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Intuitively, printing money can't be the only cause at least at a non-macro level. If all the wealth currently currently squirreled away in places that banks ca

• pdonis 6y ago
  > Intuitively, printing money can't be the only cause Theoretically it certainly can be. To take the simplest idealized example, if the production of goods and services is unchanging, and people's needs are unchanging, the only possible source of price changes is a change in the money supply. In the real world, of course, the quantity of goods and services does change and so do people's needs. But that just means the price system now has a genuine function: to inform people about the changes in supply and demand through changes in prices. Messing with the money supply just obfuscates those price signals with an arbitrary quantity of noise. So while it's true that messing with the money supply isn't the only cause of price changes in a real economy, that's certainly not an argument that printing money is okay. > If all the wealth currently currently squirreled away in places that banks can't trivially lend out (art, real estate, etc.) were instead cash in the hands of the lower and middle classes, I would expect a lot more money to be chasing those goods and services against which we measure inflation. That would depend on where the cash came from. In the case of real estate, for example, if you want a mortgage, the government will print most of the money (all but the three percent or so that banks in the upper reserve tranche have to put up--but IIRC even that minimal requirement was waived by the Fed fairly recently). So turning real estate into cash (by, say, taking out mortgages to buy homes from lower and middle income people who have more house than they want or who would rather rent instead) just means the government prints more money. Which will indeed increase average prices, but that's just an example of what I was talking about. If, OTOH, you're talking about something like auctioning off expensive art works and using the money to start a business that employs people, so those people now have more cash to spend, that just means a transfer of cash from whoever buys the art works. That won't affect average prices at all; it will, however, increase the price of art works (assuming that the supply of those is basically static) and decrease the price of whatever things the people who bought the art works would have bought instead. Those two changes will cancel out on average.
  • dragonwriter 6y ago
    > if the production of goods and services is unchanging, and people's needs are unchanging, the only possible source of price changes ...is changes in expectations about future needs or productivity. Or are we pretending that the omniscient, time-unbound actors of rational choice theory are a real thing?
    • pdonis 6y ago
      > ...is changes in expectations about future needs or productivity. Which are only rational if such things in fact have changed in the past. In that particular hypothetical of mine, they don't. And everyone knows that, the same we we all know in the real world that such things do change. That doesn't require omniscience; it just requires ordinary knowledge of the past and common sense. Of course in the real world, as I just said, such things do change; but, as I said in my earlier post, that just means that monkeying with the money supply masks real price signals that should not be masked.
  • three14 6y ago
    > To take the simplest idealized example, if the production of goods and services is unchanging, and people's needs are unchanging, the only possible source of price changes is a change in the money supply. There are other possibilities. Suppose that employers gain bargaining power relative to the workers, but people are really resistant to taking a pay cut. The employers all raise prices instead.
    • pdonis 6y ago
      > There are other possibilities. Not in that particular hypothetical. All the things you cite are only relevant in a world where things do change. So if you want to talk about that world, it's pointless to respond to a hypothetical of mine where that kind of change is ruled out to make a particular point. > Suppose that employers gain bargaining power relative to the workers, but people are really resistant to taking a pay cut. The employers all raise prices instead. In the real world, where things do change and everyone knows and expects that, how do employers magically "gain bargaining power relative to the workers"? The only way that can happen, if the government is not messing with things (the money supply, but also other things, like the laws and regulations that govern employment), is for some technological change or some exogenous factor to favor employers over workers. And if that happens, and you're a worker, yes, you just got blindsided by change, and if you're an employer, you just got an unearned benefit (assuming you're not the one who actually invented the technological change). Welcome to the real world. Of course, in the real real world, where the government does mess with things, there are plenty of ways for employers, particularly large corporations that have lots of cash, to gain bargaining power over workers without having to do anything to earn it. And yes, workers would probably be resistant to taking a pay cut, since they know that the bargaining power the employers are trying to use against them was not earned. And yes, employers would probably raise prices instead. And the best way to prevent all that is for the government to stop messing with the economy, so employers can't buy their way out of bad business practices.