4 ms·

That would be true only if wealth were equally distributed to start with. So basic income should bring some inflation, but it also brings some wealth redistribu

That would be true only if wealth were equally distributed to start with. So basic income should bring some inflation, but it also brings some wealth redistribution.

WalterBright 11y ago
Inflation is not caused by price increases. It is caused by an increase in the money supply relative to the value it represents.
- a3voices 11y ago
  That's inaccurate. It's actually caused by an increase in median wages and number of people employed. Wage growth is affected by money supply growth.
  - MCRed 11y ago
    Inflation is growth in the money supply. It has nothing to do with wages or prices or any of that other stuff. Those are affected by inflation. But inflation, by definition is changes in the money supply. That is the economic definition of inflation. Redefining inflation is a common acting of politicians et. al who want to obscure what they are doing to the economy.
    - enraged_camel 11y ago
      >>That is the economic definition of inflation. No it isn't. From Wikipedia: "In economics, inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. When the price level rises, each unit of currency buys fewer goods and services. Consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy." https://en.m.wikipedia.org/wiki/Inflation https://en.m.wikipedia.org/wiki/Inflation
- dragonwriter 11y ago
  > Inflation is not caused by price increases. No, inflation is defined as the rate of increase of general prices in a particular market, however that market is bounded. > It is caused by an increase in the money supply relative to the value it represents. Because the markets for different goods and services are to a certain extent distinct, and because populations of different levels of wealth demand different goods and services, redistribution always causes increase in the supply of money chasing goods and services demanded by the group benefiting from the redistribution (and a decrease on the other side), at least in the short run (in the longer run, its effects on overall productivity, which depend on other details, will determine the effects.) As a result, you'd expect redistribution to cause some inflation in the market for goods and services demanded by the beneficiaries of the redistribution.
  - petra 11y ago
    Could you please expand a bit more on the long term effects of expanding the money supply?
    - polishninja 11y ago
      The Fed expands and contracts the money supply to keep inflation around 2%. They use it as a tool to smooth out financial expansions and contractions by affecting interest rates which affect the demand for money vs interest bearing holdings. Currently, they expanded the money supply past demand to accommodate the 2008 crisis and now we are caught in a liquidity trap. If the Fed now wants to stimulate the economy by lowering the interest rate though expanding the money supply they can't, because the interest rate is at the lower bound of 0%. They need to now use less effective and unconventional methods to affect the economy.
      - dragonwriter 11y ago
        As you note, monetary policy is largely a tool to "smooth out financial expansions and contractions"; that is, its a tool to tweak around the edges of fairly short-term normal cyclical fluctuations. It may be sufficient to adequately mitigate harmful disruptions from those kinds of normal cyclical fluctuations in the economy, but its not adequate for dealing with all economic issues. The more powerful tool for dealing with economic issues is fiscal policy, which is the domain of Congress, not the Fed. But Congress has largely failed to act, or acted counterproductively, for many years, and left the Fed and monetary policy to handle things that need Congress and fiscal policy to address. So, yes, the Fed's pretty much exhausted its tools, because its been forced to deal with a problem exclusively through monetary policy that should have been addressed through fiscal policy.
- crdoconnor 11y ago
  Inflation is price increases. It is caused by increased spending (demand-pull) (e.g. basic income) or increased costs (cost-push) (e.g. the 1973 oil crisis). Milton Friedman's idea that it's only ever caused by an increase in the money supply needs to die already. It's always been wrong.
- WalterBright 11y ago
  Money is subject to the law of supply and demand just like everything else. More money supply, and the value of a unit of money drops, i.e. inflation. History is full of examples. When Spain extracted gold and silver from the Americas in vast quantities, there was inflation in the Old World. Gold rushes corresponded with inflation. The American revolutionary Continental was printed in great quantities, and became worthless. Inflation results every time there's an increase in the money supply relative to the value in the economy. Higher prices are the result, not the cause.

That would be true only if wealth were equally distributed to start with. So basic income should bring some inflation, but it also brings some wealth redistribution.

WalterBright 11y ago

Inflation is not caused by price increases. It is caused by an increase in the money supply relative to the value it represents.

a3voices 11y ago
That's inaccurate. It's actually caused by an increase in median wages and number of people employed. Wage growth is affected by money supply growth.
- MCRed 11y ago
  Inflation is growth in the money supply. It has nothing to do with wages or prices or any of that other stuff. Those are affected by inflation. But inflation, by definition is changes in the money supply. That is the economic definition of inflation. Redefining inflation is a common acting of politicians et. al who want to obscure what they are doing to the economy.
  - enraged_camel 11y ago
    >>That is the economic definition of inflation. No it isn't. From Wikipedia: "In economics, inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. When the price level rises, each unit of currency buys fewer goods and services. Consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy." https://en.m.wikipedia.org/wiki/Inflation https://en.m.wikipedia.org/wiki/Inflation
dragonwriter 11y ago
> Inflation is not caused by price increases. No, inflation is defined as the rate of increase of general prices in a particular market, however that market is bounded. > It is caused by an increase in the money supply relative to the value it represents. Because the markets for different goods and services are to a certain extent distinct, and because populations of different levels of wealth demand different goods and services, redistribution always causes increase in the supply of money chasing goods and services demanded by the group benefiting from the redistribution (and a decrease on the other side), at least in the short run (in the longer run, its effects on overall productivity, which depend on other details, will determine the effects.) As a result, you'd expect redistribution to cause some inflation in the market for goods and services demanded by the beneficiaries of the redistribution.
- petra 11y ago
  Could you please expand a bit more on the long term effects of expanding the money supply?
  - polishninja 11y ago
    The Fed expands and contracts the money supply to keep inflation around 2%. They use it as a tool to smooth out financial expansions and contractions by affecting interest rates which affect the demand for money vs interest bearing holdings. Currently, they expanded the money supply past demand to accommodate the 2008 crisis and now we are caught in a liquidity trap. If the Fed now wants to stimulate the economy by lowering the interest rate though expanding the money supply they can't, because the interest rate is at the lower bound of 0%. They need to now use less effective and unconventional methods to affect the economy.
    - dragonwriter 11y ago
      As you note, monetary policy is largely a tool to "smooth out financial expansions and contractions"; that is, its a tool to tweak around the edges of fairly short-term normal cyclical fluctuations. It may be sufficient to adequately mitigate harmful disruptions from those kinds of normal cyclical fluctuations in the economy, but its not adequate for dealing with all economic issues. The more powerful tool for dealing with economic issues is fiscal policy, which is the domain of Congress, not the Fed. But Congress has largely failed to act, or acted counterproductively, for many years, and left the Fed and monetary policy to handle things that need Congress and fiscal policy to address. So, yes, the Fed's pretty much exhausted its tools, because its been forced to deal with a problem exclusively through monetary policy that should have been addressed through fiscal policy.
crdoconnor 11y ago
Inflation is price increases. It is caused by increased spending (demand-pull) (e.g. basic income) or increased costs (cost-push) (e.g. the 1973 oil crisis). Milton Friedman's idea that it's only ever caused by an increase in the money supply needs to die already. It's always been wrong.
WalterBright 11y ago
Money is subject to the law of supply and demand just like everything else. More money supply, and the value of a unit of money drops, i.e. inflation. History is full of examples. When Spain extracted gold and silver from the Americas in vast quantities, there was inflation in the Old World. Gold rushes corresponded with inflation. The American revolutionary Continental was printed in great quantities, and became worthless. Inflation results every time there's an increase in the money supply relative to the value in the economy. Higher prices are the result, not the cause.