3 ms·

The most frustrating part of economic arguments, right there. There is an official policy that prices will go up exponentially, controlled by a tiny committee

by roenxi 3y ago

The most frustrating part of economic arguments, right there. There is an official policy that prices will go up exponentially, controlled by a tiny committee who implements the policy by, effectively, money printing. The official justification is a just-so story with no compelling evidence that I've ever seen. We seem to have gotten there because politicians don't like sound management any more than anyone else and just borrow and spend until the money runs out. And the outcome is asset owners get an enormous leg up over everyone else and the biggest asset owners get privileged. Given the level of this-sounds-crazy in the policy mix there should be much better justifications for all this policy than people accept. We should routinely be seeing actual studies by real economists justifying this madness. It looks like trash policy.

tdullien 3y ago
Which just-so story without evidence do you mean? Are you saying a liquidity trap does not exist? (https://en.m.wikipedia.org/wiki/Liquidity_trap https://en.m.wikipedia.org/wiki/Liquidity_trap)
- roenxi 3y ago
  It probably exists. I don't see any reason that it should always be a good idea to lend money. But the link between "it is a bad idea to lend money" and "therefore we should cause prices to rise exponentially" is absurd on its face. The obvious alternative is people shouldn't lend out money until someone figures out a good use for the borrowings. I've never heard an argument that justifies a policy response. There are a couple of metrics that I'd accept as a goal for the economy. Maximising median leisure time, maximising wealth creation, maximising payoff for working hard, minimising waste. Something like that or any reasonable combination. I don't think exponentially increasing the prices of goods and services helps with any of those. As far as I can tell it just transfers wealth to asset owners. Which is nice enough if you are an asset owner but it seems arbitrary, unfair and pointless to me. I propose alternative strategies of asset owners have to rely on the value of the asset to make money, rather than waiting for handouts. I own enough assets that this policy probably benefits me. But it also appears to be causing terrible damage to the community and general faith in capitalism so I expect there will be a nasty backlash at some point that will outweigh the short term benefits. I can't buy stuff if people don't see a benefit in making it.
  - tdullien 3y ago
    Can you explain what you mean when you say "it transfers wealth to asset owners"? My understanding of wealth is assets, so the phrasing doesn't make sense to me. I think you mean to say imply that wages don't increase, so relatively speaking wage-earners are poorer if assets become more expensive and wages don't rise? The counterpoint is: Wages are at level X1 relative to price level Y1 because labor can demand these wages. If the price level rises to cY1, there is no reason to think wages won't rise to cX1, so the ratio stays the same? Who got poorer?
    - roenxi 3y ago
      * Part 1 New wealth is being created all the time by the fusion of labour and capital. There is a bit of a balance of how it is distributed - most of it goes to capitalists and some of it goes to labourers (labour labours, spends what they feel is necessary then buys capital with the rest. Over time they become wealthy capitalists too and we all get to be rich. In theory, a lot of people just waste the opportunity even under the best of conditions :[ ). Over a long enough time frame money printing does nothing, but in the short term there is an effect where the first people to get the money benefit from distortions where they get more short term economic power (in the US typically bondholders, I suspect there are also programs of interference in stocks [0] although that is more of a theory). I argue that when new capital is created, under a free market more of it should be going to people who draw wages. If I was right, I'd expect symptoms under the current system like people struggling to save, struggling to afford homes, etc, moreso than in the past. People being unable to transition smoothly from being labourers to capitalists and the middle class slowly shrinking. The way the accounting identities shake out, I'd expect to see exponential increases in every price and valuation but consumables would rise slightly faster than wages and it'd become less and less effective to people relying on their labour to save. * Part 2 But there are also secondary effects - because now "being an asset owner" is unfairly rewarded, people start creating fake assets in the hope of getting in front of the money hose [1]. That leads to misallocation of capital which IMO is likely to lead to major losses. If capitalists are incentivesed to own assets in the abstract rather than own assets that are actually productive then eventually the system has to recognise big losses because allocations aren't performing. To give a specific example of that, if you happen to own gold the market is signalling that you have been making consistent "real" (ie, in excess of CPI) returns for something like 20 years. That is obvious bunk, gold is a dead asset that does nothing - the real price might jump up and down a bit in a band, but it doesn't climb steadily at that rate. I'm being asked to pretend I'm getting wealthier each year through my gold holdings, and a lot of people aren't switched on enough to realise that is a fake signal. The market is encouraging unproductive allocations because the metrics are being cooked. And the metrics are being cooked [2] likely on purpose - because it is in the interests of nobody powerful to stop printing money and let labour draw a bigger share of the wealth. Good metrics would suggest that as the obvious thing to do. > Who got poorer? Anyone who earns by them working. Especially people who try to retire. The long story short here is the economic system is overly rewarding people who own assets, encouraging people to invest in bad assets and none of monkeying around with price levels is helpful. It just makes it harder to figure out what is going on. [0] https://en.wikipedia.org/wiki/Working_Group_on_Financial_Markets https://en.wikipedia.org/wiki/Working_Group_on_Financial_Mar... [1] I'm basically in on this, I don't mind too much about whether my investments actually have good fundamentals because I'm looking to get in on the money printing. It has worked out great for me if you believe the CPI is important. Acceptable after doing normalisation against the M2. [2] Totally different topic that I'm only alluding to here. Economics favours long blog posts or books, HN isn't really wordy enough to have a satisfying argument.
AstralStorm 3y ago
You wish it was money printing. It's just plain greed. Without money printing what you'd get is even higher inflation. (Though probably only by some percentage.) Any excuse is good to raise the price if some people really need your product and it doesn't jeopardise your demand enough. (This is called demand inelasticity.) No price fall is needed or done when the excuse goes away. If you control supply side sufficiently, you can also use that to further raise prices and keep them high. Thus equilibrium economics efficiency arguments fail. Housing has limited but highly inelastic demand. So does food, water, healthcare, energy, fuel. Some of these cannot be substituted easily either. And the smarter capitalist to get maximum profit will do anything to make this demand yet more inelastic by reducing choices, especially away from their control. Be it by monopoly, cartel, tacit cartel, hostile takeovers, PR to bury options, government intervention, over or underregulation... Assets are liabilities unless they're directly in demand or are actively capital (as in used to make things). For example, having houses nobody can buy that will disintegrate is a liability. It's even clearer with office buildings which are a bit more elastic in demand. Unless you control most housing and can thus enhance relative demand, of course... The justifications for current capitalism are very vacuous based on willing misinterpretation of it. Even ignoring the whole monetarist view which is a second order misinterpretation.
- throwawaymaths 3y ago
  This is complete nonsense. The purpose of inflation as a policy is to increase employment by decreasing the real cost of labor: in short, it's sneakily stealing money from the labor class to keep the employment metric high. This is the primary cause of the poor getting poorer. Greed has nothing to do with it. Greed is linear. O(n). Inflation compounds. O(e^n).
  - Nevermark 3y ago
    I don’t know what “Greed is linear” means. Greed is unbound, if it is really greed. And it’s exponential, if it simply means ambitious and wise use of resources. I would ditch the psychology economic babble. There is certainly a case to be made that increasing employment by expanding the money supply is an addictive short term fix paid for with predictable long term damage to the purchasing power of existing laborers. Inflation leaves valuable assets just as valuable, but undermines fixed or sticky income streams.

by roenxi 3y ago

tdullien 3y ago

Which just-so story without evidence do you mean? Are you saying a liquidity trap does not exist? (https://en.m.wikipedia.org/wiki/Liquidity_trap https://en.m.wikipedia.org/wiki/Liquidity_trap)

roenxi 3y ago
It probably exists. I don't see any reason that it should always be a good idea to lend money. But the link between "it is a bad idea to lend money" and "therefore we should cause prices to rise exponentially" is absurd on its face. The obvious alternative is people shouldn't lend out money until someone figures out a good use for the borrowings. I've never heard an argument that justifies a policy response. There are a couple of metrics that I'd accept as a goal for the economy. Maximising median leisure time, maximising wealth creation, maximising payoff for working hard, minimising waste. Something like that or any reasonable combination. I don't think exponentially increasing the prices of goods and services helps with any of those. As far as I can tell it just transfers wealth to asset owners. Which is nice enough if you are an asset owner but it seems arbitrary, unfair and pointless to me. I propose alternative strategies of asset owners have to rely on the value of the asset to make money, rather than waiting for handouts. I own enough assets that this policy probably benefits me. But it also appears to be causing terrible damage to the community and general faith in capitalism so I expect there will be a nasty backlash at some point that will outweigh the short term benefits. I can't buy stuff if people don't see a benefit in making it.
- tdullien 3y ago
  Can you explain what you mean when you say "it transfers wealth to asset owners"? My understanding of wealth is assets, so the phrasing doesn't make sense to me. I think you mean to say imply that wages don't increase, so relatively speaking wage-earners are poorer if assets become more expensive and wages don't rise? The counterpoint is: Wages are at level X1 relative to price level Y1 because labor can demand these wages. If the price level rises to cY1, there is no reason to think wages won't rise to cX1, so the ratio stays the same? Who got poorer?
  - roenxi 3y ago
    * Part 1 New wealth is being created all the time by the fusion of labour and capital. There is a bit of a balance of how it is distributed - most of it goes to capitalists and some of it goes to labourers (labour labours, spends what they feel is necessary then buys capital with the rest. Over time they become wealthy capitalists too and we all get to be rich. In theory, a lot of people just waste the opportunity even under the best of conditions :[ ). Over a long enough time frame money printing does nothing, but in the short term there is an effect where the first people to get the money benefit from distortions where they get more short term economic power (in the US typically bondholders, I suspect there are also programs of interference in stocks [0] although that is more of a theory). I argue that when new capital is created, under a free market more of it should be going to people who draw wages. If I was right, I'd expect symptoms under the current system like people struggling to save, struggling to afford homes, etc, moreso than in the past. People being unable to transition smoothly from being labourers to capitalists and the middle class slowly shrinking. The way the accounting identities shake out, I'd expect to see exponential increases in every price and valuation but consumables would rise slightly faster than wages and it'd become less and less effective to people relying on their labour to save. * Part 2 But there are also secondary effects - because now "being an asset owner" is unfairly rewarded, people start creating fake assets in the hope of getting in front of the money hose [1]. That leads to misallocation of capital which IMO is likely to lead to major losses. If capitalists are incentivesed to own assets in the abstract rather than own assets that are actually productive then eventually the system has to recognise big losses because allocations aren't performing. To give a specific example of that, if you happen to own gold the market is signalling that you have been making consistent "real" (ie, in excess of CPI) returns for something like 20 years. That is obvious bunk, gold is a dead asset that does nothing - the real price might jump up and down a bit in a band, but it doesn't climb steadily at that rate. I'm being asked to pretend I'm getting wealthier each year through my gold holdings, and a lot of people aren't switched on enough to realise that is a fake signal. The market is encouraging unproductive allocations because the metrics are being cooked. And the metrics are being cooked [2] likely on purpose - because it is in the interests of nobody powerful to stop printing money and let labour draw a bigger share of the wealth. Good metrics would suggest that as the obvious thing to do. > Who got poorer? Anyone who earns by them working. Especially people who try to retire. The long story short here is the economic system is overly rewarding people who own assets, encouraging people to invest in bad assets and none of monkeying around with price levels is helpful. It just makes it harder to figure out what is going on. [0] https://en.wikipedia.org/wiki/Working_Group_on_Financial_Markets https://en.wikipedia.org/wiki/Working_Group_on_Financial_Mar... [1] I'm basically in on this, I don't mind too much about whether my investments actually have good fundamentals because I'm looking to get in on the money printing. It has worked out great for me if you believe the CPI is important. Acceptable after doing normalisation against the M2. [2] Totally different topic that I'm only alluding to here. Economics favours long blog posts or books, HN isn't really wordy enough to have a satisfying argument.

AstralStorm 3y ago

You wish it was money printing. It's just plain greed. Without money printing what you'd get is even higher inflation. (Though probably only by some percentage.) Any excuse is good to raise the price if some people really need your product and it doesn't jeopardise your demand enough. (This is called demand inelasticity.) No price fall is needed or done when the excuse goes away. If you control supply side sufficiently, you can also use that to further raise prices and keep them high. Thus equilibrium economics efficiency arguments fail. Housing has limited but highly inelastic demand. So does food, water, healthcare, energy, fuel. Some of these cannot be substituted easily either. And the smarter capitalist to get maximum profit will do anything to make this demand yet more inelastic by reducing choices, especially away from their control. Be it by monopoly, cartel, tacit cartel, hostile takeovers, PR to bury options, government intervention, over or underregulation... Assets are liabilities unless they're directly in demand or are actively capital (as in used to make things). For example, having houses nobody can buy that will disintegrate is a liability. It's even clearer with office buildings which are a bit more elastic in demand. Unless you control most housing and can thus enhance relative demand, of course... The justifications for current capitalism are very vacuous based on willing misinterpretation of it. Even ignoring the whole monetarist view which is a second order misinterpretation.

throwawaymaths 3y ago
This is complete nonsense. The purpose of inflation as a policy is to increase employment by decreasing the real cost of labor: in short, it's sneakily stealing money from the labor class to keep the employment metric high. This is the primary cause of the poor getting poorer. Greed has nothing to do with it. Greed is linear. O(n). Inflation compounds. O(e^n).
- Nevermark 3y ago
  I don’t know what “Greed is linear” means. Greed is unbound, if it is really greed. And it’s exponential, if it simply means ambitious and wise use of resources. I would ditch the psychology economic babble. There is certainly a case to be made that increasing employment by expanding the money supply is an addictive short term fix paid for with predictable long term damage to the purchasing power of existing laborers. Inflation leaves valuable assets just as valuable, but undermines fixed or sticky income streams.