Hacker News Reader

Comment by daniel-s | Hacker News Reader

A normal household has to pay rent or make mortgage payments. To arbitrarily exclude the biggest expense to consumers from CPI is pretty misleading.

When you create new money prices don't rise evenly. At the moment we have new money being created by central banks and given to privileged institutions who get access to free money. They use that to buy investments: real estate, stocks, etc. These are precisely the things getting really expensive. The last things to get more expensive during big cycles of inflation are employee wages.

The world used gold/silver for its currency for most of human history until 1970 when we entered this period of worldwide fiat currencies. Our current situation is pretty remarkable.

The whole argument for printing money being OK is dumb. If it's OK to print money to pay for some things why are you not doing it more? Why not make everyone a millionaire?

I think that another deception is that we should ordinarily be experiencing price deflation. Every day our society is getting more efficient at making things. If prices for goods are staying the same then it may not be that their value has not changed, they may be less valuable goods, but they cost the same because you're also buying them with less valuable currency.

If you have gone through years of moving everything to China to make it cheaper to manufacture, improved technology to make processes more efficient, etc. and I'm still paying the same amount for all of the stuff in my life, then again, maybe all these things are cheaper, but I'm also buying them with currency that's less valuable.

Ultimately, printing money doesn't make anyone more productive or produce anything. All it does is redistribute wealth from those that were first to get the new free money away from those that were last to contact it.

View on HN

> A normal household has to pay rent or make mortgage payments. To arbitrarily exclude the biggest expense to consumers from CPI is pretty misleading.

"How the CPI measures price change of Owners’ equivalent rent of primary residence (OER) and Rent of primary residence (Rent)":

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

> The whole argument for printing money being OK is dumb. If it's OK to print money to pay for some things why are you not doing it more? Why not make everyone a millionaire?

Because while it may be "OK to print money to pay for some things" it may not be OK for others. Making "everyone a millionaire" may be one of those times when it is not-OK.

> Ultimately, printing money doesn't make anyone more productive or produce anything.

Money printing helps with liquidity, which helps the economy to keep running, which can (but is not guaranteed to) help with more "productive" aspects of the economy:

* https://en.wikipedia.org/wiki/Money_creation

You've managed to fit quite a few straw men in one post.

Creating liquidity where there is not a demand for liquidity is economically distortionary and has long term economic effects analogous to people who abuse stimulants or steroids. Yeah liquidity may make your economy feel on top of the world today but over time it will need to pay the piper. There is no such thing as a free lunch and this time is not different.

If the economy needed more liquidity you would see high or rising real interest rates and stationary or falling asset prices. Instead we see very low interest rates and sky-rocketing asset prices. Sure adding liquidity will continue to inflate assets prices for a while but as the other commenter said it does not actually produce anything real and actually leads to malinvestment or underinvestment. Thanks to excessive liquidity in the economy we have BS companies like Uber sticking around while real innovation is stagnating.

Eventually excess liquidity combined with high savings and low interest rates can even paradoxically lead deflation. See Japan for example. We may, also reach a point, where no matter how much liquidity we add we do not stimulate real economic growth.

Regardless the commenter is right, liquidity on its own produces nothing and low interest rates signal that it is not demanded.

Instead of worrying about inflation or deflation we should be worrying about what we can do to make the most people better off at time t+1. Traditionally that has been through economic growth. Liquidity does not promote economic growth if the economy is drowning in liquidity.

Printing money doesn’t help with liquidity if you don’t inject it at the lowest level of the economy (ie on the street into lay peoples pockets). This is the biggest lie we’ve been sold during all this quantitive easing malarkey. All it is is theft from the poor by the rich.

Great. Tell legislatures to (a) act faster when there's an emergency, or (b) enact better safety nets that automatically kick in when an emergency arises.

The fact that central banks can act quickly isn't a sign that what they're doing is wrong on the monetary side, but rather that the fiscal side of things needs to get its act together.

It obviously belongs there because anything else would fail to create the desired level of inflation as we can see today. What we truly need is fiscal policy and it's funny how on point this 8 year old cartoon is:

https://youtu.be/-DdfLtOrBPU

There are other ways to inject money into people's pocket directly by reducing logistic cost by investing in better infrastructure. Everyone from top to bottom uses roads and railroads, airports, seat ports for shipping. Everyone benefits from having them fast and more efficient.

Yes, longer term. A new road doesn't help you today when you have to choose between paying the mortgage and buying groceries. Giving money directly to banks to cover their liquidity while people get thrown out of their homes because they can't pay their mortgages with the same banks is monumentally stupid and I don't give the people who made this decision the benefit of the doubt. If they are that stupid they are not qualified to be in their jobs.

Yeah, liquidity is really important. When liquidity runs out, you have people who are CAPABLE and WILLING to work being unable to find productive work. The way around it is to do odd jobs, DIY stuff they’re not good at because they have no choice, and barter (you see this increase during depressions), but this is way less efficient. So “printing money” (providing liquidity) actually increases productivity in the same way division of labor increases productivity. You can pay a plumber instead of taking 10 times longer and doing a poorer job, for instance.

Does it actually address the source of the problem though? Illiquidity is caused by people hoarding wealth and not circulating it in the economy. Printing money gets more cash in the system but does not free up the hoarded wealth which is still locked up in assets that can remain unproductive. This seems like a temporary patch. If you take your example where there is not enough cash to pay a plumber, the cash is amassed in the accounts of a small number of people that are unable to generate enough work to keep all of the plumbers employed. You print more money to fix the supply problem but this immediately generates another; who gets the new cash first? We give it to institutions that will lend it so that we can reuse the existing system to vet people worthy of loans. So the credit worthy get access to new money and maybe they use it to do new construction or renovations that require plumbers. The plumbers, and others, now have income again. Problem solved? Well no, what about the original wealth that was hoarded? If it was kept as dollars it’s now depreciating but it’s likely that as soon as that started happening it would have been converted into another form that would retain its value. There are a limited set of assets that retain their value in face of inflation so we would see circulation in that part of the economy up until all of the original wealth had been converted into a stable form. It would still be driven by a small number of people though so the impact would be limited. What happens if you don’t continue to print money? I would think it would eventually find its way into one of these asset traps where it would then remain and we’d wind up right back at the start. So keep pumping new money in? But now it no longer affects the original wealth since that has been converted into other forms so the original problem will remain unsolved and you’ll need to keep the tap on forever so you don’t run out of money.

A better solution in my mind would have been to directly force the original wealth back into the system.

Ironically the only market mechanism to force money back into the rest of the system is for interest rates to rise. If real interest rates sat at ~7% those with money would attempt to lend it and liquidate unproductive assets, those borrowing to purchase unproductive assets would be forced to sell. Productive, but high cost assets would come down in price (housing) due to lack of demand. For interest rates to rise, there will need to be a lack of liquidity at the current interest rate, many businesses are now dependent on artificially low interest rates and guaranteed liquidity.

Unfortunately we've built an economy which requires progressively lower interest rates to sustain. Rebalancing will be expensive ( see the interest rate increase in the run-up to '08 )

    the only market mechanism to force money back into the rest of the system is for interest rates to rise

Or a wealth tax.

Inflation is basically a wealth tax. Sort of.

One that hurts poor people more than wealthy - since wages are last to inflate. Additionally, wealthy people are still able to afford necessities during times of high inflation.

Only if the wealth is held as dollars or a depreciating asset. If it’s invested or converted to something of limited supply then it can be inflation proof. Too bad those options are out of reach for the poor.

We have wealth taxes. They are called property taxes and inheritance taxes.

Inheritance tax is easy to avoid and property is a very small proportion of the ultra-rich's assets.

Pretty sure illiquidity is not caused by wealth hoarding. It’s caused by taking out more debt than one can service, and people becoming scared to lend to others, because they’re worried they won’t be paid back. When everyone gets scared at once, things grind to a halt. And there’s a natural tendency while times are good to take out more and more debt, because you can use it to enhance your productivity.

EDIT: (so things naturally trend toward the overlevered state and a crunch)

Is that not just the other side of the same coin ? Short of centralized banking printing money there is no competition for wealthy just hording and letting time pass and demand grow. Kind of like bitcoin ;)

It's true that capital begets more capital, but that's because anyone with money lends it back out seeking growth. Even if you have very little money and you put it in a bank account, you are lending that money to the bank for them to invest or lend out. Basically no one is just sitting on piles of physical cash, because if you did so you would lose value behind inflation.

Well we are talking about non inflationary systems compared to inflationary ones.

Can you explain how one "hoards money"? Like are they burying it in their backyard or stuffing it in their mattress? Do they have a McScrooge money pit?

On a gold standard you can literally hoard it in a vault without losing value. Without inflation it’s actually not a terrible idea because you have high liquidity, you don’t have to sell assets to free up cash. You’d still buy assets but only the ones you actually needed or wanted rather than as a hedge against inflation.

I don't think it's a revelation that lots of ultra wealthy people hide money in offshore bank accounts, as well as other means.

I'd say many of them are literally hoarding it.

Eh the wealthy don’t hold onto stacks of cash, they immediately turn around and invest the vast majority of it in company equity, bonds, etc. Not sure if there’d be some sort of hoarding cash crunch in the absence of central banking, I haven’t studied the history there.

To the degree that printing money by reducing interest rates and perhaps causing a bit of inflation, it basically punishes hoarding of cash by taxing it at the inflation rate (plus the opportunity cost of having near zero nominal return in savings accounts). So that does force the original wealth into circulation. But it’s true that the Fed’s monetary stimulus is likely to be less effective at providing liquidity to individuals than direct fiscal stimulus like the stimulus checks people are getting. (Although it’s not all stimulating because many are using the money to pay off debts.)

Alternately, those who have already built a mechanism for capturing a portion of the printed money as profit can simply purchase non-productive assets and benefit from the rising prices.

https://advisor.morganstanley.com/liberty-group/articles/ins...

This is why we need to put the money into the right hands. It reminds me of trickle down economics. Instead of flooding one plant and hoping that you are pouring enough water to reach the entire farm field it would be more effective to just water every plant a little. It would require much less water overall.

I think this view of hoarding is wrong. Here is how I think about it:

You get money as compensation for goods or services you provide to other people. The money is a sort of "IOU note" from the rest of society.

If you never spend the money, you've chosen to never cash in the debt. You're essentially gifting that money to the world.

There are a lot of complex and dynamic systems at work in the economy, and it's easy to make good sounding arguments for and against anything. I find it helpful to think of the fundamentals.

If money is just sitting around, and inflation is high, then it is losing value. The 'idle rich' are penalized.

Further, lower-income people often have debts, which is reduced (relatively) by inflation.

Ideally money wouldn't be just sitting around, and if proverbial piles of it are, perhaps we need to redistribute it more so that it's used more productively. This is why wealth (and not just income) taxes are being talked about more nowadays.

We're using two different definitions of "hoarding" wealth here.

The people you're disagreeing with consider buying up real-estate and company stock to be "hoarding" wealth because those assets could otherwise be put to productive use by someone else. People could otherwise live in those houses and become home-owners. Or the companies in question could get re-structured into smaller more efficient organizations during bankruptcy. It's hard for me to see the value of a real-estate investor buying his millionth acre of land when in earlier times multiple families could live on that land and call it home.

In contrast, you're assuming that any money being loaned to anyone is put to "productive use." And the flip-side of that is that the loan will come due some day. So accumulated wealth is used to accumulate more wealth from people who don't have any to begin with. In other words, the hoard of money is being used to extract rent and to hoard even more money. It's hard for me to see the value of that kind of system. It seems to lead to a continual serfdom as most people become renters of everything in their life.

"Further, lower-income people often have debts, which is reduced (relatively) by inflation."

It is, indeed, true that inflation can "melt away" existing debts by devaluing both the principal and the interest payments. There is historical precedent of large, debt fueled investments being inflated away:

"Anyone with debt benefitted as debts were inflated away to nothing under hyperinflation. For example a Pomeranian landowner took out a loan to purchase a property in February 1922 and repaid it in the autumn from the sale of less than half the crop of a potato field."[1]

However, this only occurs with fixed rate loans. Lower income people (US mortgage debt notwithstanding) do not have the opportunity to borrow at fixed terms and it would be very difficult and expensive to incur large debts, for any purpose, at fixed rates.

The floating rates that lower income people would, undoubtedly, borrow at would not protect them from inflation.

[1] https://www.stewartinvestors.com/all/insights/stap/hyperinfl...

I don't think I have ever gotten a floating rate loan in Germany. Are there specific countries or types of loans where these rates are common? Are you talking about credit cards?

Most of my experience is in the United States, where I live. In the US a "normal" mortgage typically has a fixed rate.

However, any kind of unsecured loan will have a floating rate. Certainly that includes all credit card debt and any kind of short term business financing like paypal offers.

Further, if you have a poor credit score it is likely that your car loan(s) will have a floating rate and that you will be aggressively steered into a floating rate mortgage (an "ARM"). This will be presented to you as a benefit in the form of lower monthly payments (for now).

In Romania most of the mortgage loans are floating rate, tracking the 6 month ROBOR (equivalent of EURIBOR).

Lower-income people when they are borrowing, are borrowing at very high interest rates (credit cards or payday loans) and inflation doesn't help those situations at all.

The wealthy are systematically benefitting from low-interest loans being reduced in value by inflation -- in the form of corporate bonds and leveraged trading (shorts, forex, margin accounts).

Most rich are asset holders. No poor people are (by definition). Therefore higher inflation (to a point) is better for poorer people.

Tell that to the manual laborer working a long shift and swinging by a mcdonald's to get a double cheeseburger because there's no time to make food and who has the energy anyways. Oh also, that double cheeseburger is now $2.19 instead of $1.69

Inflation is good for you!

Assets keep up with inflation much better than working class wages.

The entire point of inflation is to force people to work harder to preserve their wealth. If there was say 5% inflation then companies would see greater than 5% interest rates on their loan and that means only the most productive companies actually get funding. By failing to create inflation the central banks are fueling the creation of zombie companies and unproductive investments. It's inherently injust yet we still see people rally against the inflation boogeyman as if it's a demon that is going to kill everyone.

I actually think liquidity issues arise mostly from entities failing to have cash on hand for the settling of debts that are due. Not due to hoarding wealth or refusing to invest it.

Those things are systemic issues related to other aspects of the machinery, particularly the incentives or mechanism of wealth distribution outside of money markets.

Difficulty of servicing debts is still addressed by both monetary (ie lowering interest rates) and fiscal (think direct checks to Americans) stimulus. In the latter case, it’s estimated roughly half the stimulus checks will go to paying down debt, not direct spending.

I don't know that the individual is a substantial figure in the patterns of distribution. Sure Suzy took out a $40k loan and is paycheck to paycheck because of it. But that's a very small fraction of the whole. And application of stimulus, while remedying some people's serviceability, gives others the basis to leverage up. As a whole, the system is highly circular, it's where you've got exuberantly large gravity that things start to bend and twist. And estimations in this system are designed to bust. Despite the fact that the whole system is manmade, we know very little. Estimates of oil prices 3 months in the future will be wrong, and nobody can actually predict the closing price of the indexes, let alone individual stocks, so to assume those estimates are even probable is ridiculous.

What I think we need to be considering is the highly concentrated nature of monolithic corporate capital and power. Like, for example, Amazon. The immeasurable value of the exchanges that took place globally for goods through Amazon. And Amazon tends to invest that wealth, which would be a net decrease in "capital entropy", while Amazon nets increased value despite the fact that they don't hold the capital. They do briefly inject a small sum of capital over a wide range of industries, though, like building materials, construction labor, engineering, and etc... But ultimately that money loses velocity, it doesn't have the momentum it needs because everything is so expensive now, and as a product most people opt to leverage.

On that latter part, as a miser of sorts, it's actually far more effective, even in the case of depreciating assets, to leverage. I could've been "educated" by now if I wasn't exceedingly scrupulous in avoiding usury. I spent many years of my life accumulating the relatively meager wealth I did collect and it's only put me at a disadvantage due to the nature of federal grants weighing personal holdings, from which I'm only able to draw in tax refunds, and only a fraction of what the ultimate costs will be it also puts me in a morally precarious position as far as other modes of welfare. That is to say you're dually (and quite possibly triply, with inflation) punished for choosing the "responsible" path of self-funding. To ossify that point, 0% interest increased sticker prices, so now buying big ticket goods comes with interest embedded.

It seems like lack of money is unlikely to cause liquidity issues rather than some other issue preventing money from circulating through the economy. Inflation actually solves the second problem rather than the first as it punishes those who hoard cash.

But it does so at the expense of those looking to borrow it productively. Wealth tax punishes hoarders without the collateral damage of preventing most from having sane mortgages.

That’s one side of the equation, but as always there are diminishing returns. Therefore, borrowing money should be mildly discouraged as ultra low interest rates results in a huge misallocation of resources.

That said, consistent low levels of inflation have minimal impact on borrowing as the future cash paying for the loan is discounted. In effect it simply forces a minimum annual loan repayment rate.

Some people argue that too much liquidity can lead to greater boom-bust cycles.

Economics reminds me of Software Engineering a bit, where smart people on two sides can argue opposite cases and both sound reasonable!

> Economics reminds me of Software Engineering a bit, where smart people on two sides can argue opposite cases and both sound reasonable!

Pet peeve: This is pretty valid for Macro Economics. Because it's an extremely difficult field.

Micro Economics is a solid hard science that has taught us many invaluable things!

Doesn't that make it even more like Software Engineering?

Ha!

Yes, maintaining and understanding large software systems is a process that's very hard to understand and control, despite basic Computer Science being very well understood.

that's because there's no correct answer, and has more to do with the person's political bias or leanings, than sound science.

Demonstrably false. Ten years ago a bunch of folks predicted a bunch of bad things would happen because of money printing and QE:

> We believe the Federal Reserve's large-scale asset purchase plan (so-called "quantitative easing") should be reconsidered and discontinued. We do not believe such a plan is necessary or advisable under current circumstances. The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed's objective of promoting employment.

* https://economics21.org/html/open-letter-ben-bernanke-287.ht...

A bunch of other folks (generally Keynesians, like Paul Krugman), said the above was non-sense.

The results of the 'experiment' came in: the Keynesians were right. See also "expansionary austerity".

In fact Krugman recently wrote an entire book on "zombie ideas": certain things that come up over and over again, often over several decades, but will not die; Arguing with Zombies:

* https://wwnorton.com/books/9781324005018

* https://www.theguardian.com/books/2020/may/03/arguing-with-z...

* https://www.theatlantic.com/magazine/archive/2020/01/review-...

There are correct answers. It's just that certain political classes find them 'inconvenient' (i.e., contradictory) to their ideologies.

There are of course complicated matters where things are open for debate. But some things have been settled.

That’s not proof at all. There is nothing that says the printing of money in 2008 had to lead to immediate inflation and in fact we’ve seen the prices of some things (real estate?) go up astronomically the past 13 years.

In economics you’re right until suddenly you’re not. Same thing with people like Peter Schaffer who was constantly wrong until he wasn’t.

But all of this doesn’t make economics a science with undeniable rules as to how the system works.

> There is nothing that says the printing of money in 2008 had to lead to immediate inflation

Few thing HAVE to happen. That being said, much of human behavior is linear optimization, which is predictable if you know the rules (and they don't change).

> There is nothing that says the printing of money in 2008 had to lead to immediate inflation

Which is exactly what Keynesians were saying. The Monetarists said otherwise. Guess who was right?

> and in fact we’ve seen the prices of some things (real estate?) go up astronomically the past 13 years.

Those "things" which have risen in price does not count as inflation. It has never counted as inflation. There is a different word that should be used for that phenomenon:

* https://en.wikipedia.org/wiki/Economic_bubble

I do not understand why this is difficult to understand: inflation/CPI is the cost of goods and services that are used on a daily/weekly/monthly basis. Asset prices are not one of those things.

Please stop using "inflation" when it comes to asset prices, as it does not apply. It's like pointing to a Boeing 787 and saying "boat".

> In economics you’re right until suddenly you’re not.

In economics, at least "good" economics, there are models. These models describe reality: some models are better than others. We should follow the ones that make (more) accurate predictions.

Keynesian models (for example) had problems with stagflation in the early 1970s, but by 1978 most text books had explanation as to why the earlier models broke down, and why the phenomenon occurred in the first place:

* https://en.wikipedia.org/wiki/Stagflation#Neo-Keynesianism

Some folks' models said inflation would occur from money printing post-2008; others' models said it was not. One group was right, and the other was wrong.

Similarly: a bunch of folks are worried about inflation after the US Congress passed the $1.9T rescue plan, others are not. This is an(other) experiment in which some folks will be right, and others wrong.

Whose model best/better describes (economic) reality?

AFAICT, the Keynesians have been right more than any other school of though. I'm sure they may/will be wrong at some point, but hopefully something will be learned and models improved.

> “ Those "things" which have risen in price does not count as inflation. It has never counted as inflation.”

I’m sorry you’re homeless, but it technically doesn’t count as inflation!

Housing is in the CPI and although it’s an asset it also a part of inflation. You’re being to pedantic with the term.

That’s wrong. The current theories may not have the right answers but it is a real system in the physical world so there is a “correct answer” or description of how it works. It’s subject to change but that only changes the description as well.

I think it's not wrong so much as you have tipping points that are really unknown, and a lot this depends on where we are in the tipping point. How much debt is too much debt? How much money printing is too much? How much is an asset really worth?

You can have a "correct" answer that's unknowable. Assuming you know everything, you can calculate everything. However, there is an amount of randomness in the system (and everything can't be known), so the 'right' answer is hard to know, will not always be correct, and is impacted by personal risk tolerances.

This is a side effect of Keynesianism, which places extreme importance on the abstract and oversimplified view of the economy represented by aggregated accounting identities.

The fact that CPI uses OER doesn’t necessarily mean oer is a good measure. During the housing bubble prices may have increased at a 17% rate while OER increased at a 4.5% rate.

I’d argue asking the question “what rate would you rent your home at” is fundamentally flawed and prone to underestimation. The answer is and always will be “the market rate for a rental in my neighborhood”. This number is generally greater than the interest+maintenance a fresh buyer would pay.

https://blog.principal.com/2017/07/06/owner-equivalent-rent-...

"Making everyone a millionaire" is so easy to refute. It's a nonsense talking point masquerading as an argument. It's a waste of time to consider it, but here we go.

There is value in being able to predict the cost of things, a wild swing in costs and monetary policy probably won't damage the system, but it will make assets difficult to value and our system needs to do that.

Done

The whole reason the stock market is a thing is because the cost of things is unpredictable. But next time your advice for fortune-telling will surely be better received with less arrogance.

> The world used gold/silver for its currency for most of human history until 1970 when we entered this period of worldwide fiat currencies. Our current situation is pretty remarkable.

This much is patently false, and probably even still false once you account for the accepted exaggeration in most appeals to the entirety of human history.

There was no unified monetary system for the vast majority of human history, never mind one based on gold and silver.

And for the smaller, more recent portion of human history it is again probably largely untrue. I'd point to Debt: The First 5000 Years by David Graeber [0]. I'm sure many people have many opinions on the work, particularly around these parts, but I believe it at least does a good job of refuting this particular statement.

[0]https://en.wikipedia.org/wiki/Debt:_The_First_5000_Years

https://wtfhappenedin1971.com/

I realize some of these graphs may be coincidences but it makes a compelling case for me in understanding our current wealth inequality. When you can create money backed by nothing, those closest to the printer will know best how to funnel it into their pockets.

The New Deal political coalition was shattered in 1968 and we've had neoliberal politics since then which are indifferent to economic inequality. Inequality has unsurprisingly gone up.

Blaming it on magic paper vs gold money to the exclusion of everything else seems like a red herring.

> The New Deal political coalition was shattered in 1968 and we've had neoliberal politics since then which are indifferent to economic inequality.

This is also a red herring. The New Deal did little to actually fix structural wealth problems. And "neoliberal" politics actually included a lot of progressive politics like negative income tax, drug legalization, prison abolition, etc.

A better reading of history would be that the post-war boom in the US mostly amounted to a lucky windfall and the US has wasted a lot of policies trying to recreate an economic boom using cultural levers.

Eh. The New Deal was a lot of things over 35 years but there was a consistent "bottom-up" theme that's been replaced by a "supply side" theme.

Neither set of ideologies explains everything, but lots of little decisions over a few decades can add up.

(Also, I realize we're being fast and loose with labels here, but after 20 years of Reagan/Bush/Clinton drug war, taking credit for legalization feels a little bold.)

> negative income tax, drug legalization, prison abolition, etc.

Under what interpretation of the word "neoliberal" do any of these things fall under? Especially the last two; find me a single person claimed to be neoliberal who supports either.

> The New Deal political coalition

I have a hard time seeing the discontinuity between the New Deal people you're referencing and the 1960s Great Society ones that pretty much iterated on the same themes of the scientific management of society through monolithic institutions with expansive powers.

It's pretty much relentless hubris with little to show and much to answer for.

Given china's rise, it would seem the argument is that scientific management with expansive powers in the western world didn't actually go far enough.

Depends on the outcome you're looking for, I guess. From a sheer "managing the macro architecture of civilization" perspective it's hard to argue -- the speed with which China can do substantial things is staggering. They trade that off for individual liberties, presumably. Which makes one wonder if the liberties we enjoy are worth the bargain, on net.

Or perhaps the question boils down to whether "on net" is the right objective function.

Both the New Deal and the Chinese system accelerated electrification and running water in rural areas by decades.

There's a lot of "quality of life" there that gets missed when people zoom all the way out and talk about state involvement, GDP and freedom.

> There's a lot of "quality of life" there

I guess you'd have to ignore what Deidre McCloskey describes as the Great Enrichment of liberal democracies:

"[...] a rise in real wages 1800 to the present by a factor of 10 or 30 or (allowing for improved quality of goods) 100, which is to say 900 or 2,900 or 9,900 percent" [1]

Meanwhile there's a certain propensity for incredible inhumanity, eugenics (in the case of the 1920s Progressive movement) and the outright abuse and "reeducation" of minority races in China.

[1]: http://www.deirdremccloskey.org/docs/pdf/IndiaPaperMcCloskey...

"1800 to present" is very much inclusive of the New Deal.

This is a great way of putting it. I'm really not sure it's worth it.

So if china suddenly collapses in the next couple of years will you retract your hypothesis?

If china suddenly grew legs and walked away, I'd rethink what I knew about animal life - but why deal in this particular counterfactual?

it's not. China is looking at a demographic collapse in the next few years that upends their running economic model and makes any future projections based on past history suspect. One of the ways out of demographic collapse is immigration, but somehow I don't see China's equivalent of US's Mexico/LatAM coming out of the global geopolitical woodwork. Immigration is simply not in China's DNA. Outside of immigration, no amount of "scientific management" or "good policy" will make 18-30 year-olds appear magically over the course of 5-10 years. Unless my understanding of biology is wrong and dolphins could sprout legs and walk on land, usually it takes 18-30 years.

I'm willing to change my mind. What sort of an ace in its hole does china have to change this situation?

What does demographic collapse mean, specifically?

The one child policy is 40 years old, China has been 4-2-1 for like 20 years at least, and no collapse has happened. Now they're allowing 2 children.

What's the specific thing that will collapse and be bad? An oversized retiree generation dying just frees up pension cash.

Hypothetically, what would occur if the federal reserve simply sent money to every bank account rather than trying to steer market interest rates? If it's an equivalent action then why do we only perform the action that is more prone to regulatory capture?

Theoretically, supply side economics. Demand side economics makes even liberal economists uncomfortable, because it's so closely tied to inflation of consumer goods. They would rather fund the industries that make the goods, so there are more goods (and jobs producing them).

It's clear that it isn't working, which is why a heretical sect of MMT economics wants to do demand side. It's a big change, the kind that takes a generation dying off to accomplish. Especially since it may not work. It's a genuine unknown, with the primary advantage that we don't already know what kind of regulatory capture it would cause. Which is enough for some, given how badly the current situation is fraying.

It's not an equivalent action. If you print money and use it to buy bonds, then if you ever want to reduce inflation you can just sell the bonds again. Whereas if you print money and give it away then to get it back you have to tax people, which is (a) unpopular and (b) involves 'the government bailing out the central bank'.

Why not give away printed money and raise interest rates on the backend?

Depends on which side actually needs the money.

You cannot make an absolute statement that consumers vs businesses deserve more money, you have to look at the current market.

However, the central banks have opened the flood gates for supply side monetary stimulus. It's not unreasonable to think that the demand side has been neglected massively and that money should be put into the demand side instead.

Well, the first question is: how much money?

That question is usually answered by the people willing to take out commercial loans. Without the market supplying that function, you’d have to try and figure this out yourself centrally.

The second issue is that you really are spraying money evenly across the whole economy, effectively starving productive ventures of capital while at the same time endowing moribund ventures with it instead.

So it’s not quite an equivalent scheme, it has different benefits and costs.

Because in a democracy, effectively granting the legislature the power to print money and hand it to citizens is fraught with some pretty obvious conflicts of interest.

(yes I know the Fed is “independent” but it is the tail on a government dog—the two are separated only in name)

Is the peril greater than giving money to large financial corporations? Extremely Large corporations often lobby or directly corrupt their surrounding regulatory authorities.

That's still really bad for the unbanked in the US.

https://www.sipa.columbia.edu/file/3345/download?token=rRqLL...

I don't get why people keep linking this page. How can you "understand" anything from a page which provides no analysis and presents numbers with no caveats? How can I trust that these charts aren't cherry picked?

What do you think of Capital and Ideology? Piketty posits some theories/hypothesis with caveats throughout and has a lot of data for certain countries and time periods, 75% of the book is history through the lens he is examining.

I can understand being critical of this particular page, but more generally:

> How can you "understand" anything from a page which provides no analysis and presents numbers with no caveats?

Presumably because one is able to do one's own analysis and think for themselves. Everything starts out as raw numbers.

> How can I trust that these charts aren't cherry picked?

Can you ever?

> Can you ever?

If we're talking "generally": Yes, we can trust that charts aren't cherry picked by reading the analysis. A proper analysis would include argumentation for why this metric is critical and why this chart is interesting.

This criticism applies to anything that isn’t formal mathematical proof.

I asked for analysis and source assessment, none of which is part of a formal mathematical proof.

Analysis can be misleading too.

All money is backed by nothing. The idea that the gold standard was pegged to some eternal constant of nature is a fantasy.

Fiat currency is backed by the existence of an economy that exchanges fiat currency for goods and services. If that economy disappears you get hyperinflation. See Zimbabwe and Argentina as examples of countries that destroyed their economies and suffer from hyperinflation as a result of massively reducing the ability to exchange money for food.

Think about it this way. You play a video game with micro transactions. You receive 1000 units of premium currency. Why is that currency valuable? It's valuable because you can exchange it for cash shop items. Imagine if the cash shop shuts down but the game keeps running. Your currency would be worthless because you lost the ability to exchange it.

The idea that proponents of the gold standard assert that its value is tied to some eternal constant of nature is also a fantasy.

It might be a bit of an exaggeration, but not by a lot. I think there is a heavy dose of magical thinking in it, and plenty gold bugs really, actually do seem to think there is something special about gold.

I even once got into a discussion with someone on a science fiction forum who's belief in gold was so absolute that he thought it would inevitably be the foundation of all interstellar commerce, even with alien species because gold is so unique it's one thing everyone would inevitably agree on being a universal store of value.

Actually, all money is backed by the available goods and services in an economy. It is a plate that spins itself.

No one is forced to give up their goods and services for any specific money.

Money is “backed” by the trust that someone else will be willing to accept it at a later date for goods and services.

Well, you’re forced to pay your taxes in specific money, so that’s one thing.

Isn’t the point that gold is finite?

A lot of excellent other answers, so I hesitated to chip in but I think there is a useful way to think about this.

If the unit of exchange was always physical gold coins then yes, there would be a finite amount of money. However the moment we turned to promissory notes, cheques, bank notes and financial instruments such as in fractional reserve banking the link to physical gold was a fiction. Such notes have been around a very, very long time although of course increasing in prominence over time.

It was a fiction even for precious metal coins as well because the moment a government started running low on the metal, or just wanted to inflate it's currency, it would just debase the coins.

Even if we think gold is finite (doubtful in any meaningful sense), it does not follow that the amount of money (in the modern sense) would be finite in gold standard.

Gold standard means that the value of an unit of currency is tied to a specific amount of gold. In addition it may mean that the amount of bank notes in circulation in such system matches the amount of gold in the vaults of central bank.

Neither of those means that the amount of money people have lent to the banks (i.e. money at their bank account) has any meaningful relationship to the amount of gold - at least without extremely strict regulation of financial companies, lending and saving.

(Of course, same applies to cryptocurrencies, the claim that current cryptocurrencies would somehow set a limit for money creation is just a massive misunderstanding of money and credit.)

I don’t understand what you’re trying to say. How does “lending and saving” change the fact that money can’t be created out of thin air?

That's not a fact. Money can and will be created out of thin air regardless if your monetary system is built on central bank money, gold or even bitcoin.

A naive example:

Alice has a gold coin. she walks to a bank and makes a deposit. Now she has one gold coin in her bank account and bank is holding her coin.

Now Bob walks into the bank and says that he needs a loan of one gold coin to buy things. Bank happily lends the coin received from Alice to Bob.

Bob walks to Alice and buys things from Alice and gives the coin to Alice.

Now Alice has one gold coin and another gold coin at her bank account. Total amount of money she has is now two gold coins, even if only one gold coin exists in the whole universe!

And yes, that money at her bank account is as real money as money nowadays gets. And yes, the truth is even more weird, you do not even need to circulate the money as in the naive example, banks can and will just create money out of thin air to people's accounts. After all, the money at the account is literally, literally nothing more or less than a way for bank to say that it will pay you money some later date if you so wish. To make that promise, you do not need any money to exist anywhere. Even I can do that promise on any imaginable currency (what that promise is worth is another discussion). And as said, this has absolutely nothing to do with what "base money" the monetary system is built on. And of course, this is the reason why financial system is so heavily regulated.

That promise is based in trust that when someone wants their gold back out, they can get it.

If there is little confidence in that, people wouldn't store their gold there.

There is, therefore, a natural limit to how fractional your reserve can be and keep trust over a long term.

With fiat currency backed by nothing, the reserve no longer needs to exist at all as long as you have control over the creation of new money.

I'm not saying the gold standard is the answer but it is different. That difference does not go away when we talk about lending.

But Bob has -1 gold coin in his bank account, so there is still only 1 gold coin. If Alice deposits her "new" gold coin into her account, the bank still has only one coin. If Alice demands to withdraw her 2 coins, the gold bank won't be able to comply, whereas the fiat bank would just print another coin.

His point is that most money is indeed created out of thin air through the mechanism of fractional reserve banking and the creation of debt.

This happens even if the monetary 'base' remains a fixed quantity, like bullion gold.

Fractional reserve banking doesn't actually model how banks work in the modern economy though - they don't lend out deposits, they just add a figure to the customer's account and add a matching loan to their assets, literally creating money. They could do this without any deposits at all.

Yes, but minimally you can create disclosure regulations requiring entities that are lending to disclose the level of leverage they are operating at. Customers can then discriminate when they deposit based on withdrawal risk.

Sorry, your comment made me laugh a bit. You know, before the smartest guys were incentivized to figure out how to make you and me click ads, they were incentivized to figure out how to circumvent financial regulation. Turned out that it is really, really f*cking hard to write a regulation that can't be somehow gamed. And even if it was not, you need to remember that vast majority of people do not know how to handle percentages, it is quite naive to expect that those people could make any rational judgements based on any financial disclosures whatsoever. Just look around, Madoff managed to con quite a few sophisticated investors, and to anyone with any common sense Tether has been behaving exactly as if they would be doing their best to scam the whole crypto scene - and nobody cares or requires disclosures.

Under standard definitions, every bank loan creates money out of thin air. When you get a $10k car loan, for example, that means the amount of money floating around the economy has increased by $10k; there's nobody else in the market who has to spend $10k less because you got that loan.

We pull gold out of the ground all the time. It is finite only in theory.

We pull gold out of the ground when it is economical to do so. That is to say when the exchange of gold to currency is favorable for extraction, which can also be conveyed to mean that when there isn't enough gold to the demand of currency for gold.

It's infinitely easier to print money at will, which is what keeps happening. Gold has intrinsic value for practically all of human existence.

Coming from a gold bug: you can still create an infinite number of IOUs on gold. Thats what the dollar was before Nixon closed the gold window. The fed was running a fractional reserve on their gold. Believe it or not they still are today, despite folks and major nations no longer have the ability to trade their dollars for some amount of the US treasury gold.

Look into the market value of the gold certificates that the fed has on its books. The fed hasn't marked their gold position to the market since the 70s. Very peculiar if you ask me. Also consider why each of the federal reserve banks trade these certificates amongst one another.

On top of that you can read the treasury's website and find that the policy states that the treasury gold plays an important role as collateral on the dollar https://www.treasury.gov/resource-center/faqs/Currency/Pages... "Congress has specified that a Federal Reserve Bank must hold collateral equal in value to the Federal Reserve notes that the Bank receives. This collateral is chiefly gold certificates and United States securities. This provides backing for the note issue. The idea was that if the Congress dissolved the Federal Reserve System, the United States would take over the notes (liabilities). This would meet the requirements of Section 411, but the government would also take over the assets, which would be of equal value. Federal Reserve notes represent a first lien on all the assets of the Federal Reserve Banks, and on the collateral specifically held against them."

Yeah... sometimes I think Mises should be required reading for anyone commenting on HN threads about money. If anything, his descriptions of money and money substitutes are even more relevant in the modern financialized economy, where substitutes (i.e. derivatives) now exist for every imaginable asset class.

> you can still create an infinite number of IOUs on gold

This is why Islam, Judaism, and Christianity prohibit interest. That closes the door on exploits like this.

>Gold has intrinsic value for practically all of human existence.

The intrinsic value argument hardly makes any sense because it's almost always lower than the actual value. Someone interested in intrinsic value would be buying copper, not gold.

The intrinsic value of gold is an answer to whether gold will stay relevant 5000 years from now. It will guarantee that gold will always have some residual value, it doesn't guarantee that its current valuation is correct.

Compare this to Bitcoin which can be replaced by any competitor.

Compare this to the US dollar which is required to pay taxes. You will still see a use case for the dollar in a hundred years.

Nothing has intrinsic value

Obviously a statement like that requires some explanatory notes?

When talking about money, the term intrinsic value means the market value of the commodity the money is made from, versus the face value of the money.

This is very real and has been exploited in the past, with people effectively melting down large quantities of money and selling it as a commodity.

The rate is limited, though.

The finiteness of gold doesn’t imply any particular monetary value for it. The pre-1971 gold standard was maintained not by concrete standards of value but by global scale market manipulation; as we can see in market data since then, the actual market clearing price of gold is much more dynamic than the fixed peg imposed by gold standard laws.

The monetary value of gold emerged organically because it turned out to be the best available option for transactions between untrusted parties. After the emergence of modern states, this use case was restricted to cross-border payments since strong legal protections and centralized banking systems made fiat currencies trustworthy enough for domestic commerce.

But anyways, if one looks at why gold emerged as the preferred money for its time and place, “finiteness” aka non-zero marginal cost of production is certainly a relevant factor.

It does not follow from the post- gold-standard instability of gold that the prior stability was due to market manipulation; the nature of the asset changed fundamentally. You might say the gold was "backed by" the financial system, whereas now it's a speculative asset no better than BTC.

The point is that there was no underlying law of nature attaching gold to the financial system. The only thing "backed by" meant was, the government promised to trade gold and regulate the gold market as required to maintain their declared peg. Maybe it's a bit of a "hot take" to call that manipulation, but I don't think it's untrue or unfair - in some countries (although not the UK) governments went as far as simply prohibiting private speculation in gold.

Or... switching to a fiat system enabled the economy to expand faster than labor policy (minimum wage, maximum work week) has been able to keep up, enabling those at the top to exploit the gains.

Ignoring that half those graphs are just arrows pointing to arbitrary knees in exponential functions, I couldn't find this one which, unlike most on that page, directly graphs an ongoing policy choice, minimum wage vs. productivity: https://i0.wp.com/chicagopolicyreview.org/wp-content/uploads...

If you want a long debunking of that graph then read this:

https://economicsfromthetopdown.com/2020/01/17/debunking-the...

The alternative possible explanation, which is never mentioned, is the advent of electronic automation, and out-sourcing of labour.

Labor has been constantly automated away since the start of the Industrial Revolution, ~250 years ago.

It is how we all got immeasurably richer since then, while constantly fearing that all jobs will be automated away soon.

When you have money backed by gold, those who have it benefit from its appreciation. Same is true of any deflationary currency.

Wealth tends to flow uphill. Even in Communism the politically connected realized that wealth in that system was political capital and learned to position themselves to accumulate it. There is a reason the USSR collapsed and gave way to one of the most aristocratic states in the world.

I don’t discount that site though. A lot more happened in or around the early 70s than just the collapse of Bretton Woods.

I also don’t dismiss your comment as untrue. A fair inflationary currency would almost literally drop money from helicopters, not issue it to banks and governments. Still I imagine over time people would learn how to chase the helicopters.

All systems will be gamed. No exceptions.

Indeed. There is a reason why the ancient Hebrew laws dictated that every 50 years all debts are wiped away and all assets returned to their hereditary owners.

> When you can create money backed by nothing

Isn't that what money really is about?

Debt and money go together. When you take on debt your creditor can decide to sell his credit to somebody else, de facto using your promise to repay your debt as a currency.

Isn't your promise...just a promise? Yet you can buy stuff with it?

Fungible debt is a money substitute. The strictest definition of money would require that it has no counterparty.

Know what happened earlier?

Congress lost secret voting,

https://www.congressionalresearch.org/Jumbotrons.html

I'm more of the opinion that our problem is hyper targeted lobbyist money...

The current wealth inequality is caused by the productivity gains being concentrated on a smaller population. One Amazon can provide goods far more efficiently than thousands small businesses.

I’d say this explains the 90/10 wealth gap. The 99.9/0.1 wealth gap stems from financialization and central bank-supported moral hazard.

What is the arrow supposed to represent there? Nothing interesting seems to change at the arrow point, except for inflation.

Obviously it represents the point where productivity increased but real wages remained stagnant. I think you’re purposely pretending not to understand it though.

On half those graphs the arrow points to an arbitrary "knee" on an exponential function. It's a graphical version of the Gish Gallop [1] and conspiracy-theory "it makes you think!" arguments. Explanation is definitely warranted.

[1] https://rationalwiki.org/wiki/Gish_Gallop

Except there are numerous flaws with the construction of that graph:

https://economicsfromthetopdown.com/2020/01/17/debunking-the...

It's some 2 to 4 years off the end of the correlation on that first graph.

Please. He obviously meant gold or gold-backed currencies. Which indeed ended in 1971 with Breton-Wood.

Let’s be kind and “assume the strongest plausible interpretation of what someone says, not a weaker one that's easier to criticize.”

Gold-backed currencies are, similarly, a historical aberration. They only came into being around the 1870s!

States have picked all kinds of units for accounting and tax purposes for literally millennia. Wheat, silver, wool, gold. They adjusted standard weights and measures all the time to manage their debts and the economy. Fiat is the historical norm, going back about five thousand years.

Separately, some governments have made coins out of various things for a little over two thousand years. And separately still, people have traded gold throughout history as a commodity.

But it's just not true that gold and silver were de-facto money somehow until 1971.

The original article is itself an incredibly long-winded exercise in this kind of bad faith argument... also called a “straw man”. The final paragraphs make that clear, when they claim that the inflation fearmongering is just a front for anti-statists. So if that’s what this is all about, why not just write an article about the merits of a state-directed economy and dispense with the charade?

That itself seems like a straw man. "Anti-statists" is your term -- neither "statist" nor "anti-statist" appears anywhere in the article. And it doesn't say anything at all about a "state-directed economy"; I'm not sure precisely what you mean by that but on the face of it it sounds like a Soviet-style command economy, which scarcely anyone wants (including, I think, Richard Murphy) and certainly isn't the only alternative to the sort of small-government right-libertarianism he seems to be complaining about.

But let's suppose that what Murphy really wants is a "state-directed economy", and that he's concerned that opponents of that are making bad arguments about inflation to oppose it. In that case, why shouldn't he write an article explaining why he disagrees with the key premise of those arguments, namely that there's a real danger of problematically high inflation?

It seems like the principle you're appealing to ("why not just ... and dispense with the charade?") is that if you want X, you should always just argue for X rather than addressing bad arguments against X. I think that principle is very wrong. People are often persuaded by bad arguments, and if someone has been persuaded by a bad argument against X then they will likely not listen willingly when you present your arguments for X. (Because they already know X is bad.) But if you write something about the specific argument they've been convinced by, they might pay attention, and you might convince them.

That was how I was interpreting it. Again, I refer to the book mentioned.

If the strongest possible interpretation is that gold and gold-backed currencies were universal throughout human history until 1971, that is also wrong.

Gold and silver have been money for thousands and thousands of years, that doesn’t mean it’s a unified monetary system, it was just a natural occurrence.

Back when dimes were silver you could get a gallon of gas for about a dime. If you found a silver dime today and sold it for melt value you will get pretty close to being able to get a gallon of gas for that dime still!

Rome had a money system based on silver and it was eventually debased. https://en.wikipedia.org/wiki/Denarius

> There was no unified monetary system for the vast majority of human history, never mind one based on gold and silver.

In case this is an honest misunderstanding:

Pretty much every society in history used gold, silver, or some other rare natural resource. Of course there was never a global such system, but OP didn't mean to say that.

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

I'm not certain what you are referring to with that article. I don't see much that inherently and obviously supports your assertion.

In fact it references the same book I mentioned earlier, which clearly talks about the lack of such systems in early societies. And of course, such societies dominate human history.

If you want to talk about more modern well-recorded history, again I turn to the book mentioned. And there the simplest summation I can come up with is "yes, but no."

> To arbitrarily exclude the biggest expense to consumers from CPI is pretty misleading.

Why is there so much misinformation about the CPI? Literally the biggest component of the US CPI (at 33%) is housing/shelter. See Table 1, column Relative Importance: https://www.bls.gov/news.release/archives/cpi_02102021.htm

At least get familiar with the definition before criticising anything.

CPI does NOT include housing in the UK - and this article was written from a UK perspective.

In the UK:

“The CPI takes no account of housing costs”.

“the CPIH does include [housing costs but] it uses an approach called ‘rental equivalence’ – not the mortgage payments but how much rent the householder would pay for an equivalent property”.

“the RPI takes account of mortgage interest payments”.

From: https://www.thetimes.co.uk/money-mentor/article/rpi-versus-c...

You are correct about its inclusion but how home asset inflation is measured is arguably faulty - more akin to an 'implied rent'.

https://wolfstreet.com/2021/03/11/house-price-inflation-in-c...

> The whole argument for printing money being OK is dumb. If it's OK to print money to pay for some things why are you not doing it more? Why not make everyone a millionaire?

Ah yes the classic some’s good more’s better fallacy. Some salt is good on food, but keep adding more and it’s inedible. Just because there isn’t a discrete point where you can say it’s too much (that one grain made it too salty) doesn’t mean that there’s no such thing as too much.

There are many other such cases, for example drug titration springs to mind.

Like with salt, there is definitely such a thing as too little of it though.

How do you know that it's not like alcohol, where there all levels of consumption increase cancer risk?

There's a similar controversy about radiation hormesis[1]. Personally my suspicion is that low doses are at least harmless if not therapeutic, because of the evolutionary benefits of the stress response[2]. However I do freely admit that it's possible that there is no therapeutic or even safe level of alcohol consumption. Similarly there may be no safe level of BPA exposure or any number of other stressors.

[1] https://en.wikipedia.org/wiki/Radiation_hormesis

[2] https://en.wikipedia.org/wiki/Stress_(biology)

> The whole argument for printing money being OK is dumb. If it's OK to print money to pay for some things why are you not doing it more? Why not make everyone a millionaire?

This is a variant of the "slippery slope" fallacy.

Money is being printed to maintain liquidity, at the cost of inflation, because a liquidity crisis is considered worse than inflation.

Indeed, if you're in the market for a new home, you are paying a huge premium due to asset price inflation. However, this alternative is preferable to the situation where a liquidity crisis causes massive waves of bankruptcies, leaving you without a job to finance a home in the first place.

Your (proto-Austrian?) view of economics has long been disproven empirically, as well as theoretically (monetarism and subsquent). Its only purpose now is to sell gold/silver to people who need an oversimplified economic theory that fits their world view.

It might also be worth noting that the current practice of quantitative easing incorporates a potential corrective mechanism for inflation that the traditional monetary expansion associated with historical episodes of hyperinflation did not.

When central banks engage in quantitative easing, they purchase financial assets (typically government bonds, corporate debt, stocks etc.) that can in principle be sold back to the market at a later date. When an initial central bank purchase is made, the amount of money in circulation increases, but that increase can be reversed if the asset is sold. If the asset is sold at purchase price, there is no net change in the money supply; if it is sold at a loss there is an increase proportional to the loss, and if it is sold at a profit there is a decrease proportional to the profit.

If money creation is instead used to, for instance, purchase consumable goods and services or pay wages (this is typically what happens when hyperinflation occurs), then the monetary expansion cannot be reversed in the same way — some other mechanism like tax rises would be needed.

The economic behaviour of the recipients of the newly created money is also significant. If consumers are the recipients then, all else being equal, the prices of the goods and services that consumers buy may be expected to rise. If banks and large corporate investors are the recipients of the money then, all else being equal, the prices of the things those organisations buy (principally investments like bonds and stocks) may rise.

My understanding is that the experience with quantitative easing has been that it has caused a kind of price inflation, but primarily the prices affected have been those of the assets purchased by institutional investors (i.e. stock markets have risen, and bond yields and interest rates in general have been suppressed).

> The economic behaviour of the recipients of the newly created money is also significant. If consumers are the recipients then, all else being equal, the prices of the goods and services that consumers buy may be expected to rise.

Furthermore, even when consumers are the recipients, inflation is not necessarily to be expected when that money is replacing lost income. In that case, spending (and thus demand) remains the same. Inflation would not occur unless there was a simultaneous drop in supply.

People pointing at Venezuela or Zimbabwe as cautionary tales of money printing often ignore the decades of economic mismanagement that preceded the money printing.

Are you implying that the US and the UK havent had decades of economic mismanagement? Ooh boy, that is rich.

> Ooh boy, that is rich.

Noblesse oblige.

"that can in principle be sold back to the market at a later date"

What's the material difference, in your opinion, between the threat of the central bank selling back existing government bonds, and the government just creating new bonds of precisely the same type.

There is no money in circulation. All that has happened is that the type of savings has changed - from holding government bonds to holding bank deposits.

And that just means the term and interest rate has changed on the financial instrument.

The fundamental problem is the belief in interest rates and how they work is wrong in practice. People hold savings for a myriad of reasons.

> What's the material difference, in your opinion, between the threat of the central bank selling back existing government bonds, and the government just creating new bonds of precisely the same type.

In the former case (where the central bank sells back government bonds it has previously purchased from investors as part of a quantitative easing scheme), all else being equal, money is withdrawn from circulation and the total stock of government debt remains the same.

In the latter case (where the central bank does not sell any of the government bonds acquired from investors and the government issues new bonds of equal value instead), the total stock of government debt increases, and assuming the government spends the money raised from selling the new bonds as is usually the case, the amount of money in general circulation remains the same (though investors in government bonds have less of it, to the extent that they are not net recipients of the increased government spending).

This is assuming the simplest model; in practice of course, the details will differ consequentially depending on how these processes operate in different jurisdictions. For example, to the best of my knowledge the central banks I'm most familiar with are required to remit interest payments on government debt back to their national treasuries; and in the European Union, direct central bank monetisation of government debt is supposed to be illegal — things like this complicate the picture in reality.

I can see from your other comments that you are well-informed about these details, so I would defer to you there.

I think its a good summary, but one should stress a key point:

All this QE, aka money printing, can only be removed in a "nice" way if the additional liquidity is to a larger extend used to create additional value rather than consumption.

De facto, most of the liquidity is consumed without added value (Zombie companies, certain government expanses,...)

This can only work for a finite amount of time.

> This can only work for a finite amount of time.

The economy of Japan is living proof that it can work for a very long time, with no clear end in sight. Nobody wants to be the one push the "reset" button.

>Money is being printed to maintain liquidity, at the cost of inflation, because a liquidity crisis is considered worse than inflation.

I think this is sort of right, sort of wrong. It's not so much as liquidity in so much as preventing deflation. Though yes we are in a liquidity trap at the moment.

https://en.wikipedia.org/wiki/Liquidity_trap#Origin_and_defi...

The central banks especially several in Europe lost control of their monetary base. They have gone to negative interest rates + legally requiring pensions funds and similar to purchase these bonds. In other words the governments are robbing the retirees.

The government's goal right now is to prevent the recession from becoming a depression. In fact everything has aligned to make this recession turn into a depression. The only reason it doesnt appear to be a depression is because of expansionary monetary policy.

>Your (proto-Austrian?) view of economics has long been disproven empirically, as well as theoretically (monetarism and subsquent). Its only purpose now is to sell gold/silver to people who need an oversimplified economic theory that fits their world view.

Disproven empirically? Could you provide a link for me to read on this? I do understand that Austrian school is criticized and not generally used but I dont feel like it has been disproven.

What's wrong with a massive wave of bankruptcies, exactly? Proper bottom-up restructuring seems to me like a good way to stimulate a more robust economy at the expense of some temporary resettlement pains. Not to mention the erasure of a catastrophically building debt which is largely a product of mass-manipulation driving people to desire things which they do not need which leads them to dissatisfaction and leaves them vulnerable to squeezes which HR takes advantage of with the panopticon and massive insecurity. The culture needs shook't. The status quo is broken. This is just a bandaid to maintain spreadsheets while 99% of people take a spanking for a system that works against the human condition.

I'm gonna have to take "Chesterton's fence" sort of position there.

Sure, there's a chance that whatever arises from the ashes is going to be more efficient than whatever preceded it. There's also a chance that whatever is there right now is about as good as whatever the new thing will inevitably converge to.

Either way, blowing it all up at once seems unwise.

> A normal household has to pay rent or make mortgage payments. To arbitrarily exclude the biggest expense to consumers from CPI is pretty misleading.

Housings costs are included as part of the CPI. I'm not sure why you think otherwise.

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

No, it really isn’t. From your link:

“If someone were to rent you home today, how much do you think it would rent for monthly[...]”

That’s a very poor proxy for housing cost.

First of all it’s a guess. A guess from whom? What do these oracles know about how much their home can rent for if they haven’t put it up?

Second, the homes available in the rental market are vastly inferior from (for example) my home. I cannot find a home remotely as nice as my home (bought in 2017 for 320k, currently valued for 400k - pretty average middle class home in my city) but I can’t rent mine for what I’d want to rent it for [1] - so the supply and demand price don’t overlap for my type of home in my city. Without overlap of price, the question, as it pertains to my home is meaningless.

On the other hand, there is an easy way to include housing price for owners. Add price of homes to the CPI. In fact, investments generally should be included, since they are goods whose price raise with the increase in monetary mass

[1] is the accelerated deterioration of my home, and the headache of being a landlord worth the $1400/month renting it to a family? No. Can I rent it for $1800 by splitting it into rooms, say, for students? $1800/month is not worth having destructive students live here.

It's certainly true that calculating imputed rent can be tricky and is probably subject to some error. However that does not make is meaningless.

Ok, let’s say not meaningless.

Let’s say it has (my guess of my particular case) a 30% error. What happens to CPI if the weighted average of housing is off by 30%? Assuming housing is a third of CPI, that puts CPI up to 10%.

Look, I’m actually looking to buy a home out in the country and remote work from there. I’m actually living the problem of “should I sell my home or rent it out?” It’s not a survey question, that’s for sure!

It's less of a problem than you think because the error can't compound. An error of 30% compounded over 10 years can't grow to a 1300% because if you compare the two years directly you'll see there's a huge mismatch.

“If someone were to rent you home today, how much do you think it would rent for monthly[...]'

That’s a very poor proxy for housing cost."

Agreed. Rental data is publicly available. Why bother asking only to get a worse answer?

The question is asked to owners. Renters are asked how much they actually paid in rent. The main reason why owners are asked for their estimate is because owner-occupied houses can be systematically different (probably more expensive/higher class) than renter-occpied houses, so estimating owner-occupoed rents with actual rents can be biased.

The GP is mistaken in assuming that rent is excluded from the CPI, however mortgages and other costs of home ownership are not considered consumption and are therefore excluded. This is the first item of the FAQ in the document that you linked.

As a matter of fact, home ownership has become a highly speculative play for the ordinary wage earner and this is largely due to asset price inflation as a result of low-interest rate policies (worldwide, not just the US).

It's important to understand that while mortgages are not part of CPI, imputed rent is. So the consumption costs of living in a home one owns are taken into account.

Imputed rent is meaningless since there’s no market discovery of the price.

It’s like asking what the position and momentum of particle is simultaneously. You can’t know the price of something you don’t intend to rent unless you rent it, but you’re not renting it because you have no intention of renting.

Even if you “pretend” to rent by putting out a fake add and then not signing the rental agreement, that doesn’t count. That only gives you the demand side of the price. Since you know that you don’t intend to actually rent your home, you will not give serious consideration the opportunity cost of renting out your home.

>Even if you “pretend” to rent by putting out a fake add and then not signing the rental agreement, that doesn’t count. That only gives you the demand side of the price. Since you know that you don’t intend to actually rent your home, you will not give serious consideration the opportunity cost of renting out your home.

The point of the fake ad is to gauge what the current market clearing price is, which presumably already takes into account the current supply/demand. It's not any different than using the current stock price to judge what an entire company is worth (market cap), even though only a fraction of the shares are actually on the order book.

Two problems with that:

1. Clearing price assumes efficient markets. My house in my neighborhood is one of maybe three (probably much less judging by the rental units friends of similar means live in) like it that will be available throughout the year.

I don’t agree a fake add will get the clearing price in these conditions.

Even if I put up an ad to rent a room in a student house -one of tens of thousands in a typical college town- the hypothesis fails since students are extremely sensitive to distance to their main building, nearby amenities, availability of parking, etc.

2. Even in the stock market the clearing price is dubious; the market cap of a company is a useful bit of fantasy. By multiplying the clearing price by the outstanding shares there is an implicit and incredible assumption that all the shareholders value the shares equally - which is obviously not true, some share-holders believe the stock has more promise, others are sentimental (the founder’s family members).

And that ‘price*shares == company worth’ is not true is evident in mergers and acquisitions which can be very acrimonious events. If the clearing price times the outstanding shares were a fair measure of the market cap, why would rational investors care about a merger except for the costs associated w/ closing?

But bringing this all back to the OP. Housing cost for the majority of the middle class is not meaningfully included in the CPI, except with a flawed metric.

>1. Clearing price assumes efficient markets. My house in my neighborhood is one of maybe three (probably much less judging by the rental units friends of similar means live in) like it that will be available throughout the year.

Yes, low liquidity in the rental market means that there's a spread in the estimates, but I don't see how it follows that "imputed rent is meaningless". The low liquidity can cause the estimate to be both above or below reality. Do you have evidence that the inflation numbers for the housing component of the CPI is totally detached from actual market prices?

>2. Even in the stock market the clearing price is dubious; the market cap of a company is a useful bit of fantasy. By multiplying the clearing price by the outstanding shares there is an implicit and incredible assumption that all the shareholders value the shares equally - which is obviously not true, some share-holders believe the stock has more promise, others are sentimental (the founder’s family members).

Again, this seems to be more of a complaint that the market cap figure isn't 100% accurate, rather than that the number is "meaningless" as claimed in your original comment. It seems like the entirety of your argument (for both imputed rent and market cap) is "well there are these factors that causes the number to be inaccurate, therefore the number is totally meaningless and should be ignored".

> It's not any different than using the current stock price to judge what an entire company is worth (market cap)

It's interesting to note, the stock price is a small part of a company's valuation. There are many different structures for stock issuance.

It's not meaningless. It's an estimate based on market data.

Every component of CPI is an estimate, that doesn't mean it's meaningless.

As others have pointed out, this is handled differently in the UK versus the US. You are correct for the US standard definition of CPI, but the author of the article is a professor in the UK, writing on a UK domain for a (primarily) UK audience. Here's a link that another poster provided that summarizes the UK definitions: https://www.thetimes.co.uk/money-mentor/article/rpi-versus-c....

My biggest beef with housing in the CPI is the fact that housing costs are underrepresented in general, and drastically underrepresented for some segments of the economy. The weight of housing in the index is something like 24%, but the average housing costs for the top 20% of incomes is closer to 29% of income, and it gets above 40% of income by the time you get to the bottom 20% of incomes.

So by underrepresenting housing's weight by that much, combined with the fact that housing prices are growing much faster than everything else in the index, combined with the drastic disparity in housings effectively "felt" weight on inflation for people of different incomes, and you get this problem: things may seem fine to a banker on the Board of Governors of the Federal Reserve, while the bottom 20% rightly thinks our nation is going up in flames. There is a massive disconnect between what the metrics say and what people are actually experiencing, and nothing is happening about it because the metric still feels right to the wealthy people that control it.

Shelter accounts for 33% of the index, not 24%: https://www.bls.gov/news.release/archives/cpi_02102021.htm - I'm not sure where your figure originates, but it's wrong.

>> Ultimately, printing money doesn't make anyone more productive or produce anything.

That statement is easily refuted by running it backwards: say reducing the amount of money in circulation via a huge once-off tax would thus have no impact on productivity which of course is silly.

>> If it's OK to print money to pay for some things why are you not doing it more? Why not make everyone a millionaire?

if drinking water is good, isnt drowning even better?

Creation of money either by expansion of private debt or governments running a current account deficit have always had the effect of goosing GDP figures. The 'free money' the central bank is creating is merely nominally swapping out the value of private-debts for equivalent nominal government debts. The money-creation is the net difference between the two and not equivalent to a blanket cheque.

> That statement is easily refuted by running it backwards

Operations are not correct based on if they are reversible, nor are economic truths.

Economic truths are remarkably robust to reality or logic.

Even ignoring the incredibly false claim that we used gold/silver systems for most of human history, what is mining gold or silver if not "printing money"? Why is that considered acceptable by gold/silver proponents?

The fact that gold and silver’s value is really just as arbitrarily assigned as the value of anything else is usually also overlooked.

It's more that the amount of gold and silver cannot be manipulated as easily as paper/fiat money.

Proponents of the gold standard, at heart, simply does not trust the authorities to set fiat policies. Sometimes, that's a correct assessment (ala, Venezuela). But in the US, and other developed countries, the central banks are fairly transparent, and at least tries to keep to their mandates.

I personally don't believe that the problem is with the currency. The problems lie deeper. If fiat mismanagement is all it took to ruin an economy the USA would be suffering from hyperinflation by now.

The truth is that these countries suffer from structural problems like food imports and petroleum exports that have dropped in value. If they were able to produce their necessities on their own they wouldn't be such problematic countries.

I’ll grant the “as easily” part, but also counter with diamonds and China’s influence on the availability of rare earth elements.

It isn't. Gold/Silver are tangible stores of value. The value is imaginary but humans like to see and touch things and decorate their houses with shiny, and you can't paper your walls with government IOUs.

Which is why we don't have a gold/silver economy, but we do have a property and land economy which has taken its place.

These "investments" are based on a pile of almost-free fiat government IOUs. They have been converted into equally imaginary tangible value. You happen to be able to live in this store of value if you choose to, but at the high end hardly anyone does.

It's a form of imaginative arbitrage for high end abstract markets, just like gold/silver, cowrie shells, and big round rocks are. (And BTC, in its own way.)

Which is why at the high end economics is almost entirely faith-based. Fundamental use value is swamped almost instantly by an imaginary tradable value. And that is based entirely on faith in the stability and potential of the investment of your choice.

The consumer market is different because prices - including rentals - have some relationship to scarcity and use value. But there's still a large element which is faith-driven and subject to an irrational boom/bust cycle as faith and hope waver - partly driven by central bank and government signalling about future outcomes.

>incredibly false claim that we used gold/silver systems for most of human history

Can someone elaborate on why this is false? Archeologists have found precious metal coinage going back to the dawn of civilization.

The existence of coins is not the same thing as "using gold/silver for its currency". We have gold coins today and that clearly isn't enough to satisfy goldbugs.

I'm sure someone else can explain this more eloquently, but I believe the basic idea is this: any time you make a transaction that isn't settled on the spot, at least one of the parties is extending credit.

like suppose one person has more grain than they need. everyone else is starving, but they have nothing to trade for grain. if the grain person agrees to let the other villagers have grain now in exchange for the promise of an ox next year, they have in a sense expanded the money supply. this type of arrangement can be implicit and difficult to track. maybe there was no explicit promise of an ox, but an unspoken understanding that a favor would be owed in the future. it still has the effect of expanding the money supply without digging rare metals out of the ground.

The modern central banking/inflation/'debasement' conspiracy theorist is interested in a return to a gold standard - that is, paper currency that is backed by reserves of gold, as (kind of, sometimes) existed from ~1850 to 1950, rather than a return to currency actually physically containing gold (or, more usually, a metal other than gold).

They are not the same, but speaking about them at a high level abstraction allows one to pretend that there was some continuous system in place that was abruptly overturned in recent times, for ostensibly nefarious reasons.

They trust the global supply of gold/silver as a limiter more than the gov't's self-control.

At the moment we have new money being created by central banks and given to privileged institutions who get access to free money. They use that to buy investments: real estate, stocks, etc. These are precisely the things getting really expensive. The last things to get more expensive during big cycles of inflation are employee wages.

Indeed. If a government is dead set on printing money then it should give that money directly to people - many of whom will use it to pay down mortgages so the banks will get it anyway, but it will also do some good on the way.

Economically speaking, increasing base money supply (giving money directly to people) does in fact increase inflation, where increasing m2 (giving money directly to banks) seems to not have the same effect, based on decades of similar policies in Japan. Some prices will still (real estate) increase but staples do not. Or so I read in various places...

Not sure if I personally subscribe to the above, but as long as we don’t experience collapse of currency/dollar and ensuing hyperinflation, we should be ok.

Inflation is dependent on money supply and money velocity. And velocity has been going down for a decade or two (in the US) and recently dropped off a cliff:

* https://fred.stlouisfed.org/series/M2V

Right. I think the op was suggesting that velocity would spike if the money made it to Main Street.

The only difference is that we call the former “inflation” and the latter “my stocks are doing well”. It’s all inflation in the end.

Well, the CPI is exclusively about consumer prices. It's not about savings vehicles like stocks.

But you are right. Wealth inequality is the cost of this form of monetary policy.

Economically speaking, increasing base money supply (giving money directly to people) does in fact increase inflation

Well, sure, if you give a bunch of people some money and they all decide to spend it on re-doing their homes at the same time then the prices charged by local tradesmen will probably go up, then correct themselves again when the peak demand passes. I'd argue that's not a bad thing in the sense that real work is being done, and the money is circulating in real goods and services - because if value is actually being created then there is something backing the new money.

It's very funny how this is not the default and no one is complaining

I think you’ve got some legitimate concerns there, but a lot of what you say doesn’t make much sense to me. Mortgages in their entirety aren’t part of CPI because mortgages are an investment with a return. They’re not a consumed good, you still have your house after you’ve paid it off, although some CPI calculations separate or rent or a rental component of mortgages. Of course it can be included in overall household spending, and changes in household mortgage payments are an important economic indicator but CPI is a specific thing with a specific meaning.

Printing money by itself is not ok, it matters an awful lot what is done with it. Your argument is classic “if it’s ok to do this thing in specific circumstances to solve a particular problem, why not do it all the time for everything as much as possible”. Kind of weird argument, what can I say except, er, no.

You’re quite right the cost for producing goods is falling and stable prices just mean our money is falling in value, it just doesn’t seem that way because these effects cancel out. The article is making the exact same argument.

I think where were likely to agree is that if we’re going to rescue financial markets and corporations in hard times, why not also help ordinary people? If corporate welfare is ok, how come personal welfare isn’t? In some situations like an economic collapse or like Coronavirus deficit spending is essential, I don’t buy your skepticism of that, but I do think it needs to be more equitably deployed. By and large this is what actually happened this time around with wage support here in the UK and direct payments to households in the US. There are arguments to be had about the level and Lana e of this kind of spending, but I think they’re both needed to at least some degree.

The article is about the UK though and I’m a Brit and we do have a fairly well developed social welfare system compared to the US and many aspects of it such as the NHS are much less controversial than in the US. This comes from our experiences in the world wars when the entire country was expected to come together for a common cause. It became untenable after that to throw people out on the street with no support and just say “Thanks for the help, see you in 20 years for the next world war. Until then you’re on your own.” It was also about national security. Far too many people were unfit for national service due to malnutrition and disease. Ensuring a fit healthy population became essential to our military preparedness.

> The article is about the UK though and I’m a Brit and we do have a fairly well developed social welfare system compared to the US and many aspects of it such as the NHS are much less controversial than in the US. This comes from our experiences in the world wars when the entire country was expected to come together for a common cause. It became untenable after that to throw people out on the street with no support and just say “Thanks for the help, see you in 20 years for the next world war. Until then you’re on your own.” It was also about national security. Far too many people were unfit for national service due to malnutrition and disease. Ensuring a fit healthy population became essential to our military preparedness.

This

Enemies of America had zero resistance in co-opting both extremes on income scale of American society to turn against it.

How many will be ready to fight when the time comes, will they fight for a broke country whose elites put them into misery to begin with?

My search for "Lana e" failed; did you mean something else? Or could you direct me to an explanation?

“you still have your house after you’ve paid it off” until you retire and they tax you out of it, happening to my parents right now, sucks, tax bill is over 600/mo and rising! I’m going to have to start paying it eventually so we don’t lose the place. Seems fucked up to work your whole life to own something and then the state just takes it back by inflation and tax hikes eventually screwing you.

Inflation is a long con, eventually if you don’t keep increasing your profits you can’t sustain, that’s why I think a lot of disdain for capitalism is misguided, it’s the monetary system that has created this race to the bottom mentality where you have to keep squeezing to get more profitable just to stay in the game (or decreasing the size of the candy bar to keep the same price).

Your parents’ situation is exactly what resulted in proposition 13 in California. It seems it’s now fashionable to bash prop 13, but people forget what the alternative is.

>I think that another deception is that we should ordinarily be experiencing price deflation. Every day our society is getting more efficient at making things.

This is a great point.

The 3 main goals of the Fed[1] are:

1. Maximize employment

2. Stable prices

3. Moderate long-term interest rates

Maximizing employment and keeping prices stable are antithetical to the realities of automation and ephemeralization. If we want to use our automative technology correctly, we should be minimizing employmemt, and decreasing prices.

[1]https://en.m.wikipedia.org/wiki/Federal_Reserve_Act

In one of my tax classes in law school, the professor recommended an optional book that when more into the theory behind tax. That book brought up an interesting idea to discuss concerning printing money.

Suppose you have a society with a total economy of say 10^9 dollars, and you need to allocate 10% of the to the government for it to operate.

The conventional approach is various taxes. Income taxes, sales taxes, VAT, property taxes, the list goes on and on.

The question the book asked is why not just have the government print the money it needs?

Printing 10^8 dollars would not quite do it because of the inflation that would cause, but if it printed 1.11 x 10^8 dollars then the government would have enough to buy 10% of the inflated economy.

So why not replace taxes with printing money to fund the government?

It has a couple of clear advantages. First, no more need for everyone to file tax returns, employers to withhold tax payments, and all that jazz, and no need for the government to have a giant tax collecting apparatus or a giant tax code. Second, it makes tax evasion a lot harder.

There are some downsides too. First, it would take away a large part of the usefulness of taxation as a way to change behavior. Deductions, credits, progressive rate structure--all gone. Deductions and credits could be replaced with government subsidies, but if you aren't careful you will end up recreating much of the complexity and bureaucracy that the old tax system had.

Second, the inflation would be significant enough that it wouldn't take many years before even small things involve large numbers of dollars. This could probably be addressed by going to an almost all electronic money system so you could just periodically re-scale the whole thing.

Third, inflation from printing money doesn't affect all assets equally, so this would encourage people to try to hold more of the wealth in assets that are less affected. People lean toward that anyway to deal with normal inflation, but with the current system if there is too much off that the government can use tax incentives to nudge things in the other direction.

I remember this leading to some interesting discussion in class. Even if it is not practical, thinking about it is interesting. It can get you to really think about what money really is.

> Printing 10^8 dollars would not quite do it because of the inflation that would cause, but if it printed 1.11 x 10^8 dollars then the government would have enough to buy 10% of the inflated economy.

This makes it sound like you're treating 'size of the economy' (GDP) and 'size of the economy' (amount of money) as equal. But they're not. In the US, GDP is about $22T/year and amount of money is about $7T (so the average dollar is spent about 3 times a year). So if the government wanted to spend 10% of GDP, it would have to print $2.2T which would cause about 2.2/7 = 31% inflation. In fact the government spends 35% of GDP, so inflation would be around 100%. The value of the dollar would halve every year.

There's a name for what you described: modern monetary theory. AFAIK there really isn't a consensus on whether it works or not.

No, it isn't because he removed all taxation. MMT is also about using money to destroy taxation and eliminate inflation.

In other words, MMT is about understanding the mechanism behind inflation. If you know how inflation works then you have full control over it. You can raise and lower it at will and use this power to actually achieve policy goals.

For example, by injecting money exactly where it causes inflation you can directly cause inflation. It sounds obvious in retrospect and it explains why current central bank policies fail to create inflation.

The money never reaches the hands of people who actually spend it.

Once you reach your policy goals you can stop printing money. Meanwhile if you create money fruitlessly without achieving policy goals you end up creating more money than necessary.

The irony behind MMT is that by printing more money you end up printing less money.

> If it's OK to print money to pay for some things why are you not doing it more? Why not make everyone a millionaire?

If one slice of cake tastes nice why wouldn't you enjoy eating a million slices of cake?

OK. So what are the limiting principles for money creation? When does it shift from being a good thing to too much of a good thing?

This seems to be completely absent from the public debate.

That's entirely dependent on the economic situation. The same question can be asked of interest rates.

And the answer is when you get bad outcomes. You have to assume the Fed knows what it is doing, but most people seem to think they know better.

> OK. So what are the limiting principles for money creation?

If you gave everyone a million dollars would they all be able to buy a million dollar home?

No? Why do you think not?

Because the price of million dollar homes would go up because everyone would now be able to bid for them.

You can literally give everyone a million dollars, but you won't be giving them a million dollars of purchasing power relative to before you gave them the money.

That's the point the parent is making, except he thinks it doesn't take as much as a million dollars for that effect to take place. His question is why is $8 trillion of money printing since last March A-OK when $100 trillion isnt?

Is the line $8 trillion? $25T? $50T?

The Fed has an inflation target of 2%. That is precisely when printing money shifts from being a good thing to a bad thing.

Because the size of the cake is fixed (analogy to the economy), and cutting that piece of cake into 10 slices or a million slices (analogy to increasing money supply) is not going to make a difference in the amount of cake there is for people.

The size of the cake is not constant. It grows over time. We are much richer now than we were in the past.

Yeah that is true. Maybe I'll just say that the size of the cake (economy) grows but is fairly independent of how you slice the cake. So printing money doesn't increase the size of the economy.

Yes, but with a larger cake, it makes sense to have more slices.

There are other reasons that inflation is good too, having to do with sticky wages and recessions. I'm not sure how to work that into the cake analogy though.

Yeah the reality is that the size of the cake changes, and slicing the cake in different ways can feed back to the growth of the cake.

The perceived value of each slice relies a lot in the psychology of the public.

It's the job of the central bank to make sure the slices are proportioned properly and the perceived value of each slice of cake is maintained.

Key observation. In recessions (liquidity crunches) the cake grows more slowly. Maybe if we increase liquidity a lot (i.e. print money) and give it to the bottom tiers who will spend it (increase velocity) then the cake will grow faster!

We don't have good models for how the economy actually works. Until 2008 most models didn't even have a financial sector. Currently economic models can't accurately predict the velocity of money or even explain changes after the fact very well. We still have no consensus among economists as to what causes recessions.

So this is an experiment but the claims that it is "obviously" going to lead to inflation are flat wrong. We are going to learn a lot from this experiment. If we need to pull back to bring down inflation, we have tools for that.

The entire reasoning behind inflation is that thanks to productivity increases there is always a slice left behind. If nobody eats the slice then the cake shop will make smaller cakes with less slices. If we give someone money to buy the last slice then the cake shop is incentivized to make another left over slice until it is so busy making cake that it cannot make more.

Yes exactly. Why is it bad to make everyone a millionaire?

It's bad because making everyone a millionaire by decree, or printing more units of currency is necessarily the same thing as devaluing the currency. Such that the population as a whole has exactly the same amount of buying power, and now each unit of currency is worth much less.

The inflation of the M0 money supply, base money, WILL lead to an increase in consumer prices for everything including essentials like food. The only reason people can try to convince themselves otherwise is because of the time lag between when the money is printed and when it shows up in consumer prices. So when the government quadruples the base money supply and the price of a loaf of bread doesn't quadruple in price, people start to think this inflation is no big deal. Well just wait. That loaf of bread will more than quadruple in price. And it will happen all of a sudden.

The majority of the printed money is going into assets like equities. These have increased massively in value, despite the fact that revenues have not increased that much, or have even decreased. This is a bubble and it will collapse. When that happens, then you will see all those printed dollars. Investors will rapidly divest themselves of their shares and will be putting those dollars into others assets that are seen as much safer investments like commodities including food.

By this point governments have no ability to reverse course, in fact they are committed to exacerbating the situation. Printing money is necessary to plug the deficit of government spending. You could turn off the money supply but it will mean devastating cuts to government spending. So they won't do it. Instead they will start implementing wide-scale, all pervasive capital controls in an effort stop people divesting themselves of the rapidly weakening dollar. This is an economic straight jacket and will shrink the economy further, massively stunting tax revenues, in turn reducing government spending, in turn shrinking the economy further.

Calls to 'tax the wealthy' will be eventually implemented, but there isn't anywhere near enough wealth there to tax to cover the effects of a money supply that has grown exponentially. Regardless new tax bills will be introduced. The very wealthy will have already moved their wealth into non taxable assets, domestic and overseas. (This is already happening). The law makers know this, yet regardless this taxation burden will fall squarely on the rapidly diminishing middle classes and ballooning lower classes. You can read the above again to see exactly how printing money is a highly effective tax in it's own right and it did not require any legislation to write.

At this point the world is caught in an economic death spiral and it won't recover until the currency has completely bottomed out and begins again with a new currency and confidence slowly returns. There is no telling how much long term economic damage will have been done by this point.

There is no magic or mystery here. This is not complicated. It is not new, unknown and to be determined. This will be a carbon copy repeat of exactly the same follies experienced by numerous economies in recent history. The only open question is, much like a coming earthquake, when? The answer unfortunately is very soon.

To your first 3 paragraphs: Right, so the income that normal people get from their labor is like water, and the income that wealthy people get from stocks is like oil(Note: for the rest of this comment, "oil" is code for wealth assets, water is code for CPI items.). Company takes out bond, uses it to buyback its' own stock, the person that sold that stock uses it to buy some other stock, that other stock rising allows that other company to take out some bond... They don't mix. So long as they don't mix, money doesn't become neutral and the CPI doesn't rise. It's possible to balance the parameters just right so that they never mix, but every mistake drives up wealth inequality driving down long-term productivity.

Now wealth income can easily be spent on large amounts of things that are typically seen as CPI items. At any moment the top 10 billionaires can choose to spend their wealth on an extravagant amount of labor, drastically rising labor incomes, but they choose not to as it lowers their long-term utility.

The fed's mandate is to create a system where they don't mix. It must always be the case for wealth assets like fancy homes and stocks to on average rise in value more than CPI items. If at any point the reverse is true, all of the wealthy will liquidate their stockpiles of stocks(crashing the stock market in the process) and instantly transfer their wealth into the thing that brings the best returns. If the best returns is GPU's, gamers won't get to game. If the best returns is on beans and rice, people will starve.

One of the best ways that the fed does this is by intentionally creating recessions whenever CPI inflation kicks up. Whenever oil money starts targeting water money, the fed kicks up interest rates above the 30 year[0], triggering a yield curve inversion, which triggers a recession. The recession forces employers to let employees go, which drives down the demand on CPI items, and that reduces inflation. At the same time, they put interest rates below what it was when it started, and the wealthy move their money back to oil.

(Note: I'm not an economist, just a programmer with an interest in economics and an eye for details. I'm mostly posting here for feedback, and I know I'm not exactly correct, but every post is one more chance for clarity.)

[0]:https://fred.stlouisfed.org/graph/?g=AzYM

An economic asset is valued based on expected future cash flow. In the last decades however, real estate and some stocks are mainly valued based on expected appreciation. Real estate even generates negative cash flow for most home owners, and some investors.

Per se, it is speculation (in higher prices) rather than investing (in future cash flow).

> If the best returns is on beans and rice, people will starve.

Farmland and equipment are assets, but they are valued based on cash flow from selling produce. Produce is perishable and can only be sold as food, so it will be sold at a market prices regardless of speculation in farmland.

> all of the wealthy will liquidate their stockpiles of stocks(crashing the stock market in the process)

Not "all of the wealthy". Relatively little is required at the margin to crash the stock market, and the majority of "wealth" would follow the market down. Only a tiny proportion would be able to exit at the right moment.

Asset depreciation is an adjustment of the relative value of labour vs. assets.

A possible delineation between "water" and "oil" is whether the thing can be legally used as collateral for loans and how the value is booked. But idk.

Yes, and this is why you see hyper-inflation of most CPI items during supply shocks[0][1], not during money printing. The longer something takes to spoil, the more potential it has to be hoarded. To evaluate our risk, we need to determine what items in the CPI are susceptible to these pressures.

If Bitcoin goes to 1 million USD, will that drown out all other energy? Energy is a piece of the CPI, so that's something we need to watch.

[0]:https://en.wikipedia.org/wiki/Great_Famine_Ireland

[1]:https://en.wikipedia.org/wiki/1970s_energy_crisis

It wont shock energy, but maybe the semiconductor market. Already theres a huge shortage for gpus

I appreciate you posting your thinking on this. I suspect others share your model. I strongly reject the metaphor of oil and water, that there are different monies. In fact if there was such a thing I wouldn't be as worried. Problems could be contained to specific domains. But as you will see one crisis will beget another and another, and no sector will be spared. One will infect the other. There are no barriers. Investors are not constrained in anyway exchange bonds for stocks in a closed system. They can, and do exchange any items of value (cash, commodities, shares, bonds, ETFs, derivatives) and they can do so in multiple markets. Governments will actually try to prevent this through shuttering markets, capital controls etc but they will be too late to prevent economic harm, to say nothing of long term damage to sentiment. Any measures taken merely delay the problem which will be waiting for them when the markets do re-open.

Economies are very much complex systems, not a steady state systems. At times it behaves like a steady state, but at other times there are significant shifts that break the previous paradigm. You only have to consult any history book of the 20th century to prove this to yourself. I strongly suggest that this a Pascal type wager that you do want to take. You want to assume my argument is correct and hedge against massive inflation. Your livelihood, and possibly your life depends on it.

One way you might convince yourself is if you look at similar situations in economies that were not governed by the Fed. There are many: https://en.wikipedia.org/wiki/Hyperinflation#Notable_hyperin...

I would argue that the Fed, IMF etc actually agree with my position and that is what is driving their desire for new Central Bank Digital Currencies (which IMO are a sham to profit of the public ignorance of actual cryptos and provide a smoke screen while a new global currency is rolled out that will be used to economically control everyone) however I strongly doubt that they will be able implement such a thing before the collapse begins (and it merely delays the inevitable anyway).

Therefore governments (where they can) will default to precious metals to back their currencies. The major winner will be China, as it has the world's largest actual gold reserves (despite the official figures). The US will then be using a gold dollar and China will dictate its price. China now effectively rules the world.

You are a voice of sanity there.

The run on the dollar will be an epic calamity. Epic.

You can already see American rich voting with their wallets. Some believe it is better red, than broke, and taxed to death.

https://www.afr.com/world/asia/forget-politics-foreign-inves...

You say "There is no magic or mystery here. This is not complicated. It is not new, unknown and to be determined."

Clearly wrong. Specifically consider the velocity of money. If it falls as the supply increases there will be no inflation. It is falling <https://fred.stlouisfed.org/graph/?g=AzYM> (from another comment). Why? Will it continue to fall or will it rise? You don't know and can't figure out.

Also, how much liquidity is required to maximize economic growth -- the "size of the cake"? In recessions (liquidity crunches) growth falls. Would it rise further if we increase liquidity beyond "the usual"? Would it rise enough to wash out the inflationary effect? You don't know and can't figure out.

Your positions and other similar ones depend on the situation being subject to simple reasoning but this is wrong. The interactions are complex and the obvious variables do not provide a clean way of decomposing the system.

"If it falls as the supply increases there will be no inflation." Agreed. This is tautological. The fall of velocity is price deflation. Increase in velocity is price inflation. It doesn't matter if the currency supply is increasing or decreasing.

However the well established hyperinflation trend is the money supply is increased as the velocity is falling until the point where confidence in the currency collapses. Then the velocity spikes and the value of the currency goes to zero.

So we know exactly where we are. We are currently in the deflationary period that precedes all hyperinflation. And we know it will be hyperinflationary because of the amount of money being printed and the lack of economic growth.

If the money supply had increased 5% in the past year then I wouldn't say we're about to have hyperinflation. But the M0 money supply increased from 3T to 5T in about a year. No system, no matter what it is can sustain that level of growth. All exponential growth is short lived.

Well stated. The only part you are missing is that taxes on the rich dont stay there. Income tax was sold as a tax on the wealthy as well. As government spending swells to fill the new revenue it becomes necessary to tax more to continue peddling programs that keep politicians in power.

It's even worse when you consider that central banks have been deliberately keeping wages down through decades of inflation targeting, while ignoring asset prices. And fiscal policy has done nothing to compensate for this. It's actually made things worse by imposing much higher taxes on earned income than on capital gains and other wealth. The perfect recipe for greater and greater inequality.

> Ultimately, printing money doesn't make anyone more productive or produce anything. All it does is redistribute wealth from those that were first to get the new free money away from those that were last to contact it.

This is not totally true.

The ability to print money enables redistribution without taxes.

Bank loans and credit would not be nearly what is is today without all of the various methods that the government allows to borrow debt on debt.

Those loans and credit help start companies and build houses.

Cryptocurrencies won’t change how things need to work to avoid economic collapse, because those that understand how things work won’t change.

> Cryptocurrencies won’t change how things need to work to avoid economic collapse

cryptos won't be able to be loaned as easily, since it's hard to create more cryptos on demand. So if there's a surge in demand for loans, the price of loans (aka, interest rate) will surge. Under a fiat system, the state/central banking authorities can simply make more credit available to satisfy those loans, and thus keeping interest rate stable in the face of huge demand.

Bitcoin is like gold. Tether is like USD. You don't trade the gold, you trade the dollars. They never printed more gold, they printed more dollars.

Tether has printed $2B in the past week. Loans will be freely available.

Printing money is fine since the Fed does it responsibly and uses it to achieve highly beneficial outcomes that aid the economy.

And I don't know who you think is getting "free money". The Fed creates it and then uses it to buy bonds. It then gives most of the excess earnings from those bonds to the US Treasury.

The big question regarding hysterical claims about printing money, etc is: it's been happening for over a decade in multiple large advanced economies, why hasn't there been a disaster? This time is different, right?

> why hasn't there been a disaster?

Would the GFC count? Technically it wasn't a system shattering event (more like system shuddering), but boom and bust cycles certainly do seem to be growing.

The GFC does not count. The GFC was caused by (1) bad underwriting policies (banks, AIG) that generated a huge debt overhang and (2) bad and poorly understood dependencies between banks that led to breakdown of the normal flows of assets between the banks.

None of this was in any way dependent on or catalyzed by government money creation. The same dynamic cause the beginning of the great depression in 1929-30 due to excessive margin lending and then runs on banks. At that time the US was on the gold standard.

> Would the GFC count?

how would you know that the GFC wouldn't have been worse had the Feds not printed back then?

How do you know it still would've happened at all? This isn't a very productive conversation.

Printing money (at the current scale) only started in response to the GFC.

> And I don't know who you think is getting "free money". The Fed creates it and then uses it to buy bonds. It then gives most of the excess earnings from those bonds to the US Treasury.

To add to this point, the amount of income the treasury gets from the Fed is tiny compared to the amount it gets from taxation.

>I think that another deception is that we should ordinarily be experiencing price deflation. Every day our society is getting more efficient at making things. If prices for goods are staying the same then it may not be that their value has not changed, they may be less valuable goods, but they cost the same because you're also buying them with less valuable currency.

Deflation is what happens when there is an oversupply of products. Primarily caused by increased productivity through technological progress. You have to print more money just to maintain stable prices. If you didn't do this then companies would cut down on production capacity and simply produce less goods. This would cause a downward spiral of production and since we all know that fiat currencies are backed by the existence of an economy that lets you exchange the fiat currency for goods and services the fact that the economy is shrinking is a bad thing for holders of the currency and it's bad for workers who are receiving incomes in the future. Since we cut down on production we also need less workers and thus your future income will be lower. Your best bet would be to obtain wealth as soon as possible and simply sit on it.

>Ultimately, printing money doesn't make anyone more productive or produce anything. All it does is redistribute wealth from those that were first to get the new free money away from those that were last to contact it.

It could be worse. Since you print money every year that means future people will receive the money first. If you cease to print money then the ones who received it first are people in the past which could be centuries ago.

Would you be willing to work for someone who inherited their wealth 200 years ago and did nothing with it except sit on it? By "sit" I mean scrooge mcduck vaults. No investments.

I look it as raising taxes on the rich is too hard, and too easy to roll back. Just give the people who need it most the money, devaluing rich people's money. It's just a more efficient form of wealth transfer, and inflation isn't an issue as long as the deficit growth doesn't exceed long term growth.

> At the moment we have new money being created by central banks and given to privileged institutions who get access to free money.

Also, did you forget about fractional reserve lending? Banks don't need the fed to create money, they do it on their own all the time.

> devaluing rich people's money

Do the very rich, the top 1% * n, keep much of their wealth in liquid currency?

It's not just money printing either. Fractional reserve banking and money lending creates just as much inflation.

People deposit real money into the bank. It keeps a fraction and loans out the rest. That loaned money eventually gets used to pay debts and it gets once again deposited into the bank. It keeps a fraction and loans out the rest...

The exact same money gets loaned many times. The situation keeps looping and looping and with every iteration new money that doesn't actually exist is created by the bank. It will only start existing once real value is created or extracted from the planet, thereby making possible to repay the loan.

Inflation is like a tax. When government and banking institutions inflate the currency, they systematically and worst of all invisibly rob people of their purchasing power.

That's a common misconception of how money creation works. If you want to learn more, this Bank of England article is a good introduction (pdf): https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...

> A normal household has to pay rent or make mortgage payments. To arbitrarily exclude the biggest expense to consumers from CPI is pretty misleading.

Housing definitely isn't excluded from CPI calculations. In fact housing is by far the biggest single component of the basket used to calculate inflation.[1]

Moreover, there's really no evidence that long-term housing inflation is running faster than the broader economy. In 2019 the average American consumer spent 25% of their income on housing and 15% on shelter.[2] (Aside, "shelter" just includes the cost of rent, mortgage, property taxes and maitenance. Whereas "housing" includes utilities, appliances, furniture, housekeeping, laundry, etc.) In 1990, the average household spent a virtually identical 27% of income on housing and 15% on shelter.[3] If housing was inflating much faster than the rest of the economy, we'd expect to see increasing shares of income dedicated to housing.

[1]https://www.bls.gov/cpi/tables/relative-importance/2020.htm [2]https://www.bls.gov/cex/2019/standard/multiyr.pdf [3]https://www.bls.gov/cex/1990/Standard/income.pdf

> The world used gold/silver for its currency for most of human history until 1970 when we entered this period of worldwide fiat currencies. Our current situation is pretty remarkable

Actually, in 1933 the US ended the use of the gold standard, following the UK (well, British Empire) which abandoned it in 1931.

What came to an end in 1970 was the Bretton-Woods system where global currencies were pegged against the dollar. There was political control over the tax rate between 1946 and 1971, but the US was always able to unilaterally end the system. It did so to print money to fund the Vietnam war (sort of).

The peg against the dollar meant america could have $100 of stuff from the UK or France by printing it, whereas we needed to pony up actual goods and services. It wasn't ideal.

The system was also put under pressure by petrodollars. Western purchases of oil were a leak of the currency outside of the Bretton Woods countries. Since Bretton Woods was ultimately about governments being able to regulate their currencies, petrodollars weakened their grasp and created markets which threatened confidence in the system.

The 1980s are where the real issues began, because most countries moved to fractional reserve banking rather than full reserve. The risks this produced in the system caused the 2008 crisis and led to the epic price inflation in housing etc we have seen in the last forty years. QE is an admission of defeat of the system introduced in the 80s, a hope that eventually we can go back to that time. No interest group has been strong enough to properly challenge this system, so it has yet to die.

TL;DR it ain't about gold, it is about banks

Edit: removed errant hyphens in "Bretton Woods".

You say that in the 1980s "most countries moved to fractional reserve banking rather than full reserve". This is at best confusing: in most developed countries fractional reserve banking, regulated by central banks, goes back to the 1600s. The bank runs that have occurred throughout US history were only possible because essentially all our banks used fractional reserve banking.

Also, the 2008 crisis was not due to or amplified by fractional reserve banking. The debt overhang was due to mortgage brokers and investment bankers (often without a retail bank license) selling securities -- effectively bonds secured by mortgages. As with any security, these had the explicit risk of becoming valueless, but this risk was hand-waved away by corrupt bond rating and other tricks.

In fact, I'm pretty sure that no bank customers lost any deposits due to the 2008 crisis. Fractional reserve regulation worked exactly as intended.

True, no bank customers lost deposits to my knowledge either. And yes, a major cause of the 2008 crisis was collateralized debt obligations (CDOs) built on residentially backed mortgage securities. Often CDOs would be built on other CDOs in a way which masked the risks involved and made investments of junk look great. The resultant loss of confidence was, in some ways, a result of investors not "getting" the almost recursive nature of those products.

What I meant by the role of fractional reserve was related to capital ratios. I was incorrect to say full reserve was in effect until the 1980s, but the rate at which banks could create money was lower before then because their capital ratios were different. The rate of creation of money (usually for mortgage lending) increased from the lower capital requirements. This in turn increased the size of the market for mortgage backed securities (created to shift mortgages off the books of banks and to let them lend more) and led to 2008.

It is a sufficiently epic size of subject to not really play nicely with brief explanation, so I aimed to make a tactical simplification. Fair enough for pointing that out!

Nit pickery: Bretton Woods is not hyphenated; it's not some guy or guys name, it's a place in New Hampshire.

Hah, reasonable. I'll edit the post.

And ultimately, nobody is ever comfortable answering the question of why it’s okay to move it to China? Somehow it’s okay for people in China to have super low wages?

This is an issue I’ve always had with overseas production. It feels like this weird out-of-sight, out-of-mind ethical problem that usually comes from people opposed to bringing more manufacturing to the US (aka - “it’s not the jobs we want”).

And it doesn’t make sense.

> has to pay rent or make mortgage payments.

One of these things is not like the others. Inflation benefits debtors at the expense of creditors. If I owe $500,000 on a fixed-rate mortgage, I'm thrilled to see inflation because it makes my debt cheaper to pay off.

Only if your wages rise accordingly. And don't forget that your taxes are going up as well unless tax brackets are adjusted for inflation.

Assuming inflation causes wages to rise with prices inflation is beneficial to home owners with a mortgage because your housing costs are largely locked in while your wages rise.

I think rent and mortgage are different. We bought our first house in 1977. If you take a look at the graph that was just before inflation shot up to 15%. It was a hard time but wages did catch up and after a few years I had a mortgage which was proportionately much less than I started with. For those renting there was no plus side. I think the poorest suffer most, as usual.

>The whole argument for printing money being OK is dumb. If it's OK to print money to pay for some things why are you not doing it more? Why not make everyone a millionaire?

No one is advocating for unlimited money printing. The fact that money printing is being used to inflate financial assets that benefits elites is a policy and political failure not a repudiation of monitary policy.

Jerome Powell said the Fed has unlimited lending at its disposal. That is the engine that drives printing. Their intent is to print without limit until the economy is working the way they think it should.

>Their intent is to print without limit until the economy is working the way they think it should.

That's not in evidence. You are assuming their intentions without providing evidence to backup your claim.

It's a fact that the Fed has unlimited lending powers. Jerome Powell is the chair of the Federal Reserve. Explaining his powers doesn't show he intends to use them. Maybe you have the quote or you miswrote?

> To arbitrarily exclude the biggest expense to consumers from CPI is pretty misleading.

They are not excluded, why do people keep parroting this?

Read “The Deficit Myth” by Stephanie Kelton, it’s a primer for MMT and covers essentially everything you’re talking about.

I think you missed an important element.

Inflation does not hit countries evenly as well.

Right now, US is exporting inflation in droves. I've seen it firsthand abroad.

Also deflation could be an interesting tool to cool down the economy and so literally cool down climate. Less consumption is what is needed.

>If you have gone through years of moving everything to China to make it cheaper to manufacture, improved technology to make processes more efficient, etc. and I'm still paying the same amount for all of the stuff in my life, then again, maybe all these things are cheaper, but I'm also buying them with currency that's less valuable.

On top of that, there is talk, political rhetoric perhaps but still talk, of moving manufacturing back in house.

The US wants to do it with chip manufacturing on nat security grounds. Trump and Bernie popularity was partially on anti NAFTA grounds. There's increasing hostility between China and US (witness the MS hack last week). Nothing stays the same, and we might be in for some surprises.

Cantillon Effect getting into full swing.

Governments love inflation, because it enables them to inflate away the value of debt which would otherwise be unsustainable (or electorally unpopular). They become reliant on an unending stream of new efficiencies from innovation to hide its effects and globalisation, as you mentioned, is another handy way of staving off the political effects of the debasement of one's currency (although it's perhaps not as sustainable or reliable). When that fails, the redistributive mechanisms can always always be compounded with things like tax thresholds failing to rise with inflation, increases in tax rates, or new taxes (inheritance tax, for instance, is relatively recent), but taxation-by-inflation is definitely the unacknowledged elephant in the room.

Overall, today's mixed economies have a lot more central control than the average person realises, and it's no wonder that Marx was such a fan of central banking.

>Governments love inflation, because it enables them to inflate away the value of debt which would otherwise be unsustainable (or electorally unpopular).

This doesn't really work because when inflation goes up, so do interest rates. Inflation was rampant in the 70s, but so were the interest rates, so there isn't any free lunch here.

To a certain (limited to moderate) extent it does work, though, and this directly influences how much governments borrow in the present day. If long-term expectations for rates of inflation were zero or negative then governments would tend to decrease their borrowing over time, all other things being equal.

Governments love inflation because they want their citizens to do productive work instead of swimming in literal gold like in a scrooge mcduck vault.

We both know that's the wrong way of thinking about it, though, because people's saving don't just sit in a vault; they are invested in opportunities that tend to be productive. This whole question ultimately comes down to people's ideological alignment concerning the moral underpinnings and practical realities of central planning and collectivisation vs. private property and free markets.

It's kind of ridiculous to think that everyone is talking about money printing now. It's become such an obvious force in society that it cannot be ignored even by the layperson.

And economists keep repeating "It's nothing, it's not a problem". They're so disconnected from reality, they won't realize there is a problem until they have a noose around their necks.

Reply on news.ycombinator.com