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You have dollars and you have cheeseburgers. People exchange dollars for cheeseburgers. If you suddenly increase the number of available cheeseburgers, eventual

You have dollars and you have cheeseburgers. People exchange dollars for cheeseburgers. If you suddenly increase the number of available cheeseburgers, eventually the market will correct and you'll get more cheeseburger per dollar. Most people accept this, but tell them if you increase the number of dollars but leave cheeseburger production the same, you'll need more dollars to get the same amount of cheeseburgers as you did previously, and they insist this isn't true. As a bonus you can replace cheeseburgers with labor and they will say "lump of labor fallacy". Inflation would probably happen more evenly if we got over these economic myths we have invented for ourselves.

imtringued 5y ago
I have played a game called prosperous universe. The fact that there are money printers that encourage you to engage in economic activity, i.e. the additional money encourages you to invest is something that I tried to question. Why does an increase in the money supply encourage people to produce more? From the perspective of the community, producing more is certainly a good thing as the economy is not very well developed and there are some progression cliffs as getting engineers and technicians are basically a form of luxury as only ship building is really dependent on their products. So, more money is somehow good, but why? One idea I had is that creating new money rewards people for doing something they would have otherwise not done. In other words, people receive a share of the economy in return for their economic activity even if half the economic activity is simply being throwing into an NPC dumpster. If you were to represent that share as a percentage of the economy, then your percentage grows as you obtain more created money. It also means that the share of the economy of others shrinks. One could say that this is a way of decentralizing power. When you think about the opposite idea. A fixed money supply. The economic share of all players may effectively be frozen. Since your power may never shrink, unless you want it to shrink, it becomes very easy for the system to be dominated by a few players. So ultimately, the problem is the fact that those who need money cannot get it and those who have too much want to keep it. Redistribution among players somehow ends up benefiting both yet this is not the natural order of things. If one person had too much wheat and another too little and the first one has too few tomatoes and the second one has too many, one would obviously see the opportunity for a trade, the market apparently solves the exchange of goods but why does it fail to solve the exchange of money properly? New players are obviously dependent on older players to give them money, but the older players have no incentive to buy from new players, they can just buy from other old players. Lots of people give up at the start, precisely because they don't feel they are being needed. In fact, I think I would describe the biggest fear that I have experienced in life that I am not needed by anyone. Yes my boss pay me a salary. My parents like me. I have some nice friends. I have had plenty of experiences that make me glad I was born. If reality was a game I probably would have quit, not because of some angry capitalists exploiting me or because of violence against me. I would have thought, this is a nice game but I feel out of place, enjoy your time here, I unfortunately won't be participating. In fact, a lot of males are sent to fight wars to keep them busy and feel needed. A lot of child soldiers start that way. What's the solution? Well, the solution doesn't sound that bad or even impossible, it may even sound obvious. Essentially, there must be a purpose for every life. The supply of labor must drive the demand for labor. Interestingly, there is even a law that postulates such a thing to occur. It is known as says' law and yet full employment has remained elusive. If economics predicts that supply and demand will balance themselves automatically, then the only reason for that to not happen is that we have built a machine that prevents this from happening. Money, when used as a store of value, is essentially the ability to decouple supply and demand and we have decided that one should be allowed to do so eternally. Imagine if everyone saves half their salary and nobody borrows that money and money is saved until that person dies. Half the supply would fail to generate demand! Half the people in the economy would be redundant! This is the ugly truth, we are trying to make each other redundant for fear of becoming redundant ourselves as someone must be redundant at the end of the day the moment the economy is saturated. It's not really a lump of labor fallacy. Those who save, will at some point spend their money even if they do so in a single second at the end of their life. The problem is the mismatch between when the money must be spent and when it is actually spent. A negative interest rate effectively indicates the point at which spending can no longer be delayed and savings must be reduced.
dataflow 5y ago
Not to argue against the ultimate conclusion, but I think you've oversimplified the situation. To make a stronger argument, I think you would need to factor in the fact that dollars can be exchanged for almost anything, whereas cheeseburgers can only be exchanged for dollars. And perhaps other facts, like the fact that cheeseburgers have a much lower value being left in long-term storage than cash.
- willcipriano 5y ago
  If you think about a economy it has some amount of productive capacity. You can sort of use GDP to see it, but that is denominated in dollars so it can hide the effect to a large degree. When people shift to alternative goods, productive capacity can shift to producing those new goods, however if the total capacity remains the same those dollars still purchase less productive effort than they did previously. As dollars are the reward for productive effort in the economy, if your wages remain the same your proportion of the efforts of the economy has gotten smaller, but your contributions remained static. I imagine this has contributed to income inequality to some degree.
- lupire 5y ago
  "Durable good" is the economic term you are looking for. Also "barter", an imefficient form of exchange that avoids purely social constructs.
stdbrouw 5y ago
Who is this mythical "they" you talk about?
- carnitine 5y ago
  “Most people” as they say.
- willcipriano 5y ago
  The current administration in the US as well as those who preach modern monetary theory.
  - imtringued 5y ago
    I don't know what you mean by preach. Modern monetary theory is just an accounting framework. It is kind of true by definition if you define money as credit and assume that central bank money is issued by a central bank and commercial bank money is issued by commercial banks. That doesn't change the fact that it doesn't address the problems that a negative interest rate would solve.
  - RobertoG 5y ago
    So, you have some guys that predict inflation for 30 years and are always wrong, after a global pandemic and an energetic crisis, inflation happen and they feel vindicate. It has to be great to have a model that's never wrong because you just have to wait enough. Not very scientific but great.
    - marcosdumay 5y ago
      > and are always wrong Hum... There are plenty of threads about housing here on HN and conversations about people becoming homeless after a disease, or bankrupt due to education costs. If you want to claim the US hasn't have a large amount of inflation on the last 30 years, you'll need some data that doesn't ignore those.
      - RobertoG 5y ago
pyrale 5y ago
The article is about models not faithfully showing the reality of inflation and, by extension, the flawed use of inflation models outside of their useful applications. I'm not sure that using an oversimplified model to make your point about inflation will help clarify the article here.
- deleted 5y ago
  [deleted]
RobertoG 5y ago
You forget to mention that if you diminish the number of available burgers you'll need, also, more dollars to the get the same amount of cheeseburgers. And if you diminish the quantity of some essential product used for everything, as, for instance, energy, you will get the same effect. Also, people confuse a one time increase of prices with inflation (that is a constant increase in time), and inflation with hyperinflation (two different phenomena). Increasing the number of dollars spent beyond the economy capacity will cause inflation (at least if the spending is not done in investments that increase capacity) but that's almost never (never?) the cause of hyperinflation. See (1) for hyperinflation examples. (1) - http://bilbo.economicoutlook.net/blog/?p=3773 http://bilbo.economicoutlook.net/blog/?p=3773
lucumo 5y ago
You're disregarding the fact that both cheeseburgers and dollars can increase, counterbalancing each other. And that if there aren't more dollars while the number of cheeseburgers increases, well, cheaper cheeseburgers. Deflation in a simple world where only cheeseburgers are sold. Same with labour. Increase the number of people making cheeseburgers, and you get more cheeseburgers and more people buying cheeseburgers. There is no fixed amount of labour to be done. It depends on the number of people.
GlennS 5y ago
> As a bonus you can replace cheeseburgers with labor and they will say "lump of labor fallacy". The trouble with this simple and seeming obvious hypothesis and labour (by which I assume you mean immigration) is that labour sits on both sides of the equation. If you increase the supply of labour, then you're also increasing demand of all the things the immigrants consume, which means you're increasing the demand for labour. (How much you're increasing each side of the equation - and how long each side takes to adjust - left as an exercise for the reader.)
- willcipriano 5y ago
  > then you're also increasing demand of all the things the immigrants consume, which means you're increasing the demand for labour. How much of what you consume is even produced domesticly anymore? Take a look around the room you are in. The immigrant now with more money may decide to buy themselves a iPhone and that probably helps someone in China who would like a job assembling them but it still drives down the cost of labor locally. Much of the services immigrants use domesticly will be low margin, like grocery stores and restaurants adding little to the domestic economy.
  - notahacker 5y ago
    Exactly the same arguments apply against claims that low-skilled migrants have much impact on wages though. They tend to work in low margin industries which compete internationally against imports from countries which pay lower wages, the existing domestic workforce has little negotiating power or ability, and often the jobs they take are either already at a minimum wage level so their existence literally can't depress it any further, or can't be filled at any reasonable wage level. Not all their additional consumption goes to the US economy and they only pay a little bit of tax, but they don't need to have very much impact on consumption and production to offset the impact of their slightly lower wage demands.
  - lupire 5y ago
    The high margin that Apple makes is domestic (if you are talking US. Europe is a different matter). Foxconn isn't getting that margin.
reedf1 5y ago
For every complex problem there is a simple, easily explainable and wrong solution. You are flying in the face of decades of empirical economic research, you are performing the epistemological equivalent of saying "and then they'll say that everything is made of atoms!"
jameshart 5y ago
It might be a surprise to you, but Economics 101 supply/demand models for a single good actually don't capture all the complexity of actual market behavior. Where you say 'you increase the number of dollars but leave cheeseburger production the same' - how exactly do you do that? I mean, there certainly are institutions that can increase the number of dollars. But those institutions can't constrain cheeseburger production to make sure it stays the same, can they? Cheeseburger makers are free to adjust their production. So nobody's doing what you suggested - increasing dollars while holding cheeseburger production steady. Instead, they're expecting cheeseburger production to change (maybe it's changing all on its own, as people develop new cheeseburger recipes and tastes in cheeseburgers change), and they are adjusting the number of dollars to compensate. Which, yes, suggests you are committing the lump of cheeseburger fallacy.
- lupire 5y ago
  Bold comment after 2 years of mailing out money to mass population of people who weren't working or running their businesses, resulting in 7% inflation. Neither Kenyes nor Hayek were idiots. Yes giving money (even more than a govt actually has on hand -- printing) can stimulate labor by market-making to enable barter across space and time. And yes printing more money doesn't magically create more productivity forever.
  - long_time_gone 5y ago
    Nonfarm business sector labor productivity increased 6.6 percent in the fourth quarter of 2021, the U.S. Bureau of Labor Statistics reported today (March 3, 2022), as output increased 9.1 percent and hours worked increased 2.4 percent. https://www.bls.gov/news.release/pdf/prod2.pdf https://www.bls.gov/news.release/pdf/prod2.pdf
    - yazaddaruvala 5y ago
      Thanks, I really like these stats. I wonder if inflation=7% and the absolute productivity through automation at 7% (9.2% - 2.1%) is a coincidence, just correlated or causal. My guess based on a lot of armchair speculation is that inflation pegged to absolute productivity would result in the best possible economy. Maybe with a bit of a buffer just to be safe.
simula67 5y ago
> Most people accept this, but tell them if you increase the number of dollars but leave cheeseburger production the same, you'll need more dollars to get the same amount of cheeseburgers as you did previously, and they insist this isn't true. The "leave cheeseburger production the same" is doing much of the heavy lifting here. There are many studies that show that prices tend to be sticky[1]. However, when prices do go up, more production does come online to capture those higher prices[2]. However, this can fail to materialize due to a number of reasons. [1] https://en.wikipedia.org/wiki/Nominal_rigidity https://en.wikipedia.org/wiki/Nominal_rigidity [2] https://en.wikipedia.org/wiki/2010s_oil_glut#Causes https://en.wikipedia.org/wiki/2010s_oil_glut#Causes
- deleted 5y ago
  [deleted]
The-Bus 5y ago
For a tech-focused discussion, it's interesting (and incorrect) to focus on labor vs. the outputs of labor: productivity. Productivity has outpaced the minimum wage over the last few decades, thanks to technology and other advances. As someone else said in response, the first chapter of a HS economics textbook is not sufficient to explain the modern economy.
- lupire 5y ago
  "Labor" is a shorthand for business outputs. Allocation of profits within the business (shareholders, managers, employees, externalities) is a related but different issue.

imtringued 5y ago

I have played a game called prosperous universe. The fact that there are money printers that encourage you to engage in economic activity, i.e. the additional money encourages you to invest is something that I tried to question. Why does an increase in the money supply encourage people to produce more? From the perspective of the community, producing more is certainly a good thing as the economy is not very well developed and there are some progression cliffs as getting engineers and technicians are basically a form of luxury as only ship building is really dependent on their products. So, more money is somehow good, but why? One idea I had is that creating new money rewards people for doing something they would have otherwise not done. In other words, people receive a share of the economy in return for their economic activity even if half the economic activity is simply being throwing into an NPC dumpster. If you were to represent that share as a percentage of the economy, then your percentage grows as you obtain more created money. It also means that the share of the economy of others shrinks. One could say that this is a way of decentralizing power. When you think about the opposite idea. A fixed money supply. The economic share of all players may effectively be frozen. Since your power may never shrink, unless you want it to shrink, it becomes very easy for the system to be dominated by a few players. So ultimately, the problem is the fact that those who need money cannot get it and those who have too much want to keep it. Redistribution among players somehow ends up benefiting both yet this is not the natural order of things. If one person had too much wheat and another too little and the first one has too few tomatoes and the second one has too many, one would obviously see the opportunity for a trade, the market apparently solves the exchange of goods but why does it fail to solve the exchange of money properly? New players are obviously dependent on older players to give them money, but the older players have no incentive to buy from new players, they can just buy from other old players. Lots of people give up at the start, precisely because they don't feel they are being needed. In fact, I think I would describe the biggest fear that I have experienced in life that I am not needed by anyone. Yes my boss pay me a salary. My parents like me. I have some nice friends. I have had plenty of experiences that make me glad I was born. If reality was a game I probably would have quit, not because of some angry capitalists exploiting me or because of violence against me. I would have thought, this is a nice game but I feel out of place, enjoy your time here, I unfortunately won't be participating. In fact, a lot of males are sent to fight wars to keep them busy and feel needed. A lot of child soldiers start that way. What's the solution? Well, the solution doesn't sound that bad or even impossible, it may even sound obvious. Essentially, there must be a purpose for every life. The supply of labor must drive the demand for labor. Interestingly, there is even a law that postulates such a thing to occur. It is known as says' law and yet full employment has remained elusive. If economics predicts that supply and demand will balance themselves automatically, then the only reason for that to not happen is that we have built a machine that prevents this from happening. Money, when used as a store of value, is essentially the ability to decouple supply and demand and we have decided that one should be allowed to do so eternally. Imagine if everyone saves half their salary and nobody borrows that money and money is saved until that person dies. Half the supply would fail to generate demand! Half the people in the economy would be redundant! This is the ugly truth, we are trying to make each other redundant for fear of becoming redundant ourselves as someone must be redundant at the end of the day the moment the economy is saturated. It's not really a lump of labor fallacy. Those who save, will at some point spend their money even if they do so in a single second at the end of their life. The problem is the mismatch between when the money must be spent and when it is actually spent. A negative interest rate effectively indicates the point at which spending can no longer be delayed and savings must be reduced.

dataflow 5y ago

Not to argue against the ultimate conclusion, but I think you've oversimplified the situation. To make a stronger argument, I think you would need to factor in the fact that dollars can be exchanged for almost anything, whereas cheeseburgers can only be exchanged for dollars. And perhaps other facts, like the fact that cheeseburgers have a much lower value being left in long-term storage than cash.

willcipriano 5y ago
If you think about a economy it has some amount of productive capacity. You can sort of use GDP to see it, but that is denominated in dollars so it can hide the effect to a large degree. When people shift to alternative goods, productive capacity can shift to producing those new goods, however if the total capacity remains the same those dollars still purchase less productive effort than they did previously. As dollars are the reward for productive effort in the economy, if your wages remain the same your proportion of the efforts of the economy has gotten smaller, but your contributions remained static. I imagine this has contributed to income inequality to some degree.
lupire 5y ago
"Durable good" is the economic term you are looking for. Also "barter", an imefficient form of exchange that avoids purely social constructs.

stdbrouw 5y ago

Who is this mythical "they" you talk about?

carnitine 5y ago
“Most people” as they say.
willcipriano 5y ago
The current administration in the US as well as those who preach modern monetary theory.
- imtringued 5y ago
  I don't know what you mean by preach. Modern monetary theory is just an accounting framework. It is kind of true by definition if you define money as credit and assume that central bank money is issued by a central bank and commercial bank money is issued by commercial banks. That doesn't change the fact that it doesn't address the problems that a negative interest rate would solve.
- RobertoG 5y ago
  So, you have some guys that predict inflation for 30 years and are always wrong, after a global pandemic and an energetic crisis, inflation happen and they feel vindicate. It has to be great to have a model that's never wrong because you just have to wait enough. Not very scientific but great.
  - marcosdumay 5y ago
    > and are always wrong Hum... There are plenty of threads about housing here on HN and conversations about people becoming homeless after a disease, or bankrupt due to education costs. If you want to claim the US hasn't have a large amount of inflation on the last 30 years, you'll need some data that doesn't ignore those.
    - RobertoG 5y ago

pyrale 5y ago

The article is about models not faithfully showing the reality of inflation and, by extension, the flawed use of inflation models outside of their useful applications. I'm not sure that using an oversimplified model to make your point about inflation will help clarify the article here.

deleted 5y ago
[deleted]

RobertoG 5y ago

You forget to mention that if you diminish the number of available burgers you'll need, also, more dollars to the get the same amount of cheeseburgers. And if you diminish the quantity of some essential product used for everything, as, for instance, energy, you will get the same effect. Also, people confuse a one time increase of prices with inflation (that is a constant increase in time), and inflation with hyperinflation (two different phenomena). Increasing the number of dollars spent beyond the economy capacity will cause inflation (at least if the spending is not done in investments that increase capacity) but that's almost never (never?) the cause of hyperinflation. See (1) for hyperinflation examples. (1) - http://bilbo.economicoutlook.net/blog/?p=3773 http://bilbo.economicoutlook.net/blog/?p=3773

lucumo 5y ago

You're disregarding the fact that both cheeseburgers and dollars can increase, counterbalancing each other. And that if there aren't more dollars while the number of cheeseburgers increases, well, cheaper cheeseburgers. Deflation in a simple world where only cheeseburgers are sold. Same with labour. Increase the number of people making cheeseburgers, and you get more cheeseburgers and more people buying cheeseburgers. There is no fixed amount of labour to be done. It depends on the number of people.

GlennS 5y ago

> As a bonus you can replace cheeseburgers with labor and they will say "lump of labor fallacy". The trouble with this simple and seeming obvious hypothesis and labour (by which I assume you mean immigration) is that labour sits on both sides of the equation. If you increase the supply of labour, then you're also increasing demand of all the things the immigrants consume, which means you're increasing the demand for labour. (How much you're increasing each side of the equation - and how long each side takes to adjust - left as an exercise for the reader.)

willcipriano 5y ago
> then you're also increasing demand of all the things the immigrants consume, which means you're increasing the demand for labour. How much of what you consume is even produced domesticly anymore? Take a look around the room you are in. The immigrant now with more money may decide to buy themselves a iPhone and that probably helps someone in China who would like a job assembling them but it still drives down the cost of labor locally. Much of the services immigrants use domesticly will be low margin, like grocery stores and restaurants adding little to the domestic economy.
- notahacker 5y ago
  Exactly the same arguments apply against claims that low-skilled migrants have much impact on wages though. They tend to work in low margin industries which compete internationally against imports from countries which pay lower wages, the existing domestic workforce has little negotiating power or ability, and often the jobs they take are either already at a minimum wage level so their existence literally can't depress it any further, or can't be filled at any reasonable wage level. Not all their additional consumption goes to the US economy and they only pay a little bit of tax, but they don't need to have very much impact on consumption and production to offset the impact of their slightly lower wage demands.
- lupire 5y ago
  The high margin that Apple makes is domestic (if you are talking US. Europe is a different matter). Foxconn isn't getting that margin.

reedf1 5y ago

For every complex problem there is a simple, easily explainable and wrong solution. You are flying in the face of decades of empirical economic research, you are performing the epistemological equivalent of saying "and then they'll say that everything is made of atoms!"

jameshart 5y ago

It might be a surprise to you, but Economics 101 supply/demand models for a single good actually don't capture all the complexity of actual market behavior. Where you say 'you increase the number of dollars but leave cheeseburger production the same' - how exactly do you do that? I mean, there certainly are institutions that can increase the number of dollars. But those institutions can't constrain cheeseburger production to make sure it stays the same, can they? Cheeseburger makers are free to adjust their production. So nobody's doing what you suggested - increasing dollars while holding cheeseburger production steady. Instead, they're expecting cheeseburger production to change (maybe it's changing all on its own, as people develop new cheeseburger recipes and tastes in cheeseburgers change), and they are adjusting the number of dollars to compensate. Which, yes, suggests you are committing the lump of cheeseburger fallacy.

lupire 5y ago
Bold comment after 2 years of mailing out money to mass population of people who weren't working or running their businesses, resulting in 7% inflation. Neither Kenyes nor Hayek were idiots. Yes giving money (even more than a govt actually has on hand -- printing) can stimulate labor by market-making to enable barter across space and time. And yes printing more money doesn't magically create more productivity forever.
- long_time_gone 5y ago
  Nonfarm business sector labor productivity increased 6.6 percent in the fourth quarter of 2021, the U.S. Bureau of Labor Statistics reported today (March 3, 2022), as output increased 9.1 percent and hours worked increased 2.4 percent. https://www.bls.gov/news.release/pdf/prod2.pdf https://www.bls.gov/news.release/pdf/prod2.pdf
  - yazaddaruvala 5y ago
    Thanks, I really like these stats. I wonder if inflation=7% and the absolute productivity through automation at 7% (9.2% - 2.1%) is a coincidence, just correlated or causal. My guess based on a lot of armchair speculation is that inflation pegged to absolute productivity would result in the best possible economy. Maybe with a bit of a buffer just to be safe.

simula67 5y ago

> Most people accept this, but tell them if you increase the number of dollars but leave cheeseburger production the same, you'll need more dollars to get the same amount of cheeseburgers as you did previously, and they insist this isn't true. The "leave cheeseburger production the same" is doing much of the heavy lifting here. There are many studies that show that prices tend to be sticky[1]. However, when prices do go up, more production does come online to capture those higher prices[2]. However, this can fail to materialize due to a number of reasons. [1] https://en.wikipedia.org/wiki/Nominal_rigidity https://en.wikipedia.org/wiki/Nominal_rigidity [2] https://en.wikipedia.org/wiki/2010s_oil_glut#Causes https://en.wikipedia.org/wiki/2010s_oil_glut#Causes

deleted 5y ago
[deleted]

The-Bus 5y ago

For a tech-focused discussion, it's interesting (and incorrect) to focus on labor vs. the outputs of labor: productivity. Productivity has outpaced the minimum wage over the last few decades, thanks to technology and other advances. As someone else said in response, the first chapter of a HS economics textbook is not sufficient to explain the modern economy.

lupire 5y ago
"Labor" is a shorthand for business outputs. Allocation of profits within the business (shareholders, managers, employees, externalities) is a related but different issue.