Comment by white_devil | Hacker News Reader

Comment by white_devil | Hacker News Reader

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> If people don't spend their money, or lend it, the economy suffers.

Do you think people buy stuff because their currency is steadily losing value, or might it be because they need or want stuff?

> When there is high inflation people will spend all their money as soon as possible, before it loses value. Too much inflation is bad too, but some inflation is good.

Your average Joe off the street has no clue about what inflation means or what the current official (understated) rate is. You're talking about a situation where it's obvious to everyone that they just should not hold on to the currency they have. Think hyperinflation.

> With the gold standard the supply of money is completely independent of the need for money.

The need for money? Well, if gold is money, then you don't "need money" because you already have it. There's no need to worry about your money having lots of purchasing power either, that's just a good thing.

> The discovery of a great source of gold will bring inflation;

And conjuring up trillions of quatloos out of thin air will not?

You're saying that the money supply increasing without a corresponding increase in economic activity will cause your currency's purchasing power to dwindle? Well yeah, that's about right. But what exactly is supposed to be the problem you're talking about here?

> an expansion of the economy without a corresponding increase of the money supply will bring deflation.

Yyyep. Again, what's the problem?

> The same would be true with bitcoin and bitcoin mining.

Ditto.

> Do you think people buy stuff because their currency is steadily losing value, or might it be because they need or want stuff?

So you think that people don't think twice about buying the newest PC or phone, knowing that they will be able to buy it in 6 months at a lower price? Ora that buying a home now can be bad or good, depending if prices are going up or down? I don't know your average Joe, but my average Jane knows perfectly well what inflation (or deflation) is :)

People buy stuff _because_ they need or want it, but they buy it _when_ they think it's a good time to buy it. Evaluating "a good time to buy" depends on many subjective factors, and (perceived) inflation is an important one.

> People buy stuff _because_ they need or want it, but they buy it _when_ they think it's a good time to buy it.

If you need a computer right now, you'll buy it now. But overall, people only really need a handful of things, like sustenance, shelter, healthcare etc. No one needs some cheap trinkets from China or whatever. We're just trained to covet Stuff.

Economic theories or policies can't be based on the expectation that people are some kind of spending-automatons that will spendspendspend all the money they have, forever and ever, because inflation encourages them to.

A wise little worker ant will set aside quite a large percentage of his income, just in case a serious need for money arises.

The wise little worker ant doesn't have money, and he doesn't even know what money is. He will stash a quite large percentage of this harvested food (his production) until the stash is enough for the coming winter, for him and for the other non-worker ants.

The wise little worker person, on the other hand, will produce a production P, and get in return some money. Part of that money he will use for consumption C, and part of it he will set aside for savings S. But what he sets aside is NOT production, as in the case of the ant, it is just money - that is, unless the wise little worker person isn't so wise and actually stashes food or car parts or something like that.

The percentage of his production that he is not consuming (after having bartered it through the mean of money) is either going to the consumption C of somebody else, to the accumulation of capital (ie investment goods, thus investment I) or to the actual stashes of our world - stocks S.

If you think not in terms of money, but in terms of actual goods, you should agree that P = C + I + S (everything that is produced either goes to consumption, investment (capital) or stocks).

Now, what happens if C goes globally down, because everybody becomes a wise little worker person? In the immediate, S goes up - the "wise little worker ant" effect, if you will. But soon after, companies that create consumption goods reduce production - because nobody needs big stocks of consumption goods. Now, that could be compensated by increased production by companies that create investment goods - but who is going to request those investment goods, if it looks like people globally want to consume less?

So, what will actually happen is that C goes down, I stays the same or goes down, and after a little time P goes down. And our wise little worker person will lose his job, because less production + increased productivity (technology) = less jobs.

Now, notice that this works on a global scale. On a local scale, it can happen that C + I + S > P - this is for example currently true for the US, and in the long run US citizens will have to decrease their consumption, because that is overconsumption is only compensated by a billion wise little worker ants somewhere else who are actually lending part of their production to the US, in exchange of fiat money. But the decrease of consumption in the US has to be compensated by an increase elsewhere - otherwise, our wise little worker people will discover that ant-economy doesn't work for them.

In case you weren't aware of this already, our economies are imploding behind the scenes, and completely unsustainable.

> In the immediate, S goes up - the "wise little worker ant" effect, if you will. But soon after, companies that create consumption goods reduce production - because nobody needs big stocks of consumption goods.

Again, people will - and should - buy things they need. They may also buy some things they want, if they can afford them. If people stop buying Company X's products, then it will decrease capacity, and possibly go bankrupt, etc. There's nothing wrong with that.

You may decide to start producing and selling buckets of feces, but even though selling three hundred million of them at 50 dollars each would have a positive effect on the economy, it doesn't mean buying one would make any sense for anyone.

Our economies can't keep "growing" exponentially for all eternity, and that's alright. Nothing has been fixed since 2008, and the Status Quo's attempts at whipping up another housing bubble and getting us spending-automatons to spendspendspend are increasingly ineffective.

Ok - if you subscribe to the "happy degrowth" theory, that changes everything. But that has nothing to do with fiat money or gold standards; on the contrary, I would argue that fiat (ie, government controlled) money would make it much easier to make a transition to that new way of life.

But the transition to a happy degrowth FOR SURE can't happen with simple market mechanisms. At least you need to limit the working hours. At worst you need a completely controlled economy. Technological innovation + free market + degrowth = massive and unsustainable unemployment, that's for sure.

An economy that depends on endless, exponential growth not to implode is clearly not sustainable, regardless of what snarky terms you might come up with to ostensibly describe my position.

My position is that of common sense.

"So you think that people don't think twice about buying the newest PC or phone, knowing that they will be able to buy it in 6 months at a lower price?"

That seems like a poor example since the cost of technology is constantly decreasing.

People still buy stuff even though they could wait because they need (or want) it.

My point is exactly that people buy things because they need or want it, but, when prices are expected to fall, they wait longer ("when") than when prices are expected to increase or be stable - not that they don't buy at all.

Waiting longer means a decrease in consumption, and less (aggregate) consumption means less (aggregate) production, which also means less total jobs even if productivity is stable (not to mention if it is increasing, as it is because of technological innovation).

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