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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. Wh

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.
    - long_time_gone 5y ago
      That’s a good idea. I think it still misses a needed link between productivity increases and increases to the lowest wages. Maybe loosely tying minimum wage to productivity?
      - yazaddaruvala 5y ago
        Yeah, I am on board. Could also be modeled in law as “$15 in 2022 and inflation adjusted for every year after”, where inflation as we said is pegged to absolute productivity.
bko 5y ago
There's a difference between supply and quantity supplied. The OG is referring to "cheeseburger production" as supply and you're reading it as quantity supplied. Yes, a cheeseburger becomes more expensive will attract new producers and the aggregate amount of cheeseburgers sold will be higher. But the marginal cheeseburger being sold is at a higher cost to produce (otherwise it would have been produced to fulfill the original demand). I think the supply/demand model is useful. I think when people claim "its more complicated", they are trying to get around inconvenient truths and basic axioms. You print more money out of thin air, the price of goods is going to go up since its more money chasing the same goods. Creating wealth by printing money is kind of a perpetual motion machine. You need a lot of mental gymnastics to deny the fact that printing money doesn't cause prices to go up. Everyone knows this. Keynes knew this, as did Lenin. Keynes wrote the following: > Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. … Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose. [0] https://www.pbs.org/wgbh/commandingheights/shared/minitext/ess_inflation.html https://www.pbs.org/wgbh/commandingheights/shared/minitext/e...
- yazaddaruvala 5y ago
  > But the marginal cheeseburger being sold is at a higher cost to produce (otherwise it would have been produced to fulfill the original demand). This may have been true at the time of Keynes but this statement of your hasn’t been true for a very long time. Because of Accelerating Automation “Economies of Scale” (i.e. the marginal cost of a cheeseburger goes down as more are made). The reality today is that the extra cheeseburgers are made because of a risk calculation on upfront capital investment and opportunity costs. I.e. a low inflation environment makes individuals more likely to save (play it safe) but also makes companies more likely to play it safe and not over allocate capital for supply. With higher inflation it also incentivizes companies to play less safe and buy more supply chain. Best example, as wage inflation occurs it incentivizes companies to invest and buy robots to make more parts of their burgers. But this is true for all input costs to making burgers. If tomatoes go up, buy tomato farms to reduce their costs. Here is an example of this from Costco: https://youtu.be/MSvCK_xH84s https://youtu.be/MSvCK_xH84s I don’t think this alleviates all of your concerns (and I’m not trying to, I agree with a bunch of them) but just do take into account Accelerating Automation in your calculations about the economy.
lend000 5y ago
This isn't relevant in the case of broad increases in the macroeconomic supply of dollars, since they affect the supply/demand curves of everything in the economy simultaneously (albeit more at the source of injection as described by the article, e.g. stocks). For example, you can't really "ramp up" production of burgers in response to higher dollar supply without ramping down the production of salads, unless there were people doing nothing to start with (which is why inflation is related to unemployment, to a degree). But by the same token, those dollars used to incentivize higher production can at best drive a short-term boost in production, as the costs to produce the burgers quickly rise as inflation propagates throughout the rest of their supply chain and the real value returns to where it was. Meanwhile, the expenses for everyone have increased and people who save money or don't want to hop jobs to get an inflation raise have been punished.
- jameshart 5y ago
  What’s “not relevant” in the case of macroeconomic money supply changes are models that try to imagine the whole economic system as if it’s a barter economy containing just dollars and cheeseburgers. As you rightly point out, you have to have other goods, like salads; a labor force; and concepts like supply chains from which cheeseburger suppliers get their resources, before you can even begin to think about what will happen in an economy when you add more dollars. And then you need a better way to measure the effects than just using dollars. They’re one of your variables. I’m not remotely denying that adding dollars to the economy is inflationary, by the way! I’m just unimpressed by simple models that have little explanatory value and lead to bad thinking.
- yazaddaruvala 5y ago
  > you can't really "ramp up" production of burgers in response to higher dollar supply without ramping down the production of salads, unless there were people doing nothing to start with (which is why inflation is related to unemployment, to a degree) Yes I agree inflation can be related to unemployment, and I generally agree with your whole point but I just want to clarify you’re missing one big variable in the formula: Automation. Cheeseburger Supply = Labor*Automation As such (like we have today with accelerating automation) we don’t really need more labor to make both Cheeseburgers and Salad. > those dollars used to incentivize higher production can at best drive a short-term boost in production, as the costs to produce the burgers quickly rise as inflation propagates throughout the rest of their supply chain Additionally, I want to point out Wage Inflation incentivizes Automation. As such even the production cost increase is a short/mid term concern as long as we can Automate more of the process (e.g. lab grown meat, Beyond Burger, farming automation, online ordering vs in-person ordering, etc). I don’t think any of this is insightful or will change your mind on anything, but do factor Automation and Accelerating Automation into your equations about the economy.
IshKebab 5y ago
I agree basic supply/demand models are almost hilariously simplistic, but I don't think you can really invalidate his point about what happens if money supply goes up but product supply doesn't just by saying "well product supply does go up".
SailingSperm 5y ago
Interestingly actually, Bitcoin is one of the few asset classes that is de-coupled from its supply/demand. Unlike say, gold and oil - if that increases in demand, more mines are opened, more sites are evaluated looking for it etc. Whereas bitcoin, the higher (or lower) demand doesn't affect the fact that on average a block is only mined once every 10mins adding 6.25 BTC to the supply... And that throwing more resources into mining it just increases your odds of getting that block reward, but not increasing supply as would happen with the above commodities, or in the example - cheeseburgers. --To the point - when we have increasing amounts of something like dollars, there certainly are things that can't and wont 'rise with the tide' of those dollars increasing in supply.

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.
  - long_time_gone 5y ago
    That’s a good idea. I think it still misses a needed link between productivity increases and increases to the lowest wages. Maybe loosely tying minimum wage to productivity?
    - yazaddaruvala 5y ago
      Yeah, I am on board. Could also be modeled in law as “$15 in 2022 and inflation adjusted for every year after”, where inflation as we said is pegged to absolute productivity.

bko 5y ago

There's a difference between supply and quantity supplied. The OG is referring to "cheeseburger production" as supply and you're reading it as quantity supplied. Yes, a cheeseburger becomes more expensive will attract new producers and the aggregate amount of cheeseburgers sold will be higher. But the marginal cheeseburger being sold is at a higher cost to produce (otherwise it would have been produced to fulfill the original demand). I think the supply/demand model is useful. I think when people claim "its more complicated", they are trying to get around inconvenient truths and basic axioms. You print more money out of thin air, the price of goods is going to go up since its more money chasing the same goods. Creating wealth by printing money is kind of a perpetual motion machine. You need a lot of mental gymnastics to deny the fact that printing money doesn't cause prices to go up. Everyone knows this. Keynes knew this, as did Lenin. Keynes wrote the following: > Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. … Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose. [0] https://www.pbs.org/wgbh/commandingheights/shared/minitext/ess_inflation.html https://www.pbs.org/wgbh/commandingheights/shared/minitext/e...

yazaddaruvala 5y ago
> But the marginal cheeseburger being sold is at a higher cost to produce (otherwise it would have been produced to fulfill the original demand). This may have been true at the time of Keynes but this statement of your hasn’t been true for a very long time. Because of Accelerating Automation “Economies of Scale” (i.e. the marginal cost of a cheeseburger goes down as more are made). The reality today is that the extra cheeseburgers are made because of a risk calculation on upfront capital investment and opportunity costs. I.e. a low inflation environment makes individuals more likely to save (play it safe) but also makes companies more likely to play it safe and not over allocate capital for supply. With higher inflation it also incentivizes companies to play less safe and buy more supply chain. Best example, as wage inflation occurs it incentivizes companies to invest and buy robots to make more parts of their burgers. But this is true for all input costs to making burgers. If tomatoes go up, buy tomato farms to reduce their costs. Here is an example of this from Costco: https://youtu.be/MSvCK_xH84s https://youtu.be/MSvCK_xH84s I don’t think this alleviates all of your concerns (and I’m not trying to, I agree with a bunch of them) but just do take into account Accelerating Automation in your calculations about the economy.

lend000 5y ago

This isn't relevant in the case of broad increases in the macroeconomic supply of dollars, since they affect the supply/demand curves of everything in the economy simultaneously (albeit more at the source of injection as described by the article, e.g. stocks). For example, you can't really "ramp up" production of burgers in response to higher dollar supply without ramping down the production of salads, unless there were people doing nothing to start with (which is why inflation is related to unemployment, to a degree). But by the same token, those dollars used to incentivize higher production can at best drive a short-term boost in production, as the costs to produce the burgers quickly rise as inflation propagates throughout the rest of their supply chain and the real value returns to where it was. Meanwhile, the expenses for everyone have increased and people who save money or don't want to hop jobs to get an inflation raise have been punished.

jameshart 5y ago
What’s “not relevant” in the case of macroeconomic money supply changes are models that try to imagine the whole economic system as if it’s a barter economy containing just dollars and cheeseburgers. As you rightly point out, you have to have other goods, like salads; a labor force; and concepts like supply chains from which cheeseburger suppliers get their resources, before you can even begin to think about what will happen in an economy when you add more dollars. And then you need a better way to measure the effects than just using dollars. They’re one of your variables. I’m not remotely denying that adding dollars to the economy is inflationary, by the way! I’m just unimpressed by simple models that have little explanatory value and lead to bad thinking.
yazaddaruvala 5y ago
> you can't really "ramp up" production of burgers in response to higher dollar supply without ramping down the production of salads, unless there were people doing nothing to start with (which is why inflation is related to unemployment, to a degree) Yes I agree inflation can be related to unemployment, and I generally agree with your whole point but I just want to clarify you’re missing one big variable in the formula: Automation. Cheeseburger Supply = Labor*Automation As such (like we have today with accelerating automation) we don’t really need more labor to make both Cheeseburgers and Salad. > those dollars used to incentivize higher production can at best drive a short-term boost in production, as the costs to produce the burgers quickly rise as inflation propagates throughout the rest of their supply chain Additionally, I want to point out Wage Inflation incentivizes Automation. As such even the production cost increase is a short/mid term concern as long as we can Automate more of the process (e.g. lab grown meat, Beyond Burger, farming automation, online ordering vs in-person ordering, etc). I don’t think any of this is insightful or will change your mind on anything, but do factor Automation and Accelerating Automation into your equations about the economy.

IshKebab 5y ago

I agree basic supply/demand models are almost hilariously simplistic, but I don't think you can really invalidate his point about what happens if money supply goes up but product supply doesn't just by saying "well product supply does go up".

SailingSperm 5y ago

Interestingly actually, Bitcoin is one of the few asset classes that is de-coupled from its supply/demand. Unlike say, gold and oil - if that increases in demand, more mines are opened, more sites are evaluated looking for it etc. Whereas bitcoin, the higher (or lower) demand doesn't affect the fact that on average a block is only mined once every 10mins adding 6.25 BTC to the supply... And that throwing more resources into mining it just increases your odds of getting that block reward, but not increasing supply as would happen with the above commodities, or in the example - cheeseburgers. --To the point - when we have increasing amounts of something like dollars, there certainly are things that can't and wont 'rise with the tide' of those dollars increasing in supply.