> 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 and unemployment, etc.”
So by tricking people into taking less compensation for the same amount of work, we benefit how? If demand decreases then production should decrease, because less production is indicated.
> That this is generally worse for everyone including the working class, both as a whole and even many of the workers in the sector seeing the initial demand drop should be pretty easy to see.
No, I’m seeing the opposite. When the automobile replaced the horse-and-buggy, demand for buggy whips decreased as it should have. printing money so that the buggy whip makers didn’t notice that there was less demand for their product would have been a disservice
> people who benefit most have both assets and debt. These are wealthy people
Generally you have to have more assets than debt to be considered "wealthy." This is why the word "net" is important in the parent comment. And you are completely ignoring the second-order effects, which is that an economy with low, stable inflation is good for everyone. And if you are going to quibble "why is low, stable inflation good for everyone," then look at the deflationary spirals of the great depression (or any pre-1900 crash) and any hyperinflationary economy of your choosing.
> If demand decreases then production should decrease
Okay Chairman, have it your way. COVID hits, demand plummets, we do nothing to try to keep people in jobs or keep the financial system from collapsing. Less production is indicated!
> buggy whips
This is a total red herring and you know it. No one is talking about counter-cyclical monetary policy and implying it is being used to keep anachronistic firms in business.
> Generally you have to have more assets than debt to be considered "wealthy." This is why the word "net" is important in the parent comment.
I think you’re missing the point.
> you are completely ignoring the second-order effects
I’m sure I referred to them repeatedly.
> an economy with low, stable inflation is good for everyone
This is argument by assertion, which I have already responded above by explaining, in detail, how this is not the case.
> look at the deflationary spirals of the great depression (or any pre-1900 crash) and any hyperinflationary economy of your choosing.
You’ve helped me to show why an unstable currency is bad. You haven’t supported your assertion of why a depreciating currency is good for everyone.
> COVID hits, demand plummets, we do nothing to try to keep people in jobs or keep the financial system from collapsing. Less production is indicated!
Sounds good. Those pesky billionaires are going to be upset that we don’t continue to pump up their asset prices but whatever.
> No one is talking about counter-cyclical monetary policy and implying it is being used to keep anachronistic firms in business.
Why not? Why is it good to print money so unproductive workers don’t get laid off, but its bad to print money to keep unproductive firms from disappearing?
Aight chief I'm out. Glad we have agreed that 25% unemployment is a good thing. You sure are concerned about those working class people trying to feed their families! I am in awe of your superior economic knowledge and humanitarian instincts. It is unfortunate that the people running the central banks are such rascals, rigging the economy for the benefit of the ultra-wealthy, when you could be doing their job instead.
> 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 we call this a subsidy not inflation.
You keep conflating units with what they represent. It might make your headache dissipate if you think of dollars as "vintage" year in which they were issued. A 2020 dollar is not the same as 2021 dollar, even though they're convertible 1:1.
Just as a 2006 vintage Krug isn't the same as a 2010 vintage Krug, a 2006 vintage dollar isn't the same as a 2010 vintage dollar.
> 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 Krug isn't the same as a 2010 vintage Krug, a 2006 vintage dollar isn't the same as a 2010 vintage dollar.
This doesn’t make sense either, in 2010 the 2006 dollar is worth the same as the 2010 dollar.
> 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.)
> 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.
They (or their households) have an income, which is paid in units that are constantly depreciating while the investments are increasing in nominal terms. Of course they have no assets, because central bank policies have priced all of the assets out of their reach.
> Yes they do. If they have money, they have Robinhood. If they don't have money, inflation doesn't matter.
They don’t have enough time after working and chores to investigate which assets to purchase on the stock market, which is why banks existed before the central bank destroyed the savings market.
> They don’t have enough time after working and chores to investigate which assets to purchase on the stock market, which is why banks existed before the central bank destroyed the savings market.
There's plenty of roboadvisors with no minimums like Betterment or Wealthfront. There's Acorns. There's all sorts of technology to solve this problem. Heck how much time does it take to hit "buy" on SPY in RH once a quarter? I'm pretty busy but somehow I find the time to day-trade /NQ futures.
What do you mean "destroyed the savings market" -- remember when interest rates were 12% poor people couldn't really afford much house. How much good is a savings account when you can't afford anything? I suspect they'd be more than willing to trade a 2% mortgage interest rate for having to download a second app on their phone.
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 than the people who would be unemployed by those cuts face.
> So by tricking people into taking less compensation for the same amount of work, we benefit how?
We benefit because otherwise those jobs would be lost entirely, 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 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.)
> If demand decreases then production should decrease, because less production is indicated.
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.)
> When the automobile replaced the horse-and-buggy, demand for buggy whips decreased as it should have. printing money so that the buggy whip makers didn’t notice that there was less demand for their product would have been a disservice.
Inflation doesn't prevent manufacturers from noticing demand cuts, it just makes it more possible for them to cut prices as well as quantity in response to demand fluctuations, which—especially with transitory fluctuations, though this is true more generally, outside of a catastrophic drop to zero demand, where it has no effect either way—has less adverse knock-on effects.
> 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.
> If they didn’t inflate the money supply then businesses would notice decreased demand and fire some workers, thats what you said.
No, it's not. They notice whether they are cutting real wages or cutting jobs (and the increase in general prices, which affects all inputs which the industry shares with industries not facing demand drops—including those segments of labor with mobility—assures that they notice even if the inflation means nominal market clearing price remains the same.) What inflation does is increase the range of alternatives they have to deal with the demand decline to include addressing some of it decreasing real wages in some areas, particularly jobs with low mobility, reducing the degree to which it is addressed by production cuts which cut jobs in the industry, cut orders to suppliers and force second-order and beyond job cuts, etc.
> in fact by increasing the nominal price of inputs it can make it more difficult for businesses to even survive.
It only has that effect if businesses have long-term fixed nominal price commitments made in ignorance of inflation, which is why central bank policies tend to focus on avoiding significant volatility as well as maintaining moderate positive inflation.
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 and unemployment, etc.”
So by tricking people into taking less compensation for the same amount of work, we benefit how? If demand decreases then production should decrease, because less production is indicated.
> That this is generally worse for everyone including the working class, both as a whole and even many of the workers in the sector seeing the initial demand drop should be pretty easy to see.
No, I’m seeing the opposite. When the automobile replaced the horse-and-buggy, demand for buggy whips decreased as it should have. printing money so that the buggy whip makers didn’t notice that there was less demand for their product would have been a disservice