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Comment by hliyan | Hacker News Reader

I'm of the opinion that the root of the problem is inflation (but I'm open to correction).

My thinking is that we're constantly being pushed to work harder because no business today can reach a successful steady-state -- it must keep growing. The reason businesses must keep growing is that investors demand it. Investors demand it because they believe that wealth sitting around not making more wealth is a waste. Inflation, I believe, is a big component of this view. What would happen if we keep inflation near-zero? Is slow growth really a bad thing?

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I agree that there are likely negative social consequences from inflation, but the idea that inflation is the reason a business can't reach a steady-state because of inflation seems to ignore Red Queen[1] like affects.

Something I've noticed a lot in tech is that companies will spend a huge amount of money to push new features that aren't core to the business and to launch new products that frequently fail. I've always viewed these as attempting to prevent competition from emerging rather than trying to compensate for inflation.

No idea why you are being downvoted. A Red Queen's Race is exactly what's going on. Even without much currency inflation there is constant pressure for businesses to outgrow each other because... well... everyone else is doing it! It's exactly like the constant arms race that occurs between nations and forces them to constantly spend trillions of dollars on weapons that will mostly never be used.

Frankly i see the pressure coming from the financial world.

There is a massive, blinding, focus on quarterly profits and dividends.

This leads to all kinds of hype cycles and cargo cults to try to goose the stock price, no matter how hail mary or unhealthy it is for the corporation in the long term.

That is also a Red Queen's Race. It's a blinding focus on quarterly profits all the way up, and down.

You forgot to include the link you were going to reference.

This is the reference AFAIK: https://en.wikipedia.org/wiki/Red_Queen%27s_race

my bad:

https://en.wikipedia.org/wiki/Red_Queen_hypothesis

There's a [1] hypothesis that economic growth is mostly the result of 1) population growth, 2) energy consumption, and 3) interest rates.

Current projections estimate that population will peak at 8.7 billion in 2055. Nearly all of that growth will occur in "developing" countries. Yuval Harari makes the case in Homo Deus that the world is quickly reaching a point where the less developed areas of the world will be mostly ignored and left behind in the coming years, as the developed world has reached a sort of critical mass that it makes more sense -- economically -- to keep investing there.

As technology continues to get more and more efficient, it is quite possible we are near peak energy consumption.

Interest rates have been around 0% for quite some time.

To me, it's interesting to wonder if we live in a world that might "objectively" be getting better, but we don't see the verification with the same type of economic growth that's occurred in the past.

[1] - https://ourfiniteworld.com/2012/08/29/the-long-term-tie-betw...

it is quite possible we are near peak energy consumption

this is related [1].

[1]: https://dothemath.ucsd.edu/2011/07/can-economic-growth-last/

Wow, this is actually the blog where I first encountered this hypothesis, but I wasn't able to find and link to it. Thanks for doing it for me!

Labor, technology, and capital (not sure I completely agree with #3). But these are the ways you grow economies in real terms (based on my econ studies).

If we kept inflation close to zero (or negative) wealth would tend to concentrate in fewer and fewer hands, and the bias would be toward idle rentiers. People like property landlords would get unbelievably rich by collecting mandatory continuous rent payments. Since deflating currency holds or increases in value they'd have zero incentive to do anything with it other than hoard it. Eventually you end up with a landed nobility.

Add to this the fact that deflating currency makes loans hard to service and biases the lending market toward default. This further decreases the incentive for those with a lot of currency to lend it since the probability of losing it to default becomes higher.

The ideal is probably a little bit of inflation. I think it's possible that we have too much, and that we are misinformed about that because we are measuring the wrong things. I'm not positive but I seem to remember that the CPI does not include things like rent and college tuition, which if true is utterly insane and makes it a bogus statistic.

Both rents and tuition are included in the CPI:

https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an...

https://www.bls.gov/cpi/factsheets/college-tuition.htm

This looks suspicious. There is not a single mention of square footage in the rents document.

So let's say everyone moves to a smaller house because housing costs are so high, that's not a sign of inflation?!

The BLS corrects for those factors using hedonic adjustments.

"Hedonic adjustments" sounds like a term for "the number is whatever we want it to be but we want it to sound official so people don't question it."

If you mix "hedonic adjustments" into every number then there is zero value in the numbers. There is no meaningful way to quantify a "hedonic adjustment". Is a smartphone a positive or negative "hedonic adjustment" relative to a landline? Lots of people would say it's positive. Lots would say it's negative. Nobody knows the actual answer because smartphones have only existed for a few years.

> it must keep growing. The reason businesses must keep growing is that investors demand it.

That's true of growth investors, but rarely represents the entire investment community.

Bond investors (whose market is an order of magnitude larger than stocks) want fixed yield - they could care less if the business grows or languishes during that time, as long as the coupon checks keep coming. Real estate investors (whose playing field is also orders of magnitudes larger than public equities market) also usually sign up for a preferred fixed yield, growth being secondary.

Even within the equities markets not everybody is a growth investor, with a lot of people buying for value or dividend yield.

The overwhelming majority of businesses don't have investors to care about. Ignoring that, investors demand growth because that's basically the definition of investing. If businesses don't want to be pressured to grow then they don't have to take money from people who want growth.

Removing inflation wouldn't stop people from chasing growth. People want to make more money. 2% annual inflation changes the calculations a bit (towards more proactive investing), but in a world of 0% inflation people would still want to make money. They would just be a bit more conservative since there's no penalty for holding.

And yes, slow growth is a bad thing. Our population is growing. The pie has to be grown if we don't want living standards to nosedive.

What if it is actually people just not realizing what stability is because they've never experienced it? If you're further away from understanding stability from experience - say for example emotionally, or life-style, or health-wise - then how could you know it when you see it manifesting in a company?

Okay so how about inflation coupled with basic human nature: 'greed'?

The root cause is more fundamental than just inflation. In order to form a new business or expand an existing business, entrepreneurs need capital. Rational investors will only give out that capital if they expect a good rate of return (enough to compensate for the risk of losing the investment and not having that money available for other uses). Thus businesses most grow in order to pay back investors. Otherwise potential investors would just hoard their capital and the economy would never advance.

This is literally Finance 101.

Growth and inflation are separate concepts. Inflation measures how nominal prices change year to year (price of a pint of milk) while growth measures the increase in aggregate output (total volume of milk produced.)

Our econonomic system is predicated on continual growth but inflation has been incredibly low since the late 1990s in most western economies, 0-2% compared to 10% or more in the 1970s and 80s.

When people talk about business growth they are typically looking for a return above and beyond inflation.

I'd also say there really isn't any such thing as a steady state for businesses not because of inflation but due to the need to keep pace with general human progress and invention in order to stay competitive in the market place.

What force do investors use to demand it? How do they force a non-compliant company to grow? Esp for companies that are already profitable and don't need investment money.

That depends on the specific details. In publicly trades companies they sell their shares, causing the shares price to drop and the company valuation to drop. This will make it harder for the company to get credit and will lower the value of the owners shares.

Bigger investors can have more direct force, either in voting power or in assigning their own director to the board.

Innovations are probably the number one driver of the economy: https://www.uschamberfoundation.org/enterprisingstates/asset...

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