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> Requiring backing for dollars was a real limiter on inflation Which directly leads to instability when the value of the backing changes. I'm not aware of any

> Requiring backing for dollars was a real limiter on inflation Which directly leads to instability when the value of the backing changes. I'm not aware of any mainstream movement amongst orthodox economists to revert to pre-Nixon policies.

dnautics 5y ago
That's understandable. The value of stability seems to be doctrinal in orthodox economics (it is the orthodoxy, after all) Like any other metric, stability comes at a cost (and it also comes with baked-in assumptions). I wish there were more rigorous discussion of what the social cost of stability is (is it worth it to have stability if that means siphoning money from the poor?), who benefits from 'stability', what values our metrics for stability encode, and to what extent the Federal Reserve system is a victim of Goodheart's law in all of the goals it seeks, to include 'stability'.
- kube-system 5y ago
  It is undoubtably the working classes who benefit from stability. The people who control businesses are not laying themselves off first, nor are they living paycheck-to-paycheck.
  - billytetrud 5y ago
    There is quite a lot of reason to doubt that is the case in the long run. What I think dnautics is saying is that stability is trading off short term gains for long term gains. What about the stagnated real wages in the last 50 years? Is that good for the poor? What about seigniorage? Is that good for the poor? When someone says something like "undoubtedly/obviously X" or "its commen sense that X" 99% of the time they haven't put much thought into it.
    - kube-system 5y ago
      We're not comparing equal "short term" and "long term" events though. The short term effects are much more severe in nature. And because they are severe, these "short term" economic effects end up causing long term financial impacts for the people they impact, even after the economy has recovered. Most non-high income people do not have huge rainy-day funds. If they lose their job, even for a short period of time, they will find themselves relying on debt that is a lot more expensive than 2% inflation. Stability has a high value, it is just hard to measure in dollars. > When someone says something like "undoubtedly/obviously X" or "its commen sense that X" 99% of the time they haven't put much thought into it. Or rather, it's an easy question to answer because we've seen the situation happen many times. Who suffers during economic downturns?
      - billytetrud 5y ago
        We should probably define what kind of stability we're talking about before we devolve into fisticuffs. Are we talking about a "stable" economy? A stable buying power of the currency? Something else?
        kube-system 5y ago
        I am referring to economic stability.
        billytetrud 5y ago
        Well, in a gold-backed world, we had frequent but small bubbles that corrected inefficient economic activity relatively quickly. In a post-gold-backed world, we have less frequent but much much larger bubbles that result in devastating economic crises. Is that really the stability you want? With modern economic knowledge, technology, and techniques, a gold-backed dollar could be quite a bit more stable than it was in the 1800s, don't you agree? But we don't have to go back to gold to fix this problem. The problem is not gold or not gold. The problem is massive monetary inflation. That can be solved without going back to gold backing. What gold-backing did was create a culture that believed in a limited money supply. When we destroyed that culture, we created the problem.
    - xxpor 5y ago
      There's 4 major things that happened in the 70s that affected wages, and everyone blames the one they'd like to based on their ideology. 1. Closing the gold window 2. Outsourcing of manufacturing begins in earnest (combined with weakening of unions, the Clean Air and Water Acts, etc) 3. Computers really start taking over (obviously accelerates in the 80s) 4. Women started having real careers on a large scale
      - reedjosh 5y ago
        1. Closing the gold window Inflation benefits those that can leverage dollar denominated debts against inflationary hedges. Wealthy people with assets undoubtably can do this at a grand scale while the closest thing an average person can do is buy a house. 2. Outsourcing of manufacturing begins in earnest (combined with weakening of unions, the Clean Air and Water Acts, etc) Yes, and maybe slower globalization would have been better, but I personally am a free market all the way guy. 3. Computers really start taking over (obviously accelerates in the 80s) This is akin to making the `pie` that is the economy greater. It does does not explain why the wealthy gained most of the new growth of said `pie`. 4. Women started having real careers on a large scale I'm a bit torn on this as an argument. Women having careers should have increased the size of the economic `pie` and everyone should have been better off, but what seems to have happened is that competition between laborers became more intense and while the `pie` grew, the average person lost a significant portion of their share. I have yet to fully wrap my head around this one, but it seems like labor competition combined with corporate and or governmental control in a way that prevented the distribution of the increased productivity?
        kube-system 5y ago
        > 3. Computers really start taking over (obviously accelerates in the 80s) > This is akin to making the `pie` that is the economy greater. It does does not explain why the wealthy gained most of the new growth of said `pie`. Sure it does. The productivity gains from any tool are a direct monetary benefit to those who implement it. The pie is only subsequently redistributed if other market effects coerce the original beneficiary into doing so. Record-keepers, secretaries, etc, being laid off from their job obviously have no opportunity to negotiate for higher wages as a result of that productivity gain. The only people who were in a position to negotiate were the ones who could implement these new tools. And they did: tech jobs are well paid.
- Filligree 5y ago
  How does inflation suck money from the poor? That is, the ones who are most likely to have loans that will be reduced by that very same inflationary policy.
  - bobthepanda 5y ago
    To a degree you have to have something to put up to have a loan in the first place. The finances of some freshly minted doctor loaded with medical school debt look a lot different than an unbanked poor person who's never qualified for credit.
    - dragonwriter 5y ago
      > To a degree you have to have something to put up to have a loan in the first place. Dollar denominated debt doesn’t all originate with getting credit-check-qualified approval for a loan.
  - dnautics 5y ago
    > How does inflation suck money from the poor? That is, the ones who are most likely to have loans... why the hell is this still a belief? The indebted poor have revolving credit at best (think 10%-ish APR) or short-term credit (payday loans: 15%+ APR). Inflation does not help those situations. The wealthy are benefitting from low-interest rate loans (margin accounts, leveraged trading, options) that are enabled by the existence of inflation, and by the mechanism, which is providing a discount window to banks (so they ride on nominal gains and are insulated from real devaluation). Consider someone who is spending 95% of their income on day to day expenses, and we have a 1% increase in prices. Now you are spending 96% of your income on day to day expenses, which is a 20% decrease in margin of safety. It's even worse if you start at 99%. If you are spending 20% of your income on day to day expenses and have a 1% increase in prices, your margin of safety loss is < 2%. "But wages catch up" you say. No they don't. Otherwise inflation as a policy doesn't work. https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-higher-inflation/ https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-hi... "in the long run, it’s really, really hard to cut nominal wages. Yet when you have very low inflation, getting relative wages right would require that a significant number of workers take wage cuts." Inflation is a stealth wage cut, a matter of policy for cheating the labor class. Don't get me wrong, it's well intentioned - it's to prop up the low unemployment metric, but Goodheart's law applies. Finally, inflation forces the middle class to invest instead of save, to stay afloat and build up a retirement nest egg. Investments typically must go through approved channels, e.g. "the stock market" which disproportionately favors the already wealthy, e.g. CEOs, investment managers, hedge funds. Thus it is a siphon that steals wealth from the poor and middle class and gives it to the wealthy.
- bobthepanda 5y ago
  I don't know that the poor were any better off before the Federal Reserve system; in fact, it made the possibility of monetary rescue even more exclusive. Part of the reason why the Federal Reserve was formed was because in 1907 J.P. Morgan got his boys' club together and coordinated a financial rescue, but tough luck if you weren't benefitting from that.
  - dnautics 5y ago
    Broken window fallacy. Letting things fail is a possibilty. The boys' club can get together and coordinate a rescue, but in one out of every n attempts of coordinated rescue, they'll fail. Which will be good for leveling income inequality.
    - xxpor 5y ago
      That's also how you end up with wars.
      - deleted 5y ago
        [deleted]
      - dnautics 5y ago
        No, since 1900 wars are more correlated with inflationary predictors than deflationary predictors.
        xxpor 5y ago
        They're correlated with instability. I'd agree hyper inflation is a cause of instability. 2-3% isn't.
        dnautics 5y ago
        You are making an assertion based on a model that is strictly in your head because it seems "right". Please check your history.
        5y ago
- billytetrud 5y ago
  I wish there was more rigorous discussion of monetary economics - or economics in general. Most people are economically illiterate, and economists are doing a real bad job of teaching it. The most famous ones seem to be constantly on the bleeding edge of whatever semi-verified theory they've pushed for decades without considering that they might be wrong sometimes.
billytetrud 5y ago
> Which directly leads to instability when the value of the backing changes. You're not correct. Instability leads to changes in the buying power of currency, not the other way around. Unless you're talking about monetary inflation. What mechanism do you think there is to change the value of gold in a gold-backed world? The mechanism is that when there are better places to put your money than keeping it in dollars (gold backed or otherwise) the value of those dollars goes down. And vice versa, when there are fewer better places to put your money, more wealth will be held as currency and push its price up (this is why deflation is seen as bad - beacause it generally coincides with an economy that has been invisibly failing for years). Monetary policy had been inflationary and insolvent, and rampant expansion of the money supply lead to high price inflation which of course ended in a crash. It was monetary expansion that lead to the problems in the 70s not mysterious changes to the value of gold.
reedjosh 5y ago
Pretty sure the value of gold only truly fluctuates against fiat currencies. It's not the intrinsic value of gold that fluctuates. In Roman times the value of an ounce of gold would buy a handmade robe, belt, and shoes. At today's value $1800, you could do exactly the same.
fuzzfactor 5y ago
>I'm not aware of any mainstream movement amongst orthodox economists to revert to pre-Nixon policies. That's OK, mainstream orthodox economists have completely failed to yield anything resembling pre-Nixon prosperity ever since.

dnautics 5y ago

That's understandable. The value of stability seems to be doctrinal in orthodox economics (it is the orthodoxy, after all) Like any other metric, stability comes at a cost (and it also comes with baked-in assumptions). I wish there were more rigorous discussion of what the social cost of stability is (is it worth it to have stability if that means siphoning money from the poor?), who benefits from 'stability', what values our metrics for stability encode, and to what extent the Federal Reserve system is a victim of Goodheart's law in all of the goals it seeks, to include 'stability'.

kube-system 5y ago
It is undoubtably the working classes who benefit from stability. The people who control businesses are not laying themselves off first, nor are they living paycheck-to-paycheck.
- billytetrud 5y ago
  There is quite a lot of reason to doubt that is the case in the long run. What I think dnautics is saying is that stability is trading off short term gains for long term gains. What about the stagnated real wages in the last 50 years? Is that good for the poor? What about seigniorage? Is that good for the poor? When someone says something like "undoubtedly/obviously X" or "its commen sense that X" 99% of the time they haven't put much thought into it.
  - kube-system 5y ago
    We're not comparing equal "short term" and "long term" events though. The short term effects are much more severe in nature. And because they are severe, these "short term" economic effects end up causing long term financial impacts for the people they impact, even after the economy has recovered. Most non-high income people do not have huge rainy-day funds. If they lose their job, even for a short period of time, they will find themselves relying on debt that is a lot more expensive than 2% inflation. Stability has a high value, it is just hard to measure in dollars. > When someone says something like "undoubtedly/obviously X" or "its commen sense that X" 99% of the time they haven't put much thought into it. Or rather, it's an easy question to answer because we've seen the situation happen many times. Who suffers during economic downturns?
    - billytetrud 5y ago
      We should probably define what kind of stability we're talking about before we devolve into fisticuffs. Are we talking about a "stable" economy? A stable buying power of the currency? Something else?
      - kube-system 5y ago
        I am referring to economic stability.
        billytetrud 5y ago
        Well, in a gold-backed world, we had frequent but small bubbles that corrected inefficient economic activity relatively quickly. In a post-gold-backed world, we have less frequent but much much larger bubbles that result in devastating economic crises. Is that really the stability you want? With modern economic knowledge, technology, and techniques, a gold-backed dollar could be quite a bit more stable than it was in the 1800s, don't you agree? But we don't have to go back to gold to fix this problem. The problem is not gold or not gold. The problem is massive monetary inflation. That can be solved without going back to gold backing. What gold-backing did was create a culture that believed in a limited money supply. When we destroyed that culture, we created the problem.
  - xxpor 5y ago
    There's 4 major things that happened in the 70s that affected wages, and everyone blames the one they'd like to based on their ideology. 1. Closing the gold window 2. Outsourcing of manufacturing begins in earnest (combined with weakening of unions, the Clean Air and Water Acts, etc) 3. Computers really start taking over (obviously accelerates in the 80s) 4. Women started having real careers on a large scale
    - reedjosh 5y ago
      1. Closing the gold window Inflation benefits those that can leverage dollar denominated debts against inflationary hedges. Wealthy people with assets undoubtably can do this at a grand scale while the closest thing an average person can do is buy a house. 2. Outsourcing of manufacturing begins in earnest (combined with weakening of unions, the Clean Air and Water Acts, etc) Yes, and maybe slower globalization would have been better, but I personally am a free market all the way guy. 3. Computers really start taking over (obviously accelerates in the 80s) This is akin to making the `pie` that is the economy greater. It does does not explain why the wealthy gained most of the new growth of said `pie`. 4. Women started having real careers on a large scale I'm a bit torn on this as an argument. Women having careers should have increased the size of the economic `pie` and everyone should have been better off, but what seems to have happened is that competition between laborers became more intense and while the `pie` grew, the average person lost a significant portion of their share. I have yet to fully wrap my head around this one, but it seems like labor competition combined with corporate and or governmental control in a way that prevented the distribution of the increased productivity?
      - kube-system 5y ago
        > 3. Computers really start taking over (obviously accelerates in the 80s) > This is akin to making the `pie` that is the economy greater. It does does not explain why the wealthy gained most of the new growth of said `pie`. Sure it does. The productivity gains from any tool are a direct monetary benefit to those who implement it. The pie is only subsequently redistributed if other market effects coerce the original beneficiary into doing so. Record-keepers, secretaries, etc, being laid off from their job obviously have no opportunity to negotiate for higher wages as a result of that productivity gain. The only people who were in a position to negotiate were the ones who could implement these new tools. And they did: tech jobs are well paid.
Filligree 5y ago
How does inflation suck money from the poor? That is, the ones who are most likely to have loans that will be reduced by that very same inflationary policy.
- bobthepanda 5y ago
  To a degree you have to have something to put up to have a loan in the first place. The finances of some freshly minted doctor loaded with medical school debt look a lot different than an unbanked poor person who's never qualified for credit.
  - dragonwriter 5y ago
    > To a degree you have to have something to put up to have a loan in the first place. Dollar denominated debt doesn’t all originate with getting credit-check-qualified approval for a loan.
- dnautics 5y ago
  > How does inflation suck money from the poor? That is, the ones who are most likely to have loans... why the hell is this still a belief? The indebted poor have revolving credit at best (think 10%-ish APR) or short-term credit (payday loans: 15%+ APR). Inflation does not help those situations. The wealthy are benefitting from low-interest rate loans (margin accounts, leveraged trading, options) that are enabled by the existence of inflation, and by the mechanism, which is providing a discount window to banks (so they ride on nominal gains and are insulated from real devaluation). Consider someone who is spending 95% of their income on day to day expenses, and we have a 1% increase in prices. Now you are spending 96% of your income on day to day expenses, which is a 20% decrease in margin of safety. It's even worse if you start at 99%. If you are spending 20% of your income on day to day expenses and have a 1% increase in prices, your margin of safety loss is < 2%. "But wages catch up" you say. No they don't. Otherwise inflation as a policy doesn't work. https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-higher-inflation/ https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-hi... "in the long run, it’s really, really hard to cut nominal wages. Yet when you have very low inflation, getting relative wages right would require that a significant number of workers take wage cuts." Inflation is a stealth wage cut, a matter of policy for cheating the labor class. Don't get me wrong, it's well intentioned - it's to prop up the low unemployment metric, but Goodheart's law applies. Finally, inflation forces the middle class to invest instead of save, to stay afloat and build up a retirement nest egg. Investments typically must go through approved channels, e.g. "the stock market" which disproportionately favors the already wealthy, e.g. CEOs, investment managers, hedge funds. Thus it is a siphon that steals wealth from the poor and middle class and gives it to the wealthy.
bobthepanda 5y ago
I don't know that the poor were any better off before the Federal Reserve system; in fact, it made the possibility of monetary rescue even more exclusive. Part of the reason why the Federal Reserve was formed was because in 1907 J.P. Morgan got his boys' club together and coordinated a financial rescue, but tough luck if you weren't benefitting from that.
- dnautics 5y ago
  Broken window fallacy. Letting things fail is a possibilty. The boys' club can get together and coordinate a rescue, but in one out of every n attempts of coordinated rescue, they'll fail. Which will be good for leveling income inequality.
  - xxpor 5y ago
    That's also how you end up with wars.
    - deleted 5y ago
      [deleted]
    - dnautics 5y ago
      No, since 1900 wars are more correlated with inflationary predictors than deflationary predictors.
      - xxpor 5y ago
        They're correlated with instability. I'd agree hyper inflation is a cause of instability. 2-3% isn't.
        dnautics 5y ago
        You are making an assertion based on a model that is strictly in your head because it seems "right". Please check your history.
      - 5y ago
billytetrud 5y ago
I wish there was more rigorous discussion of monetary economics - or economics in general. Most people are economically illiterate, and economists are doing a real bad job of teaching it. The most famous ones seem to be constantly on the bleeding edge of whatever semi-verified theory they've pushed for decades without considering that they might be wrong sometimes.

billytetrud 5y ago

> Which directly leads to instability when the value of the backing changes. You're not correct. Instability leads to changes in the buying power of currency, not the other way around. Unless you're talking about monetary inflation. What mechanism do you think there is to change the value of gold in a gold-backed world? The mechanism is that when there are better places to put your money than keeping it in dollars (gold backed or otherwise) the value of those dollars goes down. And vice versa, when there are fewer better places to put your money, more wealth will be held as currency and push its price up (this is why deflation is seen as bad - beacause it generally coincides with an economy that has been invisibly failing for years). Monetary policy had been inflationary and insolvent, and rampant expansion of the money supply lead to high price inflation which of course ended in a crash. It was monetary expansion that lead to the problems in the 70s not mysterious changes to the value of gold.

reedjosh 5y ago

Pretty sure the value of gold only truly fluctuates against fiat currencies. It's not the intrinsic value of gold that fluctuates. In Roman times the value of an ounce of gold would buy a handmade robe, belt, and shoes. At today's value $1800, you could do exactly the same.

fuzzfactor 5y ago

>I'm not aware of any mainstream movement amongst orthodox economists to revert to pre-Nixon policies. That's OK, mainstream orthodox economists have completely failed to yield anything resembling pre-Nixon prosperity ever since.