BTW, did you notice that faint pink line in your graph? That is the taxes on transactions. Note that it plummets right around the time the money supply collapses. That’s your canary in the coal mine, but do keep going. 
2 Likes
So you’re suggesting that the US military could coerce the Treasury into printing more money under threat of military force?
I think by that point it’s a military coup, dude.
3 Likes
The choice of words… I dont see it as “plummet” but as “stabilizes after tax changes”. Its not the end of the world as you try to paint it, imo.
Of course it plummets, it is the largest drop in the shown history. It is totally unprecedented. And yeah, it stabilizes at a much lower number of transactions. And the tax changes, if anything will have a reinforcing effect of deflation.
Edit: to be clear, deflation and the increase in transactions taxes would have effects that “move” in the same direction fewer transactions.
2 Likes
Inflation is based on the growth of the average price of a basket of goods (which as @Teckos_Pech pointed out, includes housing, as well as medical care, two services notorious for increasing in price faster than inflation) so it’s not terribly useful for predicting the price growth of any particular good, but it’s useful as a picture of the economy as a whole.
Uh, no. The relevant identity is MV=PY, where M is the money supply, V is the velocity of money, P is the price level and Y is the output of the economy. The relevant variable here is M, the money supply, and this is defined as the total value of money in circulation. If the Treasury prints 50 trillion dollars and shoves it all into vaults until the end of time, it will not affect M.
A sudden glut of money entering circulation will easily be noticed; interest rates would plummet, balances would soar, and prices would very quickly soar in response.
Regardless of the political drama in Washington, the people leading either chamber of Congress are not going to whip their majorities into utterly destroying the dollar.
Printing a foreign country’s currency to debase it is a pretty silly approach to economic warfare as the foreign government can recall their currency and issue a new one very quickly.
Nobody is contesting the idea that people would still spend money in a deflationary scenario. People would reduce their consumption as much as possible, but investment would plummet.
Yes, once again, they “hoard” those things, and by “hoarding” I mean they invest in capital and put it to work, creating jobs and goods. This is a good thing. Hoarding cash does not create jobs, it does not produce goods, it does nothing productive.
Nope. Nope, nope, nope. This old canard, that economic growth is dependent on increased consumption of resources, is demonstrably wrong. Economic growth has already decoupled from energy consumption, and it will decouple from overall resource extraction as well.
Gold is rather scarce and the value of money in circulation is far greater than the value of all the gold ever extracted, so that one’s out.
A metric ton of cocoa beans is currently priced at $2,473.00. That amount of money fits in my wallet. A metric ton of cocoa beans is a bit too big for that, and there aren’t a lot of people willing to sell me the things I need in exchange for cocoa beans. The storage requirements are pretty daunting too.
I don’t know a lot of people who sell the things I need and denominate their prices in terms of heads of cattle, and I live in Texas.
Please don’t feed the trolls around here.
1 Like
This is exactly what happened with a family business during the Great Depression. Price deflation meant people went for the cheapest cuts. So that side of my family was often eating some of the very best cuts of meat or else they’d just rot. Why? People wanted to spend as little as possible. This doesn’t mean zero spending, but as low as possible.
I’d draw a distinction here between investing and hoarding. Investment-“hoarding” basically puts resources to work making things and providing services that people want. That is, it makes those people better off. It also employs people which makes them better off. And it makes other investor-“hoarders” into the venture better off as well. This is one way wealth is built. It is a good thing. Hoarding cash on the other hand does none of the above and in fact it does the reverse. It is bad.
Agreed…kind of. Yeah, energy consumption and growth are not as simple as the past. People put solar panels on their houses and consume that electricity vs. getting it from a utility. So do businesses. Overall consumption has (maybe) not gone down, it is just different. And this isn’t bad if it reduces CO2 emissions, etc. But yes, this sounds suspiciously like the old Malthusian/Jevons worry about growth. Jevons was deeply worried about English coal production. He looked at the math and saw only gloom and doom. He didn’t see alternatives to coal. Innovation is another source of economic wealth generation and it works in ways that are non-linear. This is why guys like Paul Romer and Robert E. Lucas Jr. started looking at growth models with increasing returns to scale vs. the old Solow type growth models.
Not too mention that returning to the gold standard would draw an immediate speculative attack. Various investors would start speculating on when the US would go off gold and as that speculation mounted it would become an inevitability (@Aiko_Danuja see guys like George Selgin, Frederick Hayek, Lawrence White, and Steve Horwitz for similar veiws oh and James Hamilton…though he isn’t an Austrian). So yeah, a return to a gold or even a silver standard just isn’t going to happen.
And barter sucks. Barter relies on the dual-coincidence of want. You need to find a guy who wants your coffee beans from you for your cheeseburger. And that is unlikely. You would then have to engage in a search for what the cheeseburger seller wants and go through a complicated set of transactions…in other words barter has massive transactions costs whereas a cash, even a fiat cash, economy does not.
1 Like
I’m simply using the language of the poster I’m quoting; in no sense am I suggesting that capital investments are anything like hoarding.
Energy production is certainly getting more efficient, definitely, but at the same time, the use of energy is becoming much more efficient. None of the banks I do business with mail me paper statements, the stores I shop at are switching to LED lighting fixtures, manufacturing processes are becoming less energy-intensive than before; all of these things add up, and we no longer see energy usage grow with GDP like it used to.
On top of all of that:
- The gold standard is supposed to guarantee price stability, but modern central banking practices (i.e. the Taylor rule) do a much better job at this.
- Precious metals are subject to the same market forces as any other commodity, limiting their potential as a stabilizing force; if somebody found a way to use a substitute material to the same effect in, say, dentistry or electronics manufacturing, the price of gold would be affected.
- The gold standard would severely limit flexibility in monetary policy, which is suicidal in any advanced economy; this was a huge factor in the Great Depression.
- The US gold reserve is worth less than $500 billion USD. The US trade deficit is significantly higher than that. Under the gold standard, imports were paid for with gold. We’d wipe out our gold reserve in less than a year.
1 Like
I know, I’m kind of writing to the others in the thread.
Agreed. I was reading an article a few months ago about how in Portland electricity was becoming an inferior good. Very interesting.
Right. I’d say the relationship is non-linear vs. decoupled, but definitely changing in dramatic ways…so it is a bit more semantics, IMO.
All good points. Even the “free banking” folks I referenced would largely agree, IMO. They don’t see a possible return to a gold standard.
Consider my comments…just my 2 cents on your posts which I pretty much agree with to a very, very large extent.
1 Like
Yes, it is. Pretty much every definition I’ve come across just says that income is “money earned through work or investments”.
Dubious “medical benefits” are not income - they do not increase the size of a bank account. Furthermore, because they’re used by employers as an excuse to keep wages down, they actually limit the choices of insurance that employees have access too. Lastly, these dubious “medical benefits” are a form of “compensation” that don’t exist until the employee experiences a medical problem, in which case the “compensation” scales to the cost of the problem. It’s not real compensation no matter what the IRS says (aka made up legal definitions to have an excuse to tax poor workers even more).
By your definition, an employee who receives the following benefits: full medical, dental, and eye coverage with no copay and no questions asked + a company “food card” to cover all their eating expenses, but who is paid only $500 a month and thus lives in abject poverty… would have a “high income”, but anyone with ears to hear and eyes to see would look at their living conditions and rightfully point out that you’re full of ■■■■, despite how craftily the IRS wants to gerrymander definitions.
Shill harder.
1 Like
It does not give you the price of anything because it actually give you the general evolution of prices.
It’s a weighted average, that’s supposed to represent the price of life for people conforming to the weights that are used. If the weights are made from average usage, then the inflation value will be suspect to those averages issues (typically expension towards the highest values), so usually it’s median that is used (eg Median Consumer Price Index (MEDCPIM158SFRBCLE) | FRED | St. Louis Fed )
Basically inflation is the derivative of the purchasing power. as any derivative it does no give you the value but the evolution of the value.
It’s like asking the distance to the town to your speedmeter.
Okay, lets try it this way…
Do you get benefits without working? No.
OMG…I sure hope you are not working just to increase the size of your bank account.
That’s not how it works. You are paid based on your productivity. The more productive you are, the more you are paid. The exceptions to this are things like monopsony which is actually a bit of a rare bird.
Good lord. You mean knowing your are covered in case you do get sick has no value to you? At all? Sorry, that is not how it works either. People often buy insurance without being forced too. People often buy insurance above legal mandates. Why? They perceive value in doing so.
Ahh yes, the old “let me type words from your keyboard” line of ■■■■■■■■. No. But if an employee did have full medical coverage, dental, and vision in addition to his wage is missing a big part of the picture if he looks at just his wage as his compensation. A very big part. Most people are economics ignoramii. They don’t fully grasp rudimentary concepts like opportunity cost or how people generally make decisions at the margin. That people are often times rationally ignorant and even rationally irrational. Take for example, those people who believe sincerely that a trade deficit means we are being ripped off by some other country. It is pure and utter nonsense. Sure you might send $50 to China or Mexico but you are also getting stuff you value at at least $50, probably more. You aren’t being ripped off, you are being made better off. And so trade actually makes people better off. Trade across international borders is really no different than trade within international borders.
1 Like
Well, sure but why would they have to? If an Army general went up his chain of command with a reasonable request for a trillion USD to use against an enemy during a war, do you think it would not be seriously considered?
Think about it from an EVE perspective. If money, raw ISK, gave you an advantage in a fight, wouldn’t you use it? Or would you forego the advantage because ::sound money::? Does Goonswarm worry about Titan inflation or too much tritanium on the market? Don’t they instantiate ISK like the Dickens? What’s the difference?
Is it? That’s what I’m asking. Why is it?
M is the money supply . . . but the utility of any one kind of money can be substituted by other kinds. If I can pay with a promise or a favor not involving monetary exchange, then I also have to account for that or the model fails.
V requires a proper mapping of all the paths that money can take through a system, and given the virtual nature of money, those paths don’t have to be physical or real. They can be implicit, like how you don’t necessarily confirm with your mom that you can crash on her couch but you basically know that safety net is there. If you don’t map that potential direction of money’s travel (assuming you’re gonna help out with groceries or pay her some rent money or . . . something), then you get a skewed view of the system. You don’t understand why, for instance, housing costs aren’t going up faster.
P is the “price level”, itself an average, which we are including into a larger composite. And how do we even measure it except by aggregating an arbitrary set of goods and/or services . . . no. Not gonna play that game . . . unless you want to? 
And Y is “GDP”.
Now, one of the many points that could be made is that if you print 50 trillion ISK and put it in a safe, it is not “out of circulation” if anyone knows it is there, because those in the know will incorporate that knowledge into their decision making process.
Like, if I have hoarded 5000 PLEX and the price of PLEX drops, I’m not necessarily going to buy more PLEX at a cheaper price because I already have 5000. Do you see how that uncirculating PLEX are, in fact, affecting the overall economy?
Please elaborate. How much is a “glut”? Who notices it? How is it “entering circulation”? What criteria are you using to judge something as “sudden” or “easily”?
Read it again. That you did not notice it is not partisan tells me you misunderstood what it said.
“economic” warfare ← Do you see the mistake you’ve made, here?
If hookers and cocaine are half off, you’re gonna buy less?
Consider the alternative, that rich people owning everything and sucking the life out of their civilization might actually NOT be a “good thing”.
If rich players own all the tritanium or space or PLEX, is that a “good thing”? For New Eden?
So why do we still extract energy?
Scarcity is probably the fundamental concept of economic study, but you seem to have thrown it out the window with comments like the previous one about energy.
How can you talk about economics when you don’t believe things like energy scarcity affect our economic system?
“Real life economist” … you’re saying it as if it’s something to be proud of.
wow, this thread is so messed up.
So much RL stuff…
Who cares about medical insurance/benefits: doesn’t exist in game, your clones, capsuleers, and no longer have to pay for clone upgrades.
Who cares about the IRS or any other similar government agency: Does not exist in game.
Who cares about taxes on a house, car, etc: In game once you own something you do not pay the governments anything, when was the last time charters were required hmm?
Now lets take PLEX, its stupid how the price is so high and there are those trying to make it higher, the inflation problem with that and newbies or returning players being constantly ganked or wardec’d into oblivion…its no wonder we have a retention problem.
Wages: hmmm, if someone does not want to mission, run anoms, or whatever else puts direct ISK magically in their pockets, well thats on them and they deserve to have to scratch around and beg for stuff from others, they do not deserve however to cry and moan and rail at CCP for not having any ISK, or that sliding their RL credit card does not gain them enough.
Same with miners, if you dont like the prices do something else or get into actual industry and build ships and modules to help your corp/alliance out, and while you are at get off your ass and help defend stuff instead of moaning how you are miner not a fighter…otherwise yeah keep getting treated like a wage slave by your corp and stuff.
Now an actual economy crash…if it could happen that might be better for the game to happen at least once, let all the hoards of modules and minerals and other stuff get used up till it finds an equilibrium. And if people quit because of it, then good riddance they were not real EvE players anyway they just wanted easy street without being or taking real part in an organization, in short leeches which is something EvE can do without.
Yeah let’s not pretend that is true Teckos.
We know people are not paid what they are worth in many cases and that corporations do take blatant advantage of people.
You were doing well before you tried to include this.
I don’t think that’s how military procurement works.
I poorly phrased that. Inflation is one of many economic indicators, which when taken in the aggregate, provide a picture of economic performance and can help predict future performance. It doesn’t mean much by itself.
These sorts of informal transactions are not counted in GDP, so they’re irrelevant in that identity.
The value of these kinds of transactions isn’t counted in GDP.
I don’t understand why they aren’t going up faster? Real estate economists are in broad consensus that zoning policy and land use restrictions are the dominant factor in why housing cost growth has outstripped inflation in so many metro areas.
The Houston metro area is also quite known for having very little in the way of zoning or land use restrictions, and for this reason the monthly rent for a roach-infested shoebox in NYC or the Bay Area gets you a luxury high-rise condo in a glitzy area like River Oaks.
The price indices used here are publicly documented. The prices are also weighted; the price of a movie ticket is not equal in weight to the price of a gallon of gasoline in this context. These “arbitrary” price indices are also used by private companies for forecasting and to determine cost of living adjustments, so they’re clearly trusted by plenty of people.
In the example of $50 trillion USD being printed and locked away in a vault, the money is not in circulation. For all intents and purposes, it is paper in a vault. Nobody is drawing from it to make payments. If the Treasury minted a gold manhole cover with a face value of $50 trillion USD and locked it away, it is not counted as part of the money supply. They can announce it to the entire world, publish pictures of people standing next to it and allow people to take selfies with it for a fee, and nobody of any consequence would factor its existence into their decision making, because it’s locked away in a Treasury facility and not in circulation.
It doesn’t have to be “sudden,” it can be a trickle over a long period of time. No one individual necessarily has to “notice” it, it’s “noticed” because you simply have more money in circulation chasing the same goods and services.
History is replete with examples of governments printing massive sums of currency to pay debts and causing high inflation. Assume a government owes you money, and they print the money to pay you. The only use you have for that money is to trade it for goods and services from that economy. By buying goods, or buying your preferred currency with that money, you are putting that money into circulation. More money is in the economy, and as goods are purchased with that money, prices are increased.
“Menu costs” are, of course, a thing, so prices are not immediately responsive to monetary shocks. But the response will still come about.
No, please point it out.
If they’ll be even cheaper in the future, sure.
How are they sucking the life out of their civilization if they’re investing their money, thus creating jobs and creating goods and services? Why is it somehow better if they lock money away in Scrooge McDuck vaults because its purchasing power is constantly increasing without any effort on their part?
At no point did I say that the economy does not depend on energy. I said that economic growth is no longer dependent on a commensurate increase in the use of scarce resources. We are using those resources much more efficiently than ever before.
It is true. How much were people paid say 100 years ago? Not very much. Why are they paid more today? Because they are far more productive. Why? Specialization. People are far, far, far more specialized than they were 100 years ago. 100 years ago many workers could do lots of things. Many workers today focus on a very narrow area–an inch wide by a mile deep, vs. an inch deep but a mile wide.
In economics being totally self-sufficient has actually has a term: autarky. Typically it is used for an economic system, say a country. A country that walls itself off from all outside trade and interaction with other countries is an example of autarky. Such countries are typically very, very poor (think North Korea).
The same is true of people. People who were settlers on the frontiers in the US were “self sufficient” in that they provided just about everything they needed for themselves. They were also exceedingly poor, especially by today’s standards. Workers who acquire more human capital are generally paid more because they are more productive. Look at Henry Ford and his doubling the wages of his workers. Why did he do it? He was having issues with workers who would acquire human capital and then leave for a better job once they acquired it. Replacing workers is actually costly. Until that worker is replaced her work is not being done or is being done by other employees who are giving their work less attention. These kinds of costs also have a term: search costs. So firms do not like losing workers with higher levels of human capital. So Henry Ford literally doubled the wages of his workers. Everyone thought he was stupid. It worked brilliantly. There were always more workers looking for employment at his plants than he had job openings. He could ask more of his employees like working faster or even staying longer. After all, if they didn’t like it and went to work elsewhere they’d take a significant pay cut. Eventually this practice also got it’s own name: efficiency wages. Firms paying workers above the market clearing rate to cut down on hiring/firing/quiting costs.
Even someone as liberal as Paul Krugman will admit this. In fact, he pretty much did.
A nd then something changed. Some combination of factors that we still don’t fully understand–lower tariff barriers, improved telecommunications, cheaper air transport–reduced the disadvantages of producing in developing countries. (Other things being the same, it is still better to produce in the First World–stories of companies that moved production to Mexico or East Asia, then moved back after experiencing the disadvantages of the Third World environment, are common.) In a substantial number of industries, low wages allowed developing countries to break into world markets. And so countries that had previously made a living selling jute or coffee started producing shirts and sneakers instead.
Workers in those shirt and sneaker factories are, inevitably, paid very little and expected to endure terrible working conditions. I say “inevitably” because their employers are not in business for their (or their workers’) health; they pay as little as possible, and that minimum is determined by the other opportunities available to workers. And these are still extremely poor countries, where living on a garbage heap is attractive compared with the alternatives.
And yet, wherever the new export industries have grown, there has been measurable improvement in the lives of ordinary people. Partly this is because a growing industry must offer a somewhat higher wage than workers could get elsewhere in order to get them to move. More importantly, however, the growth of manufacturing–and of the penumbra of other jobs that the new export sector creates–has a ripple effect throughout the economy. The pressure on the land becomes less intense, so rural wages rise; the pool of unemployed urban dwellers always anxious for work shrinks, so factories start to compete with each other for workers, and urban wages also begin to rise. Where the process has gone on long enough–say, in South Korea or Taiwan–average wages start to approach what an American teen-ager can earn at McDonald’s. And eventually people are no longer eager to live on garbage dumps. (Smokey Mountain persisted because the Philippines, until recently, did not share in the export-led growth of its neighbors. Jobs that pay better than scavenging are still few and far between.)
Now it isn’t a perfect process to be sure. There is also innovation which is a key component in the creative-destructive aspect of the market process. Innovation inevitably destroys the old which in turn can be bad for workers in those areas adversely effected by innovation. Monopsony does happen and workers in certain areas can “get screwed over”. But overall, it works pretty darn well. Why has the number of people living in extreme poverty fallen so much? One big reason is the People’s Republic of China liberalized their economy. And now many who would have been extremely poor are far more productive and get paid far more. Or immigrants to the US, why do they earn much higher wages than their home countries? The US is a high trust economy and workers are often paired up with capital that makes them much more productive and thus higher wages.
2 Likes
They are actually.
Id like to see them try