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When it comes to understanding how the economy (especially inflation) works i really like the NPR article about how Brazil fixed their inflation. It boils down

When it comes to understanding how the economy (especially inflation) works i really like the NPR article about how Brazil fixed their inflation. It boils down to inflation being inflation expectation. tldr: They invented a new theoretical currency. All prices were each month listed in the actual price in the old currency and the price in the new currency (that didnt exist yet). And each month the new currency was redefined so that stuff still cost the same in the theoretical currency. They did this for a few months till they declared inflation fixed and creating the new currency that had "proofed" its stability the previous months. And Abrakadabra, people believed and inflation was fixed through the introduction of the Brazil Real. Obvious when you think about it, its not called fiat currency for nothing. >Say, for example, that milk costs 1 URV. On a given day, 1 URV might be worth 10 cruzeiros. A month later, milk would still cost 1 URV. But that 1 URV might be worth 20 cruzeiros. >The idea was that people would start thinking in URVs -- and stop expecting prices to always go up. https://text.npr.org/130329523 https://text.npr.org/130329523

glofish 4y ago
TIL, thanks for the fun read, quite enlightening
aristus 4y ago
There are only two hard problems in economics: cash invalidation an naming things.
- formerkrogemp 4y ago
  Don't forget depreciating land..
marcosdumay 4y ago
That narrative is highly misleading. Yes, that happened. But the government also did take the finances under control, restructured (literal "changed the structure of", not defaulted) its debits, added controls to the banking system, restructured the banks, pegged the currency to the dollar, made a campaign of price transparency, and a lot of other things.
- bombcar 4y ago
  “Pegged the currency to the dollar” is probably doing a lot of heavy lifting here.
  - marcosdumay 4y ago
    It's really not. The Brazilian economy is very isolated, and was more so at the time. I believe its impact was similar to the campaigns about price transparency. And lower than anything else on my list.
- cf141q5325 4y ago
  >But the government also did take the finances under control, restructured (literal "changed the structure of", not defaulted) its debits, added controls to the banking system, restructured the banks, pegged the currency to the dollar, made a campaign of price transparency, and a lot of other things. And how much of what you just listed worked the exact same way as the new currency trick, through being a frame to influence public perception? Thats the important perspective i took away from it, that i was thinking about economics wrong. In the end the way it works is through crafting stories to get the market participants to believe certain things. Because that is all the economy is, people and their behavior. And if you want to influence behavior, you have to influence how people think.
  - marcosdumay 4y ago
    The educative campaign was also about people's mind. The others were very real changes and most people didn't even know they were happening. If you go into your sibling that continued my list, all of his items are real, and only the balanced budget was even communicated broadly. Yes, psychological factors are important for an economy, but they aren't singularly important. They are not even merely more important than the other kinds.
    - cf141q5325 4y ago
      First off, thanks for your patience >They are not even merely more important than the other kinds. I might be very wrong here, but i dont think it is possible to source that. I understand that they did all those things, but unless its possible to articulate how it affected market participants behavior i would argue claiming causality is very difficult. How exactly does for example a balanced budget halt inflation outside of changing inflation expectation? There will be answers depending on which model you adhere to, but does that explanation still hold up and remain applicable today? Because if not you kind if have to explain why not. With economics being focused on human behavior in a market, what fundamentally determines how good a model describes the economy is market participants believe that it does. Because their believe determines the behavior you are trying to model in the first place. For that not to be the case we would need to see some static structures emerging in markets independent of market participants motivation and their understanding of how the market works. And if i am not mistaken that hasnt been the case. All there is is peoples behavior and it doesnt seem to be static. *There is of course stuff like interest rates which changes behavior directly through higher costs(forcing behavior instead of changing motivation), but as i said, most. edit: Which again, is the change in perspective i mentioned above. Unless i am overlooking something obvious, economic models arent describing some intrinsic behavior of markets because there doesnt seem to be any. They are only able to describe behavior once market participants behave that way. Which would mean economic models work because people believe they do. For that not to be the case you would need to see some models that remain applicable throughout time. I am sure i am overlooking something obvious, but the answer to that would be a link to a working economic model that identified some fundamental structures that isnt dependent on market participants motivation.
deleted 4y ago
[deleted]

glofish 4y ago

TIL, thanks for the fun read, quite enlightening

aristus 4y ago

There are only two hard problems in economics: cash invalidation an naming things.

formerkrogemp 4y ago
Don't forget depreciating land..

marcosdumay 4y ago

That narrative is highly misleading. Yes, that happened. But the government also did take the finances under control, restructured (literal "changed the structure of", not defaulted) its debits, added controls to the banking system, restructured the banks, pegged the currency to the dollar, made a campaign of price transparency, and a lot of other things.

bombcar 4y ago
“Pegged the currency to the dollar” is probably doing a lot of heavy lifting here.
- marcosdumay 4y ago
  It's really not. The Brazilian economy is very isolated, and was more so at the time. I believe its impact was similar to the campaigns about price transparency. And lower than anything else on my list.
cf141q5325 4y ago
>But the government also did take the finances under control, restructured (literal "changed the structure of", not defaulted) its debits, added controls to the banking system, restructured the banks, pegged the currency to the dollar, made a campaign of price transparency, and a lot of other things. And how much of what you just listed worked the exact same way as the new currency trick, through being a frame to influence public perception? Thats the important perspective i took away from it, that i was thinking about economics wrong. In the end the way it works is through crafting stories to get the market participants to believe certain things. Because that is all the economy is, people and their behavior. And if you want to influence behavior, you have to influence how people think.
- marcosdumay 4y ago
  The educative campaign was also about people's mind. The others were very real changes and most people didn't even know they were happening. If you go into your sibling that continued my list, all of his items are real, and only the balanced budget was even communicated broadly. Yes, psychological factors are important for an economy, but they aren't singularly important. They are not even merely more important than the other kinds.
  - cf141q5325 4y ago
    First off, thanks for your patience >They are not even merely more important than the other kinds. I might be very wrong here, but i dont think it is possible to source that. I understand that they did all those things, but unless its possible to articulate how it affected market participants behavior i would argue claiming causality is very difficult. How exactly does for example a balanced budget halt inflation outside of changing inflation expectation? There will be answers depending on which model you adhere to, but does that explanation still hold up and remain applicable today? Because if not you kind if have to explain why not. With economics being focused on human behavior in a market, what fundamentally determines how good a model describes the economy is market participants believe that it does. Because their believe determines the behavior you are trying to model in the first place. For that not to be the case we would need to see some static structures emerging in markets independent of market participants motivation and their understanding of how the market works. And if i am not mistaken that hasnt been the case. All there is is peoples behavior and it doesnt seem to be static. *There is of course stuff like interest rates which changes behavior directly through higher costs(forcing behavior instead of changing motivation), but as i said, most. edit: Which again, is the change in perspective i mentioned above. Unless i am overlooking something obvious, economic models arent describing some intrinsic behavior of markets because there doesnt seem to be any. They are only able to describe behavior once market participants behave that way. Which would mean economic models work because people believe they do. For that not to be the case you would need to see some models that remain applicable throughout time. I am sure i am overlooking something obvious, but the answer to that would be a link to a working economic model that identified some fundamental structures that isnt dependent on market participants motivation.

deleted 4y ago

[deleted]