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This seems right, but I think we're seeing how resilient the real economy is, given appropriate financing. It's almost always the financial/monetary side that's

This seems right, but I think we're seeing how resilient the real economy is, given appropriate financing. It's almost always the financial/monetary side that's the problem. An economy can usually make more of stuff, or substitutes, and/or consume relatively painlessly. The pain kicks in when the financial sector feels pain. The real economy reshuffles if it's financed adequately. Monetary policy, currently, finds itself oddly theoryless. I think this has actually made for better decision making. The own goal of trying to save and/or reduce debt in response to a shock hasn't been scored. So... I agree that the economy has had to do a lot of resource, shuffling. Some prices have gone up in the real economy. People are still unemployed, in sectors like travel that really got shut down. In others, there's are some struggling to find labour. Mostly though, it's a case of "look how easy that was." In the financial economy, credit is available, keeping everything ticking.

bawolff 5y ago
> An economy can usually make more of stuff, or substitutes, and/or consume relatively painlessly. The pain kicks in when the financial sector feels pain. The real economy reshuffles if it's financed adequately Isn't money just an abstraction over resources? In essence i think you're saying that creating goods is not a problem assuming there are sufficient resources to make the goods and sufficient resources to compensate the people making the goods. While i don't disagree, doesn't that kind of go without saying?
- dalbasal 5y ago
  "Isn't money just an abstraction over resources?" I think the economics of money tends to compete on which common sense, to follow. Taken to the extreme, you could say that money doesn't matter. Only resources and the real economy matter. That, IMO, is negated by the history of money economics affecting the real economy. Money shortage is a thing. If the economy hadn't been funded, the resource shuffling wouldn't have been possible... or more painful. People don't get compensated for resources and labour in exchange for goods and labour. They get compensated in money, which is at some point down the cascade, credit. If money is short, it doesn't matter what the productive capacity. That reshuffling doesn't happen smoothly. So, no... I think. At least, not in a sense that commons sense implications can be applied. Money isn't just an abstraction over resources. It's a thing unto itself. Money supply issues, hyperinflation, financial shocks, credit shocks and have been more likely to affect major real economy problems than supply of actual stuff like oil. Oil shock is a thing. There definitely are real examples of crippling resource shortages. More often though, money supply is the issue.
  - bawolff 5y ago
    > Money supply issues, hyperinflation, financial shocks, credit shocks and have been more likely to affect major real economy problems than supply of actual stuff like oil Yeah, but all those things describe situations where money and resources got out of whack.
- alistairSH 5y ago
  Yes and no. Money is an abstraction over resources. However, it's not quite that simple once you add credit/borrowing into the mix. We no longer trade sheep for lumber; we no longer buy lumber with cash from our wallet. Instead, we borrow from the bank, buy more lumber than we could otherwise afford, on the assumption we can turn around and sell finished houses before the loan comes due. If the bank stops lending, we can no longer buy enough lumber to build the houses. The market slows significantly - instead of building 100 houses at a time, we have to build them one at a time. The demand for 100 houses hasn't changed (all else being equal), but the supply has. Prices probably go up, but until the bank starts loaning, the pace of the economy doesn't return to previous levels. Or something like that. Way too complicated to distill into a single post.
  - nostrademons 5y ago
    Credit is an abstraction over future resources. When you take out a loan, you're basically saying "I am betting that I can produce enough in the future to pay back the resources that I am using now." And if you don't, you're on the hook for it, and potentially go bankrupt. That's why the financial sector is the weak link, and also why it's very well-compensated. Finance is a future-prediction problem: you do well if you successfully predict which investments will pay off, and you go bankrupt if you fail. Predicting the future has always been hard. The reason we get these boom/bust crises is because instead of using their own judgment, many people, when faced with a hard problem, will just do what everyone else is doing. So the whole financial industry lemming-trains into bad investments, and then when they bust, they all go bankrupt and there's no resources to go around until the wreckage has been cleared away and placed in more independent manager's hands.
    - dalbasal 5y ago
      Credit is an abstraction over future resources from the perspective of either party. To the economy, there is no future. If everyone saves all their money, the economy ceases to produce. It doesn't hold that production in reserve.
refurb 5y ago
The financial aspects you mention has a cost - there is no free lunch. No doubt the financing is also causing some of the delay in efficient reallocation. But the piper must be paid in the end. Ideally it’s similar to 2008 where the govt unwound all the extra money, over time, relatively painlessly. Of course that’s not guaranteed at at all. If inflation gets out of control then you could see a major economic shock as the govt quickly unwinds.
- AlexandrB 5y ago
  I don't think it's going to be painless. There are asset bubbles in multiple sectors ranging from real estate to collectibles. Either these will pop and many will be left holding the bag or more serious inflation is on the way.
  - bob33212 5y ago
    Not necessarily. Just look a crypto, these people are not selling. Just being a crypto millionaire on paper is good enough of a reward. They have no desire to sell it all and buy a bunch of retail goods. Housing is unaffordable to average workers in many places, but consumer goods are not going to inflate like crazy until there is a higher demand for them.
    - dalbasal 5y ago
      I think there's a mirror to this in the real economy too. "Capital" isn't consumed by much of the tech industry in the same way as it was/is by manufacturing. If you're a toaster startup, you'll need a factory, steel, etc. Actual, physical capital that needs to come from somewhere. When your toaster startup goes viral and scales, you'll need more of that physical capital. For every toaster you sell, you'll need to buy more parts and materials. A tech startup needs riskable money to figure out what they're making, but once it's profitable, they're not sitting across from bankers discussing finance. Also, when covid hits and demand for movies skyrockets, amazon prime or netflix can sell as much as people will by. There's no need for prices to go up. Marginal costs don't exist. They're pretty much insulated from both real and monetary shock. All they care about is demand. There will not be a shortage of steaming content services' supply chain. A netflix is limited in how much it can invent, but it isn't limited in how much it can produce. Doubling the number of subscriptions or viewing times is trivial. They don't owe on loans.
phreeza 5y ago
> It's almost always the financial/monetary side that's the problem. How do you explain hyperinflation, where there is too much money chasing too few resources?
- dalbasal 5y ago
  I didn't mean that money shortage is always the problem, that that has been often the notable case in recent experience. Hyperinflation is also a monetary/financial issue, too much money, not enough demand, crashing value. I think the difference between inflation & hyperinflation is that "inflation" can be contained mostly within the real economy. Hyperinflation, has to have a macroeconomic, money supply related, explanation. Lebanon's current mess, for eg, is more or less the consequence of letting Beirut banks do what stablecoin does, but the old fashioned way. High interest dollar accounts, backed by high interest Lira. Lira loans, backed by the same dollarized banking system. Dollars come in, and dollars are owed. Liras go out, and Liras are owed back. It works until the underlying currency bends. Liras come in. Dollars go out. A port explosion & widespread loss of confidence in the governing system are part of the story. The upshot I'm driving for is that stuff happening entirely in the money markets causes determines goods flowing in and out of ports and fibre, not the other way around. It's not lebanon's ability to export goods that changed and killed its ability to import goods and resources. It's its inability to import dollars, and its ability to pay using Liras that collapsed first.
- deleted 5y ago
  [deleted]
- jjk166 5y ago
  Hyperinflation is too much currency chasing too few resources, but currency is not the same thing as money. There are a whole bunch of nonlinearities because the value ascribed to a unit of currency does not instantly update when new money enters circulation and people speculate about long term behavior, but over the long term if you 100X the currency supply, a dollar is simply 1/100th the amount of money it used to be.

bawolff 5y ago

> An economy can usually make more of stuff, or substitutes, and/or consume relatively painlessly. The pain kicks in when the financial sector feels pain. The real economy reshuffles if it's financed adequately Isn't money just an abstraction over resources? In essence i think you're saying that creating goods is not a problem assuming there are sufficient resources to make the goods and sufficient resources to compensate the people making the goods. While i don't disagree, doesn't that kind of go without saying?

dalbasal 5y ago
"Isn't money just an abstraction over resources?" I think the economics of money tends to compete on which common sense, to follow. Taken to the extreme, you could say that money doesn't matter. Only resources and the real economy matter. That, IMO, is negated by the history of money economics affecting the real economy. Money shortage is a thing. If the economy hadn't been funded, the resource shuffling wouldn't have been possible... or more painful. People don't get compensated for resources and labour in exchange for goods and labour. They get compensated in money, which is at some point down the cascade, credit. If money is short, it doesn't matter what the productive capacity. That reshuffling doesn't happen smoothly. So, no... I think. At least, not in a sense that commons sense implications can be applied. Money isn't just an abstraction over resources. It's a thing unto itself. Money supply issues, hyperinflation, financial shocks, credit shocks and have been more likely to affect major real economy problems than supply of actual stuff like oil. Oil shock is a thing. There definitely are real examples of crippling resource shortages. More often though, money supply is the issue.
- bawolff 5y ago
  > Money supply issues, hyperinflation, financial shocks, credit shocks and have been more likely to affect major real economy problems than supply of actual stuff like oil Yeah, but all those things describe situations where money and resources got out of whack.
alistairSH 5y ago
Yes and no. Money is an abstraction over resources. However, it's not quite that simple once you add credit/borrowing into the mix. We no longer trade sheep for lumber; we no longer buy lumber with cash from our wallet. Instead, we borrow from the bank, buy more lumber than we could otherwise afford, on the assumption we can turn around and sell finished houses before the loan comes due. If the bank stops lending, we can no longer buy enough lumber to build the houses. The market slows significantly - instead of building 100 houses at a time, we have to build them one at a time. The demand for 100 houses hasn't changed (all else being equal), but the supply has. Prices probably go up, but until the bank starts loaning, the pace of the economy doesn't return to previous levels. Or something like that. Way too complicated to distill into a single post.
- nostrademons 5y ago
  Credit is an abstraction over future resources. When you take out a loan, you're basically saying "I am betting that I can produce enough in the future to pay back the resources that I am using now." And if you don't, you're on the hook for it, and potentially go bankrupt. That's why the financial sector is the weak link, and also why it's very well-compensated. Finance is a future-prediction problem: you do well if you successfully predict which investments will pay off, and you go bankrupt if you fail. Predicting the future has always been hard. The reason we get these boom/bust crises is because instead of using their own judgment, many people, when faced with a hard problem, will just do what everyone else is doing. So the whole financial industry lemming-trains into bad investments, and then when they bust, they all go bankrupt and there's no resources to go around until the wreckage has been cleared away and placed in more independent manager's hands.
  - dalbasal 5y ago
    Credit is an abstraction over future resources from the perspective of either party. To the economy, there is no future. If everyone saves all their money, the economy ceases to produce. It doesn't hold that production in reserve.

refurb 5y ago

The financial aspects you mention has a cost - there is no free lunch. No doubt the financing is also causing some of the delay in efficient reallocation. But the piper must be paid in the end. Ideally it’s similar to 2008 where the govt unwound all the extra money, over time, relatively painlessly. Of course that’s not guaranteed at at all. If inflation gets out of control then you could see a major economic shock as the govt quickly unwinds.

AlexandrB 5y ago
I don't think it's going to be painless. There are asset bubbles in multiple sectors ranging from real estate to collectibles. Either these will pop and many will be left holding the bag or more serious inflation is on the way.
- bob33212 5y ago
  Not necessarily. Just look a crypto, these people are not selling. Just being a crypto millionaire on paper is good enough of a reward. They have no desire to sell it all and buy a bunch of retail goods. Housing is unaffordable to average workers in many places, but consumer goods are not going to inflate like crazy until there is a higher demand for them.
  - dalbasal 5y ago
    I think there's a mirror to this in the real economy too. "Capital" isn't consumed by much of the tech industry in the same way as it was/is by manufacturing. If you're a toaster startup, you'll need a factory, steel, etc. Actual, physical capital that needs to come from somewhere. When your toaster startup goes viral and scales, you'll need more of that physical capital. For every toaster you sell, you'll need to buy more parts and materials. A tech startup needs riskable money to figure out what they're making, but once it's profitable, they're not sitting across from bankers discussing finance. Also, when covid hits and demand for movies skyrockets, amazon prime or netflix can sell as much as people will by. There's no need for prices to go up. Marginal costs don't exist. They're pretty much insulated from both real and monetary shock. All they care about is demand. There will not be a shortage of steaming content services' supply chain. A netflix is limited in how much it can invent, but it isn't limited in how much it can produce. Doubling the number of subscriptions or viewing times is trivial. They don't owe on loans.

phreeza 5y ago

> It's almost always the financial/monetary side that's the problem. How do you explain hyperinflation, where there is too much money chasing too few resources?

dalbasal 5y ago
I didn't mean that money shortage is always the problem, that that has been often the notable case in recent experience. Hyperinflation is also a monetary/financial issue, too much money, not enough demand, crashing value. I think the difference between inflation & hyperinflation is that "inflation" can be contained mostly within the real economy. Hyperinflation, has to have a macroeconomic, money supply related, explanation. Lebanon's current mess, for eg, is more or less the consequence of letting Beirut banks do what stablecoin does, but the old fashioned way. High interest dollar accounts, backed by high interest Lira. Lira loans, backed by the same dollarized banking system. Dollars come in, and dollars are owed. Liras go out, and Liras are owed back. It works until the underlying currency bends. Liras come in. Dollars go out. A port explosion & widespread loss of confidence in the governing system are part of the story. The upshot I'm driving for is that stuff happening entirely in the money markets causes determines goods flowing in and out of ports and fibre, not the other way around. It's not lebanon's ability to export goods that changed and killed its ability to import goods and resources. It's its inability to import dollars, and its ability to pay using Liras that collapsed first.
deleted 5y ago
[deleted]
jjk166 5y ago
Hyperinflation is too much currency chasing too few resources, but currency is not the same thing as money. There are a whole bunch of nonlinearities because the value ascribed to a unit of currency does not instantly update when new money enters circulation and people speculate about long term behavior, but over the long term if you 100X the currency supply, a dollar is simply 1/100th the amount of money it used to be.