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Comment by zozbot234 | Hacker News Reader

Yup. The kernel of truth behind Austrian theories of macroeconomics/the business cycle is that interest-rate based policy setting is inherently an unstable system. If the central bank makes policy errors that fail to stabilize the underlying target (whether inflation, nominal income, exchange rates, whatever) the whole system starts spiraling away from that unstable equilibrium point, and the subsequently needed correction grows even larger. It's important that errors be promptly corrected, and expectations about future policy remain properly "anchored" to the right target.

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Austrian theories appeal to me/seem correct beyond just a kernel, but I’d consider myself an amateur/haven’t read enough to be confident about my opinion.

Specifically, the emphasis on relative value seems correct, the emphasis on the importance of keeping pricing signals pure/unaffected by artificial monetary supply changes to effectively allocate resources seems correct, the argument that market incentives exist for keeping interest levels reasonable without centralization seem correct, and the argument that central banks are incentivized to mismanage monetary policy over time for political reasons seems correct.

The counter arguments against Austrian ideas that seem most compelling to me are that having non centralized currencies leads to financial inefficiencies that outweigh any benefits of having market determined interest rates because of exchange friction, and that a lack of planned inflation and adoption of more hard currency would mean the velocity of money would be low and cause the economy to lock up.

I’d be very interested in a book advocating the more traditional view in favor of central banking aimed specifically at Austrians and people like myself who find the Austrian arguments compelling.

If anyone here has more economic knowledge and thinks I mischaracterized the arguments I found compelling, garbled them, or misattributed them, please correct me.

Austrian economics is all anti-empirical say-so internally-consistent models that aren't tested against reality. Traditional economics is stuff that claims to be more empirical but fails to do so and focuses almost entirely on official stats and on its own versions of models that aren't tested against reality.

The whole field of economics is overall messed up. It's insular, arrogant, and extremely resistant to outside criticism. And it's dangerous as economics claims are used to justify so much.

Random amazing example:

In https://www.npr.org/transcripts/980841456 and from "My question is, what is the M1 money supply, and the M2 money supply, for that matter?" last third of it, insanely clear and amazing. In short:

Q: more money! does that mean inflation? check with this econ textbook author

Author: oh, that's embarrassing, that chapter shouldn't be there

Q: so what causes inflation?

Author: people buying stuff more, demand going up (unless it's insane money supply like Venezuela or Zimbabwe level insane)

Q: so why is the chapter in your textbook?

Author: um, publisher said that if we don't say that more money means inflation then econ professors won't use our textbook. They learned that idea in their original studies, so they will only use a textbook that lets them teach it. But it's wrong, and we shouldn't have put it in the book.

More money inflates the supply of money. This is why cryptocurrencies that burn crypto are considered deflationary.

These Econ professors are responsible for inflating a giant bubble based on their politically motivated propaganda.

Inflation is not about prices, it’s about simple math. Printing dollars out of thin air, makes the ones in your pocket less powerful. But if you are a the direct beneficiary of the newly printed dollars, (government) who cares! You get to spend it!

"Inflation is not about prices" is the silliest thing I've ever heard.

You might as well say that gravity has nothing to do with up and down.

The only thing anyone MEANS when they say "inflation" is that it's short for "price inflation".

But to deal with your point directly: if the U.S. Treasury literally printed a quadrillion dollar bill but then gave it to someone with a contract saying that they agree never to spend it, it will have zero effect on anything. And if people get dollars and never spend them, it's the same effect in practice. Or if someone with a quadrillion-dollar bill gives it as a gift to someone else who then later gifts it, and that's all that ever happens… again, no effect on inflation.

Inflation is one thing and one thing only: it's when people who make the decisions about setting prices for things choose to inflate (increase) the prices and that this happens on a noticeable system-wide scale. If the people who set prices chose not to change them, there would be no inflation, period. The interesting thing in studying inflation amounts to studying what patterns correlate with people making the decision to increase prices. And yes, knowledge that buyers have more dollars to spend is a factor that could (and does) influence those decisions on setting prices.

The same thing happens with "demand" (so, that professor I summarized above is still not quite right when he asserts that demand and spending is what causes inflation). Sellers can very well (and do often enough) keep prices unchanged even when demand is high and everything just sells out quickly. The result of that isn't inflation, it's shortages — unless the shortages somehow motivate people to just produce more — in which case increased spending just leads to increased production and consumption without inflation or shortages.

Shortages don't mathematically cause inflation. Inflation ONLY EVER happens if price-setters choose to increase prices. Nobody is EVER forced to increase prices. You just have the ramifications of doing so or not. Maybe keeping prices the same means less profit. Or maybe it means going bankrupt.

And yes, any one decision to change a price has an impact on other people who may choose other prices. That's why all the interacting decisions from all the actors adds up to patterns we can potentially (but always imperfectly) predict.

This is human beings making decisions and taking action in a complex game we play around money. Yes, there are mathematical aspects to it. But it's not some pure math abstraction. And relying too heavily on math abstractions is one of the deepest flaws in the whole field of economics.

> You might as well say that gravity has nothing to do with up and down.

To be pedantic, gravity has nothing to do with “up” or “down”, it’s just the attraction of two or more masses relative to one another. “Up” or “down” is perspective. If someone on the South Pole is looking up and someone on the North Pole is looking down, an argument could be made that the person on the South Pole is actually looking down.

This is really tangential, but "up" and "down" are completely meaningless without gravity. Literally, without gravity, "up" doesn't exist. "Up" is literally just "away from the primary gravitational pull".

People on either pole looking away from the planet are both looking up. That's what "up" is. It's funny to realize that two people can look "up" in opposite directions, but that's what's going on. Neither of them is looking "down", even though each one is looking in the direction of the other person's down.

“From our experiments, the presence of gravity appears to be a sufficient condition to evoke up/down biases in interceptive responses, at least in some subjects. It is not, however, a necessary condition. Indeed, it is thought that a network of connections involving the insulae and temporoparietal junction of the brain integrates a variety of sensory modalities to define an up/down reference frame and then tunes fast interceptive responses within that context (Indovina et al., 2005).”

https://www.jneurosci.org/content/32/6/1969

TLDR; Up and Down is just perception and has nothing to do with gravity.

Up and down are perceptions that we evolved specifically to indirectly sense gravity. "nothing to do with" is wrong, it's like saying that thermometers have nothing to do with temperature because various versions of them can get miscalibrated and are really visual devices.

> Up and down are perceptions that we evolved specifically to indirectly sense gravity.

I disagree. We evolved to orient ourselves in the environment that we operate in. Does a giant squid perceive up / down based on gravity or pressure differences in the water depth..?

> it's like saying that thermometers have nothing to do with temperature

I also disagree with this analogy. Gravity is a force of nature, unlike a thermometer which is a human invention to describe one’s environment.

I don't know how squids perceive things, but obviously water pressure is correlated with gravity in their case.

There's no way to have up and down without gravity. It's meaningless. It's not that gravity can't exist without up and down. Gravity exists independently of anyone perceiving anything. But up and down do not exist without gravity. Either up and down are the perception of gravity, even though indirectly through our perceptual mechanisms, or they don't exist and have no meaning.

If you’re in a room with no windows in space in zero gravity with a table glued to one of the “floors” you’ll perceive anything else as being up, because up / down is a perception that exists outside of gravity. When people discuss the gravitational pull of the moon on the earth no one discusses whether or not the moon is facing up or down.

I don't really disagree enough to bother arguing. But my thermometer analogy is still the same. You can create situations in which thermometers do indeed show something that actually is an indication of something and that something isn't heat. Thermometers are used to measure heat though.

Anyway, I'll just accept your points. When I tried to think of an analogy that was as silly as "inflation has nothing to do with price" I failed. I can't think of anything as wrongly silly apparently.

> I don't really disagree enough to bother arguing.

Cheers, it’s been an interesting conversation that actually went on far longer than I actually anticipated.

> But my thermometer analogy is still the same. You can create situations in which thermometers do indeed show something that actually is an indication of something and that something isn't heat. Thermometers are used to measure heat though.

You make a good point here.

> When I tried to think of an analogy that was as silly as "inflation has nothing to do with price" I failed. I can't think of anything as wrongly silly apparently.

Ironically I completely agree that inflation and price are inseparable. To be honest I couldn’t think of an adequate analogy either, it is just silly, everything is a bit ridiculous right now, and it feels a bit absurd that it even needs to be stated that inflation is in fact inseparable from prices.

In a 3D world without gravity, something like “up” and “down” would exist, just as left and right, and forward and backwards would still exist. You need some sort of label for each direction on each axis of orientation.

What you say makes sense, but it makes me wonder if there's a related concept where huge amounts of money are sitting on the sidelines that could start moving at any time. That seems kind of like inflation.

You might say "threat of inflation" because we imagine (reasonably) that the effect of sidelined money moving could lead to a pattern of inflation (given all the complex ways that might incentivize people to choose to raise prices). Good economists (not sure what portion of economists qualify in this case) would be fine with that framing.

> You might as well say that gravity has nothing to do with up and down.

Gravity doesn’t have anything to do with up and down. It deals with mass and center points.

It only appears as up and down to you on earth.

Probably a lesson in there somewhere.

> It only appears as up and down to you on earth

Up and down aren't anything but appearances. And since we evolved on Earth, with gravity, our experience of "up" and "down" are specifically caused by indicators that tell us which way the center of our planet's mass is. Sure, it's all perception via our sensory systems, and they can get distorted, so we could sense "up" as toward the earth if something in our sensory system gets messed up (pun in that metaphor hah).

Yeah so our sense of up and down has everything to do with gravity but not vice versa.

Again, lessons to be learned…

> More money inflates the supply of money. This is why cryptocurrencies that burn crypto are considered deflationary.

Crypto isn't in a vaccuum. If the only currency in the world was bitcoin, sure, call it deflationary.

But compared to a decade ago, there are far more dollars floating around thanks to crypto. Not only are there are the rich people holding dollars and other currency, or gold, etc, but we've invented a bunch of crypto tokens that we also value massively, so you can be bitcoin-rich or ethereum-rich or nft-rich OR currency-rich... which is no different than printing currency out of thin air.

> there are far more dollars floating around thanks to crypto

Uh no, cryptocurrencies can't generate USD. But if you meant "dollars" as a generic term for currency, then sure, kinda yeah, to the degree that cryptocurrencies are actually working as currencies (which they mostly are not).

Anyway, the "deflationary" claim is internal to a cryptocurrency. Nobody is asserting that cryptocurrencies cause deflation of USD.

> Uh no, cryptocurrencies can't generate USD.

If I buy crypto from a miner, the dollars don't disappear. The miner uses it to buy energy and semiconductors, which makes its way around the econony until some miniscule fraction of it comes back to me. (The loss of assets in the economy needed to create the transaction does not destroy dollars, but it does destroy finite resources such as fuel or sunlight for energy, the time of the people involved in the supply chain, etc. In that sense, buying crypto generates USD: we end the process having completed the reaction

Dollars + fuel/energy/resources + time -> Dollars + Crypto

So if one values crypto more than fuel/energy/resouces + time (say, because crypto is deflationary and its value will rise faster than that of the natural resources used to create it, then it does look (if you squint at it) like dollars are generated: the crypto can be sold later for more than the dollars.

At the individual level, the transaction might be even more biased: dollars -> crypto now looks a lot like it generates dollars later if dollars are inflationary and crypto is deflationary (with stable demand for crypto).

Lol, you’re trying to talk about the credit multiplier as it relates to crypto with a crypto fan.

Maybe a lost cause?

How did you imagine me to be a crypto fan??? I'm a total crypto-cynic sympathetic to the argument that it's all a speculative wasteful scam.

I'm not following. Yes, cryptocurrency mining and the buying of it with dollars has effects on the world, but "generate" dollars?? Economic activity doesn't generate dollars. Do you mean the standard metaphorical "make money" which really means "get paid"?

If a single dollar gets pushed around a small economy a thousand times in a day, it is facilitating economic activity, but that doesn't increase or decrease the money supply.

> This is why cryptocurrencies that burn crypto are considered deflationary.

By whom? The idea of a "deflationary currency" isn't supported by any economic theory.

Printing dollars out of thin air, makes the ones in your pocket less powerful.

We've been doing this "thin air" thing for twenty years. Why has it only caused inflation over the last several months?

Graph housing and health care prices.

Maybe low inflation was a lie all along.

OK, sure, let's assume inflation has been understated this whole time. (That might even be true!) Do you suggest that it's less understated now? If not, we still don't see the simple relation suggested upthread between inflation and a hypothetical "incorrect" Fed policy, since Fed policy has been pedal-to-the-metal for a long time.

I think the current reported inflation is related to notable supply (eg ICs) or demand (eg home improvement) changes, as a first order cause. But why do so many have excessive money to burn on increasing demand? Because asset prices are propped up with Fed dollars and no-interest loans.

Why does nobody ever think about the supply of goods and services side of the inflation equation?!?!

If you print dollars faster than the real economy can create new things to buy that causes inflation, but only then and in recent history that’s only happened because of a pandemic.

I really don’t know why that isn’t talked about more.

I know Austrians make a lot of noise about “not being empirical” (to their detriment), but I think that’s a bit misinterpreted, and I get where they’re coming from. I get not wanting to try to parse out a theory from a stream of data complex enough to justify nearly any initial hypothesis. You can still test whether core ideas on the Austrian side fit the facts via historical analysis and looking at how things respond to fed decisions/do at least a rough qualitative empirical analysis. I think the business cycle is an Austrian idea that has empirical evidence behind it at this point, for example.

My gut impression of economics from the outside is similar to yours, though, even though I think Austrians seem to have mostly the right core theory.

Are there any economic schools you or anyone else know of or forums where people discuss these types of things from a less ideological lens? I ran across this video a while ago by Scott Kominers, was very inspired by the example given and the lucidity of the explanation of what was going on/what helped improve things. https://youtu.be/JCKwkuzROzs .

Do you think economics is just too broad a field to avoid ideological schools that generalize/applied economics is better? Part of why I haven’t dug into theory more complicated than basic Austrian ideas is it feels kind of self referential and a waste of time. Applied economics seems like it might be different/an area where good rules and bad rules become evident, but idk.

Even if macro economics is ideological and arrogant and hand wavy, still curious about different arguments and counter arguments between schools

I'm no expert, I just have the impression that the field of economics professionally is basically a lost cause, at least until generational turn-over if even that.

Anything interesting has to engage with real facts like energy consumption, pollution, harvesting of raw materials, and somehow acknowledge the huge portion of human activities that are not measured in money. I don't know of anyone within economics who really does this, but if they exist, I am certain they are a pariah in the field, treated with contempt if even acknowledged by the rest of the folks.

I think there's something like "environmental economics" but I'm not sure the quality of it. I haven't looked in depth, but https://doughnuteconomics.org seems good, I just have the impression that it's enough work to just get people to even accept the basic premise, so there's not yet the depth of study that would get into the deep complexities, though I see no reason it couldn't get there.

On studying real humans as economic actors (rather than homo economicus), the best might be "behavioral economics" which is psychology, empirical, interested in real science (but arguably too behaviorist and not cognitive enough). I think they mostly only grapple with microeconomics and not macro. (I have the impression that the field of economics today, Austrians included, just have this say-so assertion that there is no macroeconomics beyond being just the sum of microeconomic patterns, and this leads to them refusing to study things on a macro level).

I have a friend who went to Japan to do economics grad-school work with some professor he thought was onto some better view, but it turned out that guy was a pariah of course who had no respect from colleagues, and the whole thing was a dead-end, and he eventually just gave up on economics having any hope as a field.

FWIW, I'm skeptical about aspects of what Marxists say often, but there's a good portion at least of concepts Marx talked about that are pretty darn sensible, and they are basically verboten because of the political biases in the field. When some topics that are intellectually sound enough are barred from discussion for political reasons, then it's just not an intellectually honest field of study. I've heard incidentally that Marx himself was anti-Marxist. There's a lot of confusion that gets wrapped up in associations people have with economic concepts versus the assertions of dogmatic political activists. I do respect Yanis Varoufakis (he calls himself an "erratic Marxist" to emphasize a non-dogmatic view that includes and respects ideas from Marx). If I have to pick one reference to suggest, I'd go with him at this point.

If anyone else has a good reference that really engages with these things, I'm curious too

Yanis Varoufakis sounds interesting. Will check him out, thanks. Doesn’t align with my sensibilities at all/am generally allergic to anything described as Marxist, but the way you describe him and the misconceptions sounds worth looking into/I should challenge myself. I view Marx as more of a social analyst and a historian rather than an economist/a lot of what I understand of what he advocated for economically seems extremely misguided, even if his social and historical analysis had merits. But I’m open to a deeper look and a more modern take.

Some short perspectives, if simplistic:

Marx was basically just inspired by French Revolution idea of "Liberty, Equality, Fraternity" and dismayed that it didn't work out. He came to some real insights about why capitalism doesn't achieve that vision. He changed his views over time and wrote strongly about cases where he was wrong. He didn't want anyone to idolize him in some static way or be "Marxist". He actually wasn't prescriptive, he didn't say what to do or how to structure a socialist society. He mostly diagnosed problem patterns in capitalism without proposing what the alternatives should be. Or so I've heard, none of this is my original insights or understanding.

Of people who are "Marxists" by self-description, some have been dangerous and destructive, but there are various versions and they often abhor each other. The worst of them are just as self-righteous as the worst of the Austrians.

FWIW, I think the Austrian models almost all have some truth in them. The problem is how they treat them as complete and dogmatic. They think they have it all figured out, and so they just take any situation and insist that their simplistic models are all there is to it. As a snarky critique, I think the Austrians just believe Wikipedia doesn't exist — or maybe they think it exists precisely because of the lack of government intrusion or something. They just have no insight, no model, no perspective of value on how it is that Wikipedia does exist. They are more interested in their models than in human beings (well, to be fair, I think that's similar for mainstream economists too).

While we're at it, there's a persistent belief that all socialist (in the proper sense of the word) left is Marxist. This is wrong - not even all statist socialists are Marxist, and the vast majority of libertarian ones are not, although they may subscribe to specific notions (like LTV).

I’m willing to learn more, as mentioned, but the fact that there are still schools that believe in the labor theory of value isn’t doing much to sway my preconceptions. Labor is valuable/an important ingredient for determining value, but there’s clearly labor which has no value (banging two rocks together), material which has value despite the lack of labor used to obtain it (water, land), labor which is only valuable in specific contexts, etc. The traditional labor theory of value which is used to argue that all profit is exploitation is I think both outdated and wrong.

I’d be most interested in any socialist schools which explicitly reject the labor theory of value, at least in its original form, and factor in the importance of price discovery and value added from intellectual labor and competent social organization. I’d also be interested in schools which, to the extent they have any recommendations about different ways of organizing money more reliant on social institution, think in game theoretical terms about how to properly balance the incentives of those social institutions and prevent corruption. At that point I suppose it’d be less about economics and more about politics, but what characterizes most socialist schools of economics is the call for social institutions to regulate run away effects of capitalism described by the theory, and I’d be interested in how such institutions might be constructed to be resilient against both stagnation and corruption.

Well, I agree completely with everything you say in this comment.

Skimming https://en.wikipedia.org/wiki/Labor_theory_of_value#Karl_Mar... and https://davidharvey.org/2018/03/marxs-refusal-of-the-labour-... and such trying to make sense of the "Labor Theory of Value" and Marx, it seems clear that Marx never even supported the idea let alone had it as a foundational principle. But I find trudging through what Marx actually said or wrote not enjoyable or worthwhile generally.

In the end, it doesn't matter what Marx said or not, what matters is whether specific ideas have merit. I'm pretty sure I would not agree with everything Marx did actually say. The point is that it is completely irrelevant who said something, which is why the trend to label the source as a way to dismiss things is such a problem intellectually.

I haven't heard anything from Varoufakis that seems like BS along the lines of Labor Theory of Value. Everything I've heard from him is pretty solid. But that doesn't mean I stand by anything you ever get from him. IMO, it's useful to have good sources, but not so useful to make a big deal over aligning with any particular dogmatic school of thought. Making up one's mind to be a somethingist is a way to get away from curiosity and feel like you just already understand everything. The utility in such labels is just to help communicate in cases where shared label understanding actually exists.

Yes, 100% agree about avoiding dogma. Have had that same complaint about certain Austrians, despite finding a lot of it sensible. You’ve definitely convinced me to branch out and check out Varoufakis. I should really try to trudge through Das Kapital at some point as well, given the importance and the seeming misinterpretations. I’ve heard enough people talk about the core ideas and have read books that gave what seemed a decent summary, but I should really slog through the original source.

LTV doesn't claim that any labor creates value in any context, but rather that all value is created by labor - i.e. it recognizes the distinction between productive and non-productive labor. From there then follows that if those who performed the productive labor to create the value don't receive the fullness of what they created, it is exploitation.

(Note, by the way, that this should account for all labor involved in production, including management. The common objection to charges of exploitation is that business owners do create value, and it's valid - to the extent that do, in fact, create it, as opposed to contributing resources that were acquired through similar exploitation from some other creator. Thus, a business owner who is not involved in any managerial decisions, but rather delegates it all to a hired manager, derives their entire income from exploitation; but for a manager-owner, the part of the income that they would receive for the same performance as a hired manager cannot be considered exploitation.)

Note that LTV is not necessarily a leftist thing, at least as "left" is usually understood today. For example, Lysander Spooner promoted policies, many of which would be considered radical right-wing libertarianism today - but he based it all on his understanding of LTV and ownership of wealth that one produces.

It's also not contradictory to price discovery via markets. Left-wing libertarianism includes free market variations thereof. In fact, some of them emphasize the free market as the foundational concept for a truly egalitarian society, and criticize capitalism on the basis that it is anti free market, and this is exactly what makes exploitation possible to begin with - see e.g. https://en.wikipedia.org/wiki/Free-market_anarchism (but keep in mind that not all left libertarians who subscribe to such ideas are anarchists).

Yeah, I get that there are more sensible variations of the LTV, but I still subscribe to a more utility and relativity based view. I think labor is almost always a core ingredient in effecting supply and adding utility, but I think the core determinant of value is supply and relative utility.

Also agree about it not being a left wing thing and acknowledge that left wing ideas are all not anti free market.

For your benefit: “It has become fashionable to think that Karl Marx was not mainly an economist but instead integrated various disciplines—economics, sociology, political science, history, and so on—into his philosophy. But Mark Blaug, a noted historian of economic thought, points out that Marx wrote “no more than a dozen pages on the concept of social class, the theory of the state, and the materialist conception of history” while he wrote “literally 10,000 pages on economics pure and simple.’”

https://www.econlib.org/library/Enc/bios/Marx.html

The fact of the matter is that Das Kapital is a foundational text in economics; it provided an analytical framework and an early prototype of rigour (before the introduction of mathematical formalism) that would influence just about every clade of economics that followed.

Not accusing you of intellectual sophistry, but the sentiment that Marx isn’t an economist is seen as rather glib at this point.

An esteemed economist really let the cat out of the bag recently:

“The world at the moment is in a really a rather extraordinary state because we have no general theory of inflation.”

https://www.pacemaker.global/post/goodhart-we-have-no-genera...

That's not really a good argument though because there are 2 definitions of inflation which are often confused due to the fact that they have the same name, and can lead to the same results. One is "the generalized increase in prices" and the other is "The increase of the money supply".

If you understand that those 2 things are inflation, but not the same thing, then you can see why there's some issues calling an increase in prices that isn't the result of an increase in the money supply "inflation", and vice versa.

This gets worse when you realize that an increase in the money supply can (but is not guaranteed) to cause an increase in prices. Like the professor says "The key driver of inflation is not just how much money exists in the world; it's what are people doing with that money."

What he's really saying here is that "The key driver of (general increase in prices) is not just (increase of the money supply) but what are people doing with that (increase of the money supply)".

You can have inflation even with a reducing money supply, for example when production decreases, or when velocity of money is higher.

In fact this brings me to another point that really irks me, which is that M2 and above are arguably not even money in the first place. They are better described as liquidity, and calling them money simply increases confusion with actual money.

By making that distinction clear, this dual definition of inflation becomes clearer since it becomes obvious that an increase in liquidity (willingness and ability to spend) can increase prices, regardless of whether the actual liquid (money) has increased.

Just like a pipe, you can pump more stuff out by either increasing pressure (increasing money) or making the pipe have less friction (liquidity).

I found Simon Kuznets multi-volume piece on economics (including cycles) really interesting ~35 years ago. Many U.S. university libraries have a copy if/when You want to peruse it - it greatly expanded my thinking about those systems regardless if I am a "True Believer" or not.

Those volumes can be pretty challenging at times, but extremely in-depth. Fascinating intro to cyclic theories of economics for a person who tires of business/econ literature not having an engineering perspective (if it's correct or not, at least it's defended - make up your own perspective on the material presented).

FWIW, a minor comment by Paul Hawken, writing in CoEvolution Quarterly (Best Periodical Ever in my opinion), is what alerted me to Kuznets.

Edit: Adding that Kuznets is a major influence on Austrian economics, and has influenced U.S. economics at high levels. Edit01: minor English corrections.

Thanks for the reading recommendations, looks like a solid set of material. Do you know where I could find copies of the periodicals? Looks like there are some scattered hard copies on ebay, but the web archive mentioned here is down: https://rs.resalliance.org/2009/02/03/whole-earth-web-archiv...

Nearly every library has CoEvolution Quarterly (CEQ)/Whole Earth Review (WER). It could be filed under either or both names. Same periodical, same people. Founded by Stewart Brand.

* ...every sizable, North American, library... (That I have found)

You might like the work of George Selgin.

He's an Austrian economist, but not of the 'Internet Austrian' persuasion. He's done lots of work on the history of money and banking.

Thanks, will check him out as well.

No, they completely miss the point. The fundamental problem with money is that you can delay your spending indefinitively thereby breaking the concept of supply and demand.

Imagine an economy where you are self sufficient and sell but never buy anything ( cough germany).

You keep accumulating more and more money and you could in theory spend it all, thereby cause a huge amount of inflation. That is the core of the deflation inflation paradox.

There is never enough money in one part of the economy while the part with too much poses a threat that can deploy instantly without any warning.

Selling and selling isn't a free market, it's not even a market.

It doesn't break the concept of supply and demand, because demand for money also exists. Money is an asset. When you accumulate it, it increases in value and the central bank+banking sector creates just enough of it to offset your demand. When you later spend it, it becomes a hot potato (the economic actor who got your money doesn't really want to keep it, she'll exchange it for something else) until the central bank drains it away. Or else it will just slosh around until prices rise enough to create enough demand for it in nominal terms.

> Imagine an economy where you are self sufficient and sell but never buy anything ( cough germany).

> Selling and selling isn't a free market, it's not even a market.

You are not describing much of a problem. What you are asking is "What if there was an entity, that provided the rest of the world with lots of goods and services, and the only think they accepted for that is green pieces of paper".

That sounds pretty good to me. Someone never spending their green pieces of paper, is just doing the rest of the world a favor, by providing all those goods and services.

The issue isn't the first part; it's what happens when they cash in their green pieces of paper.

Then they find out just how much they're really worth. But that would be a problem for them, not the rest of the world, no?

Wouldn't demand for the outputs of the self sufficient economy eventually bottom out in this scenario?

Absolutely correct. Its why there is no correlation to inflation in the monetary aggregates. M1,M2,etc.

> It's important that errors be promptly corrected, and expectations about future policy remain properly "anchored" to the right target.

It would be interesting to know if inflation expectation has become unanchored in the mind of the general public, because, ultimately, inflation expectation causes inflation.

I don't think that inflation is as easy to cause without a fresh supply of money. And you know who prints fiat money.

> And you know who prints fiat money.

I imagine you mean the fed, but I don't know what point you're making.

Inflation is easily caused without a fresh supply of money.

Destroy your productive capacity => inflation.

No, money really is essential. If you destroy your productive capacity but money supply remains the same (which is honestly a bit odd, since real prices are always relative), then you get substitution effects that don't affect the general price level, only the price levels in particular segments of the economy. (I would expect the prices of products, capital goods and human capital to increase, and the price of commodities and goods related to distribution to decrease). Put differently, you'll have less exchange and will shift what you spend on, but the price levels will not show much of a sustained general increase.

The tricky part of inflation is that a lot of money exists on paper, and banks and even firms are more constrained by capital than we otherwise might wish to believe. (Though one good casualty of the pandemic has been the realization that banks are almost entirely unconstrained by reserve requirements, only by capital.) So when the money is sitting in some account bearing a small amount of interest at the Fed, that is low velocity and may not cause inflation. However, if that cash enters circulation (via, say, direct payments from the government), then suddenly the velocity is much higher, the money supply goes up and you have "too much money chasing too few goods."

Inflation is really always and everywhere a monetary phenomenon.

> "I would expect the prices of products, capital goods and human capital to increase, and the price of commodities and goods related to distribution to decrease"

If wages go up, that comes from the companies; does that mean trickle-down econ worked, starting from low interest rates?

> If you destroy your productive capacity but money supply remains the same (which is honestly a bit odd, since real prices are always relative), then you get substitution effects that don't affect the general price level, only the price levels in particular segments of the economy.

Because the destruction of capacity somehow didn’t affect the substitutes? That’s magical thinking.

There’s a shortage of new cars => used car prices skyrocket (alone this accounts for roughly ~1.5 points of the cpi increase). And no, it’s not simply because demand is higher for cars, new car sales are still below pre pandemic levels.

> Inflation is really always and everywhere a monetary phenomenon.

It can be one, and that is certainly a contributing factor here, but if you can see the obvious supply chain/shift in demand due to covid effects, then you’re just blinded by dogma.

> > Inflation is really always and everywhere a monetary phenomenon.

> It can be one, and that is certainly a contributing factor here, but if you can see the obvious supply chain/shift in demand due to covid effects, then you’re just blinded by dogma.

I didn't realize Jerome Powell commented on Hacker News! If you can't see how the change in the money supply over the past two years[0] may be the dominant and, dare I say, only explanation for the inflation we are experiencing, then—well—maybe I'm not the dogmatic one.

[0]https://fred.stlouisfed.org/graph/fredgraph.png?g=LYjq

Yes yes, look at big number. Ignore any possible alternate explanation because reasons.

"Who prints money?" and "who creates money?" are two different questions with two different answers.

"Who can print money" and "who can introduce money into the economy" are not the same question.

Obviously, only the federal government can change the rate of printing new dollars. But inflation of the monetary supply, in practice, is not merely about "how many dollars are in existence." It's about "how many dollars are circulating in the economy."

Thus, given how much money has been hoarded by the very wealthy over the past 50 years, they have an unprecedented ability to cause inflation themselves simply by deciding to spend more of it.

they have an unprecedented ability to cause inflation themselves simply by deciding to spend more of it

They spend it in the stock market, that's where the inflation is. I remember a time when a P/E ratio of 12 was a signal that the company was highly valued, and a P/E ration of 15 was a signal of a bubble. Nowadays that number for Tesla is ~ 100! That's insane.

Well, yes, exactly; that, and stuff like the cryptocurrency and NFT bubbles are very clear demonstrations of the excessive wealth accrued by the top few %.

Tangentially:

> unstable equilibrium point

Is anyone looking at economics thru the lenses of chaos theory (complex adaptive systems), control theory, or cybernetics? I've foraged a bit, no joy, but really don't know where to start looking.

I only ask because...

Anthropologist David Graeber's book Debt: The First 5000 Years muses about the fragility of market based systems. Like maybe capitalism contains the seeds of its own destruction. Hence the recurrence of debt forgiveness, jubilees, and revolutions throughout recorded history. Seen from this angle, it sure does seem like some kind of debt crisis always has a role in social upheaval.

With economics simulations (modeling) attaining ever more fidelity, it occurred to me they'll inevitably hit "butterfly effect" type phenomenon.

Further, what if Graeber is more than right. What if "capitalism" can never be stable? What if market equilibriums will always collapse?

That insight would have huge impact on public policy. Instead of trying to keep things afloat indefinitely, we'd anticipate and plan ahead for the endless series of resets.

Proactive instead of reactive.

Because it sure does seem (to this noob) like crisis and resets are the norm.

I'm not saying that real life is just a weirder instance of Dwarf Fortress.

But given how hard it is to design stable and predictable closed world game economies, what hope do we have to do better with human economies?

Part of the problem is the crises occur infrequently and humans en masse tend to forget the past, in their emotions and actions if not in theory.

Another part of the problem is the governments benefit from inflation and again short term the people in power benefitting from it are unlikely to be the same ones in power when the crises eventuates, ie the problems of money printing are externalities.

But your central idea of planning ahead for the crises is actually refreshing and excellent, if it is possible to apply it.

On a personal level, anticipating and timing the crises is a form of planning for it, to reduce financial leverage before the crisis and have cash available to buy assets cheap from those that didn't anticipate the crisis.

> economics thru the lenses of chaos theory, control theory, or cybernetics?

I'm looking too. In my mind this is absolutely the way to look at the macroeconomic landscape, and as a control theorist, I don't like what I see, which is a widespread lack of respect for delayed responses and positive feedback loops.

I'll evaluate what hope we have for stability once I see the control being executed sensibly.

True to form, since the Fed was created, each new crisis has been bigger and sooner than the last.

Wrong, actually. The 1980s and 1990s saw a huge improvement in macro-level stability. The late-2000s crisis was an outlier.

This just isn't true. THe country was pretty much perpetually in economic crisis during the late 19th century, largely because of the lack of ability to perform monetary policy.

Apart from the comments talking about crises under the Fed, look at the 18th century where gold strikes (or the lack thereof) caused several more serious crises, with both inflation and deflation driving crises, due to the money supply being completely uncorrelated with economic activity.

Yes, it’s not like the good old days when you’d just hope JP Morgan was still in town to stave off depression.

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