6 ms·

The thing to keep in mind is that what really matters is stuff: The goods and services that add economic value to our lives, like shoes, houses, food, sports ga

The thing to keep in mind is that what really matters is stuff: The goods and services that add economic value to our lives, like shoes, houses, food, sports games, accounting services, haircuts, etc. Also called the metaphorical "pie." Inflation is bad to the extent that it causes the total stuff we produce to go down or to become more poorly distributed, and good to the extent that it does the opposite. And a shrinking of the pie - a reduction in stuff produced - can/will cause inflation assuming people have the same or greater amount of money with which they can purchase that stuff. The more we stay focused on the production of stuff, and less on the quantity of money or inflation, the better off we will be, and inflation will take care of itself.

pdonis 5y ago
> Inflation is bad to the extent that it causes the total stuff we produce to go down or to become more poorly distributed, and good to the extent that it does the opposite. Even doing the opposite can be bad if it's the wrong stuff. It's not just the total amount of stuff that matters; it's how much of the stuff is stuff people actually need or want, as opposed to stuff that gets produced but never actually used because it wasn't produced to meet a customer need, it was produced because of misallocation of resources. > The more we stay focused on the production of stuff, and less on the quantity of money or inflation, the better off we will be, and inflation will take care of itself. I agree with being focused on production, as long as it's production driven by actual customer needs. But that also means not just not focusing on the quantity of money, but taking away the government's ability to manipulate the quantity of money. Otherwise you will get misallocation of resources and you'll be producing the wrong things.
- ren_engineer 5y ago
  >I agree with being focused on production, as long as it's production driven by actual customer needs this has always been an interesting question to me, because in theory companies like Facebook are worth hundreds of billions despite making many people miserable and actually lowering productivity by wasting time. Basically part of the sin economy, things like gambling and drugs. All bring in lots of money but we'd arguably be better off without them. Facebook makes money by getting people addicted to their app by design. Customers and markets aren't rational if the people are driven by addiction, in which case it would make sense for the government to intervene. China is doing this by incentivizing people to go into hard sciences like semiconductors instead of consumer software
  - pdonis 5y ago
    > in theory companies like Facebook are worth hundreds of billions despite making many people miserable and actually lowering productivity by wasting time They are "worth" that amount not because they are creating that much wealth, but because they have developed a system that allows them to transfer that much wealth from others to themselves in a zero sum game. > Customers and markets aren't rational if the people are driven by addiction In the sense that people can be manipulated, sure. But "addiction" is by no means the only way to do that. Advertising in general (which is how Facebook makes much of its money) attempts to do the same thing. > in which case it would make sense for the government to intervene. But, as your example shows, we know what it takes for government intervention of this sort: it takes being China, i.e., having a government with virtually absolute power. And that is not a viable long term solution, because a government with such power, even if it uses it to do some good things, will use it to do many more very damaging things, and everyone ends up worse off on net.
  - mdavis6890 5y ago
    In 1000 years people will see most of our current internet the same way we see the pyramids at Giza, and they will wonder why we spent so much effort on something with no obvious value.
    - peteradio 5y ago
      And then they find all the porn and it starts to make sense.
    - usrusr 5y ago
      I doubt it. Those rock piles are seriously famous! Landmark achievements of our internet will perhaps be known on the level the highlights of medieval scholasticism are known: experts exist, but people like me know as much as that Occam wasn't a barber and that somehow jokes about angels dancing on a needle are a thing. Look at how quickly the Rockefeller name faded: to people not particularly interested in the era, it's barely more a family that was so important they sponsored a cute ice rink.
- mdavis6890 5y ago
  Yes, this is an important refinement of my position. And the next refinement would be to quantifiably measure the value of different stuff and prioritize and allocate resources among the products, taking into account their changing value over time and with respect to how much we already have. I'm sure we could keep going with this... But really if we could just start thinking in terms of stuff rather than money I think we'd be doing well :-)
  - pdonis 5y ago
    > if we could just start thinking in terms of stuff rather than money Well, there are good reasons for thinking in terms of money instead of stuff for ordinary everyday affairs. It's a lot easier to keep track mentally of transactions if there is a common unit of value to assign to lots of different kinds of stuff. The issue isn't money in itself but the supply of money, and who gets to control it. Ideally the money supply would be fixed by something that nobody could manipulate. But no society in history has been able to actually achieve that ideal.
TheGigaChad 5y ago
rmbyrro 5y ago
It also incentivizes people to worry about how to keep their share of the pie the same size, instead of contributing to increasing the pie with services, products, innovations. That's precisely what happened to me. I'm taking some attention away from my business venture to protect my wealth from evaporating.
- sokoloff 5y ago
  Isn’t a growing business one of the best possible hedges against inflation?
mrtksn 5y ago
Sure, money is simply IOUs that we use as intermediary so that we can trade stuff and services and the number doesn't really matter as long as it is useful to facilitate the the stuff and services exchange. However, there are many things lost as that number is adjusted. Firstly, conventionally wedges and B2B contracts and prices are adjusted periodically for practical reasons. If the inflation is %50yoy, that means at the end of the year the money paid and received would be way off, which means people are not compensated fairly. People can't really function in an environment of ever changing prices and wedges, they can but it's very inefficient because everything becomes short term. Companies may have ways to cope with it but people who opted out for a simple life where they do their job and enjoy their lives get screwed over which causes social problems. Secondly, there's a reason why flipping burgers in the USA buys you an iPhone in 2 weeks but doing exactly the same job in Bangladesh it will take you many months and part of it is the nature and role of the western money, especially the USD but also EUR, GBP etc. If the monetary system that pretty much runs the world gets screwed things can get real fair real fast and fairness is not always meritocratic. Thirdly, most people don't have access or understanding of instruments to preserve their wealth. In high inflation countries, people simply pour their money into items and property the moment they receive it. It creates society with bad habits.
soVeryTired 5y ago
In economics, this viewpoint is known as the "classical dichotomy" [0]. IMO it's a bit of a dangerous way of seeing things since it blinds you to some important aspects of the economy. Inflation is particularly hard on people who don't have negotiating power, and in general those people aren't doing great to begin with. While the size of the pie is important, so is the means of distributing the pie and the assurance that pie will be served tomorrow. [0] https://en.wikipedia.org/wiki/Classical_dichotomy https://en.wikipedia.org/wiki/Classical_dichotomy
- diob 5y ago
  And what's more, the majority, vast majority have no negotiating power.
- Ericson2314 5y ago
  MM it's more complicated than that. The classical dichotomy people, simplified, think money is arbitrary like "inches" are arbitrary, and you can always choose different units. On hand hand, that's saying money doesn't matter, on the other hand, that's saying that, ignoring the coefficient, the "monetary economy" and "real economy" do the same things. Spending the time to talk about both separately is acknowledging the relationship is complex. That is good. --------- > Inflation is particularly hard on people who don't have negotiating power, and in general those people aren't doing great to begin with. This is extremely misleading. Read your https://delong.typepad.com/kalecki43.pdf https://delong.typepad.com/kalecki43.pdf - Inflation is good for debtors - Real wages have gone up since 2019! The poorest in this country have done the best! - Raising rate hurts poor people. Is there another plan to deal with this all? - There is still pandemic disruptions; people should increasing go do social things (consumption back to services) and that would ease pressure on the bottlenecks.
  - NumberWangMan 5y ago
    Hmm, I take issue with one of your points. To say that real wages have gone up since 2019, does not mean that they wouldn't have gone up more if we had lower inflation. There are all sorts of reasons why real wages change. Maybe increased worker bargaining power as a result of the stimulus checks is a factor. As for raising rates hurting poor people -- inflation hurts poor people a lot too, especially if they're not in debt but are trying to save. Though to be fair, covid stimulus checks are one of the rare cases where increasing the money supply actually helps the poor because they're the ones who got the money, instead of banks, as I understand it.

pdonis 5y ago

> Inflation is bad to the extent that it causes the total stuff we produce to go down or to become more poorly distributed, and good to the extent that it does the opposite. Even doing the opposite can be bad if it's the wrong stuff. It's not just the total amount of stuff that matters; it's how much of the stuff is stuff people actually need or want, as opposed to stuff that gets produced but never actually used because it wasn't produced to meet a customer need, it was produced because of misallocation of resources. > The more we stay focused on the production of stuff, and less on the quantity of money or inflation, the better off we will be, and inflation will take care of itself. I agree with being focused on production, as long as it's production driven by actual customer needs. But that also means not just not focusing on the quantity of money, but taking away the government's ability to manipulate the quantity of money. Otherwise you will get misallocation of resources and you'll be producing the wrong things.

ren_engineer 5y ago
>I agree with being focused on production, as long as it's production driven by actual customer needs this has always been an interesting question to me, because in theory companies like Facebook are worth hundreds of billions despite making many people miserable and actually lowering productivity by wasting time. Basically part of the sin economy, things like gambling and drugs. All bring in lots of money but we'd arguably be better off without them. Facebook makes money by getting people addicted to their app by design. Customers and markets aren't rational if the people are driven by addiction, in which case it would make sense for the government to intervene. China is doing this by incentivizing people to go into hard sciences like semiconductors instead of consumer software
- pdonis 5y ago
  > in theory companies like Facebook are worth hundreds of billions despite making many people miserable and actually lowering productivity by wasting time They are "worth" that amount not because they are creating that much wealth, but because they have developed a system that allows them to transfer that much wealth from others to themselves in a zero sum game. > Customers and markets aren't rational if the people are driven by addiction In the sense that people can be manipulated, sure. But "addiction" is by no means the only way to do that. Advertising in general (which is how Facebook makes much of its money) attempts to do the same thing. > in which case it would make sense for the government to intervene. But, as your example shows, we know what it takes for government intervention of this sort: it takes being China, i.e., having a government with virtually absolute power. And that is not a viable long term solution, because a government with such power, even if it uses it to do some good things, will use it to do many more very damaging things, and everyone ends up worse off on net.
- mdavis6890 5y ago
  In 1000 years people will see most of our current internet the same way we see the pyramids at Giza, and they will wonder why we spent so much effort on something with no obvious value.
  - peteradio 5y ago
    And then they find all the porn and it starts to make sense.
  - usrusr 5y ago
    I doubt it. Those rock piles are seriously famous! Landmark achievements of our internet will perhaps be known on the level the highlights of medieval scholasticism are known: experts exist, but people like me know as much as that Occam wasn't a barber and that somehow jokes about angels dancing on a needle are a thing. Look at how quickly the Rockefeller name faded: to people not particularly interested in the era, it's barely more a family that was so important they sponsored a cute ice rink.
mdavis6890 5y ago
Yes, this is an important refinement of my position. And the next refinement would be to quantifiably measure the value of different stuff and prioritize and allocate resources among the products, taking into account their changing value over time and with respect to how much we already have. I'm sure we could keep going with this... But really if we could just start thinking in terms of stuff rather than money I think we'd be doing well :-)
- pdonis 5y ago
  > if we could just start thinking in terms of stuff rather than money Well, there are good reasons for thinking in terms of money instead of stuff for ordinary everyday affairs. It's a lot easier to keep track mentally of transactions if there is a common unit of value to assign to lots of different kinds of stuff. The issue isn't money in itself but the supply of money, and who gets to control it. Ideally the money supply would be fixed by something that nobody could manipulate. But no society in history has been able to actually achieve that ideal.

TheGigaChad 5y ago

rmbyrro 5y ago

It also incentivizes people to worry about how to keep their share of the pie the same size, instead of contributing to increasing the pie with services, products, innovations. That's precisely what happened to me. I'm taking some attention away from my business venture to protect my wealth from evaporating.

sokoloff 5y ago
Isn’t a growing business one of the best possible hedges against inflation?

mrtksn 5y ago

Sure, money is simply IOUs that we use as intermediary so that we can trade stuff and services and the number doesn't really matter as long as it is useful to facilitate the the stuff and services exchange. However, there are many things lost as that number is adjusted. Firstly, conventionally wedges and B2B contracts and prices are adjusted periodically for practical reasons. If the inflation is %50yoy, that means at the end of the year the money paid and received would be way off, which means people are not compensated fairly. People can't really function in an environment of ever changing prices and wedges, they can but it's very inefficient because everything becomes short term. Companies may have ways to cope with it but people who opted out for a simple life where they do their job and enjoy their lives get screwed over which causes social problems. Secondly, there's a reason why flipping burgers in the USA buys you an iPhone in 2 weeks but doing exactly the same job in Bangladesh it will take you many months and part of it is the nature and role of the western money, especially the USD but also EUR, GBP etc. If the monetary system that pretty much runs the world gets screwed things can get real fair real fast and fairness is not always meritocratic. Thirdly, most people don't have access or understanding of instruments to preserve their wealth. In high inflation countries, people simply pour their money into items and property the moment they receive it. It creates society with bad habits.

soVeryTired 5y ago

In economics, this viewpoint is known as the "classical dichotomy" [0]. IMO it's a bit of a dangerous way of seeing things since it blinds you to some important aspects of the economy. Inflation is particularly hard on people who don't have negotiating power, and in general those people aren't doing great to begin with. While the size of the pie is important, so is the means of distributing the pie and the assurance that pie will be served tomorrow. [0] https://en.wikipedia.org/wiki/Classical_dichotomy https://en.wikipedia.org/wiki/Classical_dichotomy

diob 5y ago
And what's more, the majority, vast majority have no negotiating power.
Ericson2314 5y ago
MM it's more complicated than that. The classical dichotomy people, simplified, think money is arbitrary like "inches" are arbitrary, and you can always choose different units. On hand hand, that's saying money doesn't matter, on the other hand, that's saying that, ignoring the coefficient, the "monetary economy" and "real economy" do the same things. Spending the time to talk about both separately is acknowledging the relationship is complex. That is good. --------- > Inflation is particularly hard on people who don't have negotiating power, and in general those people aren't doing great to begin with. This is extremely misleading. Read your https://delong.typepad.com/kalecki43.pdf https://delong.typepad.com/kalecki43.pdf - Inflation is good for debtors - Real wages have gone up since 2019! The poorest in this country have done the best! - Raising rate hurts poor people. Is there another plan to deal with this all? - There is still pandemic disruptions; people should increasing go do social things (consumption back to services) and that would ease pressure on the bottlenecks.
- NumberWangMan 5y ago
  Hmm, I take issue with one of your points. To say that real wages have gone up since 2019, does not mean that they wouldn't have gone up more if we had lower inflation. There are all sorts of reasons why real wages change. Maybe increased worker bargaining power as a result of the stimulus checks is a factor. As for raising rates hurting poor people -- inflation hurts poor people a lot too, especially if they're not in debt but are trying to save. Though to be fair, covid stimulus checks are one of the rare cases where increasing the money supply actually helps the poor because they're the ones who got the money, instead of banks, as I understand it.