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Comment by dwohnitmok | Hacker News Reader

It's not a law of nature. There are many hypothetical scenarios where deficit spending does not lead to inflation (usually variations of the theme that deficit spending's wealth creation outpaces the spending amount and the deficit spending can eventually be scaled back while wealth creation continues).

Whether those hypothetical scenarios are realistic and likely to happen is an entirely separate topic, but it's not an ironclad law of nature in the same way that gravity is. It is a much more contingent and circumstantial observation.

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Your theory is that a free lunch hypothetically exists. It does not, and the belief it does leds to the endemic inflation we have since 1914.

Free lunch is an extremely vague term. What is your exact hypothesis?

It means you pay for it one way or another.

But the argument wasn't that increasing the money supply doesn't have any negative repercussions. The argument was that increasing the money supply doesn't always result in inflation. Inflation is the "one way" and sometimes we pay with the "another".

> The argument was that increasing the money supply doesn't always result in inflation

I didn't say it did. Don't omit any of the words I wrote.

> The government cannot deficit spend for free. The cost is inflation

Although perhaps you mean by the second portion ", and guess who pays - you and me." that it's not always inflation and can show up in other ways [I don't mean this in a snarky fashion, this is perhaps what you meant?]?

Where's Japan's inflation? They actually spent more % GDP than the US did on COVID relief.

Note, currently a lot of other countries besides the US are having inflation because of international supply issues. They didn't print money - that suggests we'd also be seeing it if we hadn't printed some.

Actually, we definitely would be seeing economic issues if we hadn't rescued everyone, because we'd all be incapacitated due to COVID. That's called successful investment.

> because we'd all be incapacitated from COVID

Source?

Should be “due to” including economic effects. Ask someone in NYC how they liked living through it.

The bad economic effects were mostly caused by drastic, irrational government overreactions to the disease.

No, they were caused by people not wanting to go to restaurants or travel when they were constantly hearing ambulance sirens outside their window. Also, if your grandparents are dead or you don't want your children exposed you're still incapacitated (via depression, providing childcare, etc) even if personally safe.

Hong Kong is currently providing an example of what happens when you keep society running (via incoming travel bans) so well that nobody bothers getting vaccinated for when it does break through. But since that's omicron, which is a bit milder, they're still doing better than we would've done.

We would have done better if we had followed the science and protected the most vulnerable people as per the Great Barrington Declaration.

https://gbdeclaration.org/

CDC data shows that exposure was never a serious risk for children. COVID-19 is less dangerous to children than RSV, and we never shut down society because of RSV.

https://www.cdc.gov/coronavirus/2019-ncov/cases-updates/burd...

https://emergency.cdc.gov/han/2021/han00443.asp

I don't think Japan is the example you think it is. They've had stagnant GDP growth for the last 20 years (< 2%). In the 1980s they were the fastest growing countries and were the "China" of their time. Spending causes market distortions.

https://tradingeconomics.com/japan/gdp-growth

I do think it is the example I think it is. Their deflationary pressure is so strong they’ve been “printing money” for years before this, are doing even more now, and price inflation has barely happened.

What matters is if the money is spent past supply limits, not if it’s printed.

Although, if you go there the quality of life is high enough that it always seemed like they’re just sandbagging the numbers to keep everyone else away. It’s not all leftover 80s investment.

So you don’t believe that worker productivity can increase? History disagrees. Do you invest your money or do you view that as somehow getting free lunch?

You usually pay up in order to receive increased productivity. It's not the result of some human evolutionary advancement. It's capex spending and modern managerial techniques, both of which cost money.

What is the hypothetical scenario in which deficit spending (creating more money supply) doesn’t lead to more dollars chasing the same goods and services?

If I understand global economics correctly...

Relatively speaking, if the dollar is strong and the US continues to export goods/services, then some of the inflation is absorbed by other countries.

The standard scenario would be that the addition of liquidity allows trade to occur when it otherwise wouldn't. The growth in real production can exceed the growth in the money supply. This is generally what we imagine happening with credit cards and other forms of finance.

Simple example: A government goes from spending 1% of GDP to deficit spending 6% of GDP to build an interstate highway network. CPI goes down, because we have _more_ goods and services.

Also, with higher interest rates, more people would buy government bonds instead of investing privately. Deficit spending on its own doesn't logically imply inflation or money-printing, or even an inflation pay cut. Wasteful spending does.

> government goes from spending 1% of GDP to deficit spending 6% of GDP to build an interstate highway network. CPI goes down

You talked past the conclusion here.

Japan didn't experience much if any inflation in the early 2000s

QE after the 2007 financial crisis also didn't cause much inflation

QE made the inflation rate above-zero instead of being negative. Its purpose was to stave off deflation.

And in both examples, inflation did not skyrocket like it is today. Therefore QE is not solely responsible for most of the inflation that we are seeing

Look at housing prices and tell me again there's been "not much inflation". Who cares if goods which are ten percent of your spending went down in price when housing and healthcare skyrocketed?

Skyrocketing housing prices are caused by restrictive zoning and speculative investors than the 2007 QE

Not to mention there are some real estate markets that have lost value in recent years

Look at computer prices and tell me again there has been inflation.

Cherry picking one or two categories which are impacted by countless other issues does nothing to prove your point.

Top of the line smartphones certainly have gotten lot more expensive.

You actually hit on a great example of why inflation numbers are flawed. The product you are comparing is "top of the line smartphones". However, the 2022 version of that product is barely even comparable to the 2012 version. The phone, the computer, the car, the house, or the medical care that you purchase today is greatly improved compared to the same item you would have purchased in the past. That improvement is ignored in inflation calculations.

It's not ignored. There's an adjustment called the hedonic adjustment for this very purpose. However, I personally don't really agree with it.

Phone are the only item I listed that receive a hedonic adjustment and you can't exactly quantify the difference in quality between an iPhone 12 and a Motorola StarTAC. They are a fundamentally different products.

It's not cherry picking to pick the two categories which make up the majority of half of American's spending.

You're a doctor. I hire you in the public sector for $100 and you save that $100 in a drawer (or a bank account).

How does putting money in a drawer cause prices to go up? How do you have a deficit without somebody somewhere putting money in a drawer?

Money supply is a stock. Spending is a flow. Spending is from income less taxation, which means the next person earning the income gets less than you spend. If the spending continues then all the income disappears in tax. There is a finite transaction sequence and no deficit.

What that tells you is that government spending even if there is a balanced budget can cause inflation - because it depends upon the level of flow, not the stock.

> How does putting money in a drawer cause prices to go up

If I know lots of drawers stacked with cash exist, I'll value it less. At some point those dollars will chase the goods and buying and render the dollars I'm holding less valuable.

"If I know lots of drawers stacked with cash exist, I'll value it less."

Pension funds are stuffed full of savings, and they get bigger with every passing year. Do they ever decrease? If not then when is that going to happen?

Are you valuing your income less because of the ever increasing level of savings?

Because nobody else is.

Let's say I have a cryptocurrency and I premine a thousand units and make a hundred available for use. Those 900 could enter the market at any time and drop the value, so for me, I'd price that in.

Same thing with cash in a drawer, it may exit the drawer someday.

It may, but it doesn't - because insurance and status.

Similarly all the oxygen molecules in the room may spontaneously move to one corner of the room long enough for you to suffocate.

But I bet you don't walk around in a diving suit.

you give all the money to people who have nothing more to spend on. Is it hypothetical?

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