4 ms·

Okay. Let's say we have two oranges and $10 in the money supply. Let's also say that one guy has all of the $10 and he's only ever going to want one orange.

by Suncho 11y ago

Okay. Let's say we have two oranges and $10 in the money supply. Let's also say that one guy has all of the $10 and he's only ever going to want one orange. What's the price of an orange? $10. One orange gets sold and the other gets wasted. If you print an additional $10 and hand it to a different guy, what's the price of oranges? Still $10, but both oranges get bought.

jazzyk 11y ago
Your scenario is too simplistic to use. The premise that "if you print additional $10 and hand it to a different guy, the price is still $10" is false. A better example of your idea is - college education. By giving out free money to people, the government increases supply of buyers (students) - and the sellers (colleges) keep rising prices (cost of college is through the roof - quadrupled/quintupled over 20 years). Because they have a stream of buyers they otherwise would not have. Yes, I said "giving free money to people", because even though they are formally student loans, many of them will never be repaid. It is really a transfer of wealth from US taxpayers to the higher education complex, who can charge tuition multiple times what it was years ago (accounting for inflation included).
- Suncho 11y ago
  > Your scenario is too simplistic to use. Yes. Both of our scenarios were simplistic. You came up with a simplistic scenario in which adding money to the supply did cause price inflation and I came up with a simplistic scenario in which adding money to the supply did not cause price inflation. Printing money and handing it to consumers is not "the very definition of inflation." There's more to it than that. Price inflation happens when the rate of spending outstrips the rate at which real value is being traded. Money supply is a factor, to be sure, but so is monetary velocity, and productive capacity. > A better example of your idea is - college education. By giving out free money to people, the government increases supply of buyers (students) - and the sellers (colleges) keep rising prices (cost of college is through the roof - quadrupled/quintupled over 20 years). Because they have a stream of buyers they otherwise would not have. Agreed. It's free money in the sense that much of it won't be paid back. But it's not free in the sense that those students have to spend it on college, which leads to market distortions. People will pay whatever it takes to get the best college education possible even if they have to spend money they don't have, especially if the only way to access that money is to spend it on college. > Yes, I said "giving free money to people", because even though they are formally student loans, many of them will never be repaid. Yes. > It is really a transfer of wealth from US taxpayers to the higher education complex, who can charge tuition multiple times what it was years ago (accounting for inflation included). Yes. Traditional college doesn't scale well. The market is saturated and we're flooding it with consumers who have access to more and more money. But education can scale. MOOCs scale. You can get a really good education without paying very much. Such an education might not lead to a job, but is that necessarily a problem? In my mind, it's a waste of money for the government to pay for students to go to school (either through loans or grants).

by Suncho 11y ago

jazzyk 11y ago

Your scenario is too simplistic to use. The premise that "if you print additional $10 and hand it to a different guy, the price is still $10" is false. A better example of your idea is - college education. By giving out free money to people, the government increases supply of buyers (students) - and the sellers (colleges) keep rising prices (cost of college is through the roof - quadrupled/quintupled over 20 years). Because they have a stream of buyers they otherwise would not have. Yes, I said "giving free money to people", because even though they are formally student loans, many of them will never be repaid. It is really a transfer of wealth from US taxpayers to the higher education complex, who can charge tuition multiple times what it was years ago (accounting for inflation included).

Suncho 11y ago
> Your scenario is too simplistic to use. Yes. Both of our scenarios were simplistic. You came up with a simplistic scenario in which adding money to the supply did cause price inflation and I came up with a simplistic scenario in which adding money to the supply did not cause price inflation. Printing money and handing it to consumers is not "the very definition of inflation." There's more to it than that. Price inflation happens when the rate of spending outstrips the rate at which real value is being traded. Money supply is a factor, to be sure, but so is monetary velocity, and productive capacity. > A better example of your idea is - college education. By giving out free money to people, the government increases supply of buyers (students) - and the sellers (colleges) keep rising prices (cost of college is through the roof - quadrupled/quintupled over 20 years). Because they have a stream of buyers they otherwise would not have. Agreed. It's free money in the sense that much of it won't be paid back. But it's not free in the sense that those students have to spend it on college, which leads to market distortions. People will pay whatever it takes to get the best college education possible even if they have to spend money they don't have, especially if the only way to access that money is to spend it on college. > Yes, I said "giving free money to people", because even though they are formally student loans, many of them will never be repaid. Yes. > It is really a transfer of wealth from US taxpayers to the higher education complex, who can charge tuition multiple times what it was years ago (accounting for inflation included). Yes. Traditional college doesn't scale well. The market is saturated and we're flooding it with consumers who have access to more and more money. But education can scale. MOOCs scale. You can get a really good education without paying very much. Such an education might not lead to a job, but is that necessarily a problem? In my mind, it's a waste of money for the government to pay for students to go to school (either through loans or grants).