Hacker News Reader

Comment by StanislavPetrov | Hacker News Reader

> why do so many companies feel like they have to grow perpetually?

Because, in a nutshell, the "economy" is a massive ponzi scheme that depends on constant growth. This isn't a popular opinion among many of the VC crowd that believe in the myth of the meritocracy, but its an irrefutable truth. For example, the FED (and other central banks) set a target inflation rate (usually around 2%, but it can vary). That means if you are "stable", and the central bank has its way, you are actually shrinking.

Its obviously much more complex then this, but that is the crux of it. Unfortunately "sustainability", whether economic or environmental, isn't a priority for those .000001% of the oligarchs that run the show and make their money off debt servicing.

View on HN

> ponzi scheme that depends on constant growth.

Can you recommend any references for a non-economist to learn about this theory?

Also, is this related to why financial markets are so obsessed with profit growth? I always wondered why being profitable wasn't a good enough indicator of success.

"Can you recommend any references for a non-economist to learn about this theory?"

It's not a theory, it's armchair cynicism.

Some high growth startups are kind of like Ponzi schemes, in the sense that some investors know they won't ever get to the full valuation needed to justify the investment - but that someone down the line, after the IPO will be left 'holding the bag', but the economy itself is not a 'ponzi scheme'.

>Can you recommend any references for a non-economist to learn about this theory?

This TED talk by professor Franz Hörmann does a good job of explaining.

https://www.youtube.com/watch?v=88ksYFsleto

Simply put, when money is created by the bank for a loan, only the amount for the loan (the principal) is created and given out. The problem is that an extra fee (interest) is charged on top, but the money to pay that fee was never created.

So basically it is an impossible contract to fulfill on a macro scale. A negative sum game.

> That means if you are "stable", and the central bank has its way, you are actually shrinking at 2% a year.

No, inflation means, in aggregate, the price businesses charge goes up.

That's completely wrong. Its a lost cause to try to explain economic theory on a forum but suffice to say that central banks factor completely arbitrary variables to get the number they want.

http://www.bls.gov/cpi/cpihqaitem.htm

>The CPI is calculated using prices for a fixed basket of goods and services through time. While the basket is periodically revised to reflect changing consumer expenditures, some items being priced in the sample come and go from the marketplace, making collection of these prices from month to month difficult. When an item is no longer available in the marketplace, a similar replacement item is selected. Often there are no similar items from which to choose, and as a result, a less comparable item is selected, potentially introducing quality change and an associated price differential into the index. The hedonic quality adjustment method removes any price differential attributed to a change in quality by adding or subtracting the estimated value of that change from the price of the old item.

That toilet paper you used to buy costs twice as much? Well the FED says the new toilet paper is of a higher quality, so it is actually counted as being lower priced then the toilet paper you bought for half as much last year.

Actually, the FED targets something called the PCE price index which is an attempt at measuring price increases across all consumer spending. But those are just measuring details, if you want to you can go to economic conferences and argue the finer details of these measurements with rooms full of PhDs. The point though is that inflation targeting is about trying to keep the cycle of rising wages and rising prices going. And the point of that is to avoid deflation during recessions. The main losers from inflation are not businesses but lenders, which is why lending rates and inflation are closely related.

>You don't need a PHD to understand what this means, you need only basic reading comprehension and minimal intelligence:

Quote from FED:

>The hedonic quality adjustment method removes any price differential attributed to a change in quality by adding or subtracting the estimated value of that change from the price of the old item.

What do you think "attributing a change in quality" or subtracting "estimated value" means? If you don't understand how the introduction of these arbitrary variables, invented by a politicized FED, completely nullify any informational value, nobody can explain it to you.

You seem to fail to grasp even basic common sense: most products and service increase in value over time, and though it's difficult sometimes to measure that value, it's not 'arbitrary'.

For example - as Farmers improve their technology - Tomatoes become bigger, juicier and redder. Clearly - there is 'economic value' in those 'improved tomatoes' and that has has to be taken into consideration when comparing tomatoes grown before, to tomatoes grown now.

Stop misinforming people, take your conspiracy theories to ZeroHedge.

Tomatoes is a bad example. They contain less nutrition and taste less good each year (Google it).

Maybe cars or something your story works with

You articulation of the reasoning for 2% inflation targets by Central Banks is completely and utterly false.

Reply on news.ycombinator.com