Inflation: The Basics

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

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What I meant with this question was: From whom are the demanders demanding? 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? This might be meaningful if it weren't for the fact that it is incorrect. I do not think I ever said they were unrelated. In fact, I've often talked about their relationship. Stop misrepresenting me.Jon

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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

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You misunderstand. I was talking about the top marginal tax rate that was IN the 90 percentile range during one of the most properous eras after the end of ww2. I said nothing about the 1990's in that reply.In any case I answered your question, albeit with a question of my own. M just doesn't increase or decrease in a vacuum. Your caricature of an economy doesn't take into account rising or declining interest rates, productivity increases, debts, wage demands, and any number of significant impacts on a REAL economy. Jesus, how dense do you have to be to not get it? The inflationary pressure due to the amount of money in circulation is going to be mitigated by the fact that, you were entering a possible deflationary period, and/or the productivity gains due to increased demand and thus will lessen any inflationary pressures. You also have the role of government in controlling interest rates which can effectively add or take money out of the system. Ultimately, though an increase in the money supply can lead to inflation in the long run, it doesn't always because of the net effects of changes in supply, productivity, and government controls. In the broader economy. Where else? You are not accounting for the effect that inflation has on debts. No, the value of my dollars has not changed. I just gave you more because I valued your pencil greater than Jill did. The value of that dollar is not independent of its purchasing power. Just because I want to pay $135 for your pencil doesn't mean that my dollars are automatically worth less. That would be INSANE. It would only hold true if you couldn't buy more with the money than you could have with the lesser amount.Let's say you sell me your pencil today for $135, vice the $100 you were offered yesterday. Now you buy 45 gallons of gas for our RV instead of 33.3 gallons. Has your purchasing power increased or decreased?You're oversimplifying the real economy. It just doesn't work the way your proposing. As a medium of exchange, money has value. That is why our system works. If money had no value, you'd be seeing more people burning it to keep warm.I think your misapprehension is in failing to distinguish moneys inherent and its real value.Edited by DBlevins, : erased unnecessary snark.Edited by DBlevins, : No reason given.

In normal cases we do not want to see deflation. Deflation is a bad thing overall. Remember: Low rates of inflation are good. High rates of inflation are bad. Edited by DBlevins, : No reason given.

Oh, I see. You just don't understand the concept of "supply and demand." Why didn't you just say so? 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.) But it's not incorrect. Units of length, like inches or miles, are how we measure distance. When we want to know the distance between two points, we determine how many units of length are between them.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? Damouse was saying that. I was trying to wrap his ideas up into my post as well. 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.

I do see part of the conflict here. The money is just a symbol system though. If prices doubled, and wages also doubled, then their would be no reeeeal increase in "value", would there.This is why I have tried to use more specific terms, like price, buying power, and wages. "Value" is a confusing and nebulous term with emotional connotations that are unwarranted in this case. This does not mean that we can just reduce the whole mess to barter terms though; because barter systems don't have the potential for circulation that symbolic currency does. If you trade sheep for shennanigans, those items may be consumed on the spot, held onto for a while, or traded on a few jumps. But they are not likely to make the appears-to-be-at-least-ten-places-at-once motion that kept modern banking working.

Right, just like "inches" is a symbol. But, regardless, units of length is how we measure distance, and when the number of inches in between two points steadily increases, that's not evidence that inches are getting smaller, that's evidence that the two points are growing more distant.Even if everything seems to be getting more distant from everything else - say, due to the expansion of the universe - we don't conclude that our rulers are somehow shrinking. Maybe there would! It would depend on why prices and wages doubled. If prices doubled because there was a doubling of demand for goods and services, that would certainly indicate an increase in the value of goods and services.

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. 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. 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

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No, your questions are completely divorced from reality. I don't understand. Do you want me to literally list every single seller of goods and services in the United States? That's just stupid. Do you see what I mean? I'm trying to tell you that increasing the money supply increases the demand for goods and services, which is obviously true - that's what people do with money, buy goods and services - and you're asking me "but, which goods and services?"All of them, Jon, that's the point. All goods, all services. I've provided ample meaningful answers. You've yet to ask even a single meaningful question, because you've allowed conservative pseudo-economic nonsense to completely blind you to how reality actually operates. In fact, "inflation" is exactly the name given to the phenomenon where everything in the universe observable from Earth is receding away from everything else. Just one more thing you're completely wrong about. But that's not what I'm saying at all. The increase in your TV's value is a result of the increased demand for TV's. The increase in TV prices is a result of that increased demand - not the cause of it. But an increase in the demand for goods and services is a good thing if you own goods and provide services, which nearly everybody does. If you have no job, no assets, and the only thing you own is a giant Scrooge McDuck Money Pit that you swim around in, inflation is very very bad for you. But we want things to be bad for currency hoarders. We want people to spend and save and invest, not hoard currency.Not only are you arguing against common sense, you're arguing against a complete strawman. It's exactly because they're related - positively related, which we know by logic and experience; valuable items have higher prices - that we can conclude that an increase in one means an increase in the other. An increase to the exact same degree? No, we don't know that. But to a first order of approximation we know that an increase in the price of something happens because it has become more valuable. If you accept that they are related, then you must accept that an increase delta-P in the price of an object necessarily implies an increase delta-V in the value of that object. (But delta-P does not have to equal delta-V.) You must; to deny that is to deny that there's a relationship between value and price, which is completely stupid.

Inches are one kind of symbol though, a fixed standard. Money is a different kind of symbol, a marker used to facilitate double-entry bookkeeping. A dollar represents dozens of things at once, and the relative worth of those things changes over time. Genuine supply and demand, which I think is where you are locating "value", are not the only factors involved in these changes.I'm uncertain how much of this is just semantics. You seem to be saying that throwing more money into the economy increases the "value" (price) of goods by increasing demand for them. Yet in such a case, we may examine the details and determine that the same thousand people are buying the same 14,000 tv dinners a week that they were before the inflationary influx. So in what sense will "demand" have increased?

If they're not buying more stuff, then there's no inflation. If they're only eating 14,000 Hungry Mans at week both before and after the influx then the price of TV dinners won't go up. Why would it? Demand for TV dinners hasn't increased at all.If the government gives everybody a big bag of money to bury in their backyard, the only thing that goes up is the price of a shovel. If you double the money supply but everybody just hoards it, there's no inflation. That's because currency-hoarding is inherently deflationary. But deflation is bad, because it lowers the value of goods and services. And far more people are involved in the business of providing some good or service than are in the business of hoarding currency. Demand clearly did not increase; as a result, inflation did not occur.

I see where I wasn't following you now, thanks Sure there was an increase in real demand at the beginning of the process. Not necessarily for tv dinners, of course, those are just a sample of goods and services. Considering the top-down way we are doing these things, it's probably for whisky and hookers. But as the cost and/or supply of those sort of goods and services skyrockets, the demand for cocaine increases and the supply of ethanol decreases and so on, the waves spread and the shit happens and the jump in prices and wages trickles down.And when it gets to my thousand Hungry Men, it's already balanced. Their wages have doubled, but so have the cost of their supplies. And this is optimistic, we know the likelihood is that their wages have not yet caught up with the grocery store's prices, which have reflected the fact that the pricier hookers had a positive impact on pricing and a negative impact in your boss's budget.There's no greater demand for this particular good from Swanson than there ever was; yet the much greater demand for and/or lower supply of other items has been reflected in it's pricing.

If there's no greater demand for the TV dinners than before, the price won't go up. Supply and demand, remember? Things aren't priced as a function of what a dollar is worth; they're priced as a function of demand vs. supply. The grocery store doesn't call up everybody in the world to see how much money they have, they just raise the price of the TV dinners until less people buy them, at which point they've found the optimum price given a level of supply and demand.And if the prices do go up, because of increased demand for TV dinners, that creates an incentive to put people to work creating TV dinners. Of course, if a bunch of old unsold TV dinners are sitting around frozen in warehouses, that unused supply can be brought to market, rectifying an inefficiency and preventing a Swanson's plant from closing.If prices of the materials to make TV dinners go up but demand for TV dinners doesn't, then they'll just make less TV dinners until the rarity of a TV dinner raises the price back to profitability. But the problem our economy has right now is the exact opposite - a 1.5 trillion dollar shortfall in demand for goods and services. Service providers are being furloughed. Goods are languishing in warehouses. Dropping money from helicopters for people to spend creates demand for goods and services to get those people back to work and get goods moving out of warehouses.When people get more money, they buy more stuff. More different stuff and more of the same stuff. That's true to the first order of approximation, at least.

Yep that's it; we agree. And here's how it happens. These two things are functionally equivalent at the bottom level of the economy.But I'm more interested in this now that I'm sure you aren't just deluded. How do we do this? I mean, what will be the most effective way? The W's "extra" tax rebates was, not too far from your helicopters. It was definitely effective, but certainly not enough to solve the problem. The new guy's bailouts and buyups and so forth have been even worse, in my opinion, thus far. So I think we want to try to get some of the money starting closer to the bottom than the top. 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.But the US government in particular doesn't seem to have anyone with the intitiative to accomplish that, so, what do we do?