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So explain to someone who's extremely skeptical of economics mumbo-jumbo why the value of money doesn't naturally increase ("deflate", to use what seems to me t

So explain to someone who's extremely skeptical of economics mumbo-jumbo why the value of money doesn't naturally increase ("deflate", to use what seems to me to be the better-is-worse terminology) to take up that slack. In other words, shouldn't a slice of the money pie be worth a slice of the economy pie, even when the size of the economy pie, and therefore the slice, changes? How do we determine when 10% of the money supply equals 10% of the economy? It seems like what you, and the article, are saying is that a certain number of dollars always equals the same amount of, say, gold, or labor, and we just don't have enough dollars to represent all the gold and labor that's floating around. That just doesn't seem right at all; that's exactly the system we moved /away/ from according to the advice of these same economists (or their predecessors).

Eliezer 13y ago
Conventional macroecon says that all effects on aggregate demand are due to sticky wages and prices, which 'stickiness' has also been experimentally verified. That's why the blog of Scott Sumner, from the article, is called "The Money Illusion".
tedsanders 13y ago
Human beings don't like to lower wages and prices. Also known as 'sticky wages': https://en.wikipedia.org/wiki/Nominal_rigidity https://en.wikipedia.org/wiki/Nominal_rigidity There is plenty of debate over how much this matters, under what conditions it is true, and how the mechanism works. Nonetheless, there is consensus that human bias against lowering prices prevents price deflation and helps cause recessions. This is one reason why some economists think that steady inflation or NGDP growth is good. If prices always rise, then instead of lowering them (which is psychologically hard), you can just hold them flat for the same effect.
- belovedeagle 13y ago
  So this provides essentially the same effect as the gold standard, no? The gold standard was an element of "stickiness" between money and gold, and sticky wages are between money and labor.
  - dllthomas 13y ago
    Stickiness is economically bad. We can't fix sticky wages without changing people.
harryh 13y ago
Yes, when there is a recession it's because the cost of money is too high. See: http://www.pkarchive.org/theory/baby.html http://www.pkarchive.org/theory/baby.html

Eliezer 13y ago

Conventional macroecon says that all effects on aggregate demand are due to sticky wages and prices, which 'stickiness' has also been experimentally verified. That's why the blog of Scott Sumner, from the article, is called "The Money Illusion".

tedsanders 13y ago

Human beings don't like to lower wages and prices. Also known as 'sticky wages': https://en.wikipedia.org/wiki/Nominal_rigidity https://en.wikipedia.org/wiki/Nominal_rigidity There is plenty of debate over how much this matters, under what conditions it is true, and how the mechanism works. Nonetheless, there is consensus that human bias against lowering prices prevents price deflation and helps cause recessions. This is one reason why some economists think that steady inflation or NGDP growth is good. If prices always rise, then instead of lowering them (which is psychologically hard), you can just hold them flat for the same effect.

belovedeagle 13y ago
So this provides essentially the same effect as the gold standard, no? The gold standard was an element of "stickiness" between money and gold, and sticky wages are between money and labor.
- dllthomas 13y ago
  Stickiness is economically bad. We can't fix sticky wages without changing people.

harryh 13y ago

Yes, when there is a recession it's because the cost of money is too high. See: http://www.pkarchive.org/theory/baby.html http://www.pkarchive.org/theory/baby.html