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Comment by willcipriano | Hacker News Reader

You have dollars and you have cheeseburgers. People exchange dollars for cheeseburgers. If you suddenly increase the number of available cheeseburgers, eventually the market will correct and you'll get more cheeseburger per dollar. Most people accept this, but tell them if you increase the number of dollars but leave cheeseburger production the same, you'll need more dollars to get the same amount of cheeseburgers as you did previously, and they insist this isn't true. As a bonus you can replace cheeseburgers with labor and they will say "lump of labor fallacy".

Inflation would probably happen more evenly if we got over these economic myths we have invented for ourselves.

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It might be a surprise to you, but Economics 101 supply/demand models for a single good actually don't capture all the complexity of actual market behavior.

Where you say 'you increase the number of dollars but leave cheeseburger production the same' - how exactly do you do that?

I mean, there certainly are institutions that can increase the number of dollars. But those institutions can't constrain cheeseburger production to make sure it stays the same, can they? Cheeseburger makers are free to adjust their production.

So nobody's doing what you suggested - increasing dollars while holding cheeseburger production steady. Instead, they're expecting cheeseburger production to change (maybe it's changing all on its own, as people develop new cheeseburger recipes and tastes in cheeseburgers change), and they are adjusting the number of dollars to compensate.

Which, yes, suggests you are committing the lump of cheeseburger fallacy.

This isn't relevant in the case of broad increases in the macroeconomic supply of dollars, since they affect the supply/demand curves of everything in the economy simultaneously (albeit more at the source of injection as described by the article, e.g. stocks).

For example, you can't really "ramp up" production of burgers in response to higher dollar supply without ramping down the production of salads, unless there were people doing nothing to start with (which is why inflation is related to unemployment, to a degree). But by the same token, those dollars used to incentivize higher production can at best drive a short-term boost in production, as the costs to produce the burgers quickly rise as inflation propagates throughout the rest of their supply chain and the real value returns to where it was. Meanwhile, the expenses for everyone have increased and people who save money or don't want to hop jobs to get an inflation raise have been punished.

What’s “not relevant” in the case of macroeconomic money supply changes are models that try to imagine the whole economic system as if it’s a barter economy containing just dollars and cheeseburgers.

As you rightly point out, you have to have other goods, like salads; a labor force; and concepts like supply chains from which cheeseburger suppliers get their resources, before you can even begin to think about what will happen in an economy when you add more dollars.

And then you need a better way to measure the effects than just using dollars. They’re one of your variables.

I’m not remotely denying that adding dollars to the economy is inflationary, by the way! I’m just unimpressed by simple models that have little explanatory value and lead to bad thinking.

> you can't really "ramp up" production of burgers in response to higher dollar supply without ramping down the production of salads, unless there were people doing nothing to start with (which is why inflation is related to unemployment, to a degree)

Yes I agree inflation can be related to unemployment, and I generally agree with your whole point but I just want to clarify you’re missing one big variable in the formula: Automation.

Cheeseburger Supply = Labor*Automation

As such (like we have today with accelerating automation) we don’t really need more labor to make both Cheeseburgers and Salad.

> those dollars used to incentivize higher production can at best drive a short-term boost in production, as the costs to produce the burgers quickly rise as inflation propagates throughout the rest of their supply chain

Additionally, I want to point out Wage Inflation incentivizes Automation. As such even the production cost increase is a short/mid term concern as long as we can Automate more of the process (e.g. lab grown meat, Beyond Burger, farming automation, online ordering vs in-person ordering, etc).

I don’t think any of this is insightful or will change your mind on anything, but do factor Automation and Accelerating Automation into your equations about the economy.

There's a difference between supply and quantity supplied. The OG is referring to "cheeseburger production" as supply and you're reading it as quantity supplied.

Yes, a cheeseburger becomes more expensive will attract new producers and the aggregate amount of cheeseburgers sold will be higher. But the marginal cheeseburger being sold is at a higher cost to produce (otherwise it would have been produced to fulfill the original demand).

I think the supply/demand model is useful. I think when people claim "its more complicated", they are trying to get around inconvenient truths and basic axioms. You print more money out of thin air, the price of goods is going to go up since its more money chasing the same goods. Creating wealth by printing money is kind of a perpetual motion machine. You need a lot of mental gymnastics to deny the fact that printing money doesn't cause prices to go up. Everyone knows this. Keynes knew this, as did Lenin. Keynes wrote the following:

> Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. … Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

[0] https://www.pbs.org/wgbh/commandingheights/shared/minitext/e...

> But the marginal cheeseburger being sold is at a higher cost to produce (otherwise it would have been produced to fulfill the original demand).

This may have been true at the time of Keynes but this statement of your hasn’t been true for a very long time. Because of Accelerating Automation “Economies of Scale” (i.e. the marginal cost of a cheeseburger goes down as more are made).

The reality today is that the extra cheeseburgers are made because of a risk calculation on upfront capital investment and opportunity costs. I.e. a low inflation environment makes individuals more likely to save (play it safe) but also makes companies more likely to play it safe and not over allocate capital for supply.

With higher inflation it also incentivizes companies to play less safe and buy more supply chain. Best example, as wage inflation occurs it incentivizes companies to invest and buy robots to make more parts of their burgers. But this is true for all input costs to making burgers. If tomatoes go up, buy tomato farms to reduce their costs.

Here is an example of this from Costco: https://youtu.be/MSvCK_xH84s

I don’t think this alleviates all of your concerns (and I’m not trying to, I agree with a bunch of them) but just do take into account Accelerating Automation in your calculations about the economy.

> I think when people claim "its more complicated", they are trying to get around inconvenient truths and basic axioms.

Absolutely.

Many people appear to habitually deny the existence of zero-sum-games, when in reality they are pervasive. They're just complex and can't easily be be recognized in the chaos of endless interconnections of society.

I think if your model of the economy assumes it amounts to a zero sum game you have definitely missed something.

As time passes, human beings capture energy and use it to do work, and - against all thermodynamic probability - in doing so they locally reverse the inexorable entropy gradient of the universe and create value, by arranging atoms in useful structures, constructing useful or amusing arrangements of information, or transporting matter or information from one place to another where they might be more useful.

This means that the world tomorrow is a little bit better, in some ways, than today. It contains a bit more utility.

And we keep making more people and finding more useful ways for them to spend their time and our collective efforts make it look like that trend of arranging matter and data into ever more useful forms will continue into the future.

(Of course, we do need to consider that this growth trajectory does rather depend on us not screwing up and breaking the systems that sustain us and enable us to continue surviving and thriving, so please don’t take this as a naive assumption that infinite growth without consequences is just inevitable)

But basically, if there’s always more work to do, and more value to create, and more benefits to distribute, every day…

… surely any model that is based on a static pie that can only be cut up so many ways is in flat denial of reality, and falls at the first hurdle.

This seems like an impossibility though.

Take land for instance. There's a finite amount of land on earth. If 8 billion today own all of the land there is on earth, and in 2060 there's now 13 billion people, how are these 5 billion new people going to own land (when all of it is already owned by the other 8 billion)? For the 5 billion new born people to acquire land, means some previous owners must lose ownership of some of their land. Put it another way, if we divided land equally amongst all human beings, with every birth, the amount of land per person will decrease, which means the sheer birth of humans makes us poorer when it comes to the amount of land we each individually own.

Heck you can apply this to most anything. Take iron. If all the iron on earth has been mined and been used to construct steel buildings and cars, and I want to make a new car made of steel, then I would have to dismantle an existing car or building in order to acquire the material to do so. Only reason this doesn't happen today, is because there's still more iron that we can mine out of the ground; I'm not yet forced to "mine" it out of my neighbor's car.

> I think if your model of the economy assumes it amounts to a zero sum game you have definitely missed something.

What I wrote hardly supports your guess about my model of the economy. I merely claim that zero-sum-games appear more pervasive to me than most people are willing/able to admit/recognize.

So no, I don't think "the economy amounts to a zero sum game" is all there is to my model of the economy. But maybe you correctly infer more about my mental model than I myself know about it, who knows.

> ... thermodynamic probability ...

Since you appear to be familiar with thermodynamics, you'll be able to follow my reasoning easily:

Every aspect of society/economy that can be expressed by an equation in a useful way, can be thought of as a zero-sum-phenomenon. Why? Because every ordinary equation can be restructured as a zero-sum equation.

Example: Y = a * X + b^2 * Z ... can be written as: 0 = a * X + b^2 * Z - Y

> ... so please don’t take this as a naive assumption that infinite growth without consequences ...

To my mind, the mere combination of "infinite growth" and "without consequences" sounds naive, to be honest.

> ... surely any model that is based on a static pie that can only be cut up so many ways is in flat denial of reality, and falls at the first hurdle.

Well, I never claimed that the pie that gets cut up - and this methaphor for the economy is ironically equivalent to the term "zero-sum-game" - be static.

How the size of the pie develops over time (grow, shrink, remain the same) is completely separate from the question of how the pie gets cut up. The pie always gets cut up, thus there's always at least this very basic zero-sum-game.

And there are many more subtle zero-sum-games.

I agree basic supply/demand models are almost hilariously simplistic, but I don't think you can really invalidate his point about what happens if money supply goes up but product supply doesn't just by saying "well product supply does go up".

Interestingly actually, Bitcoin is one of the few asset classes that is de-coupled from its supply/demand.

Unlike say, gold and oil - if that increases in demand, more mines are opened, more sites are evaluated looking for it etc. Whereas bitcoin, the higher (or lower) demand doesn't affect the fact that on average a block is only mined once every 10mins adding 6.25 BTC to the supply... And that throwing more resources into mining it just increases your odds of getting that block reward, but not increasing supply as would happen with the above commodities, or in the example - cheeseburgers.

--To the point - when we have increasing amounts of something like dollars, there certainly are things that can't and wont 'rise with the tide' of those dollars increasing in supply.

Bold comment after 2 years of mailing out money to mass population of people who weren't working or running their businesses, resulting in 7% inflation.

Neither Kenyes nor Hayek were idiots. Yes giving money (even more than a govt actually has on hand -- printing) can stimulate labor by market-making to enable barter across space and time. And yes printing more money doesn't magically create more productivity forever.

Nonfarm business sector labor productivity increased 6.6 percent in the fourth quarter of 2021, the U.S. Bureau of Labor Statistics reported today (March 3, 2022), as output increased 9.1 percent and hours worked increased 2.4 percent.

https://www.bls.gov/news.release/pdf/prod2.pdf

Thanks, I really like these stats.

I wonder if inflation=7% and the absolute productivity through automation at 7% (9.2% - 2.1%) is a coincidence, just correlated or causal.

My guess based on a lot of armchair speculation is that inflation pegged to absolute productivity would result in the best possible economy. Maybe with a bit of a buffer just to be safe.

That’s a good idea. I think it still misses a needed link between productivity increases and increases to the lowest wages. Maybe loosely tying minimum wage to productivity?

Yeah, I am on board.

Could also be modeled in law as “$15 in 2022 and inflation adjusted for every year after”, where inflation as we said is pegged to absolute productivity.

> Most people accept this, but tell them if you increase the number of dollars but leave cheeseburger production the same, you'll need more dollars to get the same amount of cheeseburgers as you did previously, and they insist this isn't true.

The "leave cheeseburger production the same" is doing much of the heavy lifting here. There are many studies that show that prices tend to be sticky[1]. However, when prices do go up, more production does come online to capture those higher prices[2]. However, this can fail to materialize due to a number of reasons.

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

[2] https://en.wikipedia.org/wiki/2010s_oil_glut#Causes

You forget to mention that if you diminish the number of available burgers you'll need, also, more dollars to the get the same amount of cheeseburgers.

And if you diminish the quantity of some essential product used for everything, as, for instance, energy, you will get the same effect.

Also, people confuse a one time increase of prices with inflation (that is a constant increase in time), and inflation with hyperinflation (two different phenomena).

Increasing the number of dollars spent beyond the economy capacity will cause inflation (at least if the spending is not done in investments that increase capacity) but that's almost never (never?) the cause of hyperinflation. See (1) for hyperinflation examples.

(1) - http://bilbo.economicoutlook.net/blog/?p=3773

The article is about models not faithfully showing the reality of inflation and, by extension, the flawed use of inflation models outside of their useful applications.

I'm not sure that using an oversimplified model to make your point about inflation will help clarify the article here.

For every complex problem there is a simple, easily explainable and wrong solution.

You are flying in the face of decades of empirical economic research, you are performing the epistemological equivalent of saying "and then they'll say that everything is made of atoms!"

For a tech-focused discussion, it's interesting (and incorrect) to focus on labor vs. the outputs of labor: productivity. Productivity has outpaced the minimum wage over the last few decades, thanks to technology and other advances.

As someone else said in response, the first chapter of a HS economics textbook is not sufficient to explain the modern economy.

"Labor" is a shorthand for business outputs. Allocation of profits within the business (shareholders, managers, employees, externalities) is a related but different issue.

> As a bonus you can replace cheeseburgers with labor and they will say "lump of labor fallacy".

The trouble with this simple and seeming obvious hypothesis and labour (by which I assume you mean immigration) is that labour sits on both sides of the equation.

If you increase the supply of labour, then you're also increasing demand of all the things the immigrants consume, which means you're increasing the demand for labour.

(How much you're increasing each side of the equation - and how long each side takes to adjust - left as an exercise for the reader.)

> then you're also increasing demand of all the things the immigrants consume, which means you're increasing the demand for labour.

How much of what you consume is even produced domesticly anymore? Take a look around the room you are in. The immigrant now with more money may decide to buy themselves a iPhone and that probably helps someone in China who would like a job assembling them but it still drives down the cost of labor locally. Much of the services immigrants use domesticly will be low margin, like grocery stores and restaurants adding little to the domestic economy.

Exactly the same arguments apply against claims that low-skilled migrants have much impact on wages though. They tend to work in low margin industries which compete internationally against imports from countries which pay lower wages, the existing domestic workforce has little negotiating power or ability, and often the jobs they take are either already at a minimum wage level so their existence literally can't depress it any further, or can't be filled at any reasonable wage level.

Not all their additional consumption goes to the US economy and they only pay a little bit of tax, but they don't need to have very much impact on consumption and production to offset the impact of their slightly lower wage demands.

Plenty of people in the US were involved in getting that iPhone to the person who bought it. Hardware and software engineers at Apple, distribution center employees, truck drivers, customer service reps at the AT&T or Verizon store where many people still buy their phones. Even some of the internal parts of an iPhone are manufactured in the US.

Just because many goods are assembled internationally does not mean that buying those goods does not stimulate the US economy in any way.

The high margin that Apple makes is domestic (if you are talking US. Europe is a different matter). Foxconn isn't getting that margin.

> labour (by which I assume you mean immigration)

Why would that be the assumption? Labor supply varies due to all sorts of things - childcare availability; education and skills; internal migration, which ties into things like housing markets; population growth and demographics; productivity and availability of capital; with remote working, even things like access to high speed internet affects the available labor pool... it's not just 'how many warm bodies are inside the border?'

> Why would that be the assumption?

I thought the phrasing of the person I was replying to implied they were grinding that particular axe.

Of course there are more complex things to discuss here, and in practice reality here is not yet modelled successfully with maths, so we certainly won't figure it out with verbal reasoning.

I was just a bit disappointed with their obvious-yet-probably-not-correct argument, and felt maybe I could respond in a way that made them think it through a bit more.

You're disregarding the fact that both cheeseburgers and dollars can increase, counterbalancing each other. And that if there aren't more dollars while the number of cheeseburgers increases, well, cheaper cheeseburgers. Deflation in a simple world where only cheeseburgers are sold.

Same with labour. Increase the number of people making cheeseburgers, and you get more cheeseburgers and more people buying cheeseburgers. There is no fixed amount of labour to be done. It depends on the number of people.

Not to argue against the ultimate conclusion, but I think you've oversimplified the situation. To make a stronger argument, I think you would need to factor in the fact that dollars can be exchanged for almost anything, whereas cheeseburgers can only be exchanged for dollars. And perhaps other facts, like the fact that cheeseburgers have a much lower value being left in long-term storage than cash.

If you think about a economy it has some amount of productive capacity. You can sort of use GDP to see it, but that is denominated in dollars so it can hide the effect to a large degree. When people shift to alternative goods, productive capacity can shift to producing those new goods, however if the total capacity remains the same those dollars still purchase less productive effort than they did previously. As dollars are the reward for productive effort in the economy, if your wages remain the same your proportion of the efforts of the economy has gotten smaller, but your contributions remained static. I imagine this has contributed to income inequality to some degree.

"Durable good" is the economic term you are looking for. Also "barter", an imefficient form of exchange that avoids purely social constructs.

Who is this mythical "they" you talk about?

The current administration in the US as well as those who preach modern monetary theory.

So, you have some guys that predict inflation for 30 years and are always wrong, after a global pandemic and an energetic crisis, inflation happen and they feel vindicate.

It has to be great to have a model that's never wrong because you just have to wait enough. Not very scientific but great.

> and are always wrong

Hum... There are plenty of threads about housing here on HN and conversations about people becoming homeless after a disease, or bankrupt due to education costs.

If you want to claim the US hasn't have a large amount of inflation on the last 30 years, you'll need some data that doesn't ignore those.

A rise in economic rents isn't the same thing as monetary inflation. You can't actually erase blockages in the real economy by changing monetary policy. Neither inflation nor deflation will fund public higher education to keep tuition low, break up health insurance oligopolies, or legalize building more housing. Those are political-economic problems, not monetary ones.

I didn't say anything about the USA, and, maybe I'm wrong, but somehow I doubt there was not people becoming homeless, after a disease, in the USA, 30 years ago.

Anyway, if you are not going to use the official indicators of inflation there is not point in discussing anything. I could tell you that my indicator is computing process per dollar and claim a terrible deflation.

> I didn't say anything about the USA

On nearly any other country, you won't find people claiming "you have some guys that predict inflation for 30 years and are always wrong", because their non-misleading numbers almost always have some period of high inflation on the last 30 years. But if you have some other one in mind, it will be interesting to look at it.

> somehow I doubt there was not people becoming homeless, after a disease, in the USA, 30 years ago

Take a look of healthcare expenses there compared to personal income going back those 30 years. If you still think it was as easy for a person to get bankrupt by them back there as it is now, well, I'm curious about your analysis.

I'm extremely against MMT - but that are compelling arguments versions of it would not cause CPI. Haven't seen any compelling arguments it wouldn't cause asset price inflation, though.

MMT is not a practice, it is a theory. I am confused by your objection.

I don't know what you mean by preach. Modern monetary theory is just an accounting framework. It is kind of true by definition if you define money as credit and assume that central bank money is issued by a central bank and commercial bank money is issued by commercial banks.

That doesn't change the fact that it doesn't address the problems that a negative interest rate would solve.

“Most people” as they say.

I have played a game called prosperous universe. The fact that there are money printers that encourage you to engage in economic activity, i.e. the additional money encourages you to invest is something that I tried to question.

Why does an increase in the money supply encourage people to produce more? From the perspective of the community, producing more is certainly a good thing as the economy is not very well developed and there are some progression cliffs as getting engineers and technicians are basically a form of luxury as only ship building is really dependent on their products.

So, more money is somehow good, but why? One idea I had is that creating new money rewards people for doing something they would have otherwise not done. In other words, people receive a share of the economy in return for their economic activity even if half the economic activity is simply being throwing into an NPC dumpster. If you were to represent that share as a percentage of the economy, then your percentage grows as you obtain more created money. It also means that the share of the economy of others shrinks. One could say that this is a way of decentralizing power.

When you think about the opposite idea. A fixed money supply. The economic share of all players may effectively be frozen. Since your power may never shrink, unless you want it to shrink, it becomes very easy for the system to be dominated by a few players.

So ultimately, the problem is the fact that those who need money cannot get it and those who have too much want to keep it. Redistribution among players somehow ends up benefiting both yet this is not the natural order of things. If one person had too much wheat and another too little and the first one has too few tomatoes and the second one has too many, one would obviously see the opportunity for a trade, the market apparently solves the exchange of goods but why does it fail to solve the exchange of money properly? New players are obviously dependent on older players to give them money, but the older players have no incentive to buy from new players, they can just buy from other old players. Lots of people give up at the start, precisely because they don't feel they are being needed.

In fact, I think I would describe the biggest fear that I have experienced in life that I am not needed by anyone. Yes my boss pay me a salary. My parents like me. I have some nice friends. I have had plenty of experiences that make me glad I was born. If reality was a game I probably would have quit, not because of some angry capitalists exploiting me or because of violence against me. I would have thought, this is a nice game but I feel out of place, enjoy your time here, I unfortunately won't be participating.

In fact, a lot of males are sent to fight wars to keep them busy and feel needed. A lot of child soldiers start that way.

What's the solution? Well, the solution doesn't sound that bad or even impossible, it may even sound obvious. Essentially, there must be a purpose for every life. The supply of labor must drive the demand for labor. Interestingly, there is even a law that postulates such a thing to occur. It is known as says' law and yet full employment has remained elusive. If economics predicts that supply and demand will balance themselves automatically, then the only reason for that to not happen is that we have built a machine that prevents this from happening. Money, when used as a store of value, is essentially the ability to decouple supply and demand and we have decided that one should be allowed to do so eternally. Imagine if everyone saves half their salary and nobody borrows that money and money is saved until that person dies. Half the supply would fail to generate demand! Half the people in the economy would be redundant!

This is the ugly truth, we are trying to make each other redundant for fear of becoming redundant ourselves as someone must be redundant at the end of the day the moment the economy is saturated. It's not really a lump of labor fallacy. Those who save, will at some point spend their money even if they do so in a single second at the end of their life. The problem is the mismatch between when the money must be spent and when it is actually spent. A negative interest rate effectively indicates the point at which spending can no longer be delayed and savings must be reduced.

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