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Comment by NhanH | Hacker News Reader

People are not against government spending because they are misguided, or because they are extrapolating a "wrong" intuition. They are against it because as you said, the response are supposed to be cyclical, and at this point it is looking like a straight line. When was the last "spend less" behavior of the cycle?

Or are you claiming that the US has been in the situation of "risky economic situation (economic depression, loss of jobs etc)" for the past 15 years?

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> People are not against government spending because they are misguided

Really? I would bet that most people don't hold their views on government spending based on anything more than a gut feeling and what the political party they support and associated media tell them.

I believe this because time and time again we see surveys that show random groups of people have a very VERY poor idea of what the actual state the economy is in, what the history of the economy is, who increased the national debt, who decreased it and when, what inflation is actually at, how to plan for current and future interest rates and house prices, who can control energy prices, etc. And most importantly (to me anyway) how wealth and income is actually distributed. These are mostly indisputable facts that we can all look up but somehow don't.

So yeah I think we as a group are mostly misguided most of the time.

There could be a lot of misguided people, but those are not the one engaging in this discussion right here, right now.

If the GP is misguided, points out how and why according to the content of his post, not some general platitude about potentially misguided people that aren't relevant here.

The discussion from the top used the term "people" in a very general way, at least to me, so I think my reply was relevant and I was asking you for more on your point of view. I now have a better understanding of what you mean because you clarified just now. However, you seem to have understood my point too so may I suggest in the interest of us all having a better time on here, that you to respond a bit more charitably when someone doesn't exactly get the point you are making. Thanks.

I did read your comment in a charitable way, which was why I replied as opposed to just ignore it. It's just generally a bit hard to get the wordings right in those kind of charged topic, so I opted for terseness. It might have come off as ruder than I intended, but that wasn't the plan.

The second half certainly wasn't directed to you, just more of a follow up as to why I wrote my original comment.

Thanks! I appreciate the response!

Another thing that people generally get wrong is what government spending goes on, with wide swathes of people believing that vastly more money goes to welfare than actually is the case.

> vastly more money goes to welfare than actually is the case

Federally, some kind of "welfare" comprises 60% of the budget[0]. Sure, you could argue that Social Security and Medicare are benefits paid for by what you put in during your working years, but that's just a facade over the fact that it is a transfer of wealth from those who are working to those who have retired from work.

I'm not sure what your definition of "vastly" is, but certainly there is a substantial amount of transfers from those who earn more to those who earn less. All of this is separate from a discussion on whether that is good for society, but the facts should be laid out.

[0]: https://www.usaspending.gov/explorer/budget_function

In the US "welfare" normally refers to social assistance programs not social insurance. That is no one refers to social security retirement benefits as "welfare" even though technically it is a form of it.

The common trope is: https://en.wikipedia.org/wiki/Welfare_queen

My favorite statistic is that a decent number of people think that 25 percent of the US budget, over 1 trillion dollars, goes to foreign aid.

https://www.brookings.edu/opinions/what-every-american-shoul...

What's the entitlement slice of the pie up to these days in the US?

~73% of the federal budget is mandatory spending.

Of that, ~52% is Social Security, unemployment, and labor programs (or ~40% of the total). ~28% Medicare and other health programs (or ~23% of the total).

Military is ~11% of the total.

Interest payments are a bit over 4% of the total.

International affairs is <1% of the total budget.

https://www.nationalpriorities.org/budget-basics/federal-bud...

Not just that, but when polled on specific policy positions, people often agree. But when polled on the policy by name, they disagree. [or the inverse]

ACA is a great example. Most of the core tenets are widely supported across the population. But, ask conservatives about the ACA by name and they often claim it's an awful law.

Ask liberals about the ACA and they’ll say it’s an awful law too, because they want single payer. The ACA is the classic please nobody compromise.

Contrariwise on abortion it doesn’t matter whether you call it abortion, choice, life, murder, or whatever else, the divide in opinions remains.

Yeah, it's a consistent finding that opposition to social programs is largely driven by propaganda. Name the programs, it's "rah, wasteful, cut it!" Talk about what it does, costs, actual e.g. overhead and fraud rates, without naming it, and people are like "that's great! We should use that instead of the wasteful, useless, fraud-filled [name of program you just described]!"

Shit, last I checked IIRC most people don't even understand how marginal tax rates work, which is something that directly affects most of them, is relevant every single year, and that is pretty easy to understand.

It's a miracle our democracy works even as well as it does. But, these results shouldn't be surprising, when you think about it—the average Christian, for example, hardly knows a thing about the belief system they claim holds the key to eternal life(!!!), which you'd think they might take super seriously and study with fervor, but most apparently do not. Why would we expect people to understand government any better than that?

I doubt if they are misguided as much as simply don't have the time to understand the myriad financial/political issues in front of them. Even if they did, all most could do about it is type in all caps on some social media platform. That's when the rest of us ghost them.

It takes a cycle of about eighty years for one generation to really get burned. Then they learn all about economics, debt etc.

The US has been in a risky economic situation since it went off the gold standard. Possibly since it created the Federal Reserve Act.

Slow-moving train wrecks are still train wrecks.

Explain why you think the monetary supply should in any way be tied to the ability to process gold ore?

It limits the rate of monetary inflation. It is much harder to dig a shiny metal out of the ground than adding more zeros in a computer.

If you're not worried about the long-term consequences of both the fiscal and monetary policy of the United States, I don't know what to say. M2 to the moon.

I don’t really think it does. They could just say this dollar is now worth less gold? Or they could put lengthy restrictions in place for exchanging dollars for gold until it nearly guarantees they’ll never need to produce most of the gold.

Shipping gold is expensive and risky, eventually they’ll start saying, “you own this amount of the gold we have stored safely”. The abstractions find a way…

Fair point.

Leaders have been debasing currencies since forever.

It is possible to have too much of a good thing. If you limit inflation too much, you grind the economy to a halt and people starve.

At this point you are probably correct.

That said, if the US were in a better financial situation, how would 1-2% inflation (as far as I can tell, this roughly the rate that gold is currently being extracted) lead to people starving in the US?

Obviously, reality is much more complicated, but I just want to understand the reasoning. Assume 0% inflation if you prefer.

2% is a healthy level, which is why it's the Fed's target.

The problem is that pegging a currency to gold does not peg inflation. Inflation will still move around based on other economic factors. You will have just eliminated your best tool for influencing it.

If you needed to adjust a currency pegged to gold, you'd have to get more people working in the mines. Which is either not possible, or a human rights violation.

There's no reason for that. As production improves in efficiency it is natural for things and services to become cheaper. That also means you get more for your money, instead of getting more money. That concept is not too strange for the population to accept.

For a few items in your CPI basket, that's fine. If you have significant deflation across your economy on average, people will start losing their jobs en masse, and zero dollars doesn't buy anything.

Why should that be the case? As I said, if you can buy more for less you won't need a raise.

Likewise, business revenues will be going down but the investments in capital have already been allocated. Businesses start laying off employees to try to balance the books. Those newly unemployed workers, in turn, now have less money to spend. More businesses find themselves in the red, and it leads to more layoffs.

This is called a deflationary spiral. Basically every period of significant deflation in the past has led to dire economic consequences. You really do not want people to stop spending money.

This sounds like a myth. If the value of your currency is increasing, staying at 0 means you're actually turning a profit, just as making a 10% profit when the inflation is 50% means you're losing money. Inflation is a tax and redistribution of wealth, it's really not more complicated.

Zero isn’t bad. I was explicitly talking about deflation above. The effects of deflation I explained above is not a myth, it is introductory macroeconomics.

https://www.khanacademy.org/economics-finance-domain/macroec...

Deflationary spirals have happened in the past, but they have stopped since we moved away from the gold standard and we can now intentionally inflate our currency to prevent deflation.

If you have a real business, you're still increasing value in the equation or breaking even. Deflation means you might have to lower wages, but your employees are still getting the same value paid. It means you might have to lower prices, but you're still getting the same value sold. It also means your costs are lowering, so as long as you have a value-adding business you will beat deflation. If not, then you shouldn't be in business.

In today's inflation economy, there are tons of tons of businesses that on paper make a profit, but in reality don't create value because that profit is worth less than the numbers tell. And what's worse: Individuals are becoming poorer and poorer without realizing it, because the nominal value of their pay check might be higher, though the value of the money is probably half of what it was 10 years ago.

And as individuals adapt their lifestyle and spending to circumstances we arrive at the ridiculous situation of today, where most young people after maybe a decade of working and advancing their careers still don't own a home, still don't have any children, and don't dream of splurging on luxurious hobbies.

Thank God there is a huge trend right now with workers of all "collars" saying "fuck it" and doing what they can to change companies, change careers, change cities and change countries to get as much as possible for themselves instead of continuing to be exploited.

It makes more sense to me that money should have intrinsic value in and of itself rather than exist as some nebulous digit in a computer that represents nothing but a unit of debt, which is easily and inevitably abused by those with the power to create it from thin air. I don't know if precious metals are the best answer, but money as a commodity makes more sense to me than money as an infinitely dupe-able fiat token with no intrinsic value

You are using a basic understanding of economics then.

You need to understand economics as the metabolism of a larger organism.

This isn't just a hypothetical argument, it is reality. Let's take the digital device you're reading this with as an example. It's not created by any single craftsman. It is the result of millions of people's work. It is a "metabolite" of a larger organism.

You are a node or cell in a larger thing. Everything you know and can do is largely tailored to this system you're currently in.

Consider you are time-teleported back 10,000 years and come across a tribe of humans. Who would be more valuable to whom? Is your understanding of any of the technologies you presently enjoy sufficient enough to reproduce from scratch? Maybe a couple things, but they would most likely have a lot more to teach you than you'd be able to teach them.

I realize the above is very abstract from monetary policy, but the correct premise needs to be set before digging down.

Once you model economics as the metabolism of a larger entity, money reveals its true nature: to control what activities are performed by / within the organism.

There's no such thing as "intrinsic value" -- there is only a medium of exchange or signaling. This signal should not be tied to any physical thing, as that is inefficient to the state of an economy. There are better ways. Imaginary units are a more powerful tool, as they are not constrained by any physical limits.

You may be upset at how these IU's are currently handled, and rightfully so. The current methodology we have is very primitive. Our experts themselves (head of the Fed, treasury) readily admit this. When they take actions they "think" or "expect" it will have this or that effect. And the levers they pull are also very blunt.

When CBDCs come online, then we will start to realize a better economy. They will allow more granular control of things.

Money is a convenient means of exchange and valuation, I don't see the reason why my membership in society (node or cell in larger organism) should require that means of exchange to be imaginary- and I disagree that intrinsic value does not exist, though it may vary in the eye of the beholder. If I approach this stone-age tribe from your example and attempt to trade with them they will not accept my dollars for their goods- to them my dollars are kindling at best. Very little intrinsic value. But a physical commodity perhaps they would accept because it has some actual real-world use to them. Why should one party trade actual useful goods and services in exchange for imaginary numbers? Wouldn't it make more sense for trade real goods for real goods, provided one party's goods are viable for monetary use and can be reliably used as a means of valuation?

I won't argue that imaginary units of money are a powerful tool, they certainly are. So powerful in fact that there is no human on this earth who can be trusted to administer it without rampant abuse. The history of centralized planned economies speaks for itself, and I don't think further consolidation under CBDCs with more 'granular control' is going to improve its track record. The physical limits that constrain the use of commodities as money are what make it a viable as currency, it's a feature not a bug

Money having intrinsic value is nonsense. Money is like a spread sheet. It's net worth is zero. The value you derive from the spread sheet is that it lets you organize your business or economy.

Monetary policy is one of the biggest reasons for the success of the world economy over the last century. Without fiat currency it would be impossible and loans would immediately get much more expensive, instantly destroying tech investment for starters.

A century is not a very long time, all things considered- we're all still high on the rush from this constant infusion of free cash, these are the good times. But I wouldn't base my entire outlook on how nice the good times are, there are massive risks involved with setting up a house of cards like this. There's a reason the constitution grants congress the sole authority to coin money, and implies quite clearly that money is to be silver/gold or backed by such. Nobody can be trusted with the authority to expand the money supply at will, unrestrained by the physical constraints of a commodity-based currency, free to print trillions upon trillions with no real oversight. That's how you end up with these ungodly banking cartels with disgusting amounts of political power (and all the corruption and cronyism that entails) while the middle class bears the burden of the feds inflationary practices, which is basically just an insidious form of hidden taxation. I'm not so sure that free money for tech startups is worth all that in the long run.

I'll just say that the rich and powerful existed far before fiat currency. The middle class has never been stronger than it is under fiat.

You're not wrong, and of course there are many more factors than just monetary policy alone that affect the lot of the middle class- But I'll point out that the middle class was much better off 50-60 years ago than it is now, back when fiat wasn't abused to the degree it has been for the past couple decades

In the US perhaps, but every other country also uses fiat and the global middle class has never been stronger. That suggests to me that there is a different, US specific reason for widening inequality.

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