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Author | Topic: Inflation: The Basics | |||||||||||||||||||||||||||
Jon Inactive Member |
It would appear that there is some disagreement here at EvC on the nature of inflation. While, in my opinion, this disagreement is about as justified as that between a YEC and a geologist regarding the age of the Earth, it exists nonetheless and so it is probably worth addressing.
So far, this disagreement has been derailing a thread started most recently by Phat: Social Unrest?. It started when DBlevins posted the following reply to my statement that paying more for less labor was a championing of 'inflation and economic failure' (Message 10), triggering a volley with myself and Damouse:
quote: Damouse made a reply representative of the position of those opposing this view:
quote: To go with this, I gave an example of a non-inflated vs. inflated economy that I think is important-enough to repost here, as it lays out the differences pretty simplistically:
quote: crashfrog has also joined the debate, though, like Damouse, I am inclined to think he is just playing around:
quote: The primary arguments, then, appear to be: 1) Inflation is bad:a. Inflation decreases the real value of money, and this is bad because anyone today holding money from yesterday has something with less value. 2) Inflation is good:a. Inflation increases the price of goods, and this is indicative of an increase in the value of those goods. b. Inflation is a representation of an increase in demand, which drives up production and economic growth. Thus, there is some clear disagreement on even the most fundamental aspects of inflation; even the basics cannot be agreed upon. So, let's have a little chat about the basics of inflation. Jon Edited by Jon, : -ve +s Check out the Purple Quill!
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Jon Inactive Member |
First, let me quote the message in its entirety for sake of having everything in one thread:
quote: Now, I will reply to it:
I assumed this was the case when I replied to you earlier. You never addressed the issue. I never addressed the issue because I never said I was talking about during the war, but afterward. Your question didn't seem relevant to my statement about the economy, unless you could be more clear about why you bring up the economy during the war versus the economy after. Interestingly, I never made any comments about the economy during the war; Damouse did, though, and perhaps your reply was meant for those comments. My question was:
quote: I had been assuming WWII, but you replied to me by talking about the 90's, and so I thought maybe I had guessed the wrong war. Since we now understand that it was WWII you were talking about, I think a reply to my question is in order.
Do the checks increase or decrease the amount of money in circulation? In our example, does it move us from E1 to E2, or from E2 to E1? It depends on what they do with it, wouldn't you say . Indeed; but to keep it from having an impact on the amount of money in circulation, we'd have to prevent every single person who receives a check from spending any of that money. This is unlikely, and so these government checks are undoubtedly going to impact the amount of money in circulation. With that cleared up, perhaps now you can answer the question: What is the impact of these government checks on the amount of money in circulation? Let's get back to the real world. We expect that if the economy is working properly, an increase in monetary supply will cause inflation, but it will also likely cause an increase in productivity Productivity where?
Not if your purchasing power has not been significantly affected, which would be the case when productivity has increased. If my earnings do not increase, then I have the same amount of money; unless you can keep my income rising with inflation, then the overall effect is a decrease in purchasing power. You're not accounting for the affect of the labor pool.
While I agree that prima facie it would appear to be the case that my dollars are worth less, that would be the case IF everything else cost more as well. No; your dollars are worth less than the dollars of the person who only paid $100 for the same pencil. Value of money is determined by the amount of goods/services it can buy, using a simple equation: Goods/Money. In this case, the $100 has more value than your $135, since less money is used to buy the same good (p = pencil): 1p/$100 = 0.010p/$1p/$135 ≈ 0.007p/$ That real value of money is not the number next to the $ sign. It is not the amount of goods/services for which it 'might' be exchanged. It is the amount of goods/services for which it can be and is exchanged.
where the value of the dollar remains the same, it is the subjective value of the pencil that has increased You are using 'value' in two different ways here, which I think is the cause of fault in most of your argument. Can you separate them before we continue? Jon Check out the Purple Quill!
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Jon Inactive Member |
We don't want people doing the equivalent of putting money in their mattress. Tough. This is exactly what the poor do with almost all of their moneyand they have no choice. The physical assets they do have are not saleable, as their life and/or livelihood is upon them dependent. Most people are poor. The majority of people are negatively affected by inflation. Jon Check out the Purple Quill!
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Jon Inactive Member |
...but hardly anybody is sitting on big piles of money. Quite correct. Poor people are sitting on small piles of money, the value of which decreases with inflation. Rich people hold their wealth in capitaltangible stuff. So, yes, no big piles of money out there.
These positions are not mutually exclusive. I know; I separated them because they appeared to be representative of the two 'pro-inflation' arguments being made in the other thread. Each of you, however, had mixed the two parts a little, but I thought it worth mentioning the difference.
More demand for goods and services is an indisputable good thing. Depends; are there means to meet that demand? Who will meet that demand?
Therefore to the extent that inflation represents an increase in demand for goods and services - which it almost always does - it's a "good thing", to at least the first order of approximation. See above; the assumption that an increase in demand is inherently a good thing is quite simplistic and, dare I say, nave. Jon Check out the Purple Quill!
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Jon Inactive Member |
Indeed, if it weren't for inflation, the natural growth of population would leave us all bankrupt and starving, as more and more people had to compete for less and less money. Inflation is how we introduce extra money for all the new people to have. If you had read my previous posts, you would have seen that you've taken my 'INFLATION IS BAD' comment out of context. I also said:
quote: Before pretending to have a grasp on your opponent's position, you should first bother understanding itin full.
All the people who are currently out of work. Out of work where?
All the shuttered factories. Factories where?
more money chasing the same amount of goods creates demand for more goods Demand from whom?
What the poor are sitting on, primarily, is the value of their labor Whose labor?
It can be a good thing that the value of sitting on piles of money decreases. There is a problem with your theory; it doesn't account for certain things. Can you spot what those things are? The questions above were designed to help you with that.
... labor - which increases during inflation, because the poor disproportionately have jobs making things and providing services, the value of which increases during inflation... Value ≠ Money. Is 1 hour of work still worth the same amount of bread? Jon Edited by Jon, : Begin Editing... Edited by Jon, : End Editing... Edited by Jon, : No reason given. Check out the Purple Quill!
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Jon Inactive Member |
I think instead of replying to my first post on the other thread, which many already did when over there, we could move on to reply to the most recent posts made here in response to the most recent posts from the other thread. It would be better than covering old ground.
Jon Check out the Purple Quill! |
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Jon Inactive Member |
Demand from all the people with more money, obviously. What I meant with this question was: From whom are the demanders demanding?
The questions above are stupid, predicated on your failure to understand how things work in the real world. LOL. You said inflation increases demand which fuels job growth, this being the, so far, only mentioned benefit to inflation. I asked you to tell me where those jobs were growing and who was meeting that demand. Why refuse to answer the question?
Money is precisely how we measure value, just as "units of length" is precisely how we measure distance. This might be meaningful if it weren't for the fact that it is incorrect.
You can no more pretend that they're completely unrelated things than you can pretend that your height is unrelated to the number of inches between your feet and your head. I do not think I ever said they were unrelated. In fact, I've often talked about their relationship. Stop misrepresenting me. Jon Check out the Purple Quill!
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Jon Inactive Member |
Don't confuse disinflation with deflation! You will find that I have not made such a confusion. Slowing down inflation will not stop it; only deflation can do that. Remember, the goal of an economic system is stability and growth. Inflation and deflation are breakdowns in that stability. Neither is good. Jon Check out the Purple Quill!
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Jon Inactive Member |
I've told you, already. I told you before you even asked. The jobs that are growing are the jobs making things and providing services, because that is what the increase in money has increased the demand for. People use money to buy goods and services. You understand that, right? When you throw money to people from helicopters they don't tend to bury it in their backyards; they either spend it, or loan it to people who spend it (via their banks.) Your answers do not demonstrate your understanding of the current reality. When you can answer the questions with names of places, instead of theoretical idealizations, then we can continue. But so long as you continue to respond with the same non-answers, there is no way we can move forward. If, when asked to tell me what countries are in the Western hemisphere, you reply by telling me 'all the ones not in the Eastern one', your answer may be technically correct, but it is utterly meaningless, and certainly doesn't demonstrate your knowledge of anything other than how to speak English. Provide meaningful answers, and we can have a meaningful discussion.
Jon, you'd be a lot more convincing on this subject if you didn't stubbornly refuse to know anything about how things work in the real world. When you find yourself backed into a corner, forced to attack the notion that we measure distance with units of length, isn't it time to face the possibility that your ideas about economics obscure rather than illuminate? Sorry, Crash, but your 'units of length' analogy is just bogus. One such failure: Inches do not inflate or deflate; the number next to the inches representing the distance between my feet and my head cannot increase while my physical height remains the same. The notion that increasing the number next to the $ sign representing the 'value' of my TV actually increases my TV's value is as silly as the notion that erasing the 4 next to the ft. representing your height and writing in 10 actually makes you taller. The fact that you believe it does is, as Damouse pointed out (Message 72 in Social Unrest?), one of the dangers of inflation: the (false) belief by the many that Money = Value; that giving up more money today than yesterday for the same thing means it is more valuable.
And if you understand that price and value are related - that something's price, in fact, is a reflection of its value - then you're forced to accept that increases in the price level indicate that the value of goods and services is rising, just as an increase in the "units of distance" between two points indicates that the distance between them is growing. No; I do not need to believe that two things are equivalent in order to believe that they are related. I also do not need to believe that two things are tied together by necessity in order to believe that they are related. You continue to argue against the position that money and value are not related, when I have never taken this position. It is a classic strawman. You need to address the points I'm making instead of the crappier, more easily-refuted ones you wish I were making. Jon Check out the Purple Quill!
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Jon Inactive Member |
As before, you've made no attempt to honestly address the points and questions brought up against your position. This is typical of your behavior at EvC, and I've no interest in becoming involved. There's hardly any point in anyone continuing a discussion with one so unwilling to participate.
When ready to address the matter and the topic in a reasonable, civil manner that encourages the understanding of one another's positions, then please let me know and we can continue. If you don't want to, that's fine; we can call it quits and there will be no hard feelings on my end. Enjoy,Jon Check out the Purple Quill!
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Jon Inactive Member |
If I had my druthers, we would print a shitload of new cash into infrastructure development as well as a good chunk in welfare/unemployment/dividends of some kind. You cannot be serious... Can you? Edited by Jon, : No reason given. Check out the Purple Quill!
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Jon Inactive Member |
Thanks for the great reply! I am wondering, though, if you'd be able to tell us how you see Inflation as fitting in to this overall picture that you've described. I notice one thing that might certainly be relevant:
The economy will improve once people have money to spend again Increasing the amount of money in circulation is the essential cause of inflation. With more money and an equivalent amount of goods and services, the cost of each of those goods and services goes up, and the value of the money (the amount of goods/services for which each unit of money can be exchanged) decreases. This impacts everyone; not just the folk who are throwing more money into circulation, but also the folk who do not have any extras to throw. How do you propose this be balanced? An increase in the number of goods/services may well offset this, so long as there is a demand for the new amount, which cannot be guaranteeda person only eats so much bread. Furthermore, if the demand is being met by outsiderswhich is increasingly the case, will this have the effect of off-setting the inflation of our own currency? Does more money being spent in general really help fix the problems you've brought up? I've my own take on things, of course, but I'm interested in hearing yours! Thanks,Jon Check out Apollo's Temple!
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