undefined | Better HN

0 points3pt1415912y ago0 comments

Note that you are the one that calls my list bad, yet I specifically said that the uninformed should prefer this currency. Why should the uninformed prefer an inflationary currency? Because the uninformed are bad at accepting a decrease in demand of their market rate (their work performance would disproportionately decrease if given a 2% decrease in nominal wages).

With that aside, let me give cover my complex thoughts on inflation:

Sometimes it is possible to alter a function in such a way that the output is later maximized. Sometimes this is possible by essentially lying to people. When someone doesn't get a raise each month to make up for the expansion of the monetary supply he is effectively getting a pay cut, but he's been manipulated into not really noticing this. But markets are not fixed. Technology expands, populations expand, priorities shift (from religious worship to drugs or science, for example). At some point it is possible for a portion of the system to understand the manipulation and to maximize it for that portion's gain. Just as Keynes talked about priming a pump, imaging those that sell the primer. It is in their interest for the system to stutter so they make efforts to have it so fairly frequently. The secondary effects of this manipulation are malinvestments by those not party to the information about the cycle.

But even that has a secondary effect: The effect of some informed people taking actions to minimize the harm done to their own fortunes. They sidestep property and stock bubbles, but they still need to beat inflation.

Those informed people start talking about a replacement for the inflationary monetary system. They argue on the internet about crypto-currencies and they refine their ideas, and ultimately Bitcoin gets created. We are living in aftermath of centuries of Keynesian policy, this is PART of the long run to which Keynes is dead in. The part where something by design is (essentially) non-inflationary. Even gold had its risks (Fusion, for example) but while Bitcoin is free as in liberty it is also unforgiving of mistakes. That is why the uninformed shouldn't access it. Or at least not it directly. They should trust banks or become informed, because as it stands now they are not equipped to handle it.

Lastly, I reject the notion that inflation has proved useful for stabilizing the economy.

Fractional banking by its nature monetizes all assets (since most loans are secured, the 10x multiplication window is just a fancy way of "printing" money from the value of your house or factory). But the relative value between the underlying assets and the currency is in flux (or the futures market for the good would be 0, and the information already priced into the market) and in exchange for this freeing of capital and acceleration of gains to wise economic asset allocators, this temporal variance in asset value causes an increase of volatility in the financial system ESPECIALLY when the majority of its deposits are demand deposits since there is also system wide uncertainty in cash-on-hand.

It may be that the increase volatility and subsequent government action maximize technological, ecological, and industrial advancement by allocating assets into the hands of todays best and brightest; or it may be that the cost of management (inflation, regulation, deposit insurance, super insurance, asset backed derivatives, to big to fail bailouts) exceed the gains of a fractional reserve banking + inflationary monetary supply system, but we will not be able to tell by examining the data on inflation in economies where fractional reserve is a GIVEN.

0 comments

XorNot12y ago

> When someone doesn't get a raise each month to make up for the expansion of the monetary supply he is effectively getting a pay cut, but he's been manipulated into not really noticing this.

You do realize that pretty much everyone understands this in some way? What do you think OWS was, in part, about? The middle-class of the US is well aware that their wages have decreased relative to productivity.

If deflation becomes the order of the day, every business lobby group will immediately switch their narrative to the importance of indexed-wages for all! (which they currently oppose) while all labor unions will switch to arguing a contract is a contract (which they definitely oppose - you can't sign away your rights, contract fairness etc.)

afterstep1312y ago

It's not entirely true that inflation effectively results in a pay cut.

It's true only if you are buying the exact same things today, that you were buying, say a decade ago. This is true for some things such as food, housing etc.

However for other things such as computers, gadgets, medicines, cars, etc. are much better today than they were before. For these things, you get much more for the same price(taking inflation into account).

For example, phones used to be only communication devices; but now they are also a camera, entertainment device and even a computer. Others, such as medicines, they have become cheaper and much more effective. In short, improvements in science and technology beat the effects of inflation.

In some markets it can actually cause a deflation. For example, computers used to cost thousands of dollars, but now you can buy a much better one for a few hundred bucks.

Inflation is bad, only when stuff that you buy doesn't improve over time.

Perhaps one could even show that inflation is somehow related to the introduction of newer and better products in the market. For example a new car, with a more fuel efficient engine, will likely cost more than the old ones. However I don't have enough evidence to justify this claim.

parasubvert12y ago

"We are living in aftermath of centuries of Keynesian policy, this is PART of the long run to which Keynes is dead in."

I don't know whether to laugh, or cry. Keynes was many things, but he was not a Time Lord.

We've been living with Keynesian policies for a tick under 70 years, which also has happened to correlate to the greatest wealth expansion in recorded history. It's a bit premature to point fingers as to why (or what has happened since the 1980's, which has caused middle class wages to stagnate).

Do keep in mind that Keynes was revolutionary because his ideas worked, even though they upended much of classical economics - they had (and continue to have) predictive power for how economies work, especially when interest rates are near-zero.

j / k navigate · click thread line to collapse