewelry) as before. The reason the price of gold in dollars has been so volatile is that dollars are volatile--because the government keeps monkeying with them. From 2000 to 2020, the government was printing dollars. In the early 1980s, by contrast, the government was destroying dollars (under Volcker), and the gold price in dollars dropped significantly.
Not only that, but this observation isn't limited to gold. It's true of, well, basically everything that isn't money. For instance, houses, as npoc observed. And cars. And food. And clothes. And...
The obvious conclusion from observations like this is that what is absurd is using dollars as any kind of measure of value, because the thing they are actually measuring has nothing to do with value to us, producers and consumers, and everything to do with how the government is messing with the money supply. Any commodity that has an actual use independent of government manipulation of the money supply--gold, wheat, whatever--is a better measure of value than money.
> Let me translate into actual plain English
Or "Let me leave out most of the details that matter"..
> quite a lot between 2000 and 2020. > From 2000 to 2020, the government was
So specifically between 2001 and 2011 governments have printed several times (~5x) more money than between 2011 and 2022? Because that's obviously not the case. In the first ten year period the price of gold increased fivefold during the second (despite growth in money supply only accelerating) it collapsed and didn't start recovering until 2019 (it's now worth only only slightly more than in 2011..). How does that fit in with the with whole printing hypothesis?
> In the early 1980s, by contrast, the government was destroying dollars
Just like after 2011?
> that dollars are volatile
It's not though. Generally the dollar depreciates at a fairly predictable rate. There is a spike here or there but it's nothing compared to the volatility of gold.
> houses
Yes. I certainly a agree that houses, food, cothers, cars etc. are much better units of measurement than gold (which is just commodity with a highly distorted/inflated price due to speculation..
Or "Let me leave out most of the details that matter"..
> quite a lot between 2000 and 2020. > From 2000 to 2020, the government was
So specifically between 2001 and 2011 governments have printed several times (~5x) more money than between 2011 and 2022? Because that's obviously not the case. In the first ten year period the price of gold increased fivefold during the second (despite growth in money supply only accelerating) it collapsed and didn't start recovering until 2019 (it's now worth only only slightly more than in 2011..). How does that fit in with the with whole printing hypothesis?
> In the early 1980s, by contrast, the government was destroying dollars
Just like after 2011?
> that dollars are volatile
It's not though. Generally the dollar depreciates at a fairly predictable rate. There is a spike here or there but it's nothing compared to the volatility of gold.
> houses
Yes. I certainly a agree that houses, food, cothers, cars etc. are much better units of measurement than gold (which is just commodity with a highly distorted/inflated price due to speculation..
As was noted above. If your claims are true, then inflation was 800% in the 2000s and then 0% in the 2010s. There's clearly market supply/demand driving changes in gold price, not simply exchange rate fluctuation.
> There's clearly market supply/demand driving changes in gold price
Of course. And in all other commodity prices.
But in a world where the money supply was stable, those price changes, over time, would average out to zero. Or, if you factor in increased productivity over time, they would average out to a steady (if probably slow) decrease in the prices of goods and services.
What you would not see is an average increase in the prices of goods and services over time. You would certainly not see such an increase normalized in everyone's expectations, so that everyone expects cost of living increases in their pay, everyone expects things to gradually get more expensive, etc. That requires monetary manipulation by the government.
Of course. And in all other commodity prices.
But in a world where the money supply was stable, those price changes, over time, would average out to zero. Or, if you factor in increased productivity over time, they would average out to a steady (if probably slow) decrease in the prices of goods and services.
What you would not see is an average increase in the prices of goods and services over time. You would certainly not see such an increase normalized in everyone's expectations, so that everyone expects cost of living increases in their pay, everyone expects things to gradually get more expensive, etc. That requires monetary manipulation by the government.
There’s no natural state of money is there? I feel like characterizing monetary policy that way, as manipulative, is normative and kinda begs the question that there’s a natural state of monetary policy.
How could there be growth in the economy with a fixed pie of money? It is contradictory. There’d be a tremendously high bar for investment in any enterprise which could generate dollars if I could buy more tomorrow with the dollars I already have today.
Think about how much bitcoin is being put to work in the productive economy versus hodled.
How could there be growth in the economy with a fixed pie of money? It is contradictory. There’d be a tremendously high bar for investment in any enterprise which could generate dollars if I could buy more tomorrow with the dollars I already have today.
Think about how much bitcoin is being put to work in the productive economy versus hodled.
> There’s no natural state of money is there?
If you mean there is no specific quantity of money that is "natural", that's true. Any quantity of money can work. But that does not mean that changing the quantity of money as a routine, common operation is a good thing.
> How could there be growth in the economy with a fixed pie of money? It is contradictory.
No, it isn't. Economic growth means producing more goods and services. With a fixed quantity of money, that means either the velocity of money increases (money goes around in a circle faster in order to facilitate an increased number of transactions) or average prices decrease (so less money is required on average per transaction)--or more likely a combination of both. Both of those things are perfectly possible. (And even that leaves out increasing quality of goods and services, which results in more value created even if quantity stays the same, and with a fixed quantity of money means more value for the same money even if nothing else changes.)
> There’d be a tremendously high bar for investment in any enterprise which could generate dollars if I could buy more tomorrow with the dollars I already have today.
If the quantity of money is fixed, what does "enterprise which could generate dollars" mean? It can only mean a productive enterprise, which produces goods or services that people will pay money for. You want to encourage such enterprises, not discourage them.
Indeed, it is only in an environment where the quantity of money is not fixed--where people can scheme to be given the privilege of printing more--that people end up squandering resources on activities which produce no useful goods or services, but do result in more money going into their pockets. Which is the situation we have now, where the government prints money as a way of stealthily transferring wealth to financial institutions without those institutions having to produce useful goods or services.
> Think about how much bitcoin is being put to work in the productive economy versus hodled.
But that is because the quantity of Bitcoin is not fixed. People can mint more. So Bitcoin is irrelevant to analyzing the case where the quantity of money is fixed.
If you mean there is no specific quantity of money that is "natural", that's true. Any quantity of money can work. But that does not mean that changing the quantity of money as a routine, common operation is a good thing.
> How could there be growth in the economy with a fixed pie of money? It is contradictory.
No, it isn't. Economic growth means producing more goods and services. With a fixed quantity of money, that means either the velocity of money increases (money goes around in a circle faster in order to facilitate an increased number of transactions) or average prices decrease (so less money is required on average per transaction)--or more likely a combination of both. Both of those things are perfectly possible. (And even that leaves out increasing quality of goods and services, which results in more value created even if quantity stays the same, and with a fixed quantity of money means more value for the same money even if nothing else changes.)
> There’d be a tremendously high bar for investment in any enterprise which could generate dollars if I could buy more tomorrow with the dollars I already have today.
If the quantity of money is fixed, what does "enterprise which could generate dollars" mean? It can only mean a productive enterprise, which produces goods or services that people will pay money for. You want to encourage such enterprises, not discourage them.
Indeed, it is only in an environment where the quantity of money is not fixed--where people can scheme to be given the privilege of printing more--that people end up squandering resources on activities which produce no useful goods or services, but do result in more money going into their pockets. Which is the situation we have now, where the government prints money as a way of stealthily transferring wealth to financial institutions without those institutions having to produce useful goods or services.
> Think about how much bitcoin is being put to work in the productive economy versus hodled.
But that is because the quantity of Bitcoin is not fixed. People can mint more. So Bitcoin is irrelevant to analyzing the case where the quantity of money is fixed.
> Both of those things are perfectly possible
Yes, we saw that in the 1800s and the subsequent period leading to the great depression. Money supply was growing too slow, deflation was pretty rampant and the economy was stuck in a permanent boom and bust cycle (with depressions which were generally much worse than anything we experience these days).
In such an environment using debt to invest becomes extremely risky. If the interest rates are relatively high (as they were) it makes more sense to just live on income from government bonds (how British aristocrats were able to maintain their lifestyle) than to invest into anything risky.
> which produce no useful goods or services, but do result in more money going into their pockets. Which is the situation we have now
In a deflationary system (i.e. based on gold in a growing economy/bitcoin/etc.) you'd become richer just by hoarding money it and waiting for its value to increase. That doesen't seem to be particularly better.
> Bitcoin is not fixed. People can mint more
It is effectively fixed. The amount being "minted" is insignificant relative to demand.
> So Bitcoin is irrelevant to analyzing the case where the quantity of money is fixed
Don't be silly. If that's the case so is gold (a lot less fixed than bitcoin) or anything else, this would make it completely pointless discussion.
Yes, we saw that in the 1800s and the subsequent period leading to the great depression. Money supply was growing too slow, deflation was pretty rampant and the economy was stuck in a permanent boom and bust cycle (with depressions which were generally much worse than anything we experience these days).
In such an environment using debt to invest becomes extremely risky. If the interest rates are relatively high (as they were) it makes more sense to just live on income from government bonds (how British aristocrats were able to maintain their lifestyle) than to invest into anything risky.
> which produce no useful goods or services, but do result in more money going into their pockets. Which is the situation we have now
In a deflationary system (i.e. based on gold in a growing economy/bitcoin/etc.) you'd become richer just by hoarding money it and waiting for its value to increase. That doesen't seem to be particularly better.
> Bitcoin is not fixed. People can mint more
It is effectively fixed. The amount being "minted" is insignificant relative to demand.
> So Bitcoin is irrelevant to analyzing the case where the quantity of money is fixed
Don't be silly. If that's the case so is gold (a lot less fixed than bitcoin) or anything else, this would make it completely pointless discussion.
> Economic growth means producing more goods and services.
How do you incentivize this? Your view seems fairly communist. Also how does a net new innovation factor into this framework. New pharmaceuticals for previously untreatable diseases for example. What slice of the fixed money pie do those get?
> But that is because the quantity of Bitcoin is not fixed. People can mint more.
Sorry pal this is sophistry. Your contention is people hodl bitcoin because the supply of btc is not fixed?
How do you incentivize this? Your view seems fairly communist. Also how does a net new innovation factor into this framework. New pharmaceuticals for previously untreatable diseases for example. What slice of the fixed money pie do those get?
> But that is because the quantity of Bitcoin is not fixed. People can mint more.
Sorry pal this is sophistry. Your contention is people hodl bitcoin because the supply of btc is not fixed?
> how does a net new innovation factor into this framework. New pharmaceuticals for previously untreatable diseases for example. What slice of the fixed money pie do those get?
Whatever slice the free market determines. And any "slice" that anyone gets is constantly changing, since money is exchanged constantly. So thinking of a fixed supply of money (or even a non-fixed supply of money) as having some fixed allocation among everyone is simply wrong. That's not how it works.
(Note that common descriptions of the wealth of wealthy people, say Bill Gates, are misleading since they always give a dollar figure--Gates is worth $50 billion, let's say. But the vast majority of that $50 billion is not money. It's assets like stocks, bonds, real estate, etc., and the $50 billion figure is just an estimate of the sum of the prices all those assets would fetch if Gates sold them on the market. It is certainly not a measure of money that Gates has stuffed under his mattress or is otherwise hoarding.)
Whatever slice the free market determines. And any "slice" that anyone gets is constantly changing, since money is exchanged constantly. So thinking of a fixed supply of money (or even a non-fixed supply of money) as having some fixed allocation among everyone is simply wrong. That's not how it works.
(Note that common descriptions of the wealth of wealthy people, say Bill Gates, are misleading since they always give a dollar figure--Gates is worth $50 billion, let's say. But the vast majority of that $50 billion is not money. It's assets like stocks, bonds, real estate, etc., and the $50 billion figure is just an estimate of the sum of the prices all those assets would fetch if Gates sold them on the market. It is certainly not a measure of money that Gates has stuffed under his mattress or is otherwise hoarding.)
Oh. I meant which slice of the fixed money pie is invested into this. How do you incentivize the risk-taking if capital is so expensive.
> How do you incentivize this?
Who needs to incentivize it? People already have an incentive to produce goods and services, because people want and need things in order to live whatever life they want to live (food, clothing, and shelter at a minimum, but of course there are lots of other things people want), so they have to either produce those things themselves or produce something that can be traded for them. Of course the latter is the most common alternative since much more wealth can be created by specialization and trade than by everyone producing only for themselves. So the natural state is for people to be doing specialization and trade in a free market. That is what you get when nobody tries to "incentivize" anything.
> Your view seems fairly communist
Not at all, it's the opposite of communist, since it involves no central planning (which doesn't work).
> Your contention is people hodl bitcoin because the supply of btc is not fixed?
My contention is that since the supply of Bitcoin is not fixed, Bitcoin is irrelevant to the discussion we are having, which is about the case where the supply of money is fixed.
As far as why people hold Bitcoin instead of spending it, obviously that is because they expect its value in terms of other things they want to go up. I have made no claim about why that is. All I am saying is that it can't be because the supply of Bitcoin is fixed, since it isn't.
Also note that the people who are holding Bitcoin are still spending money to get things they want, which means they are still having to earn money to get things they want. So the fact that they are holding Bitcoin does not mean they are holding money. They are not treating Bitcoin as money. They are treating it as an investment asset like stocks or bonds. So again their behavior regarding Bitcoin is irrelevant to a discussion of how people behave with money.
Who needs to incentivize it? People already have an incentive to produce goods and services, because people want and need things in order to live whatever life they want to live (food, clothing, and shelter at a minimum, but of course there are lots of other things people want), so they have to either produce those things themselves or produce something that can be traded for them. Of course the latter is the most common alternative since much more wealth can be created by specialization and trade than by everyone producing only for themselves. So the natural state is for people to be doing specialization and trade in a free market. That is what you get when nobody tries to "incentivize" anything.
> Your view seems fairly communist
Not at all, it's the opposite of communist, since it involves no central planning (which doesn't work).
> Your contention is people hodl bitcoin because the supply of btc is not fixed?
My contention is that since the supply of Bitcoin is not fixed, Bitcoin is irrelevant to the discussion we are having, which is about the case where the supply of money is fixed.
As far as why people hold Bitcoin instead of spending it, obviously that is because they expect its value in terms of other things they want to go up. I have made no claim about why that is. All I am saying is that it can't be because the supply of Bitcoin is fixed, since it isn't.
Also note that the people who are holding Bitcoin are still spending money to get things they want, which means they are still having to earn money to get things they want. So the fact that they are holding Bitcoin does not mean they are holding money. They are not treating Bitcoin as money. They are treating it as an investment asset like stocks or bonds. So again their behavior regarding Bitcoin is irrelevant to a discussion of how people behave with money.
> They are not treating Bitcoin as money.
Indeed. So will Bitcoin become relevant to this discussion in 2140 when new issuance ends? I’m not sure there’s much difference between then and now in practice as 95% it all Bitcoin possible is already live on the chain.
Indeed. So will Bitcoin become relevant to this discussion in 2140 when new issuance ends? I’m not sure there’s much difference between then and now in practice as 95% it all Bitcoin possible is already live on the chain.
> Not at all, it’s the opposite of communist, since it involves no central planning
Central planning is a feature of state capitalism, not communism.
(It’s true that regimes–universally of the Leninist bent which adapted Marxism in the hopes of getting it to work in situations where the prerequisites did not exist–claiming to be Communist in ideological orientation almost invariably got stuck in state capitalist phase, but even by their own description that was a step on the road to communism, not communism.)
Of course, yes, I recognize that people using “communist” as a pejorative would probably also not make that distinction.
Central planning is a feature of state capitalism, not communism.
(It’s true that regimes–universally of the Leninist bent which adapted Marxism in the hopes of getting it to work in situations where the prerequisites did not exist–claiming to be Communist in ideological orientation almost invariably got stuck in state capitalist phase, but even by their own description that was a step on the road to communism, not communism.)
Of course, yes, I recognize that people using “communist” as a pejorative would probably also not make that distinction.
> How do you incentivize this? Your view seems fairly communist. Also how does a net new innovation factor into this framework. New pharmaceuticals for previously untreatable diseases for example. What slice of the fixed money pie do those get?
To be fair that did mostly work in the 1800s. The gold standard probably did have a significant negative impact on growth but to be fair I can't really think of a different system that might have worked back then considering how thoroughly corrupt and unstable pretty much all governments were back then.
To be fair that did mostly work in the 1800s. The gold standard probably did have a significant negative impact on growth but to be fair I can't really think of a different system that might have worked back then considering how thoroughly corrupt and unstable pretty much all governments were back then.
The 1800s USA also saw the gold rush and the comstock lode. So it seems even then many were incentivized into activities which created more money.
> Implying it's some sort of a "hard currency" or can be used to compare prices of goods/services/housing over long periods of time is just absurd.
It goes up and down, but it's the most stable denomination of value that exists. Yes?
It goes up and down, but it's the most stable denomination of value that exists. Yes?
As measured by what? Volatility? Absolutely not.
Relatively constant demand, and difficult to increase supply.
> Yes?
Not really? Adjusted by inflation it's very volatile and not at all stable. Gold now is worth ~7x more than in 1970 but 25% less than in 1980, yet 4x more than in 2000 but still less than in 2011... There were some periods since 1970 where the (CPI adjusted) price of gold was relatively stable but that's certainly the exception and not the rule.
> but it's the most stable denomination of value that exists
You might use oil instead? It's not that much more unstable than gold.. Or wheat?
Not really? Adjusted by inflation it's very volatile and not at all stable. Gold now is worth ~7x more than in 1970 but 25% less than in 1980, yet 4x more than in 2000 but still less than in 2011... There were some periods since 1970 where the (CPI adjusted) price of gold was relatively stable but that's certainly the exception and not the rule.
> but it's the most stable denomination of value that exists
You might use oil instead? It's not that much more unstable than gold.. Or wheat?
I'm guessing it's that the US Currency was backed by gold and later silver and the central banks couldn't print currency without some precious metal to back it up.
> was backed by gold and later silver
It's the other way around. US switched from a bimetallic system to the gold standard in 1873.
> I'm guessing it's that the US Currency was backed by gold
Well sort of, only until 1971 (or to some extent 1933) though. So you maybe could do that if you wanted to compare the price of housing in the 1870s and 1920s, certainly not between 1970 and the 2020s.
It's the other way around. US switched from a bimetallic system to the gold standard in 1873.
> I'm guessing it's that the US Currency was backed by gold
Well sort of, only until 1971 (or to some extent 1933) though. So you maybe could do that if you wanted to compare the price of housing in the 1870s and 1920s, certainly not between 1970 and the 2020s.
Price increases come in fits and starts. Gold is not entirely arbitrary. It is a commodity with a restricted and steady supply. As such it can be used as a measuring stick to judge how distorted prices are getting. Mind you, (price) inflation is measured by the government as a relative change in a cherry-picked basket of goods that changes over time. It's not honest and does not accurately account for changes in credit conditions.
> As such it can be used as a measuring stick to judge how distorted prices are getting
It can. It would just be a pretty bad idea to use it for that since it would indicate that prices where consistently falling during the 80s and 90s amongst other. I mean the nominal price of gold in 1980 was exactly the same as in 2007... I can barely think of a worse measuring stick (we could just use the price of oil instead? It's hardly less stable).
> inflation is measured by the government as a relative change in a cherry-picked basket of goods that changes over time
perhaps. Seems fairly tangential, unless you're implying that governments generally tend to severely underreport inflation most of the time.
It can. It would just be a pretty bad idea to use it for that since it would indicate that prices where consistently falling during the 80s and 90s amongst other. I mean the nominal price of gold in 1980 was exactly the same as in 2007... I can barely think of a worse measuring stick (we could just use the price of oil instead? It's hardly less stable).
> inflation is measured by the government as a relative change in a cherry-picked basket of goods that changes over time
perhaps. Seems fairly tangential, unless you're implying that governments generally tend to severely underreport inflation most of the time.
You're right I guess. The price of gold is manipulated heavily by the banks so it is not a perfect measuring device. There is literally a Federal Reserve memo on Wikileaks describing how the government would create FUD about gold through the futures market. But the supply of it is nevertheless fairly constant compared to just about anything. People have remarked that an ounce of gold today buys about the same as it did thousands of years ago. I think they are right. The price of oil is clearly less stable than the price of gold. You could do better if you compared many goods in a basket, perhaps, but you just can't trust the government to do it right.
>perhaps. Seems fairly tangential, unless you're implying that governments generally tend to severely underreport inflation most of the time.
Yes that is exactly what I'm implying (or stating directly). I am mainly talking about the US government because I don't know how other governments calculate their rates, but it is probably about the same everywhere. I think in recent times you could do well by doubling their number.
The US government also misrepresents unemployment. For example, if an unemployed engineer gets a job at Starbucks one day a week while applying for a new gig, he is not counted as unemployed anymore. He is also not counted if he is unemployed for any longer than 6 months. Perhaps we need to report them all as unemployed along with the median time to get a job, and/or have a separate number for skilled workers that does not exclude them if they are forced to take an inadequate job.
>perhaps. Seems fairly tangential, unless you're implying that governments generally tend to severely underreport inflation most of the time.
Yes that is exactly what I'm implying (or stating directly). I am mainly talking about the US government because I don't know how other governments calculate their rates, but it is probably about the same everywhere. I think in recent times you could do well by doubling their number.
The US government also misrepresents unemployment. For example, if an unemployed engineer gets a job at Starbucks one day a week while applying for a new gig, he is not counted as unemployed anymore. He is also not counted if he is unemployed for any longer than 6 months. Perhaps we need to report them all as unemployed along with the median time to get a job, and/or have a separate number for skilled workers that does not exclude them if they are forced to take an inadequate job.
Not arguing for the OPs argument but observing a pattern over a longer timespan doesn’t mean that the pattern can be observed during the whole timespan.
At the same time IMHO you’re right in pointing out that gold is a poor measurement of the true cost of a house.
At the same time IMHO you’re right in pointing out that gold is a poor measurement of the true cost of a house.
let me try something else:
If you take out a lone you get money in exchange for signing a contract that forces you to pay everything back [say] 3x over 30 years.
The party giving you the money loses nothing, they trade one kind of paper for the other.
They get more money in return because there is a small risk you wont pay. (if they get 1/3 they have their money back)
This would be sensible if the bank had this money. They don't, they bring nothing to the table and give you freshly minted fiat.
This is only possible because you've signed on the dotted line.
If you are buying a house the risk you wont pay is tiny! Government could easily force you to get insurance and give you an interest free lone that you won't need to pay back.
This would bring some serious fiat into circulation.
Ask Gaddafi what happens next.
If you take out a lone you get money in exchange for signing a contract that forces you to pay everything back [say] 3x over 30 years.
The party giving you the money loses nothing, they trade one kind of paper for the other.
They get more money in return because there is a small risk you wont pay. (if they get 1/3 they have their money back)
This would be sensible if the bank had this money. They don't, they bring nothing to the table and give you freshly minted fiat.
This is only possible because you've signed on the dotted line.
If you are buying a house the risk you wont pay is tiny! Government could easily force you to get insurance and give you an interest free lone that you won't need to pay back.
This would bring some serious fiat into circulation.
Ask Gaddafi what happens next.
super cherry picking and definitions bending:
> no inflation between 2011 and 2022
iPhone 4S, iPhone 14
> increasing 8 times or so between 2000 and 2011
Pentium III @ ~1GHz 1C/1T, Sandy Bridge @ ~3.7GHz 4C/4T
> no inflation between 2011 and 2022
iPhone 4S, iPhone 14
> increasing 8 times or so between 2000 and 2011
Pentium III @ ~1GHz 1C/1T, Sandy Bridge @ ~3.7GHz 4C/4T
Well if we're using the price of gold to measure that there was no inflation (which of course wasn't really the case). To be fair examples are pretty bad, the iPhone 4S and iPhone 14 are not equivalent products, you can get more capable smartphones for $100-200 or less these days indicating that their prices actually went down quite a bit over the period.
It's flawed, but 1x1GHz -> 4x4GHz is literally 16x upgrade, and there was also loss-leader $399 iPhone SE in 2022 much better in performance than $649 iPhone 4S. The experiences(here comes the dodgy part) are way closer between two iPhones than the gap between PIII and Sandy Bridge.
Yes, an alternative summary of the article is:
The 2% target started as a nonsense 'dog ate my homework' line from inconsequential characters in an obscure corner of the world, that the world's elite latched onto in the last two decades as a post-hoc rationalization for debasing the currency to ensure politically-important businesses never go broke and politicians never have to say 'I'm sorry.' A real fairy tale.
The 2% target started as a nonsense 'dog ate my homework' line from inconsequential characters in an obscure corner of the world, that the world's elite latched onto in the last two decades as a post-hoc rationalization for debasing the currency to ensure politically-important businesses never go broke and politicians never have to say 'I'm sorry.' A real fairy tale.
>> The more money the banks print, the richer they get
This is wrong. You’ve misunderstood the creation of credit and money.
See https://www.sciencedirect.com/science/article/pii/S105752191... - but then spend time reading the relevant legislation pieces.
You can safely ignore most of the mainstream economist schools of thought since the actual operational side of money as required by law is mostly a blind spot for them. Economic schools of thought do not link to relevant legislation when sharing their fairy tales since the laws the banks operate under result in behaviour distinct from that claimed by any major economic school of thought.
This is wrong. You’ve misunderstood the creation of credit and money.
See https://www.sciencedirect.com/science/article/pii/S105752191... - but then spend time reading the relevant legislation pieces.
You can safely ignore most of the mainstream economist schools of thought since the actual operational side of money as required by law is mostly a blind spot for them. Economic schools of thought do not link to relevant legislation when sharing their fairy tales since the laws the banks operate under result in behaviour distinct from that claimed by any major economic school of thought.
Although a great deal of smoke and mirrors is used when justifying the banks unique right to print money, and it's easy to miss the wood for the trees as you get lost in the details, the bigger picture is quite simple:
1) the banks print new money every time a loan is taken out and charge interest on that money
2) the amount of money loaned out is increasing every year
3) the total amount of money currently loaned is essentially all the fiat money in existence i.e. even 2% interest is a mind-blowing amount of annual income
Sure, we can debate about between the banks and government, who receives what proportion of the interest, but if you disagree with any of those three points, please explain.
1) the banks print new money every time a loan is taken out and charge interest on that money
2) the amount of money loaned out is increasing every year
3) the total amount of money currently loaned is essentially all the fiat money in existence i.e. even 2% interest is a mind-blowing amount of annual income
Sure, we can debate about between the banks and government, who receives what proportion of the interest, but if you disagree with any of those three points, please explain.
1) incomplete statement - When the bank creates new money (its liability to you) it does so because it agreed a loan contract with you (its asset).
The consequences of this are wide ranging, but relevant to this thread, it means a bank does not get richer when creating money, it gets richer when you pay interest in excess of its costs of providing you with money. Although the bank created the loan money from nothing, it still ends up with significant costs to provide that money, for example through capitalisation regulations on the asset.
Another relevant consequence of this is that a bank is not incentivised to have a huge balance sheet - which it would have if it only made loans. Instead these loans made are securitised and removed from the bank’s assets. This means interest paid on the loan no longer goes to the bank but to whoever bought the loan.
The consequences of this are wide ranging, but relevant to this thread, it means a bank does not get richer when creating money, it gets richer when you pay interest in excess of its costs of providing you with money. Although the bank created the loan money from nothing, it still ends up with significant costs to provide that money, for example through capitalisation regulations on the asset.
Another relevant consequence of this is that a bank is not incentivised to have a huge balance sheet - which it would have if it only made loans. Instead these loans made are securitised and removed from the bank’s assets. This means interest paid on the loan no longer goes to the bank but to whoever bought the loan.
I appreciate you filling in the details.
> it gets richer when you pay interest in excess of its costs of providing you with money.
Apart from the costs of running the bank, any other costs are simply what I would call money laundering (i.e. smoke and mirrors - as I mentioned, we can argue over who exactly receives what proportion of the money, but it doesn't escape the facts that the population is paying interest on trillions and trillions that were created out of thin air by a select few).
> This means interest paid on the loan no longer goes to the bank but to whoever bought the loan.
The key words here are "...whoever bought the loan". So someone has paid the bank money (I assume relatively equal to the outstanding balance of the loan) for money (the loan) that the bank printed effortlessly. This is simply more money laundering.
> it gets richer when you pay interest in excess of its costs of providing you with money.
Apart from the costs of running the bank, any other costs are simply what I would call money laundering (i.e. smoke and mirrors - as I mentioned, we can argue over who exactly receives what proportion of the money, but it doesn't escape the facts that the population is paying interest on trillions and trillions that were created out of thin air by a select few).
> This means interest paid on the loan no longer goes to the bank but to whoever bought the loan.
The key words here are "...whoever bought the loan". So someone has paid the bank money (I assume relatively equal to the outstanding balance of the loan) for money (the loan) that the bank printed effortlessly. This is simply more money laundering.
The costs of running the bank include the costs of administering the loans, the cost of the bank paying interest on reserves it needs to borrow and the costs of defaults. No "money laundering" is involved.
Banks are going to earn money on the margin between the rate they can lend at and the rate they need to pay to secure reserves regardless of monetary system. The alternative without Fed access is the population paying much more interest plus random bank busts, and this doesn't seem to be an obvious improvement to anyone except the superrich earning much more interest on the money they can offer long term loans on.
Banks are going to earn money on the margin between the rate they can lend at and the rate they need to pay to secure reserves regardless of monetary system. The alternative without Fed access is the population paying much more interest plus random bank busts, and this doesn't seem to be an obvious improvement to anyone except the superrich earning much more interest on the money they can offer long term loans on.
There is no real cost of defaults.
The money that wasn't paid back was created out of thin air with no effort from the bank.
Money laundering is taking ill-gotten gains and processing them to make them look legitimate. This is exactly what the central banking system, in partnership with the government, does.
However much you try to justify what they are doing you can't deny that the banking system is charging interest on every unit of currency in existence and they created them all for essentially free.
People absolutely should pay more interest - the free-market rate. It's absolutely wrong that people who get into debt are rewarded for doing so, at the cost of people who don't, who have the value of their savings, wages and pensions stolen.
It's a vicious cycle - lower than free-market interest rates force people to have to borrow money. Look at what it has done to prices of houses relative to wages over the last 50 years. It's reached the point that many people are now forced to take on 35, even 50 year mortgages, just to buy a very modest home.
Look up the Cantillon effect.
See here for some of the terrible, far reaching effects: https://wtfhappenedin1971.com/
Money laundering is taking ill-gotten gains and processing them to make them look legitimate. This is exactly what the central banking system, in partnership with the government, does.
However much you try to justify what they are doing you can't deny that the banking system is charging interest on every unit of currency in existence and they created them all for essentially free.
People absolutely should pay more interest - the free-market rate. It's absolutely wrong that people who get into debt are rewarded for doing so, at the cost of people who don't, who have the value of their savings, wages and pensions stolen.
It's a vicious cycle - lower than free-market interest rates force people to have to borrow money. Look at what it has done to prices of houses relative to wages over the last 50 years. It's reached the point that many people are now forced to take on 35, even 50 year mortgages, just to buy a very modest home.
Look up the Cantillon effect.
See here for some of the terrible, far reaching effects: https://wtfhappenedin1971.com/
I'm going to be honest, if you put half as much effort into learning the very, very basics of how the system worked as you did into campaigning against it by furiously incorrecting everyone in this thread, you'd probably feel a bit embarrassed to be posting stuff like "there's no real cost of defaults" .
The money was "created out of thin air" is the loaning bank's debt to the account the borrowed money is assigned to, not the bank's asset, so there's a very real cost to them if the borrower defaults and stops repaying them. Banks can become bankrupt, just like any other business, and no, they can't "print" their way out of it.
If you're still struggling to believe there's no real cost of defaults to banks, I invite you to look up bank insolvencies. Perhaps someone could make a wtfhappenedin2007 website.
I'm also chuckling away at you complaining that the current system means mortgages take too long to pay off a sentence after complaining that people who get into debt are rewarded! For the record, what you're actually advocating for with higher "free-market" interest rates is that poor people pay rich people more over the course of 25 years than they currently do over 35 or even 50 years to secure a house, which is less likely to appreciate in value. US home ownership rates were down at 40% before governments got involved in the mortgage market. It's impossible to pretend that anyone benefits from such a system other than people who are much, much richer than average home buyers.
The money was "created out of thin air" is the loaning bank's debt to the account the borrowed money is assigned to, not the bank's asset, so there's a very real cost to them if the borrower defaults and stops repaying them. Banks can become bankrupt, just like any other business, and no, they can't "print" their way out of it.
If you're still struggling to believe there's no real cost of defaults to banks, I invite you to look up bank insolvencies. Perhaps someone could make a wtfhappenedin2007 website.
I'm also chuckling away at you complaining that the current system means mortgages take too long to pay off a sentence after complaining that people who get into debt are rewarded! For the record, what you're actually advocating for with higher "free-market" interest rates is that poor people pay rich people more over the course of 25 years than they currently do over 35 or even 50 years to secure a house, which is less likely to appreciate in value. US home ownership rates were down at 40% before governments got involved in the mortgage market. It's impossible to pretend that anyone benefits from such a system other than people who are much, much richer than average home buyers.
> The money was "created out of thin air" is the loaning bank's debt to the account the borrowed money is assigned to, not the bank's asset, so there's a very real cost to them if the borrower defaults and stops repaying them. Banks can become bankrupt, just like any other business, and no, they can't "print" their way out of it.
I think the confusion is down to the fact that I'm looking at the central banking system as a whole, rather than individual banks. You're not looking at the bigger picture.
The point I'm making is that when the loan is made, fresh money is handed to the debtor, at no cost to the banking system (they simply change some electronic digits) and so if it isn't repaid, the banking system is no worse off than it was before. This is something you're blind to. Sometimes it's difficult to see the wood for the trees.
This is the fundamental problem with Keynesian economics as we know it - for all the talk of elasticity of money, human nature determines that the elasticity only goes one way - expansion. The system is incentivised to keep increasing total debt (because of interest payments on money it doesn't really own) and because it doesn't have to work for the money it lends out, it can hold interest rates below the free-market rate, ensuring it has a monopoly on the money lending..
>I'm also chuckling away at you complaining that the current system means mortgages take too long to pay off a sentence after complaining that people who get into debt are rewarded!
The two are not contradictory. They are punished with a long mortgage, but are still better off than the poor folk who try to save up for house instead and have the value of their savings stolen while they try.
I think the confusion is down to the fact that I'm looking at the central banking system as a whole, rather than individual banks. You're not looking at the bigger picture.
The point I'm making is that when the loan is made, fresh money is handed to the debtor, at no cost to the banking system (they simply change some electronic digits) and so if it isn't repaid, the banking system is no worse off than it was before. This is something you're blind to. Sometimes it's difficult to see the wood for the trees.
This is the fundamental problem with Keynesian economics as we know it - for all the talk of elasticity of money, human nature determines that the elasticity only goes one way - expansion. The system is incentivised to keep increasing total debt (because of interest payments on money it doesn't really own) and because it doesn't have to work for the money it lends out, it can hold interest rates below the free-market rate, ensuring it has a monopoly on the money lending..
>I'm also chuckling away at you complaining that the current system means mortgages take too long to pay off a sentence after complaining that people who get into debt are rewarded!
The two are not contradictory. They are punished with a long mortgage, but are still better off than the poor folk who try to save up for house instead and have the value of their savings stolen while they try.
You're not "looking at the bigger picture", you're just unambiguously and spectacularly wrong.
The banking system is composed of banks, and being insolvent is bad for a bank, for a bank that is owed money by an insolvent bank, and for banks which are owed money by banks which are owed money by insolvent banks, for banks that aren't owed money by banks, and ultimately, for consumers that are owed currency. The fact the bank "freshly created" the IOU doesn't mean they don't owe anyone anything. Perhaps someone really does need to make the wfthappenedin2007 website.
Someone with no understanding of how things works might say "but if it's true that banks can print all the money they like, can't the bank and its creditors just print themselves whole again", but that isn't because they've come up with some great economic insight that has thus far eluded everyone except a few random bloggers, it's because they have no understanding of how things work and what bank credit is (the hint is in the name, it's a debt, not an asset). Delinquent loans are removed as assets from banks' balance sheets, the liabilities they owe to other banks or the Fed remain, and that bank actually needs an external injection of non-"printed" money to make them whole again. Incidentally, this is no different to a "hard money" system, except that "hard money" systems don't have the systemic capacity to meet short term withdrawal rates for solvent banks in the event of a bank run either.
And no, the elasticity of the money supply goes both ways. USD M2 went down last year, for example. Again, this isn't a very difficult fact to establish if you're not really, really determined to be wrong.
Nor is it difficult to establish that there is nothing more inherently "market based" about a state arbitrarily tying its money supply to a particular commodity than a state deciding to to tie its money to the amount of lending generated by credit markets at a particular rate.
> The two are not contradictory. They are punished with a long mortgage, but are still better off than the poor folk who try to save up for house instead and have the value of their savings stolen while they try.
It's not difficult to find savings opportunities at above the average rate of inflation, unless you define "saving" as "bury money in the ground". But yes, if you think the purpose of the economy is ensure the unproductive maximize their returns, the existing system is definitely worse...
The banking system is composed of banks, and being insolvent is bad for a bank, for a bank that is owed money by an insolvent bank, and for banks which are owed money by banks which are owed money by insolvent banks, for banks that aren't owed money by banks, and ultimately, for consumers that are owed currency. The fact the bank "freshly created" the IOU doesn't mean they don't owe anyone anything. Perhaps someone really does need to make the wfthappenedin2007 website.
Someone with no understanding of how things works might say "but if it's true that banks can print all the money they like, can't the bank and its creditors just print themselves whole again", but that isn't because they've come up with some great economic insight that has thus far eluded everyone except a few random bloggers, it's because they have no understanding of how things work and what bank credit is (the hint is in the name, it's a debt, not an asset). Delinquent loans are removed as assets from banks' balance sheets, the liabilities they owe to other banks or the Fed remain, and that bank actually needs an external injection of non-"printed" money to make them whole again. Incidentally, this is no different to a "hard money" system, except that "hard money" systems don't have the systemic capacity to meet short term withdrawal rates for solvent banks in the event of a bank run either.
And no, the elasticity of the money supply goes both ways. USD M2 went down last year, for example. Again, this isn't a very difficult fact to establish if you're not really, really determined to be wrong.
Nor is it difficult to establish that there is nothing more inherently "market based" about a state arbitrarily tying its money supply to a particular commodity than a state deciding to to tie its money to the amount of lending generated by credit markets at a particular rate.
> The two are not contradictory. They are punished with a long mortgage, but are still better off than the poor folk who try to save up for house instead and have the value of their savings stolen while they try.
It's not difficult to find savings opportunities at above the average rate of inflation, unless you define "saving" as "bury money in the ground". But yes, if you think the purpose of the economy is ensure the unproductive maximize their returns, the existing system is definitely worse...
As I've seen time and time again from pepple with views like yours, you simply can't see the wood for the trees.
Fact 1: The amount of dollars is continuously increasing, at a rate of ~100% per decade. The amount which it has dropped in the last 2 years is tiny - that you use this as a counter is a simply ridiculous. https://fred.stlouisfed.org/series/M2SL
Fact 2: The money is created effortlessly.
Fact 3: The banking system is collecting interest on every single dollar in existence.
Assuming 3% average interest, and $100 trillion total, that interest would amount to ~$3,000,000,000,000 per year or * ~15% of the total GDP of the USA*. I'd love to hear your justification for how this is value for money.
It's absolute theft through deception.
> It's not difficult to find savings opportunities at above the average rate of inflation, unless you define "saving" as "bury money in the ground". But yes, if you think the purpose of the economy is ensure the unproductive maximize their returns, the existing system is definitely worse...
Yes, "saving" is storing your earnings for use later. This is entirely sensible and natural. Most people who are not aware of hard money are forced to either a) lend their life savings to the stock market for essentially free (7% returns only make up for the 7% devaluation due to money printing). b) take a house off the market and rent it out to a tenant who is unable to buy due the monetisation of real estate, only making it even harder for the next person to buy.
The only reason this whole scam continues is because the general population has no idea of the rate at which the banking system is stealing value from their money. And people like you only exacerbate the problem.
“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” - Henry Ford
Ultimately digital hard money doesn't care about your Keynesian pseudo-science. Just like the law of gravity and the law of nature, Thier's and Gresham's Laws will prevail and shut the whole central banking scam down.
Fact 1: The amount of dollars is continuously increasing, at a rate of ~100% per decade. The amount which it has dropped in the last 2 years is tiny - that you use this as a counter is a simply ridiculous. https://fred.stlouisfed.org/series/M2SL
Fact 2: The money is created effortlessly.
Fact 3: The banking system is collecting interest on every single dollar in existence.
Assuming 3% average interest, and $100 trillion total, that interest would amount to ~$3,000,000,000,000 per year or * ~15% of the total GDP of the USA*. I'd love to hear your justification for how this is value for money.
It's absolute theft through deception.
> It's not difficult to find savings opportunities at above the average rate of inflation, unless you define "saving" as "bury money in the ground". But yes, if you think the purpose of the economy is ensure the unproductive maximize their returns, the existing system is definitely worse...
Yes, "saving" is storing your earnings for use later. This is entirely sensible and natural. Most people who are not aware of hard money are forced to either a) lend their life savings to the stock market for essentially free (7% returns only make up for the 7% devaluation due to money printing). b) take a house off the market and rent it out to a tenant who is unable to buy due the monetisation of real estate, only making it even harder for the next person to buy.
The only reason this whole scam continues is because the general population has no idea of the rate at which the banking system is stealing value from their money. And people like you only exacerbate the problem.
“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” - Henry Ford
Ultimately digital hard money doesn't care about your Keynesian pseudo-science. Just like the law of gravity and the law of nature, Thier's and Gresham's Laws will prevail and shut the whole central banking scam down.
I assume by "people with views like yours" you mean people who haven't formed their impression of how the financial system works from solely from lists of falsely-attributed pithy quotes
Learning how stuff actually works doesn't mean you can't see woods, but it does save the embarrassment of claiming that the banking system is no worse off if debts aren't repaid. I mean, I've encountered some pretty wild takes on the 2007 financial crisis before, but I've never encountered anyone that thinks it didn't happen!
It also means you can say stuff like "Fact 4: "printing" dollars and bearing the risk of non-repayment of loans represents a cost to banks", and come to the conclusion that seems to give them a pretty good reason to be able to charge interest. And also to suggest that if you think current interest rates aren't "value for money" you should probably rethink your calls for them to go up!
The irony of shilling for "digital hard money" - i.e an ever increasing range of entirely synthetic assets entirely printed in the last 15 years whose demand is driven partly by counterfeit dollars and partly on people borrowing to speculate on other-newly printed entirely synthetic assets... after complaining about expansionary dynamics in M2 (which unlike "digital hard money" sometimes has a downslope) is just chefs kiss.
Learning how stuff actually works doesn't mean you can't see woods, but it does save the embarrassment of claiming that the banking system is no worse off if debts aren't repaid. I mean, I've encountered some pretty wild takes on the 2007 financial crisis before, but I've never encountered anyone that thinks it didn't happen!
It also means you can say stuff like "Fact 4: "printing" dollars and bearing the risk of non-repayment of loans represents a cost to banks", and come to the conclusion that seems to give them a pretty good reason to be able to charge interest. And also to suggest that if you think current interest rates aren't "value for money" you should probably rethink your calls for them to go up!
The irony of shilling for "digital hard money" - i.e an ever increasing range of entirely synthetic assets entirely printed in the last 15 years whose demand is driven partly by counterfeit dollars and partly on people borrowing to speculate on other-newly printed entirely synthetic assets... after complaining about expansionary dynamics in M2 (which unlike "digital hard money" sometimes has a downslope) is just chefs kiss.
Ugh, you know, I think what I hate most about the market fundies is that their perception of what interest rates would be is absolutely untethered from any semblance of empirical reality. Like, sure, it would be fucking nice if the long-run equilibrium rate were anywhere near where they think it would be, but believing r* is close to what it was back in the 70s is a bit like believing you can will the economy into having higher productivity growth through the magic power of wishful thinking. But nooo, it's definitely not having enough free market that's the problem, we should just finish what Reagan started, certainly the union busting had no contributions to the declining labour share at all.
It would be funny if it wasn't fucking terrifying.
It would be funny if it wasn't fucking terrifying.
That created money is lent to borrowers, who in aggregate benefit from it more than the interest costs. The banks don't get to just spend the deposits.
Lending out money at the rate of inflation is 0 profit after inflation.
Lending out money at the rate of inflation is 0 profit after inflation.
All the fiat currency units in existence are a loan to a bank somewhere. That is over a hundred trillion dollars for the US alone. If you're receiving 2% of $100,000,000,000,000 each year, for money you printed out of thin air, you're not going to worry about the effects of CPI on your monthly budget.
You've glossed over so many things.
The banks are not just in the business of lending out money. They also take deposits and pay interest on those deposits. It's a fraction of what they make on loan interest payments, but it's still a significant expense.
Borrowers can go bankrupt and default on debt. That's also effectively a huge expense.
Banks are competing to offer the best interest rates to their customers. If a bank could still make a lot of money while offering a lower interest rate than their competitors, they would.
> The more money the banks print
The only way they can print more money, is to issue more debt. But issuing debt is an expense for a bank. Either you do due diligence, which takes a lot of work. Or you accept the risk of issuing risky loans that may be defaulted on, which again, will be an expense. And then there's a mountain of regulations on top of that to try to prevent the banks from taking the second option, which also takes work.
It's not the free money machine you make it out to be. (Edit: Not that I'm saying it's not at all lucrative. But it's a risky and difficult high-skill job, which is extremely important to every aspect of society so that in itself isn't remotely surprising)
> they printed them out of thin air as loans and have to destroy them when the loans are repaid, but total debt only increases every year...
Sure.. that's how the economy has worked since the dawn of time.
Money is just an abstraction over credit in general, and credit is always how most of the economy has worked, even before money was invented.
You need a barn built? You ask your neighbors to help you build it, and promise them some grains or something in return. Boom. Credit (i.e. money) created from thin air. And the more the economy grows, the more this kind of debt is created.
Some of the earliest texts we've discovered was records of this kind of debt. That's exactly what paper (and digital) money is.. a record of debt distilled to its purest essence and made easily tradable.
The difference now is that instead of credit being created through these informal arrangements, you go to the bank, which does the work of ensuring that you're good for the debt. You get some numbers in an account which then lets you go to the neighbors and pay them to help. Whether you repay them by doing work for them directly, or work for someone else in the community, doesn't matter anymore. Which makes the whole system much more efficient.
The banks are not just in the business of lending out money. They also take deposits and pay interest on those deposits. It's a fraction of what they make on loan interest payments, but it's still a significant expense.
Borrowers can go bankrupt and default on debt. That's also effectively a huge expense.
Banks are competing to offer the best interest rates to their customers. If a bank could still make a lot of money while offering a lower interest rate than their competitors, they would.
> The more money the banks print
The only way they can print more money, is to issue more debt. But issuing debt is an expense for a bank. Either you do due diligence, which takes a lot of work. Or you accept the risk of issuing risky loans that may be defaulted on, which again, will be an expense. And then there's a mountain of regulations on top of that to try to prevent the banks from taking the second option, which also takes work.
It's not the free money machine you make it out to be. (Edit: Not that I'm saying it's not at all lucrative. But it's a risky and difficult high-skill job, which is extremely important to every aspect of society so that in itself isn't remotely surprising)
> they printed them out of thin air as loans and have to destroy them when the loans are repaid, but total debt only increases every year...
Sure.. that's how the economy has worked since the dawn of time.
Money is just an abstraction over credit in general, and credit is always how most of the economy has worked, even before money was invented.
You need a barn built? You ask your neighbors to help you build it, and promise them some grains or something in return. Boom. Credit (i.e. money) created from thin air. And the more the economy grows, the more this kind of debt is created.
Some of the earliest texts we've discovered was records of this kind of debt. That's exactly what paper (and digital) money is.. a record of debt distilled to its purest essence and made easily tradable.
The difference now is that instead of credit being created through these informal arrangements, you go to the bank, which does the work of ensuring that you're good for the debt. You get some numbers in an account which then lets you go to the neighbors and pay them to help. Whether you repay them by doing work for them directly, or work for someone else in the community, doesn't matter anymore. Which makes the whole system much more efficient.
> You need a barn built? You ask your neighbors to help you build it, and promise them some grains or something in return. Boom. Credit (i.e. money) created from thin air. And the more the economy grows, the more this kind of debt is created.
You're missing the bigger picture. The difference is that banks are handing out unlimited credit notes for something they don't have, and are charging interest on them.
You're missing the bigger picture. The difference is that banks are handing out unlimited credit notes for something they don't have, and are charging interest on them.
it's not unlimited. There's a regulated amount for which they're not allowed to go over (reserve requirement - which has since 2020 been set to zero), and they are required to have enough equity/capital (called capital requirements outlined here: https://docs.google.com/viewerng/viewer?url=https://www.fede... )
If it is indeed true that a bank could just print unlimited loan notes, then why did Silicon Valley Bank collapse? Wouldn't it be possible to just print themselves out of their troubles?
If it is indeed true that a bank could just print unlimited loan notes, then why did Silicon Valley Bank collapse? Wouldn't it be possible to just print themselves out of their troubles?
You're missing the bigger picture too. Silicon Valley Bank didn't collapse - it was bailed out with unlimited money from the bigger banks.
The only limitation the banking system faces is excuses to loan money (one of the reason long-standing wars that last for years are increasingly common - the banking system gets to fund both sides)
The only limitation the banking system faces is excuses to loan money (one of the reason long-standing wars that last for years are increasingly common - the banking system gets to fund both sides)
> it was bailed out with unlimited money from the bigger banks.
tell that to the equity owners of the bank.
tell that to the equity owners of the bank.
There's no such thing as equity ownership anymore. The banking system has seen to that by slowly changing the legislation in every country around the world.
https://thegreattaking.com/read-online-or-download
https://thegreattaking.com/read-online-or-download
I see it as a wealth tax and I agree, 2% is roughly long term stable maximum returns that leaves enough on the table for the middle class to prosper. I think at 3.5% or whatever they want to up the target to be will not be long term stable. It’ll work for a little while as GDP increases with increased inequality but civil unrest will from said inequality will reduce efficiency as more will need to be spent on security.
Inflation is absolutely not a wealth tax. You should spend some more time understanding the impact of inflation and I suspect you will come to the opposite conclusion and that it is a tax on the poor.
I agree that inflation hurts the poor which is the mechanism that exasperates the wealth inequality. But inflation coupled with capital gains tax becomes a wealth tax.
How is it a wealth tax? One of the things the wealthy do is hedge against inflation.
You have capital gains tax on it eventually, much of that capital gains is from inflation. The only way for it not to be a wealth tax is if capital gains is indexed to inflation.
Capital gains tax is just a % of your gains. So assuming the appreciation of your asset is due entirely to inflation, capital gains tax will be strictly less than the depreciation of the same amount of cash.
If it's a wealth tax, it is giving the best deal to the people with the most non-cash assets, i.e. the wealthy.
If it's a wealth tax, it is giving the best deal to the people with the most non-cash assets, i.e. the wealthy.
The asset has a nominal increase in value but not a real increase. After paying the capital gains tax you end up with less than what you had. In real terms your wealth has diminished. I think people are conflating a speculative asset bubble with inflation on the basis that they tend to occur at the same time and for the same reasons - easy monetary policy. But it does not necessarily follow that if you have inflation you also have a speculative asset bubble.
If we are talking about say a house, i think the poorer person who rents (and has rent increase with inflation) would be much more negatively affected over time, notwithstanding the extra capital gains tax the person who owns the house would have to pay upon sale.
I agree that it would increase inequality not decrease it like people would assume a wealth tax (inflation + capital gains tax) would do. The problem I see with the government having their revenue tied to wealth tax becomes incentivized to do things that will make the wealthy wealthier, like maintain a higher rate of inflation.
High inflation has a huge benefit to the government in that the government is a major borrower and inflation reduces the value of their debt.
However, fixed inflation targets (with central bank using interest rates to control) are generally not that beneficial for that purpose, as the inflation is known ahead of time and would be priced in.
Inflating away your debt only works if you can increase the inflation to be more than what the person you borrowed from thought it would be.
Inflating away your debt only works if you can increase the inflation to be more than what the person you borrowed from thought it would be.
Absolutely. The US government has the biggest short position on the dollar in history.
They are at the mercy of the privately-owned Fed who could destroy them.
They are at the mercy of the privately-owned Fed who could destroy them.
>You have capital gains tax on it eventually,
Erm... no. That's how people imagine it's supposed to work, but in reality, the wealthy fund their consumption from loans using their wealth as collateral, enjoying the benefit of their wealth while avoiding capital gains taxes. Warren Buffet has famously criticized this, it's not some unheard of thing. There are many, many loopholes and they are very much there on purpose.
Erm... no. That's how people imagine it's supposed to work, but in reality, the wealthy fund their consumption from loans using their wealth as collateral, enjoying the benefit of their wealth while avoiding capital gains taxes. Warren Buffet has famously criticized this, it's not some unheard of thing. There are many, many loopholes and they are very much there on purpose.
Certainly, I'm talking about the middle class that are not afforded such opportunities. The rich can not only often dodge such taxes but can benefit more easily from government largess.
That’s how some wealthy people fund their lifestyles.
Take a look at SEC filings, and you’ll see a massive amount of stock sales and capital gains taxes getting paid every day.
Take a look at SEC filings, and you’ll see a massive amount of stock sales and capital gains taxes getting paid every day.
some people are the people in question here. This discussion started as a conversation about a wealth tax and “capital gains” is mentioned. The wealthy largely do not pay a proportionate amount of this tax. Additionally, you will see “massive amounts” of anything in an economy as large as the united states. Capital gains tax is not a very big percentage of US taxes collected, and the taxes that are collected are mostly shouldered by people who are not wealthy. So, in the context of this discussion, I’m not sure what your point is. some people pay capital gains tax. My point wasn’t that no one does.
Capital gains tax is one of the more disgusting taxes. Most capital gains are simply due to the devaluation of the unit of account. The banks and government work hand-in-hand. The more money the banks print (as interest-chargeable loans), the more the government makes you pay in capital gains taxes. A win-win situation for them.
One way the wealthy get around this is by taking on debt against their hard assets - generally real estate. As the price of their assets go up, they take out larger and larger loans, each time paying off the old loan and pocketing the difference tax free. The money is devalued faster than the interest rate, so even after paying interest, they are left with free money (our money), tax-free.
One way the wealthy get around this is by taking on debt against their hard assets - generally real estate. As the price of their assets go up, they take out larger and larger loans, each time paying off the old loan and pocketing the difference tax free. The money is devalued faster than the interest rate, so even after paying interest, they are left with free money (our money), tax-free.
Capital gains taxes are discounted to compensate for inflation. (10-20% vs 30-40%). It's not perfect but it's an estimate.
Also, capital gains are unearned.
Also, capital gains are unearned.
CPI is a useless metric. It doesn't take into that goods and services are going down in value over time (at around 5% per year), and doesn't include hard assets that retain their value such as housing. It's a trick.
> Also, capital gains are unearned.
On average, capital gains aren't gains at all. They are simply the price of your asset going up, not its value. Housing is a perfect example - it increases in price at the same rate at which the dollar is devalued through supply increase.
> Also, capital gains are unearned.
On average, capital gains aren't gains at all. They are simply the price of your asset going up, not its value. Housing is a perfect example - it increases in price at the same rate at which the dollar is devalued through supply increase.
You are taxed on the "gains" from inflation.
> I see it as a wealth tax and I agree
Inflation is like the opposite of a wealth tax - it affects poor people much more then rich people (since rich people have more of their wealth in owning assets which are less affected by inflation).
Inflation is like the opposite of a wealth tax - it affects poor people much more then rich people (since rich people have more of their wealth in owning assets which are less affected by inflation).
Many people take inflation as an immutable law of nature, but that has not always been so. Food for example, for a long time, became cheaper. Computers and technology as well. Think how nuts it would be if you could get a better house for less money every few years.
food became cheaper because it became cheaper to produce. Inflation is a very natural consequence of the fact that If I have money now, I can also very easily have that same money later, but the same cannot be said of having money later. Strategically, having money now dominates having money later, so money now is worth more than money later. How much? Who can say, but some.
> food became cheaper because it became cheaper to produce.
Which was caused by technological progress which is the key source of deflation (being able to buy more with the same amount of money). It is deflation is happening regularly:
> But Inflation is not inevitable. There are numerous countervailing forces that have been at work for much of the past 50 years. The three big Deflation drivers: 1) Technology, which creates massive economies of scale, especially in digital products (e.g., Software); 2) Robotics/Automation, which efficiently create more physical goods at lower prices; and 3) Globalization and Labor Arbitrage, which sends work to lower cost regions, making goods and services less expensive.
> Put into this context, Inflation is periodic, driven by specific events; Deflation is consistent, the background state of the modern economy. To fully understand this requires grasping how scarcity and abundance act as the drivers of the price of labor and goods. My suspicion is many economists who came of age during earlier eras of inflation fail to discern how the world has changed since.
* https://ritholtz.com/2021/02/stop-stressing-about-inflation/
This 1991 Radio Shack add illustrates the point quite well IMHO:
That US$1600 Tandy 1600 runs a 286 CPU and has a 20MB hard drive, and supported 640×200×16 resolution (720×350 mode for monochrome monitors):
* https://en.wikipedia.org/wiki/Tandy_1000#Tandy_1000_SL_and_T...
If you wish to run the same software as was run on that machine, you can still do so on your desktop/laptop:
* https://en.wikipedia.org/wiki/DOSBox
Or even in your web browser:
* https://js-dos.com (JavaScript DOS)
* https://archive.org/details/softwarelibrary_msdos_games
Somehow people don't notice the deflation happening all around them.
Which was caused by technological progress which is the key source of deflation (being able to buy more with the same amount of money). It is deflation is happening regularly:
> But Inflation is not inevitable. There are numerous countervailing forces that have been at work for much of the past 50 years. The three big Deflation drivers: 1) Technology, which creates massive economies of scale, especially in digital products (e.g., Software); 2) Robotics/Automation, which efficiently create more physical goods at lower prices; and 3) Globalization and Labor Arbitrage, which sends work to lower cost regions, making goods and services less expensive.
> Put into this context, Inflation is periodic, driven by specific events; Deflation is consistent, the background state of the modern economy. To fully understand this requires grasping how scarcity and abundance act as the drivers of the price of labor and goods. My suspicion is many economists who came of age during earlier eras of inflation fail to discern how the world has changed since.
* https://ritholtz.com/2021/02/stop-stressing-about-inflation/
This 1991 Radio Shack add illustrates the point quite well IMHO:
There are 15 electronic gimzo type items on this page, being sold from America’s Technology Store. 13 of the 15 you now always have in your pocket.
So here’s the list of what I’ve replaced with my iPhone.
* All weather personal stereo, [US]$11.88. I now use my iPhone with an Otter Box.
* AM/FM clock radio, $13.88. iPhone.
* In-Ear Stereo Phones, $7.88. Came with iPhone.
* Microthin calculator, $4.88. Swipe up on iPhone.
* Tandy 1000 TL/3, $1599. I actually owned a Tandy 1000, and I used it for games and word processing. I now do most of both of those things on my phone.
* VHS Camcorder, $799. iPhone.
* Mobile Cellular Telephone, $199. Obvs.
* Mobile CB, $49.95. Ad says “You’ll never drive ‘alone’ again!” iPhone.
* 20-Memory Speed-Dial phone, $29.95.
* Deluxe Portable CD Player, $159.95. 80 minutes of music, or 80 hours of music? iPhone.
* 10-Channel Desktop Scanner, $99.55. I still have a scanner, but I have a scanner app, too. iPhone.
* Easiest-to-Use Phone Answerer, $49.95. iPhone voicemail.
* Handheld Cassette Tape Recorder, $29.95. I use the Voice Memo app almost daily.
* BONUS REPLACEMENT: It’s not an item for sale, but at the bottom of the ad, you’re instructed to ‘check your phone book for the Radio Shack Store nearest you.’ Do you even know how to use a phone book?
You’d have spent [US]$3,054.82 in 1991 to buy all the stuff in this ad that you can now do with your phone.
That US$1600 Tandy 1600 runs a 286 CPU and has a 20MB hard drive, and supported 640×200×16 resolution (720×350 mode for monochrome monitors):
* https://en.wikipedia.org/wiki/Tandy_1000#Tandy_1000_SL_and_T...
If you wish to run the same software as was run on that machine, you can still do so on your desktop/laptop:
* https://en.wikipedia.org/wiki/DOSBox
Or even in your web browser:
* https://js-dos.com (JavaScript DOS)
* https://archive.org/details/softwarelibrary_msdos_games
Somehow people don't notice the deflation happening all around them.
This is an interesting point. I wonder if a source of inflation you are not taking into account is population growth. If inflation happens when you have the same money chasing fewer goods, it stands to me that given the same money, and the same amount of goods, but more people chasing those limited goods, that you'd have an inflationary effect.
That being said, the person should also be generating more goods if they are a productive member of society which should cancel out their new demand on the base of goods.
This makes me wonder, are we adding many more people who are not making as much stuff as they are consuming? Or potentially is the huge increase in size of organizations causing each individual to be much less productive? I've never heard anyone discuss this side of the equation.
That being said, the person should also be generating more goods if they are a productive member of society which should cancel out their new demand on the base of goods.
This makes me wonder, are we adding many more people who are not making as much stuff as they are consuming? Or potentially is the huge increase in size of organizations causing each individual to be much less productive? I've never heard anyone discuss this side of the equation.
This is a (possibly) intentional (not by you) abuse of language in order to to rip people off.
Inflation/deflation is decrease/increase in the value of money, separate from technological progress or supply and demand of real products.
It's impossible to measure this directly, so dishonest people pushed to simply measure price increases/decreased, ignoring technologocal progress, so that powerful interests good steal from the public good.
Inflation/deflation is decrease/increase in the value of money, separate from technological progress or supply and demand of real products.
It's impossible to measure this directly, so dishonest people pushed to simply measure price increases/decreased, ignoring technologocal progress, so that powerful interests good steal from the public good.
> Inflation/deflation is decrease/increase in the value of money, separate from technological progress or supply and demand of real products.
If $1 gets you X capabilities, but the same $1 gets you X-1 capabilities later, is that not inflation? The same $1 gets you less. Whereas getting X+1 for $1 is deflation: the $1 gets you more.
The capability is how many calories you can get (Food), how much space you have to live (Shelter), how far you can go (Transportation: $y gets you z litres).
In the Radio Shack example, $1600 got me some capabilities in 1991, and some other capabilities in 2024: am I getting more, or fewer, capabilities? Further, how many hours would I have had to work in 1991 (e.g., minimum wage) to make that $1600 versus the hours I have to work in 2024?
If $1 gets you X capabilities, but the same $1 gets you X-1 capabilities later, is that not inflation? The same $1 gets you less. Whereas getting X+1 for $1 is deflation: the $1 gets you more.
The capability is how many calories you can get (Food), how much space you have to live (Shelter), how far you can go (Transportation: $y gets you z litres).
In the Radio Shack example, $1600 got me some capabilities in 1991, and some other capabilities in 2024: am I getting more, or fewer, capabilities? Further, how many hours would I have had to work in 1991 (e.g., minimum wage) to make that $1600 versus the hours I have to work in 2024?
I'm not sure it's a meaningful question... for $1600 I can get an iPhone which is more capable than anything you could buy for any price in 1991. Is the argument that this means there's been deflation? To me its a category difference and you can't compare because prices aren't set entirely by capability conferred but also by cost of production and demand.
This is not the same effect. You'd still rather have money prior to the industrial revolution than the same amount of money after. The money itself is worth more earlier. The phenomenon I described is mathematical fact.
Inflation/deflation is not the same as a specific product flucuating in price.
Yes, there have been times in the past where inflation rate was much different (in either direction), but computers getting cheaper is not an example of that.
Yes, there have been times in the past where inflation rate was much different (in either direction), but computers getting cheaper is not an example of that.
You’d think that housing would be the priority, all this other shit getting cheaper while basic necessities turn into investments.
I wonder if someone from 1950 or so would believe an average person from the future that told them almost all the work they do at a ridiculous productivity level would go to a house to live in.
Think of all the wasted opportunity of most people not being able to spend their work on other things besides basic necessities.
(I have a Canadian bias, up here we can see the world in a decade already)
I wonder if someone from 1950 or so would believe an average person from the future that told them almost all the work they do at a ridiculous productivity level would go to a house to live in.
Think of all the wasted opportunity of most people not being able to spend their work on other things besides basic necessities.
(I have a Canadian bias, up here we can see the world in a decade already)
[deleted]
> Many people take inflation as an immutable law of nature […]
Not in Japan. They've had stagnant prices and wages for a few decades now (though seems to be changing just recently):
* https://www.youtube.com/watch?v=HFYv-rk4v9Y
Not in Japan. They've had stagnant prices and wages for a few decades now (though seems to be changing just recently):
* https://www.youtube.com/watch?v=HFYv-rk4v9Y
> Food for example, for a long time, became cheaper
Which certainly wasn't great if you were a farmer with a mortgage back in the 1800s and 1900s (it was grender if you were a lender, rentier or a British aristocrat). Governments back then kept increasing money supply at slower (sometimes by a lot) rate than the GDP was growing. That didn't really work that well (basically the economy was stuck in a permanent boom and bust cycle with pretty severe depressions by modern standards).
Which certainly wasn't great if you were a farmer with a mortgage back in the 1800s and 1900s (it was grender if you were a lender, rentier or a British aristocrat). Governments back then kept increasing money supply at slower (sometimes by a lot) rate than the GDP was growing. That didn't really work that well (basically the economy was stuck in a permanent boom and bust cycle with pretty severe depressions by modern standards).
> It's essentially a stealth transfer of wealth from the people to the banks and it's been going on for decades/centuries (before fiat, it used to take the form of coin shaving, impure metals etc).
I wish I could upvote this more. If enough people understood that this is the root problem, we might have a chance of actually fixing it.
I wish I could upvote this more. If enough people understood that this is the root problem, we might have a chance of actually fixing it.
1. This isn't as much of a problem as it's made out to be. It's the same problem we have with the uneven distribution of wealth and poor competition in the economy in general. If the banks are all publicly traded and the shares evenly distributed, the wealth will just go back to the general population. If you have a healthy banking market with several competitors the banks will compete to the point where none of them can extract too much profit. Same as how you end up with companies extracting wealth in any market where they get too much of a monopoly.
2. Nobody has even proposed a solution that is remotely capable of improving on the system we have. Because most proposed solutions are formulated by people who haven't bothered to truly understand how the system of money/banking we have today actually works.
> If the banks are all publicly traded and the shares evenly distributed
Which of course they're not. Nor will they ever be. Even if you forced things to be this way on some particular day, they wouldn't stay that way, because people have different needs, different expectations, and different judgments about the best ways to use their money. And in a free market, they will act differently because of those differences, and quickly trade away from any "even distribution" of anything.
> If you have a healthy banking market with several competitors the banks will compete to the point where none of them can extract too much profit.
I agree that banking should be a competitive free market (as I think every good and service should be).
> you end up with companies extracting wealth in any market where they get too much of a monopoly
If "monopoly" means "ability to buy favors from the government to avoid free market competition", then I agree with this. But such a "monopoly" in no way requires there to be a lack of competition in an industry. There is plenty of competition in banking. It just all takes place against a backdrop of monetary manipulation by the government.
Which of course they're not. Nor will they ever be. Even if you forced things to be this way on some particular day, they wouldn't stay that way, because people have different needs, different expectations, and different judgments about the best ways to use their money. And in a free market, they will act differently because of those differences, and quickly trade away from any "even distribution" of anything.
> If you have a healthy banking market with several competitors the banks will compete to the point where none of them can extract too much profit.
I agree that banking should be a competitive free market (as I think every good and service should be).
> you end up with companies extracting wealth in any market where they get too much of a monopoly
If "monopoly" means "ability to buy favors from the government to avoid free market competition", then I agree with this. But such a "monopoly" in no way requires there to be a lack of competition in an industry. There is plenty of competition in banking. It just all takes place against a backdrop of monetary manipulation by the government.
The fix is already here, it's just a matter of time while we wait for the world to understand what it is.
"I don't believe we shall ever have a good money again before we take the thing out of the hands of government, that is, we can't take them violently out of the hands of government, all we can do is by some sly roundabout way introduce something they can't stop" F.A. Hayek
https://www.youtube.com/watch?v=CBIidtaUCzs
"I don't believe we shall ever have a good money again before we take the thing out of the hands of government, that is, we can't take them violently out of the hands of government, all we can do is by some sly roundabout way introduce something they can't stop" F.A. Hayek
https://www.youtube.com/watch?v=CBIidtaUCzs
Having enjoyed your other comments in this thread, I'm curious how Bitcoin fixes this issue. Because it can't be created out of thin air? Or is there something else I'm missing?
To understand why Bitcoin fixes the issue takes hundreds of hours of research - much more than I can explain here.
Here are some good starting points:
https://youtube.com/playlist?list=PL2jAZ0x9H0bQFY6wIbQfnrnIl... (listen to at least the first 7 episodes - absolutely fascinating - the most interesting lectures I ever heard. Prepare to have your mind slowly blown)
https://youtu.be/Z6qzEYxBYcQ
https://www.onceinaspecies.com/p/bitcoins-full-potential-val...
https://youtu.be/CoGxakp1_3I - tip: watch this at at least 1.5x speed ;)
Here are some good starting points:
https://youtube.com/playlist?list=PL2jAZ0x9H0bQFY6wIbQfnrnIl... (listen to at least the first 7 episodes - absolutely fascinating - the most interesting lectures I ever heard. Prepare to have your mind slowly blown)
https://youtu.be/Z6qzEYxBYcQ
https://www.onceinaspecies.com/p/bitcoins-full-potential-val...
https://youtu.be/CoGxakp1_3I - tip: watch this at at least 1.5x speed ;)
Jeff Booth with a great perspective (slightly over the head of the interviewer!): https://youtu.be/okDGQ-zU4sA
Crypto currencies are an experiment in the "denationalization of money" which was a book written by Hayek - of course he wrote this before cyrpto currencies were even a thing.
I would avoid just picking out BTC (which being stable in supply is prone to hoarding as digital gold and not really used as a means of commerce) and look at what other crypto has to offer as well, such as Ethereum which has a dynamic supply limit that is tied to its usage - in times of high usage such as today, it actually becomes deflationary. As usage slows, it becomes inflationary again which in theory should promote network usage.
We are essentially in an ongoing experiment of the denationalization of money and I personally think it will be fascinating how it will play out in the next couple decades.
I would avoid just picking out BTC (which being stable in supply is prone to hoarding as digital gold and not really used as a means of commerce) and look at what other crypto has to offer as well, such as Ethereum which has a dynamic supply limit that is tied to its usage - in times of high usage such as today, it actually becomes deflationary. As usage slows, it becomes inflationary again which in theory should promote network usage.
We are essentially in an ongoing experiment of the denationalization of money and I personally think it will be fascinating how it will play out in the next couple decades.
Ethereum is not proof of work and so ultimately won't be as good a store of value as Bitcoin.
Any digital network that doesn't use the best store of value is not going to be able to compete with one that does.
Any digital network that doesn't use the best store of value is not going to be able to compete with one that does.
Proof of work was the first of the consensus algorithms to be used with blockchains because Satoshi (imo, probably Hal Finney) likely didn't know about Proof of Stake at the time. By the time it was being discussed, Satoshi was already becoming less active in the community.
The claim PoS is not the best store of value is asinine. PoW in BTC has consolidated around a cabal of a handful of miners and the power usage is of course a well-known sounding bell for PoW apologists everywhere.
The truth is PoW was the best they had at the dawn of blockchain, then technology improved. It's really this simple and I'm baffled when people get religious about consensus algorithms. It's as if people would say we need to keep using bubblesort instead of quicksort because bubblesort was discovered first.
The claim PoS is not the best store of value is asinine. PoW in BTC has consolidated around a cabal of a handful of miners and the power usage is of course a well-known sounding bell for PoW apologists everywhere.
The truth is PoW was the best they had at the dawn of blockchain, then technology improved. It's really this simple and I'm baffled when people get religious about consensus algorithms. It's as if people would say we need to keep using bubblesort instead of quicksort because bubblesort was discovered first.
Proof of stake is not really any different to the fiat system it's trying to replace.
If a money isn't proof-of-work then it implies that some people can create it without doing work.
Gold's proof-of-work stood it in good stead for thousands of years. It was only some of it's physical limitations that led to fiat beating it. In fact fiat would be worthless if it wasn't boot-strapped into having value by originally representing gold's proof-of-work. Now we have digital proof of work in bitcoin. It doesn't have the physical limitations of gold, and fiat is going to hyperinflate to 0 once again - but this time it will stay there.
If a money isn't proof-of-work then it implies that some people can create it without doing work.
Gold's proof-of-work stood it in good stead for thousands of years. It was only some of it's physical limitations that led to fiat beating it. In fact fiat would be worthless if it wasn't boot-strapped into having value by originally representing gold's proof-of-work. Now we have digital proof of work in bitcoin. It doesn't have the physical limitations of gold, and fiat is going to hyperinflate to 0 once again - but this time it will stay there.
"Proof of stake is not really any different to the fiat system it's trying to replace." Please elaborate.
"If a money isn't proof-of-work then it implies that some people can create it without doing work" Have you seen how much work goes into being a validator? There is definitely work being done - just much more sophisticated that guessing a random value...
Agreed on crypto not having the physical limitations and on the trend of fiat to inflate. I just can't agree on the other points.
"If a money isn't proof-of-work then it implies that some people can create it without doing work" Have you seen how much work goes into being a validator? There is definitely work being done - just much more sophisticated that guessing a random value...
Agreed on crypto not having the physical limitations and on the trend of fiat to inflate. I just can't agree on the other points.
The real inflation is in asset prices
Sometimes it just happens to bleed over into the price of sneakers and steaks and that’s when people get angry
But when money is printed out of thin air, the first refuge it seeks is in housing. And housing inflation has beaten all other inflation by a mile and a half
Sometimes it just happens to bleed over into the price of sneakers and steaks and that’s when people get angry
But when money is printed out of thin air, the first refuge it seeks is in housing. And housing inflation has beaten all other inflation by a mile and a half
Gold is not a good stable measure of value. In fact there are very few or no good stable measures of value. Something like bread might be, at least in places with stable food supply chains.
Good answer. Inflation is just a euphemism for stealing from working people.
You know what truly sucks about all of this? How much it forces people to grind and hustle and do all sorts of undignified crap just to make a living.
It truly kills all dignity of labor.
It truly kills all dignity of labor.
If we operated on a deflationary currency, the value of your labour would be tied to cost of goods, and your salary would decrease each year, while the rich continued to accumulate more of the proportion of cash. Working people would still have to spend most of their income on survival, while the rich would be free to sit on piles of deflationary currency and become even richer.
In an inflationary currency, the rich invest in assets that aren't affected by inflation. Inflation is not the problem in this scenario. Hoarding wealth is. This would be increased with a deflationary currency.
In an inflationary currency, the rich invest in assets that aren't affected by inflation. Inflation is not the problem in this scenario. Hoarding wealth is. This would be increased with a deflationary currency.
I think this is just propaganda that you've accepted. You think it's bad if things get cheaper? And you think people would just sit there while their employer decreases their wages every year? Not going to happen. Also, we already get wage decreases each year because of inflation. If you don't get a significant raise every single year you're losing purchasing power. And even then, you have to wait a whole year. The fact that people don't realize this is already happening is part of the scam.
> I think this is just propaganda that you've accepted.
It's just logical inference. Your point of view shallowly considers everyone as consumers without thinking about the fact that if "things get cheaper", that means that labour has also gotten cheaper. You assert that people won't "sit there" while employers reduce their wages, but that's exactly what would HAVE to happen in this system. Otherwise the company would go under because their product or service gets cheaper each year, but labour stays the same or increases in cost. Especially under capitalism which demands constant growth.
It simply would not make sense to pay someone the same price for a bushel of wheat when the cost of bread has reduced to a fraction of its original price. I don't know why you say that it is propaganda to acknowledge this extremely simple logical inference.
It's just logical inference. Your point of view shallowly considers everyone as consumers without thinking about the fact that if "things get cheaper", that means that labour has also gotten cheaper. You assert that people won't "sit there" while employers reduce their wages, but that's exactly what would HAVE to happen in this system. Otherwise the company would go under because their product or service gets cheaper each year, but labour stays the same or increases in cost. Especially under capitalism which demands constant growth.
It simply would not make sense to pay someone the same price for a bushel of wheat when the cost of bread has reduced to a fraction of its original price. I don't know why you say that it is propaganda to acknowledge this extremely simple logical inference.
Still preferable to deflation. At least the working class has something that can be stolen..
In a healthy economy, deflation (i.e. falling prices) is a good thing. Things get cheaper over time - it's the utopia we should be living in now.
We've made massive increases in production efficiency across the board over the years, but the banks and government have creamed off all those efficiency gains for themselves, by printing money, creating the illusion that everything is instead going up in value, and have made themselves mind-blowingly powerful.
As the world economies are so broken, if the money supply went down instead of up (i.e. deflationary supply), the real value of the already enormous debts would increase even if the nominal value didn't, causing the economies to collapse suddenly. By keeping the money supply increasing, the economies are collapsing slowly instead, ultimately ending in hyperinflation.
We've made massive increases in production efficiency across the board over the years, but the banks and government have creamed off all those efficiency gains for themselves, by printing money, creating the illusion that everything is instead going up in value, and have made themselves mind-blowingly powerful.
As the world economies are so broken, if the money supply went down instead of up (i.e. deflationary supply), the real value of the already enormous debts would increase even if the nominal value didn't, causing the economies to collapse suddenly. By keeping the money supply increasing, the economies are collapsing slowly instead, ultimately ending in hyperinflation.
If the real costs is decreasing that's usually good, a decrease in nominal prices not so much. Why would you invest into increasing productivity etc. if you know that you revenue will only go down Longterm? Generally we'd want to quality to increase while prices stay more or less the same to encourage innovation.
> We've made massive increases in production efficiency
Likely much if not most of that wouldn't have happened if monetary supply was constrained and there would have been a lot less investment.
> the real value of the already enormous debts would increase even if the nominal value didn't
Why would you even want that to happen? I mean that was a pretty common situation in the 19th century and generally and it was pretty horrible. Imagine if you were a farmer who had a mortgage and the price of the goods you were selling kept going down every year... OTH other hand you could just buy government bonds and spend your days not doing anything useful (e.g. if you were an English aristocrat on a fixed income).
> By keeping the money supply increasing, the economies are collapsing slowly instead
Except they are not collapsing. What we have now is generally a huge improvement over the permanent boom and bust cycles that kept happening until the 1930s in large part because the money supply was constrained and increased at a slower pace than the economy was growing.
> ultimately ending in hyperinflation.
What are you basing this prediction on?
> We've made massive increases in production efficiency
Likely much if not most of that wouldn't have happened if monetary supply was constrained and there would have been a lot less investment.
> the real value of the already enormous debts would increase even if the nominal value didn't
Why would you even want that to happen? I mean that was a pretty common situation in the 19th century and generally and it was pretty horrible. Imagine if you were a farmer who had a mortgage and the price of the goods you were selling kept going down every year... OTH other hand you could just buy government bonds and spend your days not doing anything useful (e.g. if you were an English aristocrat on a fixed income).
> By keeping the money supply increasing, the economies are collapsing slowly instead
Except they are not collapsing. What we have now is generally a huge improvement over the permanent boom and bust cycles that kept happening until the 1930s in large part because the money supply was constrained and increased at a slower pace than the economy was growing.
> ultimately ending in hyperinflation.
What are you basing this prediction on?
Deflation is not a healthy system under capitalism, where people must work to survive. In the ideal scenario the value of work would approach zero due to a reduction of money in circulation. Work done yesterday would always be worth more than work done today and generational wealth would eventually become necessary to not be locked in servitude to the wealthy.
How can the value of work ever approach zero? Human work is value.
The value of anything simply derives from the quantity and quality (demand/supply) of the human work that goes into producing it.
In the current inflationary system, people are working for something that the banking system produces for almost nothing i.e. in the eyes of the banks/government, they are working for almost free.
The value of anything simply derives from the quantity and quality (demand/supply) of the human work that goes into producing it.
In the current inflationary system, people are working for something that the banking system produces for almost nothing i.e. in the eyes of the banks/government, they are working for almost free.
> How can the value of work ever approach zero? Human work is value.
It would never reach zero, it would keep approaching zero though (relative to the amount of money of people who earnt it before you).
Basically, someone could just hoard the cash they have at 0% risk and still get richer than you over time even if you manage to save 100% of your salary. How is that a reasonable system that encourages growth in productivity?
Of course we have bonds but when real interest rates are close to zero than doesn't work that well like in a deflationary system e.g. throughout much of the 1800s yields were 4-5% and deflation was basically the standard outside of major wars since the economy was growing faster than the supply of money was, so basically you could just not do anything productive with your wealth and still do fine, that's basically how British aristocrats from all the novels (and similar parasitical classes) sustained their lifestyles while not providing anything useful in return to the working classes whose taxes and severely depressed incomes made this whole thing possible).
It would never reach zero, it would keep approaching zero though (relative to the amount of money of people who earnt it before you).
Basically, someone could just hoard the cash they have at 0% risk and still get richer than you over time even if you manage to save 100% of your salary. How is that a reasonable system that encourages growth in productivity?
Of course we have bonds but when real interest rates are close to zero than doesn't work that well like in a deflationary system e.g. throughout much of the 1800s yields were 4-5% and deflation was basically the standard outside of major wars since the economy was growing faster than the supply of money was, so basically you could just not do anything productive with your wealth and still do fine, that's basically how British aristocrats from all the novels (and similar parasitical classes) sustained their lifestyles while not providing anything useful in return to the working classes whose taxes and severely depressed incomes made this whole thing possible).
This isn't true historically. In ancient times, a day's labor was the unit of currency. A "talent" in the Bible, for example, is a unit of metal representative of a day's wages.
> A "talent"
Was equal to about 26 kilograms. For most labourers that was about 10 years worth of wages...
Was equal to about 26 kilograms. For most labourers that was about 10 years worth of wages...
> The more money the banks print, the richer they get, with the side-effect that prices rise (they make the monetary units less scarce and worth less).
Meanwhile Japan has been increasing money supply for decades, and yet during that time they've had low and even negative rates of inflation:
* https://fred.stlouisfed.org/graph/?g=PA7P
Stop looking at money supply and inflation:
> But also – why do so many people insist that inflation is an increase in the money supply? This makes zero sense. Here’s why – our economy is mostly a credit based economy. So, if I take out a loan for $100,000 then the money supply has technically increased by $100,000. But what if I don’t actually tap that loan? What if I borrow the money because, for instance, house prices just went up 25% and I want to have some cash around for emergencies? This doesn’t tell us anything about prices, living standards or really anything. But this is what so much of the money supply represents – money that has been issued and is just sitting around unused. Why is this useful? It’s like calculating your weight changes by counting how much food you have in your refrigerator. No. That’s potential calories consumed and potential weight gain. The amount of food in your fridge tells you little about your future weight changes just like the amount of money in the economy tells us little about the actual price changes in the economy.
* https://www.pragcap.com/three-things-i-think-i-think-i-see-d...
Meanwhile Japan has been increasing money supply for decades, and yet during that time they've had low and even negative rates of inflation:
* https://fred.stlouisfed.org/graph/?g=PA7P
Stop looking at money supply and inflation:
> But also – why do so many people insist that inflation is an increase in the money supply? This makes zero sense. Here’s why – our economy is mostly a credit based economy. So, if I take out a loan for $100,000 then the money supply has technically increased by $100,000. But what if I don’t actually tap that loan? What if I borrow the money because, for instance, house prices just went up 25% and I want to have some cash around for emergencies? This doesn’t tell us anything about prices, living standards or really anything. But this is what so much of the money supply represents – money that has been issued and is just sitting around unused. Why is this useful? It’s like calculating your weight changes by counting how much food you have in your refrigerator. No. That’s potential calories consumed and potential weight gain. The amount of food in your fridge tells you little about your future weight changes just like the amount of money in the economy tells us little about the actual price changes in the economy.
* https://www.pragcap.com/three-things-i-think-i-think-i-see-d...
Japan is well known to be near-unique among world economies.
It's commonly said "There are four kinds of countries: developed countries, developing countries, Japan, and Argentina".
To point at some individual thing that happened a certain way in Japan and then try to justify some broad economic policy elsewhere in the world based on that won't work. Absent the other factors that make Japan's economy unique, the lessons there do not apply elsewhere.
As a counterpoint to your one example re: money supply and inflation, I would present the following: https://en.wikipedia.org/wiki/Hyperinflation#Notable_hyperin...
It's commonly said "There are four kinds of countries: developed countries, developing countries, Japan, and Argentina".
To point at some individual thing that happened a certain way in Japan and then try to justify some broad economic policy elsewhere in the world based on that won't work. Absent the other factors that make Japan's economy unique, the lessons there do not apply elsewhere.
As a counterpoint to your one example re: money supply and inflation, I would present the following: https://en.wikipedia.org/wiki/Hyperinflation#Notable_hyperin...
I am aware of Simon Kuznets.
> As a counterpoint to your one example re: money supply and inflation, I would present the following: https://en.wikipedia.org/wiki/Hyperinflation#Notable_hyperin...
People like to point out money supply/printing and inflation (cause of), but often fail to ask what caused the money printing in the first place:
* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1799102
People don't 'run the printers' for funsies: there are usually extraneous reasons why it happens (including a good portion of what the US (and most other countries) recently experienced).
> Now think about that – did 6 different governments [including Weimar Germany], all within a 4 year time period [in the 1920s], and all bordering each other and/or in the same post WWI region and intellectual/political climate (with the seeds of the some of the farthest right and farthest left regimes in all of history within them that would lead to WWII just ~18 years later)—
> Did all of a sudden this little world region and precise time period and intellectual milieu decide to just start spending like crazy? At the same time? While the rest of the world did not?
> Or did they share the same underlying, and preceding, set of problems discussed above?
* https://clintballinger.com/2021/01/12/the-myth-of-hyperinfla...
* https://clintballinger.com/2019/05/24/the-autocorrelation-of...
Further, in modern financial systems money is mostly created by banks creating credit:
* https://www.pragcap.com/stop-with-the-money-printing-madness...
* https://advisoranalyst.com/2014/01/09/cullen-roche-the-ten-b...
* https://rationalreminder.ca/podcast/132
> As a counterpoint to your one example re: money supply and inflation, I would present the following: https://en.wikipedia.org/wiki/Hyperinflation#Notable_hyperin...
People like to point out money supply/printing and inflation (cause of), but often fail to ask what caused the money printing in the first place:
* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1799102
People don't 'run the printers' for funsies: there are usually extraneous reasons why it happens (including a good portion of what the US (and most other countries) recently experienced).
> Now think about that – did 6 different governments [including Weimar Germany], all within a 4 year time period [in the 1920s], and all bordering each other and/or in the same post WWI region and intellectual/political climate (with the seeds of the some of the farthest right and farthest left regimes in all of history within them that would lead to WWII just ~18 years later)—
> Did all of a sudden this little world region and precise time period and intellectual milieu decide to just start spending like crazy? At the same time? While the rest of the world did not?
> Or did they share the same underlying, and preceding, set of problems discussed above?
* https://clintballinger.com/2021/01/12/the-myth-of-hyperinfla...
* https://clintballinger.com/2019/05/24/the-autocorrelation-of...
Further, in modern financial systems money is mostly created by banks creating credit:
* https://www.pragcap.com/stop-with-the-money-printing-madness...
* https://advisoranalyst.com/2014/01/09/cullen-roche-the-ten-b...
* https://rationalreminder.ca/podcast/132
Those efficiency increases - aren’t they affected by supply chain shocks, covid, limits on natural resources etc.?
> money the banks print
Banks don't print money. The government can.
Banks don't print money. The government can.
> Banks don't print money. The government can.
If you mean "physically print" money, you're technically right. In some countries.
But I think in this discussion, most of us are thinking about "virtually printing" money. That is, creating numbers in your bank account.
Again, you're technically right in that the government is the one steering this process. But the practical matter of actually "printing" the money is handled by the banks. It's their decision when and where to "print" money, as long as they have enough reserves at the end of the day.
If you mean "physically print" money, you're technically right. In some countries.
But I think in this discussion, most of us are thinking about "virtually printing" money. That is, creating numbers in your bank account.
Again, you're technically right in that the government is the one steering this process. But the practical matter of actually "printing" the money is handled by the banks. It's their decision when and where to "print" money, as long as they have enough reserves at the end of the day.
They create money. So can you.
If you mean by lending it, etc., that is regulated by the government - interest rates, reserves, oversight, much more.
Well pretty much everything is regulated by the government but banks still create money.
As for reserves, have you, or anyone you know with a good credit record, ever applied for a loan and gotten told, "We would like to lend you money, but we are all out of money to lend due to reserve requirements. Can you check back in next week?"
That doesn't happen. The bank creates the money and deals with reserve requirements later.
As for reserves, have you, or anyone you know with a good credit record, ever applied for a loan and gotten told, "We would like to lend you money, but we are all out of money to lend due to reserve requirements. Can you check back in next week?"
That doesn't happen. The bank creates the money and deals with reserve requirements later.
This guy gets it. Bitcoin fixes this.
quite the opposite. inflation is good for the working class. Housing prices are generally congruent to salary with interest rates as the coefficient.
personally I see inflation as the innovation dispersion factor - the rate we let the value of innovation disperse throughout the society.
personally I see inflation as the innovation dispersion factor - the rate we let the value of innovation disperse throughout the society.
That is such a bizarre statement I have a hard time believing you actually mean it. I think you would be hard pressed to find any/many 'working class' people who enjoy watching the cost of goods and services go up faster than their salaries.
The rich benefit from inflation - especially if they have lots of assets like real estate that have increased dramatically in value.
The rich benefit from inflation - especially if they have lots of assets like real estate that have increased dramatically in value.
that is cost inflation. there is also salary inflation, which indeed is a part of the general inflation.
inflation is the reason why it makes sense to own you house.
please enlighten me on how rich people benefit from (salary-)inflation
inflation is the reason why it makes sense to own you house.
please enlighten me on how rich people benefit from (salary-)inflation
If you are rich and own multiple houses or other expensive assets, they appreciate even faster during times of high inflation…compare that to a young working class couple hoping to someday buy their first house which continually gets farther out of reach…which ones are most hurt by inflation?
This sentiment stems from not being able to distinguish types of inflation.
In the current environment, cost inflation is not a problem anymore. The reason why the FEDs might not lower the interest rate, is because of salary inflation.
So right now you are at advantage working. Houses are flatlining in value due to increased interest rates and you can negotiate better pays with your employer.
Also, please avoid straw men like first time buyers etc. These are not really fitting for the debate and only add load the debate emotionally.
But to take you on your argument: The situation for young working class couples has generally not changed for decades.
(I am Danish, so statistics I know and use are mostly centered around macro dynamics of Denmark, though this is irrelevant for the broader discussion, as the ECB also seeks 2% inflation target)
In the current environment, cost inflation is not a problem anymore. The reason why the FEDs might not lower the interest rate, is because of salary inflation.
So right now you are at advantage working. Houses are flatlining in value due to increased interest rates and you can negotiate better pays with your employer.
Also, please avoid straw men like first time buyers etc. These are not really fitting for the debate and only add load the debate emotionally.
But to take you on your argument: The situation for young working class couples has generally not changed for decades.
(I am Danish, so statistics I know and use are mostly centered around macro dynamics of Denmark, though this is irrelevant for the broader discussion, as the ECB also seeks 2% inflation target)
>>In the current environment, cost inflation is not a problem anymore.
Everyone person who lives paycheck to paycheck, and is barely keeping their head above water as the cost of everything continues to skyrocket disagrees with you.
Good luck telling them that "cost inflation is not a problem anymore".
I can't speak to how things are in Denmark, but without a doubt the situation for young people (especially those looking to rent or buy a house ) HAS changed dramatically for the worse in the USA.
Everyone person who lives paycheck to paycheck, and is barely keeping their head above water as the cost of everything continues to skyrocket disagrees with you.
Good luck telling them that "cost inflation is not a problem anymore".
I can't speak to how things are in Denmark, but without a doubt the situation for young people (especially those looking to rent or buy a house ) HAS changed dramatically for the worse in the USA.
Please don't mix up monetary and fiscal policies.
The US is not famous for their redistribution politics especially not the past 30 years.
In Denmark we have numerous policies in place, that ensures that housing stays as housing and does not become a speculative asset - this is good if you want to buy a house the popular places.
Also, remember this is macro dynamics. Yes, houses are more expensive in the bay area. But I bet that housing has comparatively gone down in value in less popular areas.
The US is not famous for their redistribution politics especially not the past 30 years.
In Denmark we have numerous policies in place, that ensures that housing stays as housing and does not become a speculative asset - this is good if you want to buy a house the popular places.
Also, remember this is macro dynamics. Yes, houses are more expensive in the bay area. But I bet that housing has comparatively gone down in value in less popular areas.
>>But I bet that housing has comparatively gone down in value in less popular areas.
You would lose that bet.
Other than a few places where the town/city as literally being abandoned (i.e. towns in the middle of nowhere were the last factory has shut down) - home process have gone up everywhere in the last 3-4 years, and pretty dramatically so.
You would lose that bet.
Other than a few places where the town/city as literally being abandoned (i.e. towns in the middle of nowhere were the last factory has shut down) - home process have gone up everywhere in the last 3-4 years, and pretty dramatically so.
Americans are more than capable of changing these things through fiscal policies.
Or just impose regulations: an example of what we do in Denmark is to make house owners liable for having somebody to live in the unit (bopælspligt).
Would you seriously want the FED to solve the housing crisis instead of democratic appointed representatives?
that is absolutely absurd.
edit:
Anyways, to keep focus median house prices has seen a major correction after interest rates went up: https://fred.stlouisfed.org/series/MSPUS
combine this with higher salaries, and you can infer yourself that you get more house for you money now.
Or just impose regulations: an example of what we do in Denmark is to make house owners liable for having somebody to live in the unit (bopælspligt).
Would you seriously want the FED to solve the housing crisis instead of democratic appointed representatives?
that is absolutely absurd.
edit:
Anyways, to keep focus median house prices has seen a major correction after interest rates went up: https://fred.stlouisfed.org/series/MSPUS
combine this with higher salaries, and you can infer yourself that you get more house for you money now.
Hasn’t the percentage an average person spends on housing significantly increased in the past 50 (or 20) years?
Additionally I can’t follow your second thought: are you saying that the inflation rate is directly correlated with the rate of the value of innovation dispersement? E.g. a high inflation should eventually lead to a high dispersion of innovations/a more innovative culture?
Additionally I can’t follow your second thought: are you saying that the inflation rate is directly correlated with the rate of the value of innovation dispersement? E.g. a high inflation should eventually lead to a high dispersion of innovations/a more innovative culture?
Housing costs wouldn’t be on anyone’s radar if they simply grew with inflation.
they don't, they have the interest rate as a coefficient.
interest rates have reduced signitifanctly over the past 30 years.
also, remember that housing is not your San Fransisco condos. it is also the town house at some rural village.
interest rates have reduced signitifanctly over the past 30 years.
also, remember that housing is not your San Fransisco condos. it is also the town house at some rural village.
the idea with the second statement is: the cost of bringing innovation to a market where inflation is higher makes it easier to pay back to cost of the innovation. ie. you pay your salaries at index 100 and get to sell them at a higher index.
I was taught two reasons in undergrad Econ;
1) Deflation is seen as much worse, because inflation encourages spending over saving, which drives growth. Targeting, e.g. 0.5% risks missing and going negative.
2) Inflation reduces the true value (cost) of debt. And with $34.5 trillion of it, that’s a big incentive to keep it around.
IMO 2% is clearly too high of a target, but it’s the hamster wheel that makes everyone keep running so not surprising that government spins it too fast.
1) Deflation is seen as much worse, because inflation encourages spending over saving, which drives growth. Targeting, e.g. 0.5% risks missing and going negative.
2) Inflation reduces the true value (cost) of debt. And with $34.5 trillion of it, that’s a big incentive to keep it around.
IMO 2% is clearly too high of a target, but it’s the hamster wheel that makes everyone keep running so not surprising that government spins it too fast.
> 2) Inflation reduces the true value (cost) of debt. And with $34.5 trillion of it, that’s a big incentive to keep it around.
This is the point that a lot of people miss. Inflation is good for governments as well as businesses who can exploit high inflation to raise prices and shrinkflate products disproportionatly while lowing their wage bills in real terms.
But it inflicts the most suffering on not just the working class, but the sensible/frugal ones who minimize their debt and accumulate some amount of savings rather, but who don't have enough wealth or knowledge to get serious about investing it.
This is the point that a lot of people miss. Inflation is good for governments as well as businesses who can exploit high inflation to raise prices and shrinkflate products disproportionatly while lowing their wage bills in real terms.
But it inflicts the most suffering on not just the working class, but the sensible/frugal ones who minimize their debt and accumulate some amount of savings rather, but who don't have enough wealth or knowledge to get serious about investing it.
> But it inflicts the most suffering on not just the working class, but the sensible/frugal ones who minimize their debt […]
It also helps people with debt, like folks with student loans, mortgages, etc.
It also helps people with debt, like folks with student loans, mortgages, etc.
And in the UK student loans are adjusted over time based on inflation lol. Inflation don't be helping people with student loans here
And good for people so wealthy that they never go without debt but have people they pay for keeping their net worth leveraged forever. Eventually paying off the mortgage is a very middle class thing, they can't afford risking shelter longer than necessary. The rich never stop paying off mortgages.
> sensible/frugal ones who minimize their debt and accumulate some amount of savings
What if this is wrong and being frugal is not sensible?
What if this is wrong and being frugal is not sensible?
What happens when one gets laid off, disabled, changes careers, or faces some other circumstances that cause incomes to fall below what’s needed to service debt payments? That’s why living below one’s means and saving the rest is prudent.
Unfortunately high inflation penalizes savers by eroding the purchasing power of savings, and it forces all workers on a treadmill where it seems that the cost of living rises faster than many people’s ability to catch up. The only way to beat inflation it seams is to invest in assets such as real estate or stocks, but those squeezed by inflation have little to invest, and these assets are increasingly difficult to obtain due to inflation. I find being on the wrong side of inflation highly demoralizing and upsetting.
Unfortunately high inflation penalizes savers by eroding the purchasing power of savings, and it forces all workers on a treadmill where it seems that the cost of living rises faster than many people’s ability to catch up. The only way to beat inflation it seams is to invest in assets such as real estate or stocks, but those squeezed by inflation have little to invest, and these assets are increasingly difficult to obtain due to inflation. I find being on the wrong side of inflation highly demoralizing and upsetting.
"Paradox of thrift". Economic version of losing weight by cutting off your toes.
Even if it's good for GDP to have everyone spending every penny, it's not good for you.
Two economists were walking down the street. One saw a dog shit on the ground, and told the other: “If you eat that, I’ll give you thousand dollars.” Other guy looked at it, thought “It’s bad, but I’ll get $1000”, and ate it. His friend paid him, although he still regretted it because it was really bad. After some time, they encountered another dog shit. This time the guy who ate it before, seeking revenge of the foul taste in his mouth, offered $1000 for eating it to his friend. He accepted, thinking “I’ll gain the $1000 I lost”. He ate it and got paid. After some time, they stopped for a while, and one said to other, “I feel like we just ate shit for nothing”, his friend replied: “Oh, come on! We just contributed to the GDP by $2000, it can’t be for nothing!”
(Commented this exact commenting the past, but relevant so doing it again.)
(Commented this exact commenting the past, but relevant so doing it again.)
Obviously one can post-hoc rationalize "sensible" as whatever worked best given the circumstances that occurred.
Absent government intervention in the functioning of markets, being frugal would have paid off way more than it has.
Absent government intervention in the functioning of markets, being frugal would have paid off way more than it has.
> Absent government intervention in the functioning of markets, being frugal would have paid off way more than it has
Why do you believe that to be the case? I think you are going with a gut feeling that the world should reward frugality, but if you actually examine that belief, there is no solid science behind it - but he world does not appreciate moral virtues, it does not reward kindness, and other things either.
Why do you believe that to be the case? I think you are going with a gut feeling that the world should reward frugality, but if you actually examine that belief, there is no solid science behind it - but he world does not appreciate moral virtues, it does not reward kindness, and other things either.
It depends on the knowledge you have. Most people aren't aware that unless they are getting a 7%+ return on their savings, they're actually getting poorer every year.
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So many of my cohort are now in a state of financial nihilism. Just yolo into the hottest stocks and crypto because debt is money and cash is for suckers.
With regards to debt is money - it's actually the other way around. Money is debt (by definition).
I don't think people against inflation miss this point, they just think the massive government spending needs to go (or, at the extreme, the entire government, whether they have rationalised it yet or not), not the value of poor people's cash.
There are significant stabilization benefits to having a public (and binding) inflation target - all of the large economic entities / sectors like banking, government spending, corporations, etc., become more predictable to each other. For this reason, whatever number is chosen will tend to “stick”, regardless of how the actual number is chosen. Or alternatively: it is optimal to have an inflation target (compared to not having one). Once you are in the “targeted” space, there is a further optimization of deciding what the inflation target should specifically be, but the gains and losses here are small compared to the existence or lack thereof of any target at all.
My intuition for this is to view the economy as a large number of interconnected gears driven by an input shaft. When the input is neutral (no inflation), the gears are slack and kind of spin back and forth with occasional whiplash. But with some token input spin (small inflation), the slack vanishes and all gears spin smoothly.
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> Once the bill became law, then an inflation target had to be chosen. In an off-hand remark in an interview, the former head central banker said the inflation target should be zero to 1 percent. However, Don Brash, the head of the central bank, claimed “It was almost a chance remark,” and “The figure was plucked out of the air to influence the public’s expectations ”(Irwin, 2014). They used this number as a starting point and pushed it up to 2% to give themselves a bit more room
This feels like so many decisions we make day-to-day in STEM. We all love to feel like we have quantitative reasoning behind decisions but due to the organic nature of the work at some point, we just have to land on _something_ and go from there. Like qualitatively-influenced quantitative data.
This feels like so many decisions we make day-to-day in STEM. We all love to feel like we have quantitative reasoning behind decisions but due to the organic nature of the work at some point, we just have to land on _something_ and go from there. Like qualitatively-influenced quantitative data.
A pivotal moment in my career was realizing how much "winging it" was going on even at the highest levels of the craft. Yes, there is a lot skill and intuition behind it, but its still pretty off the cuff.
I had to double check to make sure this wasn't my comment because I'm getting amazing levels of deja vu right now. Everybody's winging it, nobody knows what they're doing, and the higher you climb the chain the more terrifying this fact becomes.
Le Carré said this in the interview about his life (The Pigeon Tunnel):
“At a certain age, you want the answer. You want the rolled up parchment in the inmost room that tells you who runs your lives and why. The trouble is that by then, you’re the very people who know best that the inmost room is bare.”
“At a certain age, you want the answer. You want the rolled up parchment in the inmost room that tells you who runs your lives and why. The trouble is that by then, you’re the very people who know best that the inmost room is bare.”
It is terrifying that people are just winging it, especially those who wield so much power and control over other people's lives.
On the other hand, it reminds me of that Steve Jobs quote about the whole world being built by people who are no smarter than you and me. It's humbling and encouraging, that we ourselves may participate in the perpetual (re)making of the world.
On the other hand, it reminds me of that Steve Jobs quote about the whole world being built by people who are no smarter than you and me. It's humbling and encouraging, that we ourselves may participate in the perpetual (re)making of the world.
> Everybody's winging it, nobody knows what they're doing
I’ve seen this comment a lot in recent years and I think there’s a lot of nuance here that is unappreciated.
When taken literally, it is used as a weapon of anti-intellectualism e.g. the doctors don’t know what they are doing when it comes to vaccines.
What it actually should mean is that the experts know there’s only a small slice about the universe/society that we understand, and thus proposal represents the best of our knowledge. It cannot guarantee success. But by god, it’s a lot better of an attempt than the opinion of some guy off the street
I’ve seen this comment a lot in recent years and I think there’s a lot of nuance here that is unappreciated.
When taken literally, it is used as a weapon of anti-intellectualism e.g. the doctors don’t know what they are doing when it comes to vaccines.
What it actually should mean is that the experts know there’s only a small slice about the universe/society that we understand, and thus proposal represents the best of our knowledge. It cannot guarantee success. But by god, it’s a lot better of an attempt than the opinion of some guy off the street
For me, it comes from the confidence that while I don't know the outcomes, I do have the ability to handle any of the possible outcome.
I'm so glad we're having this conversation. Early in my career I kept waiting for that moment when I would feel like I really knew what was going on... and the last several years I keep feeling like a fraud. I've been at it for two decades, but I'm afraid eventually people will figure it out and then how will I earn any money?
I was listening to this podcast [1] by a previous head of the IMF, who basically said the same thing.
[1] https://josephnoelwalker.com/151-raghuram-rajan/ Search for 2% in the transcript
[1] https://josephnoelwalker.com/151-raghuram-rajan/ Search for 2% in the transcript
They could have chosen 0 or -2% but they like to reap that 2% free money premium..
Defalation has more risk of feedback spirals, it heavily incentives you to wait to invest as tomorrow it will be cheaper than today. This is why small positive inflation rates are preferred. You could target 0% but in practice you will oscillate around it and have potentially long periods of deflation.
Well clearly it doesn't, because people still need to live. We have many years of evidence that people still buy shiny tech gadgets despite knowing that in a year's time they will be much cheaper.
That’s not true. The issue isn’t that the same device will be cheaper in a year, but that the latest device will be the same or close to it. As a result, people are more likely to hang on to their devices (for example) if they assume that next year’s latest model will be cheaper than this year’s.
A great example is the Apple Vision Pro. How many people didn’t buy it simply because the price is too high? Betcha they would if it were cheaper, which they know it will be eventually.
The same is not true of phones, which don’t generally get cheaper for the flagship products.
A great example is the Apple Vision Pro. How many people didn’t buy it simply because the price is too high? Betcha they would if it were cheaper, which they know it will be eventually.
The same is not true of phones, which don’t generally get cheaper for the flagship products.
> The issue isn’t that the same device will be cheaper in a year, but that the latest device will be the same or close to it.
I can't see how this is not a matter-of-degree of what GP comment said. If the latest-tech device is going to be cheaper next year, I will still have to use the old tech for another year before I upgrade. I don't think the equation changes at all.
I can't see how this is not a matter-of-degree of what GP comment said. If the latest-tech device is going to be cheaper next year, I will still have to use the old tech for another year before I upgrade. I don't think the equation changes at all.
You misunderstood, I think.
If the iPhone 5 is the latest and greatest this year and is $1000, next year it may be $600. But the iPhone 6, which only exists next year, will be at or around $1000.
Therefore, there is no benefit to waiting until next year, as it is unlikely that the latest device (which is the device most people buy) is going to drop in price.
If the iPhone 5 is the latest and greatest this year and is $1000, next year it may be $600. But the iPhone 6, which only exists next year, will be at or around $1000.
Therefore, there is no benefit to waiting until next year, as it is unlikely that the latest device (which is the device most people buy) is going to drop in price.
Of course there's a benefit; you can buy the iPhone 5 for $600. If you would be happy with it this year, you'll be happy with it next year too. The existence of an iPhone 6 doesn't make the iPhone 5 any worse.
I agree. And if I decide to wait a year, I'll be using iPhone 4 for the next year, regardless of which model I'll choose.
I understand this. But most people do not, and will buy the most recent one and wait two or more years before buying the next one. They buy the most recent one, aka the most expensive one, because they believe (correctly) it will last them the longest. But the price changing doesn’t affect their decision.
Of course there's a benefit, you get more value per dollar the more you wait.
When the first androids came out I waited for the first 300€ model and bought it. Over the years I always hovered around the 200€-300€ range and kept upgrading. The last phone was 200€ and it's the best phone I've ever had.
I can get the same (even better!) value from cheaper models over time.
When the first androids came out I waited for the first 300€ model and bought it. Over the years I always hovered around the 200€-300€ range and kept upgrading. The last phone was 200€ and it's the best phone I've ever had.
I can get the same (even better!) value from cheaper models over time.
The issue is investment, not consumption. When deciding what to invest in, expected returns are calculated net of taxes, inflation, and risk. Capital generally flows to the investment with the highest expected net return at every risk level.
In a deflationary environment, sitting on investable cash grows risk-free and tax-free, which makes it an attractive "investment" for many category of investor instead of putting that capital to work.
In a deflationary environment, sitting on investable cash grows risk-free and tax-free, which makes it an attractive "investment" for many category of investor instead of putting that capital to work.
Isn't that a self-correcting problem? If the money supply were held constant, and people didn't invest, then production efficiency would not improve, and there won't be deflation, right?
Even for "risk-free" assets like cash/bonds, inflation risk always exists. It's essentially a risk that you don't have a counterparty willing to trade the things you want.
Even for "risk-free" assets like cash/bonds, inflation risk always exists. It's essentially a risk that you don't have a counterparty willing to trade the things you want.
"self correcting" is a funny way to label macroeconomic shutdown.
The goal of inflation is to motivate productive work before the opportunity is lost due to idlenss.
The goal of inflation is to motivate productive work before the opportunity is lost due to idlenss.
Consuming is not investing
Can you elaborate how they are different?
I pay $1 to buy an apple and eat it. It is gone and tomorrow I will have no Apples unless I buy more. Instead I buy (invest in) an apple tree and now I have apples continuously.
The difference is the spending for a one time use vs production of new goods.
The difference is the spending for a one time use vs production of new goods.
In the context of the thread, both investment and consumption are spending though. Whether one buys a shiny new gadget or a tech stock that pays dividends doesn't matter, because cost of doing either will be less tomorrow in a deflationary economy.
Consumption is concerned with your actual wants and needs. Investing is purely a financial measure with your excess cash. If you assess that it is financially savvier to not invest you will not invest. Investment is the concern of the large amount of excess money that wealthy people have that drive new projects.
But you’re still going to want and need things to consume. Much, much less sensitive to inflation.
But you’re still going to want and need things to consume. Much, much less sensitive to inflation.
Slight inflation encourages money to be put towards productive use and punishes hoarding. Choosing a deflationary monetary policy is unconscionable, just think for a moment what the consequences would be.
Disagree. A lot of people trot out the argument that you'd just save money instead of spending if there was deflation. But electronics are deflating, and how often do people save money instead of spending on electronics? People still buy electronics because, simply, they want the electronics. Purchases may be pushed back a little, perhaps until the next generation of device comes out, but this doesn't have much of an effect overall. The money still gets spent.
And in an inflationary world, you can just park your money in government bonds (effectively returning it back to the Fed) to beat inflation most of the time. Inflation doesn't force you to spend your money productively.
And in an inflationary world, you can just park your money in government bonds (effectively returning it back to the Fed) to beat inflation most of the time. Inflation doesn't force you to spend your money productively.
But electronics are deflating,…
Electronics have become cheaper through gargantuan investments of capital. Such investments are actively discouraged by deflation.
And in an inflationary world, you can just park your money in government bonds (effectively returning it back to the Fed) to beat inflation most of the time. Inflation doesn't force you to spend your money productively
Putting your money in government bonds or an interest earning savings account is by definition, putting your money to work. Sure, you aren’t doing anything with it, but whoever is paying you interest is only doing so because they expect to make more money than they borrowed.
Electronics have become cheaper through gargantuan investments of capital. Such investments are actively discouraged by deflation.
And in an inflationary world, you can just park your money in government bonds (effectively returning it back to the Fed) to beat inflation most of the time. Inflation doesn't force you to spend your money productively
Putting your money in government bonds or an interest earning savings account is by definition, putting your money to work. Sure, you aren’t doing anything with it, but whoever is paying you interest is only doing so because they expect to make more money than they borrowed.
This comment avoids responding to the actual point about electronics, which is that deflation is alleged to cause certain effects, and when we observe deflation, we don't actually observe those effects, so why is that?
> punishes hoarding
Or put another way, punishes saving. Forcing people to "save" by loaning the money to businesses and governments bonds and equities is good for politicians who like to be measured by economic metrics. But it's bad for being able to actually save for the future, and reducing dependencies on banks, leading to the moral hazard (with 0% inflation you could have narrow banking without problems).
Or put another way, punishes saving. Forcing people to "save" by loaning the money to businesses and governments bonds and equities is good for politicians who like to be measured by economic metrics. But it's bad for being able to actually save for the future, and reducing dependencies on banks, leading to the moral hazard (with 0% inflation you could have narrow banking without problems).
It's not good for a society to save by holding on to worthless pieces of paper or shiny objects. It's good for society to save by investing in productive assets.
It's not good for society that ordinary people have to speculate their hard earned money just to keep it for retirement.
Holding on to currency or shiny objects is just another form of speculation. Maybe the bank fails. Maybe your house burns down and melts the contents of your safe. Maybe you're robbed. Maybe trade wars massively reduce your purchasing power. Maybe a new source of the shiny objects gets found and it's not are rare as you think. Maybe less people care about that shiny object in the future. Maybe that gold certificate was really just a fraud.
Your argument isn't really related to whether we should incentivize people to bury paper in their backyard or if they should hold bonds or other investments. The answer to your problem is to have better social safety nets.
Your argument isn't really related to whether we should incentivize people to bury paper in their backyard or if they should hold bonds or other investments. The answer to your problem is to have better social safety nets.
Of course there is always risk. But one of the supposed goals of fiat money and property rights is to reduce that risk, ensuring the ability to save into the future.
There are countless examples of countries where that trust was broken.
There are countless examples of countries where that trust was broken.
Your argument of governments are supposed to protect property rights still applies for bonds and stocks and other investments, so once again still not exactly an argument for incentivizing speculation on pieces of paper or shiny objects instead of productive assets.
The point of fiat isn't to give returns to those who worked hard by burying paper in their backyard, the point of fiat is to be an easy medium of exchange which does involve a certain level of value stability. A currency having a slow, predictable rate of inflation can still be considered having a certain level of stability, at least when concerning being a useful medium of exchange. I know that a loaf of bread isn't going to be $50 or $0.05 tomorrow, it'll likely be roughly the same as today. Over a long time scale sure that loaf will probably be more than today, but I'll be buying that bread in 2044 dollars not 2024 dollars, because in the end I shouldn't be incentivized to hold dollars.
And once again the only way to address "it's not good for society that ordinary people have to speculate" is by having strong social safety nets. Hoarding paper or shiny objects is still speculation with risks, as you just agreed.
The point of fiat isn't to give returns to those who worked hard by burying paper in their backyard, the point of fiat is to be an easy medium of exchange which does involve a certain level of value stability. A currency having a slow, predictable rate of inflation can still be considered having a certain level of stability, at least when concerning being a useful medium of exchange. I know that a loaf of bread isn't going to be $50 or $0.05 tomorrow, it'll likely be roughly the same as today. Over a long time scale sure that loaf will probably be more than today, but I'll be buying that bread in 2044 dollars not 2024 dollars, because in the end I shouldn't be incentivized to hold dollars.
And once again the only way to address "it's not good for society that ordinary people have to speculate" is by having strong social safety nets. Hoarding paper or shiny objects is still speculation with risks, as you just agreed.
> property rights
No you are conflating two topics. Property rights is not propping up stocks and bonds. It's protecting ownership so you can invest in building things over the long term without them being taken.
Similar reasons encourage the government to protect the value of their currency.
> the point of fiat is to be an easy medium of exchange
The stated goal of the federal reserve is price stability, not exchange.
> Hoarding paper or shiny objects is still speculation with risk
Yep but it's a difference of how much risk.
> having strong social safety nets
Those carry their own kinds of risk.
> I shouldn't be incentivized to hold dollars.
0% is hardly a massive incentive to hold cash. If we can't agree on that then ill be incentivized to hold a currency that does care about its value.
No you are conflating two topics. Property rights is not propping up stocks and bonds. It's protecting ownership so you can invest in building things over the long term without them being taken.
Similar reasons encourage the government to protect the value of their currency.
> the point of fiat is to be an easy medium of exchange
The stated goal of the federal reserve is price stability, not exchange.
> Hoarding paper or shiny objects is still speculation with risk
Yep but it's a difference of how much risk.
> having strong social safety nets
Those carry their own kinds of risk.
> I shouldn't be incentivized to hold dollars.
0% is hardly a massive incentive to hold cash. If we can't agree on that then ill be incentivized to hold a currency that does care about its value.
> Property rights is not propping up stocks and bonds.
I'm not talking about propping up stocks and bonds, I'm talking about ensuring fair, open markets for such things. I'm entirely talking about "protecting ownership so you can invest in building things over the long term without them being taken." That same concept of the government protecting your ownership of some shiny objects applies to protecting shareholders from a company publishing fraudulent financial statements, or selling bonds that are actually objectively worthless with actual review, or shenanigans that effectively remove such ownership aspects.
> 0% is hardly a massive incentive to hold cash.
Negative rate bonds are (or at least were) a thing as well. If it costs more to put your shiny objects and fancy paper in a safe and protect it than having an account at a bank then there's incentive on it even if there are costs. And sure, even with inflation there's still some incentive to hold some amount of dollars. Liquidity has value after all. Even though I'm OK with some slight inflation on dollars I still tend to hold some amount of them. After all, I didn't buy lunch with stocks!
And even then, it is not about 0% being an incentive to hold, it is about not having an incentive to invest. As I already stated, IMO its worse for society overall to encourage people to hoard fancy paper and shiny objects compared to actually investing it. But hey maybe you'd prefer for people to not invest in bonds and what not and instead just have piles of fancy paper and shiny objects instead of roads and infrastructure and more productive enterprises. I'm sure that'll work out well for them.
I'm not talking about propping up stocks and bonds, I'm talking about ensuring fair, open markets for such things. I'm entirely talking about "protecting ownership so you can invest in building things over the long term without them being taken." That same concept of the government protecting your ownership of some shiny objects applies to protecting shareholders from a company publishing fraudulent financial statements, or selling bonds that are actually objectively worthless with actual review, or shenanigans that effectively remove such ownership aspects.
> 0% is hardly a massive incentive to hold cash.
Negative rate bonds are (or at least were) a thing as well. If it costs more to put your shiny objects and fancy paper in a safe and protect it than having an account at a bank then there's incentive on it even if there are costs. And sure, even with inflation there's still some incentive to hold some amount of dollars. Liquidity has value after all. Even though I'm OK with some slight inflation on dollars I still tend to hold some amount of them. After all, I didn't buy lunch with stocks!
And even then, it is not about 0% being an incentive to hold, it is about not having an incentive to invest. As I already stated, IMO its worse for society overall to encourage people to hoard fancy paper and shiny objects compared to actually investing it. But hey maybe you'd prefer for people to not invest in bonds and what not and instead just have piles of fancy paper and shiny objects instead of roads and infrastructure and more productive enterprises. I'm sure that'll work out well for them.
Lets assume the FED makes 0% inflation a policy objective. As the US and the rest of the developed world continues to age, more and more retirees are supported by fewer and fewer working people. In other words a massive portion of the population is spending money, and soaking up resources, while producing nothing. Obviously this is profoundly inflationary but to maintain 0% inflation, the productive members of society will have to work a great deal more and endure policies which are explicitly designed to artificially suppress the value of their labor.
Yes, that scenario is bad and it happens when the Fed is still trying to control inflation.
The people who presented as arguing for 0% inflation are actually more often arguing for a lack of inflation targeting at all, and an end to the practice of creating money. In other words they argue for 100% reserve banking and abolition of the legal right of the central bank to issue new money.
In such a system prices might go up or down, depending on whether the underlying economy is doing better or worse, and governments would simply ignore it. In the case of demographic decline that would mean prices do indeed go up and that would correctly reflect the fact that resources have become scarcer.
The people who presented as arguing for 0% inflation are actually more often arguing for a lack of inflation targeting at all, and an end to the practice of creating money. In other words they argue for 100% reserve banking and abolition of the legal right of the central bank to issue new money.
In such a system prices might go up or down, depending on whether the underlying economy is doing better or worse, and governments would simply ignore it. In the case of demographic decline that would mean prices do indeed go up and that would correctly reflect the fact that resources have become scarcer.
Or put another way, punishes saving.
Yes, savings should have a cost and/or risk associated with them. Furthermore, it’s insane to expect otherwise.
Yes, savings should have a cost and/or risk associated with them. Furthermore, it’s insane to expect otherwise.
Even with 0% inflation savings do have inherent costs and risks: you might die before you get to spend them, they might be confiscated by some future dystopian state, or society might just get poorer and the money buys less in the future than it does now.
Most obviously there is the time value of money. Money by itself isn't useful, only the things you can buy with it are. Something today is more useful than the same thing in a year.
Economists often act like none of the above is true. They argue that given an improving world people would just do nothing, hoarding money in the expectation of it being worth more in a year. For as long as I've been alive the 2% target has been justified with this sort of nonsensical circular pop psychology, in which supposedly devaluing savings was required to manipulate the people out of their naturally zombie-like state (which if true would obviously mean the economy wouldn't grow, acting as a negative feedback loop that would then make it immediately untrue again). The existence of counter-examples like Switzerland did not bother any of them. Now we read that this wasn't even the actual source of the number, it was just plucked out of the air and justified retroactively! Not really a surprise given the weakness of the original argument.
Most obviously there is the time value of money. Money by itself isn't useful, only the things you can buy with it are. Something today is more useful than the same thing in a year.
Economists often act like none of the above is true. They argue that given an improving world people would just do nothing, hoarding money in the expectation of it being worth more in a year. For as long as I've been alive the 2% target has been justified with this sort of nonsensical circular pop psychology, in which supposedly devaluing savings was required to manipulate the people out of their naturally zombie-like state (which if true would obviously mean the economy wouldn't grow, acting as a negative feedback loop that would then make it immediately untrue again). The existence of counter-examples like Switzerland did not bother any of them. Now we read that this wasn't even the actual source of the number, it was just plucked out of the air and justified retroactively! Not really a surprise given the weakness of the original argument.
I think the key is in the amount of inflation or deflation. Little amounts won't influence spending habits and cause a recession or the economy to collapse. High amounts in any direction will.
The only difference is the direction of the value transfer. In a inflationary environment the transfer is from poor to rich. In a deflationary environment is from rich to poor.
Guess which economic theory will be enshrined in the public's mind? Guess which economists will become successful?
> However, for a period of approximately five years, prices of consumer goods went down in Switzerland without any widespread negative impact on the country's economy. > In fact, their economy prospered in the midst of falling prices. > This has caused some economists to revise their opinion about the ill effects of deflation, with some arguing that as long as there isn't too much deflation, consumers, and producers in an economy can find an equilibrium.
The only difference is the direction of the value transfer. In a inflationary environment the transfer is from poor to rich. In a deflationary environment is from rich to poor.
Guess which economic theory will be enshrined in the public's mind? Guess which economists will become successful?
> However, for a period of approximately five years, prices of consumer goods went down in Switzerland without any widespread negative impact on the country's economy. > In fact, their economy prospered in the midst of falling prices. > This has caused some economists to revise their opinion about the ill effects of deflation, with some arguing that as long as there isn't too much deflation, consumers, and producers in an economy can find an equilibrium.
In an inflationary environment the transfer is from poor to rich. In a deflationary environment is from rich to poor.
Absolutely not. Between someone with near zero net worth and someone with $100 billion net worth, inflation will cost the former almost nothing and the latter billions. In a deflationary environment a billionaire gets rewarded for merely existing while everyone else is starving for cash.
Absolutely not. Between someone with near zero net worth and someone with $100 billion net worth, inflation will cost the former almost nothing and the latter billions. In a deflationary environment a billionaire gets rewarded for merely existing while everyone else is starving for cash.
Someone with a net worth of $100 billion doesn't have one billion $100 bills. They have assets: land, equities, and machines. And they tend to also have lots of debt, because they can borrow at ultra low interest rates, which allows them to acquire even more assets beyond their net worth. Inflation helps them because leverage is cheaper for billionaires than for anyone else.
Someone with a net worth of $100b would be well advised to keep it as $100b in bills in a deflationary environment though, because other more productive things they could be investing in would, on average, return less money.
Deflation is everybody else working harder than last year to beg cash hoarders to spend their money back into the economy.
Deflation is everybody else working harder than last year to beg cash hoarders to spend their money back into the economy.
I guess it would be less messy if we just enact wealth tax and aim for 0% inflation. This way government won't be able to justify printing excessive money anymore.
Coincidentally my religion enforce around 2.5% wealth tax which sounds almost exactly the inflation target.
Coincidentally my religion enforce around 2.5% wealth tax which sounds almost exactly the inflation target.
I guess it would be less messy if we just enact wealth tax and aim for 0% inflation.
0% inflation would still be undesirable. First of all, introducing any sort of deflation is undesirable and dangerous. Second of all, there are so many causes of inflation that it's practically impossible to control them. But fundamentally there is an issue of time and labor. For instance, a landscaper doing work on my property this week is providing me with far more value than the landscaper who did work for me 20 years ago. Likewise, a car right off the production line is more valuable than an identical model that has been sitting in storage for a decade. Simply put, the value of labor cannot be separated from the time in which that labor was performed. Over a long enough period of time, the value of any labor becomes practically nonexistent. Therefore, even if it were possible to maintain a 0% inflation rate, doing so would be distorting the market.
0% inflation would still be undesirable. First of all, introducing any sort of deflation is undesirable and dangerous. Second of all, there are so many causes of inflation that it's practically impossible to control them. But fundamentally there is an issue of time and labor. For instance, a landscaper doing work on my property this week is providing me with far more value than the landscaper who did work for me 20 years ago. Likewise, a car right off the production line is more valuable than an identical model that has been sitting in storage for a decade. Simply put, the value of labor cannot be separated from the time in which that labor was performed. Over a long enough period of time, the value of any labor becomes practically nonexistent. Therefore, even if it were possible to maintain a 0% inflation rate, doing so would be distorting the market.
Is it unconscionable even in the context of having to halve our global emissions in the next six years?
I think "postpone buying stuff because your money will be worth more in the future" is exactly what we should be doing at this point in time.
I think "postpone buying stuff because your money will be worth more in the future" is exactly what we should be doing at this point in time.
Deflation hurts those who are poor far more than those who are rich. It’s morally wrong to reward the wealthy for doing as little as possible.
But if your goal is just to blow up the economy, then sure, a deflationary spiral is a potent poison.
But if your goal is just to blow up the economy, then sure, a deflationary spiral is a potent poison.
Your money won't be worth more in the future if production decreases.
You'll end up with stagflation -- prices going up but no one working tomorrow valuable stuff.
You'll end up with stagflation -- prices going up but no one working tomorrow valuable stuff.
... the consequence is that people would buy only what they need, when they need it? It sounds very good for the environment.
> -2%
Would be pretty awful though. Very slow or no GDP growth, if you have any significant amounts of debt you're basically permanently screwed (if you're rentier and can just live on interest from low-risk bonds without doing anything productive you're set though...)
Would be pretty awful though. Very slow or no GDP growth, if you have any significant amounts of debt you're basically permanently screwed (if you're rentier and can just live on interest from low-risk bonds without doing anything productive you're set though...)
> They could have chosen 0 or -2% but they like to reap that 2% free money premium..
If you think negative inflation (deflation) would be a good choice to make, perhaps look at the 1930s.
If you think negative inflation (deflation) would be a good choice to make, perhaps look at the 1930s.
Paul Krugman covers that question here (gift link): https://www.nytimes.com/2023/06/09/opinion/inflation-target-... and argues that the theoretical assumptions that led to the 2 percent rate didn’t turn out to be true:
> On one side were economists who believed that the essential role of monetary policy — maybe even its moral duty — was to deliver stable prices. Money, after all, is a yardstick we use to measure economic activity, and they argued that this yardstick shouldn’t be constantly changing its length.
> On the other side were economists who worried that too low an inflation rate could inhibit our ability to fight recessions. The Federal Reserve and its counterparts in other countries try to manage the economy mainly through their control of short-term interest rates; but these rates can’t go much below zero, because negative rates would just lead people to accumulate stacks of $100 bills. A higher rate of inflation tends, other things being equal, to raise interest rates and makes it less likely that the Fed, faced with a recession, will hit the “zero lower bound” and be unable to cut rates further.
The zero lower bound turned out to be a real problem, given the amount of years we spent at a zero percent interest rate.
> On one side were economists who believed that the essential role of monetary policy — maybe even its moral duty — was to deliver stable prices. Money, after all, is a yardstick we use to measure economic activity, and they argued that this yardstick shouldn’t be constantly changing its length.
> On the other side were economists who worried that too low an inflation rate could inhibit our ability to fight recessions. The Federal Reserve and its counterparts in other countries try to manage the economy mainly through their control of short-term interest rates; but these rates can’t go much below zero, because negative rates would just lead people to accumulate stacks of $100 bills. A higher rate of inflation tends, other things being equal, to raise interest rates and makes it less likely that the Fed, faced with a recession, will hit the “zero lower bound” and be unable to cut rates further.
The zero lower bound turned out to be a real problem, given the amount of years we spent at a zero percent interest rate.
The real problem is using monetary policy as a tool at all. We should have ZIRP forever and use fiscal policy to target price stability and full employment.
> We should have ZIRP forever and use fiscal policy to target price stability and full employment.
If only (US?) politicians would get their act together and act.
Instead we have folks that believe cutting spending/demand will increase economic output ("expansionary austerity"):
* https://en.wikipedia.org/wiki/Expansionary_fiscal_contractio...
Or that tax cuts pay for themselves:
* https://en.wikipedia.org/wiki/Kansas_experiment
If only (US?) politicians would get their act together and act.
Instead we have folks that believe cutting spending/demand will increase economic output ("expansionary austerity"):
* https://en.wikipedia.org/wiki/Expansionary_fiscal_contractio...
Or that tax cuts pay for themselves:
* https://en.wikipedia.org/wiki/Kansas_experiment
ZIRP is zero interest rate policy - were you perhaps thinking of zero inflation rate instead?
Zero interest rate tends to create lots of inflation because borrowing money (i.e. banks other than the Fed creating money) is nearly free.
Zero interest rate tends to create lots of inflation because borrowing money (i.e. banks other than the Fed creating money) is nearly free.
I’m pretty sure they mean zero interest ZIRP with regard to MMT. But people forget the second part of MMT which is confiscatory in effect even if not by name, it’s still your money but you are no longer allowed to spend it until inflation comes down, by which point your money is obviously worth less than it was and that value is in effect confiscated.
God knows where you got that from
I remember reading it in a Harvard white paper, I deleted my MMT archives once it became obvious that it was not only economically unworkable (which I had already assumed) but also politically unworkable.
Economists used to think that inflation was hard to start which made MMT more tenable and now they think inflation is hard to stop. It was only hard to start because speculative asset bubbles soak up liquidity and reduce money velocity.
Economists used to think that inflation was hard to start which made MMT more tenable and now they think inflation is hard to stop. It was only hard to start because speculative asset bubbles soak up liquidity and reduce money velocity.
What makes you think appealing to authority at Harvard is impressive? Or using the term “economist” when you have Powell talking about being guided by the stars?
MMT is a description of how reserve accounting works in an economy with a floating exchange rate and how that is linked to the physical economy.
If you have something that shows how that isn’t the case in practice then I’m all ears.
MMT is a description of how reserve accounting works in an economy with a floating exchange rate and how that is linked to the physical economy.
If you have something that shows how that isn’t the case in practice then I’m all ears.
The Harvard white paper was supportive of MMT while I am not - so it wouldn’t have worked as an appeal to authority for my position.
One of the reasons that MMT gained any traction at all is that many of their tenets are equally wrong to the tenets in neo-Keynesianism. So MMT people are correct when they say if X in neo-Keynesian is true then Y is also true. Which is why they can say they are simply describing what is already the case. But they’re both wrong because X is not true, you can’t presuppose neo-kensianism and expect to end up with a rational and coherent economic model. On that basis and more I really don’t respect practicing economists and wouldn’t use them as an appeal to authority either.
Also my invocation of economists was highlighting their fickleness and incorrect beliefs.
Since MMT is now politically impossible I no longer worry about it becoming a reality. It could have only been done at the same time as a raging speculative asset bubble and before the negative consequences of inflation has been felt by the middle and lower classes. But that’s too late now, Covid killed it. The lower classes blame the government for inflation and even if you don’t agree with them you’d still have to convince them otherwise and we have seen how futile that has been. It might still be possible to get MMT as part of a wartime economy but at that stage I’ll have bigger issues to worry about.
One of the reasons that MMT gained any traction at all is that many of their tenets are equally wrong to the tenets in neo-Keynesianism. So MMT people are correct when they say if X in neo-Keynesian is true then Y is also true. Which is why they can say they are simply describing what is already the case. But they’re both wrong because X is not true, you can’t presuppose neo-kensianism and expect to end up with a rational and coherent economic model. On that basis and more I really don’t respect practicing economists and wouldn’t use them as an appeal to authority either.
Also my invocation of economists was highlighting their fickleness and incorrect beliefs.
Since MMT is now politically impossible I no longer worry about it becoming a reality. It could have only been done at the same time as a raging speculative asset bubble and before the negative consequences of inflation has been felt by the middle and lower classes. But that’s too late now, Covid killed it. The lower classes blame the government for inflation and even if you don’t agree with them you’d still have to convince them otherwise and we have seen how futile that has been. It might still be possible to get MMT as part of a wartime economy but at that stage I’ll have bigger issues to worry about.
You're still missing that MMT just describes how things already work. How can something descriptive be "politically impossible"?
MMT describes how money already works
ZIRP removes the artificial intervention in the market for money by unelected individuals with no accountability to the population for their actions.
The market for money then goes where it will according to free market principles and the autostabilisers operate in the market for labour instead.
No point giving free money to people who already have money.
The market for money then goes where it will according to free market principles and the autostabilisers operate in the market for labour instead.
No point giving free money to people who already have money.
ZIRP is an artificial intervention in the market: Whenever it costs money to borrow money, the government will print some and give it for free to whoever is looking to borrow it.
Government always spends by printing money. Just as banks always spend by printing money.
Taxation and loan repayments then shred money.
There is no fixed quantity of little silver coins we pass around and never has been.
There is no need to pay a third party for an accounting credit when you run the system
Taxation and loan repayments then shred money.
There is no fixed quantity of little silver coins we pass around and never has been.
There is no need to pay a third party for an accounting credit when you run the system
ZIRP isn't just zero interest rate for the government; it's near-zero interest rate for everyone.
It didn't create lots of inflation though. It took the disruptions caused by covid shut-downs to kick off inflation.
Using fiscal policy would require a functional legislative branch.
Not in the slightest. We have these things called “autostabilisers” that are temporally and spatially more precise than jiggling a single interest rate and indirectly hoping something moves in the right direction two years later
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I’ve got a dumb question, how would an autostabilizer policy become law?
Can the executive branch unilaterally enact an autostabilizer policy?
If not, that would “require a functional legislative branch” as I posted in the post that you replied to.
Can the executive branch unilaterally enact an autostabilizer policy?
If not, that would “require a functional legislative branch” as I posted in the post that you replied to.
Many things in life are like this; for instance, (from back in the days when we worked in offices) it's much more important that a group who wants to go out to lunch together all agree on the same place than that place be the theoretically optimum lunch destination.
Higher inflation levels in the upcoming decades are effectively inevitable with the parabolic public debt levels and zero political appetite for reducing budget deficits. Things like quickly approaching insolvency of the Social Security program only make the situation worse. As soon as the public debt market (including repo) will see any issues the Fed will quickly ride to the rescue, inflation be damned. We've clearly seen it right before the pandemic and with UK gilts.
It does not matter what the inflation target is. It's likely we will see double digit inflation spikes with "hard work" of bringing it back to target levels (be it 2% or 4%), so on average you will get anything but the target level.
And before someone mentions Japan, read this: https://www.lynalden.com/economic-japanification
It does not matter what the inflation target is. It's likely we will see double digit inflation spikes with "hard work" of bringing it back to target levels (be it 2% or 4%), so on average you will get anything but the target level.
And before someone mentions Japan, read this: https://www.lynalden.com/economic-japanification
Low-tax / small-government advocates (by which they mean 'lower my taxes', and 'spend money on me only') have been arguing forever that deficits will bring economic doom. They just want to cut spending and government.
> This would be problematic since people would not invest or spend money to get the country out of a recession when they could just get a return from doing nothing. Instead of taking a risk and investing the money, the velocity of money decreases, and there is less spending leading to higher unemployment and less growth.
> The story of the inflation target is one which is much more random and less thought through than you would expect.
Apart from that, the Japanese narrative is used as an argument but misses that Japan had a real-estate bubble and the burst of this bubble will force deflation. This is not a case of "deflation bad" but rather a re-adjustment of their local prices.
As an anecdote, in the latest crypto "deflation cycle", activity was up. Essentially, people used their extra purchasing power and bought goods. In fact, I'd argue that this is healthier. If you know the value of your money will go up, you'll hold up buying useless stuff freeing the capacity for somebody else. People will always buy stuff when they need the stuff.
On the other hand, inflation encourages unnecessary spending. You know your money will burn anyway, so you go ahead and spend it. This is bad because it de-allocates resources from people who might need them. A strong deflationary cycle will push certain capital to be spent again because it appreciated much: the economy has enough excess capacity that everything is on sale.
Of course the people who benefit from inflation will sell a different narrative. And of course the above is strictly my opinion.
> The story of the inflation target is one which is much more random and less thought through than you would expect.
Apart from that, the Japanese narrative is used as an argument but misses that Japan had a real-estate bubble and the burst of this bubble will force deflation. This is not a case of "deflation bad" but rather a re-adjustment of their local prices.
As an anecdote, in the latest crypto "deflation cycle", activity was up. Essentially, people used their extra purchasing power and bought goods. In fact, I'd argue that this is healthier. If you know the value of your money will go up, you'll hold up buying useless stuff freeing the capacity for somebody else. People will always buy stuff when they need the stuff.
On the other hand, inflation encourages unnecessary spending. You know your money will burn anyway, so you go ahead and spend it. This is bad because it de-allocates resources from people who might need them. A strong deflationary cycle will push certain capital to be spent again because it appreciated much: the economy has enough excess capacity that everything is on sale.
Of course the people who benefit from inflation will sell a different narrative. And of course the above is strictly my opinion.
If all money become deflationnary, countries will have to move almost all taxes to wealth taxes, which is, now that i think about it, not a bad idea. I might be convinced now :P
In Islamic economy interest is forbidden, there are no taxes and every Muslim is required to give 1/40 of their wealth to the poor every year (zakah). It is collected mandatorily and distributed by the government. Non-Muslims pay an annual protection tax aka jizya, in exchange for not paying zakah and not serving in the army. Modern scholars argue that collecting tax is permissible because of modern needs and responsibilities of the government (e.g infrastructure building), but only the strictly needed amount.
> Once the central bank said that inflation would be 2%
This article is confusing. It makes it sound like NZ set a target of 2% inflation, when in actuality they set a target range of 0-2%, so 2% was the ceiling not the target.
https://www.rba.gov.au/publications/confs/2018/mcdermott-wil... figure 1 and table 1 makes it more clear.
Naturally central bankers have been happy to turn a ceiling into a target/floor.
This article is confusing. It makes it sound like NZ set a target of 2% inflation, when in actuality they set a target range of 0-2%, so 2% was the ceiling not the target.
https://www.rba.gov.au/publications/confs/2018/mcdermott-wil... figure 1 and table 1 makes it more clear.
Naturally central bankers have been happy to turn a ceiling into a target/floor.
I believe it is 2% because you can't ever let inflation get near zero, because deflation is devastating to an economy. (See: Great Depression). Interest rates, particularly for very safe investments like US bonds tend to be very close to what the long term inflation is expected to be. Like, not inflation this year, but the next five to ten years. That's why it's higher than the CPI when the CPI is very low and lower when it is high.
Everyone knows inflation is unpopular, so you want to keep it low.
The Fed may have to "cut interest rates" (they don't do that directly, but do things with money that have that effect) to improve economic growth, particularly if there is an external shock. They want to have some wiggle room to still be able to cut the interest rate without risking it getting to the dreaded deflationary zero rate. So they have 100- 150 points of stimulus to work with in an emergency.
Everyone knows inflation is unpopular, so you want to keep it low.
The Fed may have to "cut interest rates" (they don't do that directly, but do things with money that have that effect) to improve economic growth, particularly if there is an external shock. They want to have some wiggle room to still be able to cut the interest rate without risking it getting to the dreaded deflationary zero rate. So they have 100- 150 points of stimulus to work with in an emergency.
If everyone targets the same inflation rate, then currencies will tend to be stable with respect to each other.
I don’t think that logically follows unless we can assume or demonstrate that the factors influencing the inflation rate and other factors such as purchasing power parity of all who are targeting the same inflation rate across the board are themselves stable.
What about differences in productivity?
>> This loss of trust is a major problem. For example, if you no longer believe the Fed inflation target, then you will base your actions on what you think the inflation rate will be, which can lead to cycles of inflation. If you believe inflation will be high soon, you will buy a lot of stuff now when prices are lower. However, other people will realize this too, and then there will be a race to buy goods and services, which will lead to less supply and higher prices. This creates more demand, which leads to higher prices, creating the inflationary doom loop. Showing that losing the Fed’s credibility may not be worth the benefit of a better target.
The FED is clearly in a damned if they do damned if they dont scenario. Blaming the target feels like a red herring. In the scenario they pitched would create demand and supply shocks in the short term but recession must and would is surely to follow because of the inefficiencies in the market. The real question is Who is in charge here? If the Fed was, they would and could get in front of inflation and raise rates to where inflation would not come back however, at the risk of upsetting markets, it seems they've been politicized into inaction.
The FED is clearly in a damned if they do damned if they dont scenario. Blaming the target feels like a red herring. In the scenario they pitched would create demand and supply shocks in the short term but recession must and would is surely to follow because of the inefficiencies in the market. The real question is Who is in charge here? If the Fed was, they would and could get in front of inflation and raise rates to where inflation would not come back however, at the risk of upsetting markets, it seems they've been politicized into inaction.
the inflation rate setting is trying to predict human behavior and so it is always a damned if you do damned if you don't.
that being said, the psychological power of central banks is very real. Brazil's real was introduced in 1994, after an intermediate period in which the prices had to be dual listed in the old and future currency, but the future currency had not been printed yet. They just never inflated the future currency, and people seemed to believe that. https://en.wikipedia.org/wiki/Plano_Real
that being said, the psychological power of central banks is very real. Brazil's real was introduced in 1994, after an intermediate period in which the prices had to be dual listed in the old and future currency, but the future currency had not been printed yet. They just never inflated the future currency, and people seemed to believe that. https://en.wikipedia.org/wiki/Plano_Real
You understand that the paragraph you quoted was a didactic illustration[1], not a description of reality, right? In fact inflation is sitting right at 3% right now, not at the 2% target but hardly very far off.
> The real question is Who is in charge here? If the Fed was, they would and could get in front of inflation and raise rates
They... did?
[1] Specifically of the situation where a change of target rate (which, again, is not happening) would be interpreted by the market as a loss of control.
> The real question is Who is in charge here? If the Fed was, they would and could get in front of inflation and raise rates
They... did?
[1] Specifically of the situation where a change of target rate (which, again, is not happening) would be interpreted by the market as a loss of control.
Trailing 12 Mths Inflation: 3.2% (Headline) 3.8% (Core). In both cases, it's at least 50% above target. While a smaller gap than in recent years, it's still fairly sizable, all things considered.
Oh, come on. CPI inflation since 1960: https://fred.stlouisfed.org/graph/?g=rocU
Nothing about the current conditions are particularly abnormal. CPI was at 2.5-3 through the entirety of the dot com boom, higher than that still in the 80's, and of course between 1968 and 1982 it was almost entirely above 5%.
I really don't think you're considering all the things, all things considered.
Nothing about the current conditions are particularly abnormal. CPI was at 2.5-3 through the entirety of the dot com boom, higher than that still in the 80's, and of course between 1968 and 1982 it was almost entirely above 5%.
I really don't think you're considering all the things, all things considered.
As someone else pointed out at 3% , it's at least 50% above the target I don't see how someone can consider that small. Cherry picking historical data as a way to hand wave that fact is disengenious at best.
Even if for some reason you think 3% is not high, inflation is clearly starting to reverse which the fed has admitted its not gonna get better in the short term.
Contrast this to Volker who made the hard decision to raise rates well above inflation not once but twice.
Even if for some reason you think 3% is not high, inflation is clearly starting to reverse which the fed has admitted its not gonna get better in the short term.
Contrast this to Volker who made the hard decision to raise rates well above inflation not once but twice.
What number do you consider "not small", and do to promise to reconsider your priors when it's reached?
The doom slinging on this issue really is getting ridiculous. People picked their rhetoric based on an assumption of 8-9% a year ago (for baldly partisan reasons) and are refusing to reconsider when it turned out the doom didn't arrive.
The doom slinging on this issue really is getting ridiculous. People picked their rhetoric based on an assumption of 8-9% a year ago (for baldly partisan reasons) and are refusing to reconsider when it turned out the doom didn't arrive.
Its not doom slinging.
They have a target and even with all the raises they have done they cannot hit that target as banks are clearly under stress or they would raise more. This should come across as odd to you.
The historical norm has been the 2% benchmark and the onus should be on the fed to get there.
They have a target and even with all the raises they have done they cannot hit that target as banks are clearly under stress or they would raise more. This should come across as odd to you.
The historical norm has been the 2% benchmark and the onus should be on the fed to get there.
That's precisely doom slinging. "Banks are clearly under stress" is just ridiculous on it's face. And "historical norm" was literally and clearly refused upthread. What are you citing?
It's really not that complicated: a little inflation is better for both the economy and the average person than a little deflation, and the tools available are clumsy enough that it's impossible to accurately target 0%. The end result is a target of just enough inflation to avoid deflation if the numbers swing around unexpectedly.
Inflation is a tax, since almost no government will raise taxes, inflation is a way to raise revenue without calling it a tax.
Inflation does not spare Government budgets. Just look at how inflation cuts into the DoD budget.
...inflation is a way to raise revenue without calling it a tax.
Wow, European governments must've made a killing off of energy inflation over the last few years. Hopefully OPEC decides on another embargo, it'd pair perfectly with a Panamanian banana virus. The resulting inflation would certainly fill EU coffers to the brink. Still, nothing will compare to the impending wave of mass retirement in the developed world, government revenues will greatly benefit from the resulting wage inflation.
...inflation is a way to raise revenue without calling it a tax.
Wow, European governments must've made a killing off of energy inflation over the last few years. Hopefully OPEC decides on another embargo, it'd pair perfectly with a Panamanian banana virus. The resulting inflation would certainly fill EU coffers to the brink. Still, nothing will compare to the impending wave of mass retirement in the developed world, government revenues will greatly benefit from the resulting wage inflation.
The comment is referring to playing loose with the currency, not a drop in supply or an increase in demand.
I would ask a different question. Why combine a bunch of prices into an opaque number and call it "inflation"?
I'd argue that doing so masks the true causes of price rises. Prices go up because companies make the choice to raise their prices. Sometimes this is because their own inputs became more expensive but in many more cases it's because the people running the company want to increase profits.
By hiding the choices made by people running companies behind this opaque number called "inflation" that people perceive as somehow controlled by the government we've allowed companies to get away with making decisions that increase profits for wealthy executives and shareholders at the expense of people who rely on the goods produced by the companies.
I'd argue that doing so masks the true causes of price rises. Prices go up because companies make the choice to raise their prices. Sometimes this is because their own inputs became more expensive but in many more cases it's because the people running the company want to increase profits.
By hiding the choices made by people running companies behind this opaque number called "inflation" that people perceive as somehow controlled by the government we've allowed companies to get away with making decisions that increase profits for wealthy executives and shareholders at the expense of people who rely on the goods produced by the companies.
A company normally intends to charge the most profitable price. Ascribing their actions to one force or another is useless, it mainly is supply and demand that force them to set lower prices. When their input costs go up, they raise prices because they otherwise their last product produced would be unprofitable, and when prices go down it is because their customers would go elsewhere if they did not.
A company’s input is some other company’s output. How do you calculate inflation with your scheme?
I don't understand the objection.
> but in many more cases it's because the people running the company want to increase profits
source?
source?
What is missing from the article (unless I missed it myself) is why inflation would be desirable in the first place.
There's probably a couple of reasons, some already discussed. Like lowering wages without actually lowering wages.
And inflation is a great tool for governments to "pay off" their debt.
But you have to keep the rate at a level low enough not to cause upheavals. Hence the rates of like 1% or 2%.
There's probably a couple of reasons, some already discussed. Like lowering wages without actually lowering wages.
And inflation is a great tool for governments to "pay off" their debt.
But you have to keep the rate at a level low enough not to cause upheavals. Hence the rates of like 1% or 2%.
The major reason for a base inflation this: If there was zero inflation, then keeping cash in the bank is the safest thing to do. If everyone does this, money moves less, less investment, slower economy. Sure some will still invest, but the vast majority of people will just put money in the bank, or under their mattress.
With >0% inflation, you now need to do something with your money or else you lose money. If my great great grandparents buried their life savings and gave I received it now, I'd get a new laptop and that's about it.
So now everyone has to invest it. 401k's, other investments, etc. This makes the economy start moving, more activity, this is the 'velocity' of money they mentioned as being a key factor in the health of an economy.
With >0% inflation, you now need to do something with your money or else you lose money. If my great great grandparents buried their life savings and gave I received it now, I'd get a new laptop and that's about it.
So now everyone has to invest it. 401k's, other investments, etc. This makes the economy start moving, more activity, this is the 'velocity' of money they mentioned as being a key factor in the health of an economy.
But isn't that "artificial" growth of the economy than basically eaten up by the inflation?
Why is it so important to lower wages and increasing the wealth of bond holders?
it had emperically shown to be effective for the economy.
in the end the economy as a whole is a setup for work and collaboration.
if the farmer does not want to work, i can't spend my earned money on their produce.
inflation has shown to be an effective tool to ensure that people partake in the workforce.
- lowering wages keeps people on the lookout for new skills and increases job mobility.
lastly, inflation does not. increase the wealth of bond holders. only when they miscalculated their rate such that interest is higher than inflation. This has certainly not been the case the pa's 6-7 years where bond holders have lost big time.
in the end the economy as a whole is a setup for work and collaboration.
if the farmer does not want to work, i can't spend my earned money on their produce.
inflation has shown to be an effective tool to ensure that people partake in the workforce.
- lowering wages keeps people on the lookout for new skills and increases job mobility.
lastly, inflation does not. increase the wealth of bond holders. only when they miscalculated their rate such that interest is higher than inflation. This has certainly not been the case the pa's 6-7 years where bond holders have lost big time.
I have been thinking that with better and more frequent reporting of the statistics over the years that this inflation target of 2% could go to 1% if not zero.
In my mind, central banks and the all the levels of governments should be getting weekly (if not daily) reports of hiring, job losses, house building, and rental prices / turnovers in like a Grafana dashboard.
In my mind, central banks and the all the levels of governments should be getting weekly (if not daily) reports of hiring, job losses, house building, and rental prices / turnovers in like a Grafana dashboard.
Central banks do not set policy based on what they see inflation is in the past, they make projections of what inflation will be in the future.
The current monetary system could essentially be swapped for Universal Basic Income.
If the reason 2% inflation exists is to increase money velocity then a fair distribution of money to everyone equally would accomplish exactly that and more.
What about loans? People would still keep their money in banks, which would make circulate in the economy only keeping 10%, just like now.
If the reason 2% inflation exists is to increase money velocity then a fair distribution of money to everyone equally would accomplish exactly that and more.
What about loans? People would still keep their money in banks, which would make circulate in the economy only keeping 10%, just like now.
One way I've been told to understand this is that money is actually growing at around 6%, which is to say that money growth is highly inflationary.
Of course this is way too high, so to offset this there are deflationary measures, primarily increased productivity, technological improvements etc.
The problem with this is that we end up working permanently harder and it reaches a point of unsustainability. For example, now you generally need two incomes to sustain the same lifestyle as previously, because we need more people working etc.
Other deflationary measures included the opening of the Asian labor market, and then other globalisation measures.
Of course this is way too high, so to offset this there are deflationary measures, primarily increased productivity, technological improvements etc.
The problem with this is that we end up working permanently harder and it reaches a point of unsustainability. For example, now you generally need two incomes to sustain the same lifestyle as previously, because we need more people working etc.
Other deflationary measures included the opening of the Asian labor market, and then other globalisation measures.
Lifestyle worsened significantly, people too poor to have a car had servants in the 50s.
There's also a cultural shift caused by propaganda in the 60s which pushed women to work, increasing the supply of workers and thus lowering the value of work and thus salaries.
Thanks to capitalism and innovation, at least we have some technology to pick up the slack and counteract the government and the top 0.01% stealing from everyone else through economic policies.
There's also a cultural shift caused by propaganda in the 60s which pushed women to work, increasing the supply of workers and thus lowering the value of work and thus salaries.
Thanks to capitalism and innovation, at least we have some technology to pick up the slack and counteract the government and the top 0.01% stealing from everyone else through economic policies.
I feel like it's the time of the year again to point to this website: https://wtfhappenedin1971.com
> Although the idea of a more valuable dollar may sound great, many economists think it is worse than high inflation (Engeman, 2019). The problem is that the value of money would increase when people do nothing with it. This would be problematic since people would not invest or spend money to get the country out of a recession when they could just get a return from doing nothing.
Yes, how terrible that would be.
In reality people would still need to buy things that are actually important.
Housing. Food. Heating. All kinds of stuff. And on top of that we are still gonna spend on the non-essentials as well. It’s not like I’m going to completely stop watching movies or playing games or listening to music just because I know my dollar today would be worth more tomorrow.
The people that would be holding back are the ones that have hoarded all the resources in the first place. And that’s the real problem. Inflation is a bandaid to avoid things getting as bad as they would. But the reason is because of people taking too much and societies that don’t take care of their people. Incidentally the ultra rich also have a lot of clever ways of avoiding being impacted by inflation in the way that it impacts most normal people.
Yes, how terrible that would be.
In reality people would still need to buy things that are actually important.
Housing. Food. Heating. All kinds of stuff. And on top of that we are still gonna spend on the non-essentials as well. It’s not like I’m going to completely stop watching movies or playing games or listening to music just because I know my dollar today would be worth more tomorrow.
The people that would be holding back are the ones that have hoarded all the resources in the first place. And that’s the real problem. Inflation is a bandaid to avoid things getting as bad as they would. But the reason is because of people taking too much and societies that don’t take care of their people. Incidentally the ultra rich also have a lot of clever ways of avoiding being impacted by inflation in the way that it impacts most normal people.
> Yes, how terrible that would be.
It would be pretty terrible if I became richer not by generating economic activity, but by sitting around with my money in a mattress.
You are correct that it's a band-aid fix... But it's the best one we have.
It would be pretty terrible if I became richer not by generating economic activity, but by sitting around with my money in a mattress.
You are correct that it's a band-aid fix... But it's the best one we have.
How would that be different from the people who buy the S&P500 instead of spending their money and generating economic activity?
If you buy the S&P500 then someone else sold the S&P500 for the same amount of money. The cash doesn't disappear, it just moves to a different person who presumably sold the S&P500 because they need cash to spend it.
That is quite different than sitting on cash.
That is quite different than sitting on cash.
What I’m telling you is that normal people would not be doing that. Not in the way that this kind of idea makes it sound like anyway.
Monetary policy isn't intended to steer the behavior of normal people[1] who have ~net-zero cash for most of their lives, it's intended to steer the behavior of investors who don't need to spend all their money on food and shelter and medicine, and who will happily choose to sit on their cash, instead of investing it, if that provides them with better returns.
Everyone bitches when the price of milk goes up 8%, but nobody seems to realize that it went up because wages did. On average, if you're a worker, and you aren't saving (or trying to save) a pile of cash, inflation is net-zero for you.
[1] Stimulus checks did steer the behavior of normal people, but they were fiscal, not monetary policy. They had knock-on monetary policy effects, but the juice was worth the squeeze - thanks to them and the PPP, the economy didn't entirely collapse.
Everyone bitches when the price of milk goes up 8%, but nobody seems to realize that it went up because wages did. On average, if you're a worker, and you aren't saving (or trying to save) a pile of cash, inflation is net-zero for you.
[1] Stimulus checks did steer the behavior of normal people, but they were fiscal, not monetary policy. They had knock-on monetary policy effects, but the juice was worth the squeeze - thanks to them and the PPP, the economy didn't entirely collapse.
> if you're a worker, and you aren't saving (or trying to save) a pile of cash, inflation is net-zero for you
But people should be able to save. So that they can buy a house or apartment for themselves and their family. Without having to take up a loan to do so.
But people should be able to save. So that they can buy a house or apartment for themselves and their family. Without having to take up a loan to do so.
If you want to buy a house or apartment, you're probably looking at at least several hundred thousand dollars, and average working class people would need years to save that much.
In other words, we're looking at someone with a few hundred thousand dollars, held for a few years. At which point, what's stopping them from keeping the money in an index fund, instead of under the proverbial mattress?
Also, taking a mortgage is a totally normal thing to do when buying a house, it will give you years of enjoying your home ownership, and in this case inflation actually works for you!
In other words, we're looking at someone with a few hundred thousand dollars, held for a few years. At which point, what's stopping them from keeping the money in an index fund, instead of under the proverbial mattress?
Also, taking a mortgage is a totally normal thing to do when buying a house, it will give you years of enjoying your home ownership, and in this case inflation actually works for you!
> what's stopping them from keeping the money in an index fund
Risk of principal loss.
Risk of principal loss.
> But people should be able to save.
If everyone saves, the economy will collapse. Every dollar you save is a dollar that someone else doesn't earn.
In an inflationary environment, people can still save by buying equities.
This has tax and timing implications... But it's still possible.
> Without having to take up a loan to do so.
The existence of 25, 30, 35 year mortgages driving housing prices into the stratosphere is a separate problem, but not one you're ever going to unwind without having existing mortgage holders stringing you up from a lamp post.
That's a completely separate issue to inflation.
If everyone saves, the economy will collapse. Every dollar you save is a dollar that someone else doesn't earn.
In an inflationary environment, people can still save by buying equities.
This has tax and timing implications... But it's still possible.
> Without having to take up a loan to do so.
The existence of 25, 30, 35 year mortgages driving housing prices into the stratosphere is a separate problem, but not one you're ever going to unwind without having existing mortgage holders stringing you up from a lamp post.
That's a completely separate issue to inflation.
> If everyone saves, the economy will collapse. Every dollar you save is a dollar that someone else doesn't earn
Where is the plan to make billionaires spend all their savings? That’s the money I personally didn’t earn!
Or is it saving for them, nothing for me?
Where is the plan to make billionaires spend all their savings? That’s the money I personally didn’t earn!
Or is it saving for them, nothing for me?
Billionaires have very little in savings relative to their wealth. Most billionaires have their wealth tied to ownership of a small number of companies, usually ones they founded.
Store shelves would be empty and businesses would shutter. There’d be less to buy. Banks would hold on to money instead of lending to productive businesses.
> Store shelves would be empty
Doesn't that result in scarcity and thus rising prices? A bit of a contradiction.
Doesn't that result in scarcity and thus rising prices? A bit of a contradiction.
Deflation causes the production of goods and services to become more expensive in addition to slowing down the velocity of money. Hence, businesses actually go bankrupt (as in liquidated, restructuring becomes far more risky), productive capacity sits idle, unemployment rises, consumption slumps further, remaining businesses become even more distressed, all of which leads to a complete collapse in confidence in the marketplace. In turn, individuals and businesses are encouraged to hoard money, which only leads to further slowdowns in the velocity of circulation, making money even more scarce, etc.
In such an environment, businesses undergo brutal competition for a shrinking pool of money. Simply servicing current debts and operating expenses becomes difficult. Taking out new loans and/or investing capital into such businesses is nothing short of insanity. Even if a business could raise prices the inability of consumers to pay could easily result in a net loss.
The economy is built on the velocity of money. There's a reason why Bush called on Americans to spend money in the aftermath of 9/11, the system really can't cope with a significant slowdown in spending, even if only for a few days.
In such an environment, businesses undergo brutal competition for a shrinking pool of money. Simply servicing current debts and operating expenses becomes difficult. Taking out new loans and/or investing capital into such businesses is nothing short of insanity. Even if a business could raise prices the inability of consumers to pay could easily result in a net loss.
The economy is built on the velocity of money. There's a reason why Bush called on Americans to spend money in the aftermath of 9/11, the system really can't cope with a significant slowdown in spending, even if only for a few days.
What if the deflation is caused by continuous improvement in productivity, as was the case for semiconductors? It seems like in that scenario, the continual decline in prices is more than counterbalanced by a continuous increase in production volumes, resulting in profits for manufacturers despite precipitous decline in the price of the products they sell. Moore's law didn't cause investment in semiconductor fabs to dry up; just the opposite. What if that happened to all sectors at once?
Productivity/efficiency driven deflation is almost always a good thing. The problem is when deflation is being driven by the scarcity of money or some other unsustainable mechanism
Scarcity because nobody is working. It's not a contradiction. Inflation encourages economic activity - work. Deflation discourages it.
I think you're being downvoted because you haven't explained why the store wouldn't raise prices before the shelves go empty.
If all the stores did that, and people would actually buy goods at those prices, you'd be in an inflationary economy, not a deflationary one.
What do you think inflation is? It's a reduction in the value of money, relative to goods. You can't say that the solution to the problems of deflation is inflation. (I mean, you can, that is my whole point... but it fully undermines the original argument.)
What do you think inflation is? It's a reduction in the value of money, relative to goods. You can't say that the solution to the problems of deflation is inflation. (I mean, you can, that is my whole point... but it fully undermines the original argument.)
Deflation has always been a disaster.
You don’t need inflation to solve the problems. Adjust the tax rates instead.
Property taxes. Income taxes. Taxing people by the amount of savings they have. Importantly, don’t give the rich guys tax breaks. Give the tax breaks to the poor.
Property taxes. Income taxes. Taxing people by the amount of savings they have. Importantly, don’t give the rich guys tax breaks. Give the tax breaks to the poor.
Solving NIMBY-ism and housing speculation would do much more for the poor than taxing the rich would. After all, you can't eat dollars.
And more dollars competing for the same goods would just drive inflation higher (the rich do not directly compete with the poor in buying things, other than potentially crowding them out of real estate investments - that is a legitimate societal problem. But so is NIMBY-ism - driven largely by the fact that racial covenants and crime-targeting became illegal in the 1960s-1990s). Although we haven't really come up with great alternatives (other than drive prices up because income tends to correlate inversely with propensity for crime).
Singapore-like enforcing of laws and harsh sentences could do it (the other low-crime countries are much more ethnically homogenous), but the trade-off there is much less freedom than in the U.S. - so it probably wouldn't be palatable here.
And more dollars competing for the same goods would just drive inflation higher (the rich do not directly compete with the poor in buying things, other than potentially crowding them out of real estate investments - that is a legitimate societal problem. But so is NIMBY-ism - driven largely by the fact that racial covenants and crime-targeting became illegal in the 1960s-1990s). Although we haven't really come up with great alternatives (other than drive prices up because income tends to correlate inversely with propensity for crime).
Singapore-like enforcing of laws and harsh sentences could do it (the other low-crime countries are much more ethnically homogenous), but the trade-off there is much less freedom than in the U.S. - so it probably wouldn't be palatable here.
The poor aren't paying that much tax that is easily tracked to get a break on. That's why UBI is appealing.
Property tax is just inflation on 'land'.
It is also a useful tool for steering the economy.
> Taxing people by the amount of savings they have.
That's essentially what inflation does.
It is also a useful tool for steering the economy.
> Taxing people by the amount of savings they have.
That's essentially what inflation does.
Inflation _redistributes_ wealth from those with higher knowledge / ability to avoid it, to those with little ability/knowledge. Alternatively, it redistributes from people with fixed incomes, to workers; or from people with cash savings to debtors. There are many ways to look at it.
That is different than an explicit tax (the tax can be structured in a way to shrink everyone's purchasing power proportionally, and is harder to avoid).
That is different than an explicit tax (the tax can be structured in a way to shrink everyone's purchasing power proportionally, and is harder to avoid).
That’s what she/he is saying, tax achieves the same purpose, but better
This is flat out incorrect. There have been productivity driven deflations in the 1800s that have actually been net good for the average person.
It's just that the most salient example of recent deflations (2008 and 1930) happened to coincide with massive crashes and problems; but that is a feedback of deflation + excessive leverage leading into the deflation - it's not something inherent in deflation itself.
It's just that the most salient example of recent deflations (2008 and 1930) happened to coincide with massive crashes and problems; but that is a feedback of deflation + excessive leverage leading into the deflation - it's not something inherent in deflation itself.
If all the money becomes digital at some point, should we switch from inflation target to just automatically reducing every bank account balance by 0.005% per day (equivalent to 2% p.y.)
I mean shares are all digital and that's not how we do it. I don't think it's a technology problem. It's just WAY easier to give more to someone than it is to take from everyone.
Rather than haggle about inflation/deflating I don't see people arguing that the govt should have any authority to dictate what medium of exchange people should use.
Private money has a long history within the United States, cryptocurrency is just the latest instance of it. The US Government doesn't really care how anyone conducts their transactions as long as they pay their taxes in USD.
This is false. You have to pay cap gains on anything against the dollar when buying with alt currencies.
This intentionally kills the use of anything other than the dollar for transactions. The record keeping for this sort of nonsense presents a massive and impractical to fight burden.
This intentionally kills the use of anything other than the dollar for transactions. The record keeping for this sort of nonsense presents a massive and impractical to fight burden.
This is false. You have to pay cap gains on anything against the dollar when buying with alt currencies.
I'm aware. What I was saying is that the US Government doesn't care about whether or not you're using USD for your transactions, so long as you pay the appropriate taxes in USD.
This intentionally kills the use of anything other than the dollar for transactions.
So what other policy would you prefer the federal government to have? It's pretty much the only good solution.
The record keeping for this sort of nonsense presents a massive and impractical to fight burden.
It's honestly hilarious that a few IRS regulations are all it took to fundamentally break cryptocurrency. Yeah sure, if you jump through dozens of loops and practice air-tight opsec, you can get away from paying taxes. But at that point it's basically a small group of people exchanging digital beanie babies and pretending they're valuable.
I'm aware. What I was saying is that the US Government doesn't care about whether or not you're using USD for your transactions, so long as you pay the appropriate taxes in USD.
This intentionally kills the use of anything other than the dollar for transactions.
So what other policy would you prefer the federal government to have? It's pretty much the only good solution.
The record keeping for this sort of nonsense presents a massive and impractical to fight burden.
It's honestly hilarious that a few IRS regulations are all it took to fundamentally break cryptocurrency. Yeah sure, if you jump through dozens of loops and practice air-tight opsec, you can get away from paying taxes. But at that point it's basically a small group of people exchanging digital beanie babies and pretending they're valuable.
We need inflation because it's governments' only way to keep spending like crazy, at the expense of cash holders, who are often poor, and benefiting assets holders.
It's good for regular people too. Debt is a great thing to have in an inflationary economy, especially long term debt backed by an asset, like a home. In essence, we inflate debt away over time. In a deflationary economy debt is crippling and because we are a debt based economy we have a deadly fear of deflation and will do anything to prevent it. Hence why they desperately inflated the economy during Covid. The alternative (do nothing) would have resulted in massive deflationary pressure and would have been devastating for debt holders.
Forcing regular people to take out huge debt is not good for them.
Sure it is, especially when the interest rate is less than the inflation rate. But even when not, over a long enough period a fixed rate will be eclipsed by inflation making the actual cost of the debt significantly less. This is great as you’re holding an asset worth far more than what you owe and it can be used to finance more debt if you wish.
Some people take on too much debt. But overall asset backed debt is a great system that lets people build wealth.
Some people take on too much debt. But overall asset backed debt is a great system that lets people build wealth.
Except that you're not allowed to take out a mortgage and denied credit if you're poor, which means you're stuck spending your money for necessities and therefore being poor. The system works great for people who (or whose family, circle, etc.) are already not poor.
I don't see any world where forcing people to take on massive debt is good for them - the mere suggestion that it could be feels like gaslighting - and the contrived situation you described barely qualifies as debt, but is more like free money from the government - financial institutions do not lend out money for less than inflation unless the government pushes them to.
Debt less than inflation is not free money unless you can put it in a savings account which pays more than inflation. This is very rarely possible, because the institution lending you the money would just put it in that same account instead of lending it to you. It's quite the opposite of free money - it forces you to work to acquire the greater number of nominal dollars which you'll need to repay in the future.
The argument for taking out debt with interest lower than inflation is that you can time-shift your purchases and end up doing less work to buy the same stuff in the long run. If you aren't doing that (which is a gamble, btw), then you shouldn't have the debt.
Debt less than inflation is not free money unless you can put it in a savings account which pays more than inflation. This is very rarely possible, because the institution lending you the money would just put it in that same account instead of lending it to you. It's quite the opposite of free money - it forces you to work to acquire the greater number of nominal dollars which you'll need to repay in the future.
The argument for taking out debt with interest lower than inflation is that you can time-shift your purchases and end up doing less work to buy the same stuff in the long run. If you aren't doing that (which is a gamble, btw), then you shouldn't have the debt.
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Incredible on such a macroscopic part of US monetary policy is a “Cloud Atlas” level special sensitivity to an off handed comment on the other side of the planet.
So that it's clear when we switch from "Growth in a Time of Debt" to "The Liquidation of Government Debt"?
An interesting and little known fact is that New Zealand is often used as a beta test site. They had ATMs in the 70s because the kiwis act like westerners, but if things go wrong, nobody notices. Similarly computer based police databases. Hopefully they can show us how UBI works...
There's no point in defining a "target" when the Fed has no control over the vast portion of dollar creation/destruction: https://en.wikipedia.org/wiki/Eurodollar
The combination of monetary creation by the central bank to bring price inflation up to 2% combined with kayfabe austerity by the legislative/executive government is responsible for the utter hollowing out of our economy. The combo has given the centralized financial industry basically unlimited power to make highly leveraged investments for predictable things that conform to their pet models, while vacuuming real wealth away from the edges in the form of loan payments. A fundamental assumption of real working capitalism is that capital is distributed, and this combo has all but destroyed it.
Even if one insists on the orthodoxy that some price inflation is necessary, the new money to create such price inflation represents a distributed taking from our society (ie a tax), and thus should be spent for deliberate purposes by the government - ideally on infrastructure and other investments aimed at creating more wealth in the future - rather than being given to the financial industry as low interest loans to bid up the asset bubble out of the reach of main street. I believe this is the core of Modern Monetary Theory, and while poised to encourage a bit more spending than I would like from an Austrian perspective, it is at least honest compared to the past several decades of the Keynesian+Reaganomics bait, switch, and squeeze.
Even if one insists on the orthodoxy that some price inflation is necessary, the new money to create such price inflation represents a distributed taking from our society (ie a tax), and thus should be spent for deliberate purposes by the government - ideally on infrastructure and other investments aimed at creating more wealth in the future - rather than being given to the financial industry as low interest loans to bid up the asset bubble out of the reach of main street. I believe this is the core of Modern Monetary Theory, and while poised to encourage a bit more spending than I would like from an Austrian perspective, it is at least honest compared to the past several decades of the Keynesian+Reaganomics bait, switch, and squeeze.
"After all, no one likes it when prices rise."
Excuse me? One man or woman's "price" is another's "wage", and plenty of people like it when their wages go up.
Excuse me? One man or woman's "price" is another's "wage", and plenty of people like it when their wages go up.
Many economists and policy makers would agree that a rising tide lifts all boats. So if decreasing the real value of wages via inflation sounds counter intuitive and misguided, it's because it is.
The problem is capitalism only prizes selfishness. An individual (corporation) acts selfishly by paying the smallest amount to workers that it can get away with.
If wages rose with inflation there'd be more money for consumers to buy products, and all else being equal that is better for the economy (and corporations).
An environment where wages rise slower than inflation is a vicious cycle of workers having less money to allocate to goods, thus hurting demand, thus hurting wage growth, thus hurting demand, etc.
You might be tempted to think that these situations should even out over the long run. But that ignores the psychological effect that decreased purchasing power has on workers - making them more likely to be stingy with their money (spend less).
The problem is capitalism only prizes selfishness. An individual (corporation) acts selfishly by paying the smallest amount to workers that it can get away with.
If wages rose with inflation there'd be more money for consumers to buy products, and all else being equal that is better for the economy (and corporations).
An environment where wages rise slower than inflation is a vicious cycle of workers having less money to allocate to goods, thus hurting demand, thus hurting wage growth, thus hurting demand, etc.
You might be tempted to think that these situations should even out over the long run. But that ignores the psychological effect that decreased purchasing power has on workers - making them more likely to be stingy with their money (spend less).
I wonder how fast F.A. Hayek is spinning in his grave.
I always thought that it was because that's the average inflation rate of gold. Is that not right?
never understood this mantra of 2 %, mindlessly pound out by the msm.
in twenty years your savings have lost nearly half of its purchasing power.
in twenty years your savings have lost nearly half of its purchasing power.
0.98^30 = 0.5459, so more like 30 years. But, that's why you have to put the bulk of your savings in equities and bonds.
You probably shouldn't be storing all your savings in cash. I think it's generally considered better practice to put at least some percentage into something market-based, like an index fund.
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...if held in cash. Were you holding your savings in cash?
And thus was born a consumer economy.
it's an "everything is awesome" schelling point at this point
Inflation is entirely a monetary phenomenon. It is the result of the government creating money to fund the deficit. There's around a 13 month lag between the creation of the money and the inflation.
It's the Law of Supply & Demand in action. More money representing the value of goods & services in the economy means each dollar is worth correspondingly less.
The 2% inflation being "good" for the economy is propaganda.
The propaganda around inflation is amazingly effective. How often do you hear from otherwise intelligent and education people that inflation is caused by:
1. speculators
2. profiteers
3. greedy business
4. greedy unions
5. Putin's price hike
6. supply chain shocks
7. oil companies
8. Arab cartels
9. savers
10. banks
11. wage-price spiral
12. cost-push
13. demand-pull
It's all disinformation, and rather easy to refute. For example, if oil price hikes cause inflation, why do we not have corresponding deflation when oil prices go down?
It's the Law of Supply & Demand in action. More money representing the value of goods & services in the economy means each dollar is worth correspondingly less.
The 2% inflation being "good" for the economy is propaganda.
The propaganda around inflation is amazingly effective. How often do you hear from otherwise intelligent and education people that inflation is caused by:
1. speculators
2. profiteers
3. greedy business
4. greedy unions
5. Putin's price hike
6. supply chain shocks
7. oil companies
8. Arab cartels
9. savers
10. banks
11. wage-price spiral
12. cost-push
13. demand-pull
It's all disinformation, and rather easy to refute. For example, if oil price hikes cause inflation, why do we not have corresponding deflation when oil prices go down?
It is the result of the government creating money to fund the deficit.
How does the inflation tell the difference between money created to fund the deficit and money created for other reasons?
How does the inflation tell the difference between money created to fund the deficit and money created for other reasons?
Great question.
When banks loan money, they create the money. But when the loan is paid back, the money is destroyed.
The federal deficit is not paid back. (Oh, there's the fiction of it being paid back, but what actually happens is the government just issues more debt.)
When banks loan money, they create the money. But when the loan is paid back, the money is destroyed.
The federal deficit is not paid back. (Oh, there's the fiction of it being paid back, but what actually happens is the government just issues more debt.)
> The federal deficit is not paid back
You mean the federal debt. The federal deficit is funded by the federal debt. [1]
If the federal debt were fully paid back, would any money be destroyed? Wouldn't it just go from taxpayers to bond holders?
1. https://fiscaldata.treasury.gov/americas-finance-guide/natio...
You mean the federal debt. The federal deficit is funded by the federal debt. [1]
If the federal debt were fully paid back, would any money be destroyed? Wouldn't it just go from taxpayers to bond holders?
1. https://fiscaldata.treasury.gov/americas-finance-guide/natio...
But sometimes it takes much more than 13 months for the money to be destroyed. How does the inflation know the difference in those cases?
It all averages out among all the banks issuing loans and resolving them.
Household debt has gone up by trillions of dollars.
https://www.newyorkfed.org/microeconomics/hhdc
https://www.newyorkfed.org/microeconomics/hhdc
Inflation being due to a combination of all the factors you listed seems far more likely than it being due to exactly one thing.
Except if you look at history, inflation reliably corresponds with the increase in the national debt.
The US had zero net inflation from 1800 to 1914, and endemic inflation afterwards. What happened in 1914? The Federal Reserve Act, which specifically empowered the Fed to issue money without restriction.
Those other alleged causes all existed prior to 1914.
Did you know that the US experienced inflation when on the gold standard when gold was being dug out of the ground in the California and Yukon gold rushes?
Spain experience massive inflation when they were looting the New World of its gold and silver.
The inflation was so bad during the American Revolution that the Founders did not empower the government to print money. The government found a way around the Constitutional prohibition with the Federal Reserve Act, and then, of course, inflation ensued.
It's the same cause.
The US had zero net inflation from 1800 to 1914, and endemic inflation afterwards. What happened in 1914? The Federal Reserve Act, which specifically empowered the Fed to issue money without restriction.
Those other alleged causes all existed prior to 1914.
Did you know that the US experienced inflation when on the gold standard when gold was being dug out of the ground in the California and Yukon gold rushes?
Spain experience massive inflation when they were looting the New World of its gold and silver.
The inflation was so bad during the American Revolution that the Founders did not empower the government to print money. The government found a way around the Constitutional prohibition with the Federal Reserve Act, and then, of course, inflation ensued.
It's the same cause.
The US national debt more than doubled between 2008 and 2018, but inflation was low. It's only up 50% in the 6 years since, but we've had crazy inflation. The only new factors have been the things you listed - supply shocks, war.
A lot of things other things happened in 1914. For instance, World War 1. Why not blame that for inflation?
I said inflation was due to all of the factors you listed. Debt and deficits was one of the factors. I just don't think it's the only factor, like you do.
A lot of things other things happened in 1914. For instance, World War 1. Why not blame that for inflation?
I said inflation was due to all of the factors you listed. Debt and deficits was one of the factors. I just don't think it's the only factor, like you do.
> The only new factors have been the things you listed - supply shocks, war
You overlooked the incredible increase in government spending.
> I just don't think it's the only factor, like you do.
For the other factors, you'll need to account for where all the extra money comes from.
You overlooked the incredible increase in government spending.
> I just don't think it's the only factor, like you do.
For the other factors, you'll need to account for where all the extra money comes from.
> You overlooked the incredible increase in government spending.
Tax cuts too. Tax increases reduce inflation.
Tax cuts too. Tax increases reduce inflation.
> It's all disinformation, and rather easy to refute. For example, if oil price hikes cause inflation, why do we not have corresponding deflation when oil prices go down?
What’s the logic here? Are you saying that if oil prices going up caused inflation, that oil prices going down would cause deflation?
That a nice intuitive leap, but you haven’t actually provided the reasoning for why that would be true. It’s kind of like saying that sticking a knife in someone doesn’t kill them, because pulling the knife out doesn’t bring them back to life. Sometimes, the opposite action doesn’t have the opposite effect. Pulling a knife out of somebody doesn’t restore them to the original state before they got stabbed. Lowering oil prices does not restore the economy to the original state before oil prices were raised.
What’s the logic here? Are you saying that if oil prices going up caused inflation, that oil prices going down would cause deflation?
That a nice intuitive leap, but you haven’t actually provided the reasoning for why that would be true. It’s kind of like saying that sticking a knife in someone doesn’t kill them, because pulling the knife out doesn’t bring them back to life. Sometimes, the opposite action doesn’t have the opposite effect. Pulling a knife out of somebody doesn’t restore them to the original state before they got stabbed. Lowering oil prices does not restore the economy to the original state before oil prices were raised.
> Are you saying that if oil prices going up caused inflation, that oil prices going down would cause deflation?
That's right.
Where does the extra money come from to keep prices high after the oil prices drop? In order to have a general price increase, there must be more money in the economy to sustain it.
That's right.
Where does the extra money come from to keep prices high after the oil prices drop? In order to have a general price increase, there must be more money in the economy to sustain it.
> In order to have a general price increase, there must be more money in the economy to sustain it.
I would describe this as “categorically incorrect”.
The law of supply and demand normally has two sides—supply, and demand. It’s simplistic way of looking at it, but it’s enough to explain why prices of a product can increase even if there isn’t more money.
If you focus narrowly on the supply on money, like it’s the only variable, you won’t end up with a satisfactory explanation of inflation. It’s like trying to understand the world by looking through a peephole.
I would describe this as “categorically incorrect”.
The law of supply and demand normally has two sides—supply, and demand. It’s simplistic way of looking at it, but it’s enough to explain why prices of a product can increase even if there isn’t more money.
If you focus narrowly on the supply on money, like it’s the only variable, you won’t end up with a satisfactory explanation of inflation. It’s like trying to understand the world by looking through a peephole.
The supply of money in excess of growth of the GDP is a satisfactory and reliable explanation of inflation.
Measuring US GDP in dollars is like measuring a shrinking table with a ruler that shrinks even faster each time you use it.
Simply doubling the money supply will miraculously double GDP figures because you're measuring GDP in terms of something you just halved in value (with disastrous results on the real economy)
Simply doubling the money supply will miraculously double GDP figures because you're measuring GDP in terms of something you just halved in value (with disastrous results on the real economy)
I guess you’re a lot easier to satisfy than I am.
study bitcoin
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because the rich are guaranteed a return.
Another interesting thing that happened under Greenspan is how inflation is computed (hedonics, replacements, etc... conceptually, think "if I can't buy a porterhouse steak anymore, I'll get the lesser hanger", meaning inflation is underreported). I'm not suggesting this was intentional or coordinated, but this had the huge benefit for federal and local governments that it lowered the benefits they had to pay out that were linked to inflation. Issue is it hurts the poor more.