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Comment by cmehdy | Hacker News Reader

You can call it populist if you want, it's just mechanically true. For money to be lent out it's coming from somewhere where the money is existing or the risk can be handled, and in both of those cases where money exists or risk can be handled you're typically looking at richer rather than poorer. If you're a shareholder, you are more able to afford risk than if you're just throwing your money at paying the bills. If you're in that situation and borrowing from a bank, the bank's shareholders mechanically are benefiting from your activity. You're borrowing to get by and people who have a better cushion are doing better for it, I don't see what's so shameful to point out.

Your explanation doesn't explain anything away but to try and put some sort of weird blame on poorer people for borrowing, it's just as usual of a narrative as the populist thing to be infantilizing poorer people. There's however a pretty big difference between borrowing at your limit or sometimes beyond because you're trying to get through a pandemic or have a place to live, and borrowing at high risk because you're playing with huge sums and can in fact afford the loss. The latter as a group made more money during the pandemic from any possible source you could look at, the former as a group lost money and jobs. I won't insult you by throwing Oxfam reports at the situation, especially since you might be keen on calling it populist too and calling it a day.

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The economy isn’t a zero-sum game. We’re not simply distributing finite amounts of wealth among the population.

Consider what happens with high interest rates: The people with money are incentivized to put it in the bank and sit on it, while the people without money are forced to pay exorbitant interest rates for the privilege of borrowing that money to start businesses, buy cars they need to get to work, and so on.

Low interest rates are a forcing function to force the wealthy to deploy capital somewhere other than letting it sit in a bank.

> The latter as a group made more money during the pandemic from any possible source you could look at

Stock prices are up because we literally stimulated the economy by giving the average person free money to spend and subsidizing their jobs. The headlines comparing net worth of wealthy people at the lowest point of the pandemic to the highest point are outrage porn. They didn’t make money by funneling it out of the poor and into their bank accounts.

> The economy isn’t a zero-sum game. We’re not simply distributing finite amounts of wealth among the population.

How though? There are only limited amounts of land to own, water to drink, desirable places to live ect. How can everyone simultaneously get rich. It is obviously a zero sum game. Over last year my FAANG friends had their stocks increase by insane amounts which they sold and bought second homes, beach houses, ski condos. I am not a FAANG employee or owner or TSLA stock, we want to buy a house but we are priced out of most places. We have to move away from our family to the farthest suburbs to even be in the competition.

Efficiency improvements and technology make the economy non-zero-sum. It's a trope to say that most of us live lives of a comfort that no Roman emperor could afford, but it's still true, and not because we have more wealth. Every year lots of things get cheaper compared to the money we make, and lots of new things are invented that replace much more expensive alternatives. We used to bring blocks of ice into the cities from the north (inside ships wrapped in hay I think) to act as refrigerators, for goodness sake.

That said lots of markets are close to zero-sum on a near-term basis. Real estate in very scarce locations is a good example for sure.

That's one way the economy is not zero-sum, but not the most important way. The most basic example of positive-sum economic activity is that if I have something that is worthless to me but valuable to you, and you have something that is worthless to you but valuable to me, we can create value simply by exchanging these two items. No goods were created or destroyed, yet both of us received more value than we lost from our own points of view, and thus net economic value was created by the exchange.

Regarding the real-estate example, the real estate may be zero-sum but net economic value still increases when a piece of land changes hands from someone who values the property less to someone who values the property more—which is the default expectation underlying any voluntary trade.

Working with the idea that value is current and future utility to people:

Total utility depends on people's ability to use/appreciate goods and services. Therefore, a transaction that allows for more use/appreciation creates value.

However, you can anticipate that other people will use/appreciate something, and set out to produce it. The expectation of future sale creates value for you; value is created before any buyer appears.

Feels to me like most value is probably created intentionally this way.

On real estate: I think there's not that much value created on average simply due to transacting. Sometimes people die and their estate is sold, or a space has features that are more valued by the buyer (e.g. proximity to water for a sailor, or 3-phase power for a machine shop), or some other asymmetry arises. However, most spaces don't suddenly provide more value to people just because someone else resides there. The majority of value in real estate is created by building/modifying, and the overall community (e.g. building a train stop increases value around it). Asymmetrically valued features are probably far from the biggest driver of value or price increase in aggregate. So, I agree value can be created by transacting real estate, but find the statement a bit misleading when thinking about why prices go up. The growth of availability of space is much slower than the growth of population and buying power.

> I think there's not that much value created on average simply due to transacting.

I think if you stopped the transacting then the value of the property would deteriorate; the value that a given owner places on the property is variable and in the end must always go to zero when the owner dies. So transacting increases the value compared to not transacting but there are other factors in play with the opposite effect, resulting in little net change in value over time.

>Regarding the real-estate example, the real estate may be zero-sum but net economic value still increases when a piece of land changes hands from someone who values the property less to someone who values the property more—which is the default expectation underlying any voluntary trade.

It's net negative when the buying party is misinformed and cannot afford the financing for the property he just bought. That's how we got the 2008 crash.

Yes, fraudulent transactions where the buying party is deliberately misinformed are not voluntary, and even in the case of voluntary transactions it is possible for either party or both parties to be wrong about their expectation of receiving a net positive value from the trade.

Those who are routinely wrong in their expectations tend not to accumulate wealth, and thus make up a smaller proportion of economic activity over time—unless there is some external force at work transferring wealth from those who make good economic decisions to those who do not, thus increasing the economic influence of bad decision-makers.

Thank you, I hadn't even considered that. What a great point to make on the value of commerce.

> > The economy isn’t a zero-sum game. We’re not simply distributing finite amounts of wealth among the population.

> How though? There are only limited amounts of land to own, water to drink, desirable places to live ect. How can everyone simultaneously get rich.

If you define "get rich" as "own land" or "own water" or "own property in desirable place X" then yes, you can see it as zero-sum.

But if you define "get rich" as "accumulate money", then the economy it is not zero-sum. And one of the ways it is not zero-sum is fractional reserve banking. This allows the banks (who arguably are the originators of most of the loans being discussed here) to literally "create money out of thin air". For a bank to underwrite a loan to someone for $20,000 for a car, they don't have to wait for grandma's saving account to accumulate $20,000 in order to have the funds to make that loan. They only need (example) $2,000 to be "savings" in grandma's savings account in order to be able to underwrite a $20,000 loan to the person wanting to buy the car. The $18,000 difference was simply created by fiat out of thin air.

Which is how, if one defines "get rich" as "accumulate money", the economy is not zero-sum. In order for person X to gain 10,000 more dollars, person Y does not have to give up any dollars (unlike with land/water/housing/etc.).

"Getting rich" literally does mean owning capital.

You are not rich if you have ten billion Zimbabwean dollars.

> "own water"

what is owning water? I don't want to own water. I want to live in place where there is no water shortages. What is your plan to survive without 'owning water' ?

Once upon a time, everyone in the entire world lived in dire poverty on the brink of starvation. Now far fewer people do. (Well more absolute people, but fewer relative people) This improvement is mostly because so much more of everything is produced. Redistributing everything from the richest people of 100 years ago without producing more would leave the average modern person quite poor indeed.

> Once upon a time, everyone in the entire world lived in dire poverty on the brink of starvation.

Untrue. The world has always had problems, even today, but it's ridiculous to think that everything was bad (before capitalism, isn't that what you meant?). That is propaganda you are repeating out without even noticing.

Go study history before making absolute claims like that.

I've read plenty of history, thank you very much. I didn't say everything was bad, I said everyone lived in poverty and regularly worried about starving to death, which is objectively true for most people through most of history. (At least, they lived in what we now consider poverty.)

Until sometime in the last few hundred years, the vast majority of human effort was spent on trying to make sure there was enough food, and famine was far more common than it is today.

The fact that life was so hard does not mean that people didn't find meaning in it or that it was bad by any means, but what's ridiculous to me is to suggest that there is a finite amount of wealth in the world when very obviously there is more today than there was yesterday and who knows how much more than there was a thousand years ago.

> There are only limited amounts of land to own, water to drink, desirable places to live ect.

It's important to note that the third of these is not like the first two.

Yes, the Earth is a planet of finite size and there are only a finite amount of acres of land and molecules of H20 on the planet. Note that the actual land used by humans, and the actual H20 used by humans, are both much smaller than the total that is available. And the H20 gets recycled anyway. But yes, there are finite limits to both set by the Earth's finite size and the physical characteristics of humans.

"Desirable places to live", however, is subjective. Different people have different desires. And we have the ability to create different places to live that satisfy different people's desires. In other words, "desirable places to live" is not a finite, limited resource; we can create more.

Most human wealth is like the latter, not the former; we can create more of it. But you have to have a mindset that you can create wealth. That is a fundamentally different viewpoint than the viewpoint many people seem to have.

> .... In other words, "desirable places to live" is not a finite, limited resource; we can create more.

> Most human wealth is like the latter, not the former; we can create more of it. But you have to have a mindset that you can create wealth. That is a fundamentally different viewpoint than the viewpoint many people seem to have.

Agreed. Another thing many people miss is that money isn't wealth: its simply the measuring stick or common language/protocol we collectively use to measure the wealth or value people create through their work.

Simply creating money out of thin air, or out of non-collateralized debts results in systemic distortions in money's ability to accurately measure wealth and value. This leads to price signals that no longer communicate real needs, which in turn leads well-intentioned people to make malinvestments.

> Simply creating money out of thin air, or out of non-collateralized debts results in systemic distortions in money's ability to accurately measure wealth and value. This leads to price signals that no longer communicate real needs, which in turn leads well-intentioned people to make malinvestments.

Can't upvote this enough. If only most people grasped this and saw through the smoke screens that politicians and financial institutions put up to disguise what is really going on.

The only thing I would add to this is that, in addition to the distortion effect you describe, creating money is a method of redistributing wealth from the poor to the rich, since the newly created money ends up going mostly to the rich.

> creating money is a method of redistributing wealth from the poor to the rich, since the newly created money ends up going mostly to the rich.

I'm not sure it's as simple as that. Creating more money reduces the value of money that already exists. It helps those who are heavily indebted (including the government) by reducing the real cost of those debts and hurts anybody with a large amount of net worth saved in cash. Both rich and poor people gain a lift from this debt-reduction effect; rich because they use leverage to purchase income-producing assets, and the poor because it erodes the cost of any consumer debt they have. The savers are losers, regardless of net worth.

> Creating more money reduces the value of money that already exists.

Yes, which is why all the people who don't get any of the newly created money lose wealth. They have the same amount of money as before, but it's worth less.

Where does the wealth they lose go? To the people who did get the newly created money. In other words, it's a wealth transfer from whoever doesn't get the newly created money, to whoever does. Usually the latter are banks and financial institutions, i.e., the rich.

> It helps those who are heavily indebted

As long as debts are denominated in dollars, yes, the real cost of the debt is reduced. But the people who don't get any newly created money also lose buying power, and the latter loss is not fully compensated for by the reduction in the real cost of their debt.

To see why, consider a simple example: I have $1000 in monthly income, $200 of which goes to pay off debt. The government creates some more money but I don't get any of it. The dollars I have to spend on debt each month stays the same, $200, but it now represents less real cost than before, so yes, the real cost of my debt has gone down. But the dollars I have left over for everything else also stays the same: it was $800 before and it's $800 after. But the $800 now buys me less than it did before, so in real terms I am still worse off.

> The savers are losers, regardless of net worth

Assuming they don't get any of the newly created money, yes.

>There are only limited amounts of land to own, water to drink, desirable places to live ect.

I would agree if we had runaway population growth. However, we get to be wealthy simply because our population growth is going down. The amount of resources accessible to the average person is roughly staying the same or increasing. Urbanization and failure to build more housing is what is causing issues in the housing market. It's not about the availability of resources but rather their perceived value and low interest rates and job opportunities make the perceived value go up.

What's zero sum isn't the economy because productivity improvements happen all the time. What's zero sum is the access to fresh money. There is an inherent imbalance in the financial markets that favors large corporations. The money is arriving in their hands and thus the hands of their owners first, at the expense of those who get the money far later, the workers. This is why Biden wants a stimulus package. He's trying to make it fair for both sides.

This zero sum saying needs to die, it doesn't say anything useful. What you MEAN to say is that it is not zero sum when you look along the time variable (as in sum(t+1) != sum(t)), because total value is not constant over time as we value human creation in a system of human beings. However at any fixed t, the total value is a constant and the sum adds up, hence why it's called a sum in the first place.

Saying that the function isn't flat doesn't give us ANY useful information about the finer distribution of wealth, studies do. And those studies keep on pointing out a world where the inequality gaps are getting wider and deeper. This is exactly back to my first comment, and somehow that was populist to point that out to you.

> What you MEAN to say is that it is not zero sum when you look along the time variable (as in sum(t+1) != sum(t)),

I think they were saying that it's not zero-sum with respect to policy rather than time. Most ideas of wealth redistribution would have disastrous effects on the economy. There's a reason why even the most progressive countries primarily fund their social programs with income taxes and VATs rather than capital gains or wealth taxes.

This is a very interesting perspective, I'd love to hear more about the disastrous effects.

Pretty much every functional nation is fundamentally reliant on a healthy, competitive, tax-paying and stable private sector.

In order for this to exist, you need people to trust that their capital is well protected and handled in a fair manner. "Fair", when talking about the global economic perspective, is a cost/benefit analysis taking account of your tax burden.

Private investment is a way of putting your money at risk in exchange for a potential reward. Wealth redistribution at scale implies that you massively reduce or eliminate the rewards associated with your capital. This is a big problem as it drastically affects the incentives to put your money at risk (i.e. in a private company). This will absolutely tank the private economy, which, as mentioned, is the backbone of a modern country. No one will want to hold capital in your country or invest it in your country because it's going to be redistributed.

This is why even the most "socialist" countries from the uninformed American perspective actually have very low wealth and corporate taxes: they recognize that encouraging the private economy is fundamental to the stable function of a modern country. (Instead, they heavily tax income, which has much less economic side effects)

The obvious problem with your stance is that it doesn't even consider whether the investment is productive or not, just that people get richer. You don't want people to put their existing wealth into unproductive uses and still earn more money off of that than by investing it productively. Not to mention all the economic losses caused by underemployment.

The idea of infinite supply side stimulus when the demand side is anemic simply makes no sense unless you love increasing wealth inequality. You need multiple tools in your toolbox.

Where on earth did you get this idea? There are multiple reputable economists advocating wealth redistribution, from mahor intitutions like Oxford

https://www.oxfordmartin.ox.ac.uk/blog/reducing-wealth-inequ...

This looks like it's intended to be high level rather than practical. There isn't so much rent income such that it would offset income tax in a meaningful way.

>Most ideas of wealth redistribution would have disastrous effects on the economy.

I don't see it. How does increasing capital gains taxes and decreasing dividend taxes cause disastrous effects on the economy? If anything the low capital gains taxes incentivize bubbles by making it easier to make money off of selling to a greater fool than to simply let the company earn money and pay the profit out as a dividend.

Tesla's market cap is going to overtake Apple. If the value of the stock was based on (future) dividends people would stop trying to hype up the stock because it went up and instead just invest based on actual and future business activity. I consider a $100 billion market cap for Tesla to be fair but optimistic. The current market cap is just illogical. Once batteries have turned into a commodity, Tesla will no longer be able to justify its valuation.

I'm not well versed, but I don't think your assumption is accurate. At time t, the sum value of all money depends on who is holding it. It seems to me that $1M isn't the same to everyone - if I'm dying unless I get a surgery paid for by that money, its worth more to me (I am willing to pay more over time to access the money now) than to Bill Gates.

Or a business. Give $1M today to the right business and it'll be worth more than if you give it to your local neighborhood MLM. While the change in value is realized over time, the net present value of the money varies depending on those future deltas.

Am I way off here? What I'm trying to say is that current value is derived from future value, so the sum of money at time t is dependent on how today's money is distributed and grows in the future.

But that's.. literally what money is. 1 dollar is a dollar to every person aware of a dollar.

What you're talking about is what the PROMISE of a dollar right now in some hands can be, in which case you're not solely putting value on the dollar bill in my hand but on the value created by my person in your belief - which is where people get to disagree and think whatever they want. And be right and win big, or be wrong and lose big, and anything in between.

It doesn't change the fact that whether the promise is mine or some other person's, when you give us a dollar it's a dollar to either of us. What we're making of it is the added value from human contribution at t+1 (and on and on).

> total value is not constant over time as we value human creation in a system of human beings

> However at any fixed t, the total value is a constant

This doesn't make sense. This as opposed to the total value at any fixed time t being... not a constant? What does that even mean? If f(1) = 2, then is f "constant" at 1 or not? What would a not-a-constant value for f(1) be in that case? Infinity/Dirac delta?

If something is a function of time and no other variable, from a simplified model, it is constant at a constant time. If you've ever dealt with physics I'm sure you've encountered functions of (t,x,y,z) for one, which do not guarantee being constant for a constant value of time. That's the point I'm making: the value depends on time going forward, and the growth is the associated growth of human added value as time goes, being measured by what we use as currency.

I don't get it (and it's not because my math is lacking). You're saying total GDP is only a function of time? Meaning there are other things one might think it may be a function of, but it actually isn't? Like what exactly? Isn't it a function of all the products and services in the world? Meaning that at any two points in time, the same products and services result in the same GDP?

I'm saying that when the person mentions it's not a zero sum game, their modelling the system in the simplest sense is one of a function of time. That's a model for discussion and that's fine, because obviously everything depends on everything else to a degree and we're not getting anywhere if we don't simplify reality down to models. And your "products and services" can be modelled as functions of time which leads right back to the same discussion.

What I'm saying is that when we keep on using the idea that this isn't "zero-sum" we implicitly carry the mindset that "money that I have isn't money that you don't have", that "it's not because I have this money that you don't" - but at that exact instant it's mechanically the case that me having this money is the actual barrier to you having it. The "zero sum" comment is a misleading way to talk about creation of value over time, because all it hints at is the idea that money somewhere isn't money taken from elsewhere simply because new value gets created as time goes. But it doesn't give any fact about money distribution at even a fixed time and even less so as a function of time. It's not a useful saying at all, because it only states "in the simple modelling of value(t), we have value(t+1) != value(t)", that's literally ALL it states but the heavy lifting is what it tries to imply.

Stock prices are up because they are being artificially inflated! Quantitative easing gives money to banks, which lend cheaply to companies, which buy-back all their stock, keeping themselves inflated! It's a legalised scam it's what it is.

It's a central bank driven bubble. Just because there is a logical explanation for the bubble doesn't mean it's not a bubble.

>Consider what happens with high interest rates: The people with money are incentivized to put it in the bank and sit on it, while the people without money are forced to pay exorbitant interest rates for the privilege of borrowing that money to start businesses, buy cars they need to get to work, and so on.

High interest rates make sure that only the most productive businesses get access to capital. This is a very important inflation moderator in an overheating economy. Right now the economy is far from overheating which is why interest rates are low.

>Low interest rates are a forcing function to force the wealthy to deploy capital somewhere other than letting it sit in a bank.

They aren't. The theory behind low interest rates is that there are infinite investment opportunities and thus having access to cheaper loans will cause entrepreneurs to start more businesses and thus employ more people. Once unemployment is down any additional loan will cause any additional dollar to contribute to a decrease in purchasing power of the dollar because you have reached the maximum production capacity of the country. If you want to run your country at maximum production capacity demand has to just barely exceed supply. This is one reason why 2% inflation is a policy goal.

In practice nobody is spending the cheap money on sensible investments with a reasonable expectation of a return based on productive work. It's because small businesses have a hard time getting a loan in the first place. A small drop in interest rates isn't enough to compensate for the increased default rate of a startup. What happens is that big companies and rich individuals essentially have a monopoly on cheap credit and they use it for dumb stuff like buying stocks or Bitcoin.

Money lent out does not exist until lent out. Money for mortgages is created by the bank. That’s why they can do such low interest rates. They don’t even need to have the money to lend to you. They are legally allowed to just make it up and then charge interest on it.

And when they fail and the money that didn't exist needs to exist, we save them with real money.

It's not because we're allowing a lot of risks to be taken with regards to money that those risks don't have a value, i.e. a real cost.

You are not getting it - there is no real money. All money in bank accounts is debt or fake money, all 99% of the economy.

The only 'real' money is cash and central bank reserves.

Banks create money, thats their role in the economy. Thats what banking license is for. You don't need banking licence to lend out money you already have.

www.bankofengland.co.uk › ...PDF Web results Money creation in the modern economy - Bank of England

It's the same point over and over again. A bank can give out a loan because it is operating in a place where the government (a.k.a people) give it a place to operate, in a system of currency regulated by governments, and ultimately has to answer to governments when it runs into the limits of its smoke screens.

What this inevitably means is that when it fucks up and doesn't juggle fast enough or people all change their expectations (like if everybody wants to suddenly pull money out of their accounts), then the money that doesn't exist has to end up existing one way or another - and governments foot the bill directly and/or indirectly.

In less "agitated" times, that "fake" money being created is a direct measure of the value that banks are agreeing to see in the people they loan the money out to (and in fact they see a higher value over the exact same horizon of time and at any given value of t, otherwise they wouldn't loan the money out unless regulations force them to).

In both cases, money that circulates at any moment in time is money that exists in the system (yes it's a tautology), with money that exists at t+1 being paid one way or another by the system. If everybody takes out their money right now and that's more than what the banks have, governments step in and the impact over the financial system is the value of money itself falling, with the cost being that everybody having relied on money now has less value out of it.

It's not because it's not using the term "dollar" that it isn't a cost, just like on the other end of the system where we bet on humans creating value the humans in question aren't magically producing fully-formed dollar bills. Both ends of the system aren't formulated in dollars in and of themselves, because dollars are only the medium to 'illustrate' or represent the value, not the value itself. Ceci n'est pas une pipe, etc.

The provlem with your concept it that the ratio of 'real' money to 'fake' money is actually zero.

There are only three kinds of money: central bank reserves, which you can't get access to, cash, and commercial money, what you are calling 'fake money'

So if everyone tried to take out the money in cash, yes, there is simply less cash than 'digital money', so its impossible.

But there is no 'real money' except cash that you as an ibdividual has ever had your hands on.

The system, as designed, cannot work without banks. So its unfair to call banks 'smoke and mirrors' - you would have to redesigns the whole economy to get rid of them

If the ratio of real money to fake money is zero, there's either infinite fake money or no real money. That's already either 100% off or an infinity off from your previous message.

By the way, you're the one who called it fake money in your message, I responded to that.

The cash that I have had in my hands is as true as whatever field in a database at a bank, in that whichever we refer to either way the bank will agree to make use of it equally and if it doesn't or can't it won't discriminate either in its inability to use the value. In both cases, when shit hits the fan and the value that banks bet on needs to be present and isn't, the system as a whole pays the cost of that. Printing new bills to put in the banks vault does create the "money" as in bill but not as in value.

I don't even understand what you're trying to argue here, quite frankly. I have no problem with the social constructs of money and the fact that banks through loans are a vessel for humans to inject value into the system, so I don't see what conversation we're having here.

They do need some small margin of the loan value to actually exist I think?

It's a very, very small amount because every loan will end up in someone else's account, and then be available to create new money at that ratio again, and again, and again....

> For money to be lent out it's coming from somewhere where the money is existing

Not true. Governments around the world are just using money that doesn't exists, an example is the new economic rescue package. This kind of money, is great to made rich people richer.

That's the whole discussion around money itself, isn't it. As soon as you do something other than exchange an apple for a goat (and even then, really), you're potentially creating money in one person's eye and not in the others. While I understand your point about the money not existing, if you're making it happen in the system you're putting something of yourself in the system to convert to money. In governments' case it is their "reputation" and ability to operate in the world, as shown with the Greece situation in the recent past.

Ultimately it just wasn't in bills but it was indeed paid in the government's loss of abilities (as well as the price to the population) and made money in other places where it was due. And that exactly what governments do when they deal with currency: any adjustment isn't creating energy out of nothingness, it's just that the layers of our system make it pretty hard to figure just where the debt is paid and it ultimately ends up being paid by those least able to see it coming & to avoid it. Not to hammer the point again, but those people tend to be again on the end of the spectrum that has "poorer" written on it.

That just makes the actual value come from people that need to buy real assets or non-invested money. In both cases it mostly comes out of the common man and makes rich people richer. But it's not as bad as a total market failure. This system sucks.

Uhhh, 2008 didn't happen because banks were lending money out responsibly...

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