Earlier quoted context omitted.
Progress is different from deflation. Hedonic adjustments is a trick to steal the benefits of progress from workers.
yes, comrade, you have nothing to lose but your chains
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Four Basic Truths of Macroeconomics
81–90 of 286 posts
Re: Four Basic Truths of Macroeconomics
#82Earlier quoted context omitted.
> Non-monetary problems like oil shocks and pandemics can cause recessions It wasn't the oil shock of the 70's that caused recession. It was our response to it - Nixon's oil and gas price & allocation controls. We came out of that when Reagan repealed it. Our current recession is not caused by the pandemic, but the lockdown response to it.
That seems like a silly splitting of hairs. Why stop there? By that logic the recession is not caused by the lockdown but by less businesses being open and reduced consumer spending.
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Re: Four Basic Truths of Macroeconomics
#83Earlier quoted context omitted.
> It lets everyone do so Citation for your claim that everyone has access to cheap credit. Are you aware of payday loans? [0] > and as a fraction of net worth, the poor are way disproportionately exposed, and hence benefit. Citation needed for your claim that the poor can access these low interest rates. > A billionaire with $1B in net worth isn't leveraged to 10B in real estate. Citation needed. Why do you think a p…
Oh my where to even begin. > Citation for your claim that everyone has access to cheap credit. Are you aware of payday loans? I have at no point stated that. What I said is that inflation affects all debts equally. Interest rate on loans is defined on "cost plus" basis, where "cost" is the treasury interest rate, and the "plus" is based on your default risk. However, the "cost" is the same for everyone no matter what…
> I have at no point stated that. What I said is that inflation affects all debts equally.
So you do, at least, understand that a person with more debt benefits more than a person with less debt?
> Interest rate on loans is defined on "cost plus" basis, where "cost" is the treasury interest rate, and the "plus" is based on your default risk. However, the "cost" is the same for everyone no matter what.
So you are aware that poor people generally pay a premium for loans, based on their risk of default? And you see how that impacts their access to credit? And how this leads to wealthy people benefitting more?
> You can get a mortgage with as little as 3% down payment, so yes, I am referring to someone who has a $100K mortgage debt, a $100K house an $10K in other, misc assets like savings or investments.
That is the kind of person who may benefit from inflation, depending on their investment choices.
Re: Four Basic Truths of Macroeconomics
#84Earlier quoted context omitted.
> printing money so that the buggy whip makers didn’t notice that there was less demand for their product would have been a disservice lol, printing money wouldn't have changed anything there. If they made a -5% real return with no printing, and there's a 2% inflation rate, they'd have made a -3% notional return, or, and I believe this is true, a -5% real return. Unless it was handed directly to them, in which case w…
> lol, printing money wouldn't have changed anything there. If they made a -5% real return with no printing, and there's a 2% inflation rate, they'd have made a -3% notional return, or, and I believe this is true, a -5% real return. This makes no sense. You print money and spend it on buggy whips, they continue to make a positive return. Because you printed money and took up the slack demand. > Just as a 2006 vintage…
> This doesn’t make sense either, in 2010 the 2006 dollar is worth the same as the 2010 dollar.
No, it isn't. A 2006 dollar is worth ((1 + 0.02)^15) = $1.34 in 2021 dollars. A 2010 dollar is worth ((1 + 0.02)^11) = $1.24. Each reflects a slice of the GDP in the year of issue and if you'd exchanged it for assets in the year of issue like you were supposed to you'd have preserved that value. You chose to bring it forward into 2021 without investing it like you were supposed to. You willingly took the haircut. That's the only way they're worth the same - your forfeiture of time value.
Re: Four Basic Truths of Macroeconomics
#85Earlier quoted context omitted.
> printing money so that the buggy whip makers didn’t notice that there was less demand for their product would have been a disservice lol, printing money wouldn't have changed anything there. If they made a -5% real return with no printing, and there's a 2% inflation rate, they'd have made a -3% notional return, or, and I believe this is true, a -5% real return. Unless it was handed directly to them, in which case w…
> lol, printing money wouldn't have changed anything there. If they made a -5% real return with no printing, and there's a 2% inflation rate, they'd have made a -3% notional return, or, and I believe this is true, a -5% real return. This makes no sense. You print money and spend it on buggy whips, they continue to make a positive return. Because you printed money and took up the slack demand. > Just as a 2006 vintage…
> You print money and spend it on buggy whips, they continue to make a positive return
Sure, but no one is talking about combining general monetary expansion with targeted fiscal stimulus on the industries experiencing a drop in market demand.
(There might be good reason to do that to avoid capacity loss if you had a good reason to believe that it was a transitory loss in an industry where even with the buffering provided by inflation, production cuts would, absent fiscal intervention, be so severe as to result in abandonment/neglect/destruction of capital goods that would adversely effect an expected recovery, but that’s a far different issue than monetary inflation alone.)
Re: Four Basic Truths of Macroeconomics
#86"I also think measures of price inflation are almost useless over the long run, because a person today consumes a very different bundle of goods than one in, say, 1950." I agree with this wholeheartedly. How do we put a value on the fact that, for the cost of no more than a day's labor, most in the US can have a handheld device with access to nearly the sum total of the world's knowledge and entertainment? No one, at…
Sure you can have the entire worlds information and entertainment at your fingertips with a $50 smartphone, but if you can't afford to have a roof over your head I'd argue the smartphone is irrelevant. I don't think we should be including basic necessities alongside improvements in entertainment in the same statistic, because it will just hide problems.
I think the problem is that housing is exclusionary and people want to live in some locations rather than others. Typical housing doesn't scale well. This creates an effect where people are effectively bidding each other up on the price of housing, because the winner gets to live in that location and everyone else doesn't. This means that the cost of housing scales with how wealthy the people who want to live in that area are.
A 2000 sqft house in the middle of nowhere in Wyoming might cost $200k. In SF you'll get far less for the same money. People want to be in SF, because there's more to do, but also because the better paying jobs are there. This uplifts the entire area, but also makes things like housing more expensive.
In a lot of ways I think the cost of housing is dependent on the housing density vs job density of the area. If job density is much higher than the housing density, then the price of housing goes up by a lot.
I think a similar idea can be used to explain the high costs of higher education. Every university has a limited number of spots, so people are willing to pay more and more to get a spot. Loans mean that everyone's capable of paying the money to the university, regardless what they charge.
Re: Four Basic Truths of Macroeconomics
#87Earlier quoted context omitted.
> As everyone includes the rich, it is true that they benefit, but not especially true. Asst holders benefit disproportionately, as do debtors. The people who benefit most have both assets and debt. These are wealthy people. > The alternative is not “employment at the same wages” when demand drops, it's “production cuts and unemployment, resulting in larger second order demand drop, resulting in more production cuts…
> Asst holders benefit disproportionately No, they don't. Clearly dollar-denominated asset holders lose by first order effects, though they might see reduced risk as second+-order effects. Non-dollar-denominated asset holders see no real gains as first-order effects, they only see them indirectly from the absence of production cuts and demand throughout the economy, but those are much smaller proportional benefits th…
> Clearly dollar-denominated asset holders lose by first order effects
I don’t think you understand how this works. There are more dollars chasing the same number of assets, the asset holders are standing still while the dollar holders are falling behind.
> We benefit because otherwise those jobs would be lost entirely
If those jobs are lost due to decreased demand, the null hypothesis is that they should be lost, because they are no longer required. Its fine for you to feel otherwise but that’s why you would argue in favor of your alternate hypothesis where, despite the decrease in demand, we somehow know better than all those consumers, and decide that keeping a few apparently useless jobs around is more important than all those workers having stable incomes.
> along with the associated production which is worse in first order terms, but because it both reduces output and contracts demand, has second-order effects that would result in more job losses and production cuts.
If people aren’t purchasing those goods and services its entirely possible that we don’t need them to continue to be produced and propping them up with inflation is a bad idea.
> If the workers individually prefer not to be employed than to be employed at reduced real wages, they of course can voluntarily choose not to work (which by contracting supply will drive up wages for the remaining workers.)
This would be a good argument for asking them to take a pay cut. Inflation is a bad answer to this because it doesn’t result in a predictable or easily measureable decrease in wages. Btw this also has implications for the decision to use such a coarse-grained means to affect the economy.
> Yes, naturally if demand decreases both market-clearing price and market-clearing quantity should decrease. Wage stickiness pushes that all into quantity and not price cuts, which is more disruptive than smaller quantity cuts with some price cuts (both for the produced goods and the labor to produce them.)
If wage stickiness is a bad thing, then perhaps a cultural change towards accepting some variability in wages due to market conditions is indicated. However, its not clear that wage stickiness is even a bad thing, and its not clear that the guys who manipulate policy in order to deceive workers about the real value of their wages are doing it for the workers’ own good.
> Inflation doesn't prevent manufacturers from noticing demand cuts,
It absolutely can, what do you think this whole discussion is about? If they didn’t inflate the money supply then businesses would notice decreased demand and fire some workers, thats what you said.
> it just makes it more possible for them to cut prices as well as quantity in response to demand fluctuations
Not necessarily, in fact by increasing the nominal price of inputs it can make it more difficult for businesses to even survive.
Re: Four Basic Truths of Macroeconomics
#88Earlier quoted context omitted.
> When assets go up relative to currency, fewer buyers can compete for those assets, leading to the wealthy owning more and the poor getting poorer. Boy are you going to freak out when you learn about stock splits and fractional share investing.
> Boy are you going to freak out when you learn about stock splits and fractional share investing. You really must be confused if you think thats a rebuttal.
Absolute value of assets doesn't matter. What matters is future appreciation potential of those assets. That's my point. You can infinitely subdivide them and see the same appreciation potential recognized over a greater number of units.
Yes people who got in before you may have done better than you. They may not have. But the absolute price isn't relevant since owning AAPL shares isn't a necessity for life. On the other hand the absolute affordability of elements of the CPI basket does matter, which is why the CPI basket includes actual apples and not AAPL shares.
Remember when you invest in something what you want is for it to become less affordable. That decrease in affordability is called an "ROI" or return on investment.
Re: Four Basic Truths of Macroeconomics
#89I get a "please subscribe" pop-up and can't get rid of it without fiddling with the CSS editor. Anyhow... Summary of Truisms: 1) During recessions, employers tend to lay off rather than reduce wages 2) Central bank stimulus helps recessions 3) Too much stimulus causes run-away inflation 4) Non-monetary problems like oil shocks and pandemics can cause recessions 5) Increasing population helps economies. ("Hump to de-s…
Regarding 3; are there examples of stimulus causing run-away inflation? Or has it usually been a political event, a complete loss of trust in the system?
Re: Four Basic Truths of Macroeconomics
#90Earlier quoted context omitted.
> lol, printing money wouldn't have changed anything there. If they made a -5% real return with no printing, and there's a 2% inflation rate, they'd have made a -3% notional return, or, and I believe this is true, a -5% real return. This makes no sense. You print money and spend it on buggy whips, they continue to make a positive return. Because you printed money and took up the slack demand. > Just as a 2006 vintage…
> This doesn’t make sense either, in 2010 the 2006 dollar is worth the same as the 2010 dollar. No, it isn't. A 2006 dollar is worth ((1 + 0.02)^15) = $1.34 in 2021 dollars. A 2010 dollar is worth ((1 + 0.02)^11) = $1.24. Each reflects a slice of the GDP in the year of issue and if you'd exchanged it for assets in the year of issue like you were supposed to you'd have preserved that value. You chose to bring it forwa…
You misunderstood my comment.
> if you'd exchanged it for assets in the year of issue like you were supposed to
like you were supposed to This is exactly how the central bank policy is set up for the wealthy.
> You willingly took the haircut.
Alas, most Americans (and all the poor ones) do not have the same access to investment opportunities as myself.