Hacker News Reader

Comment by twobits | Hacker News Reader

"Why the obsession of economic growth?"

Because central banks (CB) print money out of thin air. That "money" is debt. You print 100, you owe 110 counting interest. How can you pay the 10, if you only printed/exists, 100? You can't. You, me, everyone, is a debt slave. "Times are good" = CBs print a lot of money (out of thin air). A lot of non existant interest too, but you don't notice, cause more money/debt is printed. "Times are bad" = Enough is enough, CBs stop printing, you have to pay/give back, what doesn't exist, ie the interest. Defaults are unavoidable, and the people on top, pick up whatever they want on pennies to the dollar.

To put it simply: You print 100 out of thin air. There is no more money in the world. Next year, you owe 110. Where can you find the 10? (Spoiler: You can't.)

View on HN

> You print 100, you owe 110 counting interest.

Um, no. I agree that printing money has bad side effects, but this is not one of them.

Here's a better way of looking at it. You currently have a money supply of 1000. That money supply is matched up to 1000 units of goods and services. Assuming this situation has been stable for a while, there will be some set of equilibrium prices.

Now you print 100. The total money supply is now 1100. But the supply of goods and services has not changed. So the first order effect is to raise prices, since you have 1100 units of money but only 1000 units of goods and services, so the previous set of prices is no longer in equilibrium. (Plus, whoever got the 100 that you printed got to spend it first, so they got the advantage of the lower prices; in other words, printing money is a way of favoring some economic actors over others.)

But there is also a second-order effect--at least there is according to Keynesians. If you print money, that makes people think there are more goods and services--i.e., that the economy is growing. So they are more willing to take economic risks--hence growing the economy. So, according to Keynesians, if you print just the right amount of money, you can stimulate just enough growth to match up with the money you printed. In the above example, if we suppose that the 100 units of money printed stimulated just enough growth to increase the supply of goods and services to 1100 units, then 100 units was the right amount of money to print to keep prices stable.

Nowhere in any of this is there any "interest" on the additional money printed. That's not the bad side effect. The bad side effect is that, in reality, the amount of money printed is never just the "right" amount to stimulate the matching amount of economic growth. It's not even clear if printing money can be counted on to stimulate economic growth at all: the Fed has been printing money at a snappy pace for a number of years now, and they are still saying the economy is stagnant.

(It's true that prices have not gone up very much, at least if you believe the CPI numbers; but that's because banks aren't lending the money that's being printed--they're hoarding it in their cash balances, because they don't want to be caught short if there's a downturn. So the actual money supply, the supply that affects the prices you and I pay for ordinary items, is considerably smaller than the total amount of money that's been printed.)

I think you are being a little unfair to Keynes here. Printing money doesn’t make people think that there are more goods and services. Money is a real thing, is a medium of exchange and there is a demand for it. If you have not enough supply of it the economy suffers. Also, it’s deserved to note that the preferred Keynesian way of stimulating the economy is by fiscal policies (investing from the government), and not by “printing” money, but that is not possible in Europe or the States because politics.

> Printing money doesn’t make people think that there are more goods and services.

It makes people think they are wealthier, which amounts to the same thing. I'm not saying people are logical in this respect; I'm just saying that it happens, or at least that Keynes claimed that it happens. (I actually don't really disagree with him in principle; I'm not sure the effect in practical terms is as significant as he appeared to think it was.)

> Money is a real thing, is a medium of exchange and there is a demand for it.

These are actually two different things, not one. The use of money as a medium of exchange is different from the use of money to store value over time.

Demand for money as a medium of exchange can become arbitrarily small by allowing prices to fall as economic efficiency improves. Keynes appeared to think this was a Bad Thing, but AFAIK he never actually demonstrated why, he just asserted it without proof and everyone believed him. Certainly there are examples where the price of a given quantity of some good (such as a given amount of computing power) has dropped by many, many orders of magnitude, without any discernible negative impact. So an obvious alternative to printing more money so there's enough medium of exchange is to require less of the medium of exchange for each transaction.

The use of money to store value over time is what really creates significant demand for money. However, printing money in order to satisfy this demand defeats the purpose, because it reduces the value of money.

> the preferred Keynesian way of stimulating the economy is by fiscal policies (investing from the government), and not by “printing” money, but that is not possible in Europe or the States because politics

This is a good point, yes. However, I would add that the reason why the fiscal policy "solution" is not politically acceptable in Europe or the US is that was tried (in the 1930s during the Great Depression, and again to an extent after World War II) and didn't work, because governments are atrociously bad at picking the right investments. So now governments prefer to print money and hand it to private investors, who, while they are still bad at picking good investments, are at least less bad at it than governments. (But there are still other bad side effects, such as an economic meltdown once in a while.)

All banks create money out of thin air when they make loans not just central banks.

And your arithmetic doesn't quite work either at the very least if you assume that money actually gets respect with a certain speed.

http://www.forbes.com/sites/stevekeen/2015/03/30/the-princip...

for "respect" read "respent"

Assuming that you can create value of 11 or more with that 100, someone can exchange 11 of their future / current / past effort (with money), (s)he pays you, you pay your debt, and you now have 1 or more to be at the other side of the transaction.

Unless you state that all value in the world is fixed, a zero sum game, that argument of the "Money as debt" documentary doesn't really hold water.

Value is definitely and obviously not fixed. It increases with effort, creativity, work, inventions, etc. But you pay for value with money. And you don't control that, and someone else controls how much, or not at all, you have access to. ..ie, you get 100 to (try to) invent X. You deliver. You give a lot of value to the world. But the CBs decided to cut printing money, and tomorrow you have to pay back 110. Your work, gave (new) value. But that's irrelevant. You can't find the 10. You are bankrupt. The people on top, get your work (which is 100+50 in new value), for 20. You still owe. Have a good day.

Money is absolutely debt, are you claiming that it isn't?

agree.....it still amazes me to this day that people don't wake up and realize that inflation is "government theft" you had 100 dollars today....next year with 6% inflation next year you have $94

idiots run around looking at their 401k's and their "property values" thinking they are rich but its really.....no you idiot the government stole from you and you are too stupid to realize.

Deflation also causes problems because the value of your money increases over time. Should I spend it today, tomorrow or in 10 years?

>"Should I spend it today, tomorrow or in 10 years?"

Whenever the "future" benefit does not outweigh the "current" benefit of said money. People do it now with the interest rates the other way around, why would it be any different with deflation? I.e. they spend now, or they invest now, or they invest in financial instruments now that will beat "inflation".

Both sides of inflation/deflation affect peoples' actions based on their time preference of money[1].

[1] Economists correct me on my usage of that term, if I'm wrong.

That’s a very strange way of thinking about money. Money is valuable but only in the context of an economy. Your example is true only if the economy didn’t grow that year. You could make the opposite example. You have 100 dollars today and 100 dollars tomorrow but the economy shrinks a 6%, what is the real value of your money?

A most interesting way would be see money as infrastructure. In order the economy to work you need money. In order to it work properly you need the proper quantity of money. Of course we can disagree in what is the proper quantity.

What way should one think of it, if you concede the fact that the "new" money printed doesn't get equally distributed to all the individuals based on their proportion of ownership of the previous total of money supply?

I.e. if there is 1000 floating around, and 2 individuals in the population. Then if the government prints an extra 100, it needs to give 50 to each individual (not 100 to the one, but not the other). Probably not logistically feasible with a large population, but that way you can at least say it's not "theft".

Also because growth improves lives. In 1800 if your child contracted polio he would die, now they live. If you don't think technology and growth make lives better, then HN might not be the most like minded community for you.

That's a trite comparison. Why not include pollution and global warming?

Reply on news.ycombinator.com