Social Unrest?

Huh? What caused post-war prosperity? Then you misunderstand. This isn't the thread for discussing these things, though. You're welcome to start one if you want; I'll meet you there. Of course there is. Poor people spend their money; rich people save it. It is not the amount in existence as a whole, but the amount in circulation. Rich or poor, a man only eats so much bread.As a side; I typo'd in my previous message: It should read 'If goods/services do not increase comparable to that increase in circulating money, then those goods/services will cost more and the real value (amount purchasable per unit) of money decreases.' I tried combining two thoughts into one statement and it came out muddled. Perhaps this will clear up confusion. (I'm editing the message in question as well.) Apologies for this mistake.Jon

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Sadly, I don't have any suggestions, only criticisms. I've no idea how to make a fair or stable economy. I just suspect that most people with a Grand Plan To Make Things Better are missing some of the complexity of things.

WHAT?Inflation is not good. Inflation is loss of stability of a monetary system.By definition, the rise in price gained by inflation on assets and investments is NOT an increase in value, under ANY shape or form. Inflation devalues money, which increases the number next to your asset, but it doesnt make more or better asset for you. By what mechanism?

My beating libertarian heart just stopped cold.No. Great intentions, absolutely horrific execution, and a gross violation of natural rights.I cant think of a worse word than horrific to describe this plan, but i need one. This takes you to hell without accomplishing anything but shoving you into a century of economic slum and creating a police state.

I think this is made even worse in the case of poorer folk, who have little unnecessary and saleable property, and instead hold cash (perhaps in a bank account) as their primary exchangeable.While a wealthier person can sell their unnecessary property in an inflation at current exchange (they get more $$ selling tomorrow than if they sold today), the poor person will have the same amount of $$ throughout the inflationary period, and not be able to sell off unnecessary property to gain more, much-needed additional $$.There is more that could be said, but I figured this side-note important to point out, as most folk are on the poorer end of the spectrum.Jon

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QFTAlso, the minimum wage is considered sticky. Should inflation hold at a constant rate, the min. wage will always lag behind, most likely in terms of years. This means that even though your money is worth 10% less than it was 2 years ago, minimum wage earners will be paid at the same rate as they were 2 years ago.Money should be a fixed form of value exchange, not an ever-changing variable."The road to hell is paved with good intentions."

What is your explanation for the boom in the American economy when the top marginal tax rates were in the 90's? Do you feel that a larger tax base doesn't allow the government to spend more domestically, thus providing more job opportunities? You believe that leveling the playing field has no effect on GDP?It has been shown that rising tax rates do not have a negative effect on GDP. No I don't. Inflation is what I said it is. I didn't say anything about the cause of inflation. You are discounting the effect that economic growth has on mitigating the effect of an increase in money supply. If you have a lower rate of economic growth and an increase in the money supply, then yes that will cause sustained inflation. You're also discounting the effect that the Fed's monetary policies has on controlling inflation. (How do they take money out of the system? ) What effect does people spending money have on economic growth and how does that effect the inflation rate? A clue is above. I admit I had a hard time discerning what you were trying to say there but I gathered what you meant so no worries.

Without inflation the value of your assets do not increase. You seriously want the value of your property and investments to stagnate or deflate?Perhaps there is some confusion here. Who is advocating hyperinflation? I am certainly not by any means.A low to moderate rate of inflation is good for you and the economy. Do you disagree that having a larger tax base to rely upon allows the government to spend more within the domestic economy? Do you think that the government can not create jobs as well as increase the productivity of the poeple by spending on them? Edited by DBlevins, : No reason given.

Inflation. Does. Not. Increase. Asset. Value.The value of an asset is independent of money. Money is a measure of that value. I dont know of any school of economic thought that advocates that. Its just not true, either in practice or in theory. Why? How can it be true? I asked you to detail what mechanism you thought led to prosperity, and you posed two questions to me. Hmm.But ill bite. Yes, i think increasing taxes allows the government to spend more. I dont think that that is good, but i think that it is true.Yes, government can create jobs by spending money.NO, government cannot raise productivity by throwing money at the workforce. That doesn't make sense.Thats all beyond the point. Jobs and money are not the products of an economy. Just because the gov't spent a lot of money and made a lot of jobs does not mean it was more productive towards the goals of the economy.The end product of an economy is product. For the record, i agree that the war caused prosperity, but not at ALL by the same way you mean it. The government took a large chunk of money from the economy that could have been used to make products for the use of the citizens, and instead that money was thrown into tanks and bullets, which were eventually expended.The gov't diverted production of capital or consumer goods into military goods, which did not increase prosperity.Edited by Damouse, : No reason given.

Perhaps an example, with small, manageable numbers will help.We have an economy: E. Remember, an economy is just a group of folk who trade things. To make their trading easier, they invented money: . Remember, money is just an easy-to-use Standard of Scale that lets folk understand the value of many different things in terms of only one thing. To simplify this example, we focus on only one good in this economy: G. Oh, and people: F.Economy: E
Money:
Widgets: G
Folk: FGoods are hot items, and everyone wants them; folk will buy Goods so long as they have money for them.So, we set up our economy. We have:10F
1000G
10,000The 10,000 is spread equally over the 10F (100 to each), who, of course, use ALL of it to buy up the 1000G. The price per good: /G = 10,000/1000G = 10/G. We can figure out the REAL VALUE of by comparing it to the # of G that can be bought with it. Since each G costs 10, the value of is calculated as G/ = 1G/10 = 0.10G/, which only tells us that because it costs 10/G, each can only buy 1/10 a G. The REAL VALUE of (as measured in an actual, REAL, goods, G) is 0.10G.Behold! A second, almost identical economy: E2!This economy is almost exactly the same, except:10F
1000G
20,000As before, all of is divided over the 10F (200 to each this time), who, as before, use ALL of it to buy up the 1000G. This time, the price per good: /G = 20,000/1000G = 20/G. We can figure out the REAL VALUE of by comparing it to the # of G that can be bought with it. Since each G costs 20, the value of is calculated as G/ = 1G/20 = 0.05G/, which tells us that because it costs 20/G, each can only buy 1/20 a G. The REAL VALUE of (as measured in actual, REAL, goods, G) is 0.05G.Now enter Mr. MoneyBags. He wasn't bright enough to convert all his money () to goods (G), so he only has money. In which economy is his money () worth more? In which economy does his money () have more REAL VALUE? Is this the economy that represents Inflation (where the price/good is higher), or the one that does not represent Inflation (lower price/good)?In the real world, Mr. MoneyBags is a low-income man on a fixed budget; he doesn't have any goods he can sell, only a fixed income; when the price per goods goes up, the value of his money goes down. Poor Mr. MoneyBags... poor average citizen in an inflation.INFLATION IS BAD!Jon

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No, inflation is good. Inflation is when more people have more money, and therefore there's more demand for goods and services. (That's what people want money for, to buy goods and services.) Both of those things are good. Now, under those circumstances, you have a lot of money trying to chase fewer (but more valuable) goods and services - that creates a pretty powerful incentive to get in the business of creating goods and services. Which, basically, is every job whatsoever. So businesses are being started; existing businesses are looking to expand. That creates a demand for labor - people to make goods and provide services, or to help other people do that.So now Mr. Moneybags is sitting on an asset rapidly increasing in value, because it's an asset very much in demand - his own labor. So your low-income laborer gains a higher income, and buys more goods and services.Inflation is good!

@crashfrogYou are so, very, very wrong. This isnt even a wrong in terms of macroecon, where maybe differing schools of thought can disagree on what's what, you have no idea what you are talking about. Im inclined to think you may be joking. No. Inflation is when more money becomes active. More people can have more money and choose to save it, and there is no inflation. The amount of inflation in a system based on the size of the money supply, the velocity of money, the price of goods, and the value of goods is modeled by the equation:MV=PQ
M = volume of money
V = velocity of money
P = the price level
Q = the real value of goods NO. HELL no. See above equation.Inflation by itself does not raise demand. Period. Especially small constant inflation. Generally when you relate inflation with demand, its the demand that causes the inflation, known as "demand-pull" inflation. Read my other two posts where i state in no uncertain terms that value is not tied to money. At. All.Value != money.For example, if i offer you 100 euros for your pencil, you may assume your pencil has a value of 100 euros, which may or may not be true. If i then offer you 139.12 USD for your pencil, under your mindset the value of your pencil has gone up, because i am using an inflated currency. Yes. Buisnesses getting started creates a demand for labor, NOT more money. No. A million times no.The nominal market price of his labor is increasing, but the real price of his labor remains the same. His value does not change.Think about how absurd what you're saying sounds. If you take your pencil and put it in a drawer for 10 years, it will become more valuable as an asset? What sense in the WORLD does that make?For the last time. Money doesn't mean value. Assets dont necessarily rise in value if they rise in price. Ignoring all other considerations, inflation is bad for the sole reason that people like yourself think that greater prices mean that you are becoming richer, and act according to that mindset.

Perhaps you didn't catch my meaning. One of the ways to increase prosperity is implied in the question. Commodities and other hard assets DO appreciate in value with inflation. Why do you think they are used as a hedge against inflation?As a piece of paper you are absolutely correct that it has little value, but money is not just a measure of value it is also a medium of exchange. That is why it has value independent of its actual worth. Because it is in limited supply and we both wouldn't mind having more of it in order to satisfies our wants and needs. Let me be clear that when I generally speak of inflation I am talking about a low rate of inflation. Most mainstream economists would agree that that is good for the economy.Why?Because it can give people debt relief for one. If you owe a debt at a fixed nominal interest rate and inflation increases, you will actually be paying a lower rate over time. We also lower the risk of liquidity traps, as well as the impact of recessions, and an insentive to investment in capital projects. What happens when the government decides to give you a nice bonus tax refund check. Why and when would they do that? What are people likely to do with that check? [qs]The end product of an economy is product. For the record, i agree that the war caused prosperity, but not at ALL by the same way you mean it. The government took a large chunk of money from the economy that could have been used to make products for the use of the citizens, and instead that money was thrown into tanks and bullets, which were eventually expended.The gov't diverted production of capital or consumer goods into military goods, which did not increase prosperity.For the record, when I say 'post-war' I mean after world war 2.As a side note, what was one of the consequence of military soldiers coming home from the war with those big fat paychecks?

I assumed this was the case when I replied to you earlier. You never addressed the issue. Certainly wasn't money spent on condoms... No, they COST more; their VALUE does not change. 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? Small condolence, since the money left over is now worth less than yesterday.Jon

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I'll be honest - I'm absolutely right and you're completely wrong. Utterly wrong. You're the prime example of the "economic moron" - the guy who's absorbed so much academic economic nonsense that he's completely lost sight of how things work in the real world. This is the only thing you're right about. And why is that? Why is it that the government could give everyone a thousand dollars to bury in their backyard and it wouldn't drive up the price of anything but shovels?Because inflation is caused by more money chasing the same amount of goods and services. The prices of goods and services are driven up as a result. It's supply and demand. You remember supply and demand, right? When demand increased but supply does not, the prices go up. That's the cause of inflation - more money chasing the same amount of goods and services.But that's a good thing. More demand for goods and services puts more people in the business of providing goods and services. Any goods or services that people already have increase in price. I do see it, and I can do math. And your equation says that when the volume and velocity of money increase, so does the price level and value of goods. I never said that it did. The exact opposite is what is true - increased demand for the same amount of goods causes inflation. Why would I think that? 100 GBP and 139.12 USD are the same amount of money. More money creates a greater demand for goods and services, which creates a greater demand for the labor necessary to provide them, due to people getting into the "goods and services" business. This is obviously true. No, think about the absurd world you're proposing, the one where your corner grocer can't figure out how much the price of tomatoes should be that day until he calls up everyone in the country to find out how much money they have. That's the result of "economics moron" thinking, where the economics moron thinks he's being intelligent when he says "increasing the money supply makes money less valuable", as though the value of the money in your pocket comes from how large a percentage of all the world's money it represents.Absolutely wrong. The value of money is what you can buy with it. If the government throws bales of money from helicopters tomorrow, people are going to want to spend it on goods and services. That increases the demand for goods and services but not the supply of them, so the price increases.That's inflation. And the result of that inflation is an increase of investment in the production of goods and services, which increases the value of labor, because of the increased demand for the labor it takes to make those new goods and services.Inflation is good, as I said. This is something upon which every economist agrees, so if you find yourself i the position of arguing against the vast economics consensus I'm pretty sure it's not me who's going to be wrong.