The lower class does suffer the most, but unfortunately it is the policies intended to help them which actually cause most of the problem. By giving money to people without producing more stuff - or even making it harder to produce the same - you MUST have inflation, rationing, or empty shelves - and often all three.
The solution to allowing lower classes to have more stuff is to make it easier for everybody to produce more stuff.
Giving money CAN help with distribution of stuff, allowing poor people to purchase a larger share. But it requires lots of money given directly to the people that need it (vs allowing the gov't to spend it themselves). And also requires lots of high inflation. Imagine, for example, just giving everyone £10M to spend on whatever they want. This would not create any more stuff - but it would sure be a big equalizer for people buying that stuff!
But really - if we could all focus a bit more on production - allowing, encouraging, and celebrating it - then we'd all have a lot more stuff.
This seems to come from the same place as the argument of "trickle down economics". Yea no, I've seen similar things done in Japan with abenomics (with one of the targeted goal even being more inflation; without achieving it) and studies show it doesn't work.
Those spending never reaches the "lower classes", and seldom even reach places where it would have the potential to increase productivity.
It's a tired, old argument that is done to justify stupid spending and enriching certain pockets while claiming to benefit all with a shoddy reasoning that omit the important details
His argument is that the government can do 2 things:
1. Interest-free money for businesses to launch, grow, and advance. This leads to more goods in the market and thus lower prices
2. Free money straight to the people which means more money in the market and thus, inflation, empty shelves, etc.
His general point is that having interest-free money keeps existing players honest since newcomers can come in and start a competing business. Now that the money is drying up, existing players are increasing their moat.
The US has had extremely low interest rates for a very long time, and yet effective competition is further than ever in many industries. Something I'd observe is how unreasonably difficult it can be to legally sell things in the US. For instance hitting on this topic (of food prices), why can't I simply start baking bread and selling it? You can make an amazing loaf of bread for a tiny fraction of what people pay in a grocery store, but somehow actually being able to legal sell it is painful, at best.
By contrast I now live abroad in a developing country and it's quite amazing how ripe small business is. Want to sell bread? Okay, bake it and sell it. You can even get it stocked at "convenience marts" easily enough since a that's often just some guy's lower floor transformed in a shop. Talk to the owner, who's probably the guy at the counter, and make a deal. If people like your bread, you're now officially a baker - congrats.
Make it easier for people to sell stuff, and there will be more stuff. And the prices of stuff will trend downwards. While money is a way around these issues, a regular joe who happens to make a great loaf of bread probably isn't especially keen on taking on 5-6 figures of debt just to see if selling his bread actually works, let alone being something he really wants to dedicate himself to.
This is a highly relevant point. The more difficult it is to learn about and comply with regulations, the fewer businesses will attempt to do so.
In some cases, business simply ignore regulations that that are obscure or inefficient to comply with; this leads to corruption and/or shadow economies.
In more cases, business is simply discouraged and doesn’t grow, or just doesn’t start at all.
The messy patchwork is city, (sometimes) county and state licensing and taxation framework in the US is a huge drag on small business.
I am not arguing for no regulation, licensing, or taxation, only that these entities recognize that requiring businesses to file paper tax returns every quarter, even if they have done zero business in a given city is a significant hindrance to business activity.
Safety, including healthcode safety, is a good thing. A level playing field ensures that everyone in the market is making safe, hopefully good quality, products for that market. Reviewing, streamlining, and creating easier for small businesses to follow guidelines about the regulations that exist in a given field also sounds like good ways of improving consumer choice and safety.
> Safety, including healthcode safety, is a good thing. A level playing field ensures that everyone in the market is making safe, hopefully good quality,
Sure, you can raise the standards so much that only multi billion companies will be able to comply. In fact that is what we witness today. How many mom and pop shops still exist compared to the '60s?
> A level playing field ensures that everyone in the market is making safe, hopefully good quality, products for that market
I don't believe "safe" and "good quality" are necessarily aligned. I live close to a dairy farm where they sell (their own) unpasturised milk. You bring your own bottle, fill it, and pay in the honesty box. The farmer has a (small) disclaimer suggesting that the milk be boiled prior to consumption, but I don't believe any of the local buyers actually do that.
My OPINION is that it should not be forbidden BUT that it should be clearly labeled.
UNPROCESSED Raw Milk (animal species)
There should probably be a poster or something created by the FDA that quickly summarizes the risks involved with not performing each of the mandatory safety steps for normal retail 'Milk', and it would be helpful if more detailed information were available on a website and from the local health agencies.
There has been a complete and confusing lack of deregulation talk in the inflation discussion and I don’t know why. Your example could also be taken with housing - why is construction not deregulated in smart ways to jump start residential building? Building a house is a total red tape disaster.
Because home prices are tracked so closely, sited widely, and used as a barometer of economic success and political success.
But yeah I think that's weird and destructive. Wouldn't it be better to prominently track and celebrate how much new housing is built?
OTOH, many people have all or most of their net-worth tied up in their home price. So even though NOTHING CHANGES when that price goes up or down, it has a psychological affect on them, who vote a lot.
HOAs are even worse than county & state governments when it comes to building a house. Many HOAs have building codes which include a minimum square footage. Some HOA regulations require over a 1000 sq ft livable footprint (garages don't count). The problem is HOAs have an incentive to raise property value, which makes it far more expensive for people to build a home to live in. HOAs are incentivized to increase property value of the neighborhood & large houses increase property value.
Small plots of land are dominated by HOAs. Finding small plots of "unregulated" (no HOA) land often requires one to live very far from a city & decent grocery stores.
I'm not a big fan of the red tape of regulation & how regulations can be abused by large capital, but in the case of housing, HOAs are a bigger problem. Of course, there are also municipal regulations which require small plots of land to be more tightly regulated re: housing.
A solution is to improve house design which can be modularly expanded as one gains more wealth. That way, a family can start small & gradually build additions or attach additional modules as time goes on.
> Make it easier for people to sell stuff, and there will be more stuff.
This is an excellent idea. Just lower the barrier whatever that barrier is.
Some people can think that lowering the entry barrier can result in subpar products and services but in fact the higher the competition, the higher the quality will be.
> but in fact the higher the competition, the higher the quality will be.
If this were true, then appliance manufacturers who produce higher-quality goods would be rewarded. But instead, we're at a weird state where appliances are still not cheap while also not being built to last.
Competition isn't guaranteed to keep the market honest; I'd argue once a market passes a certain size the number of people who can spot lemons becomes insignificant, and then it's a race to the bottom.
If that was true... You might end up with mass bacterial infections everywhere as only those cutting standards while providing highly addictive products survive etc. There was a reason why those regulations started initially. Overburdening with new more and more expensive regulations might be the issue.
There is always a tension between economic growth and consumer protection. Selling bread is hard mostly due to health regulations. We used to have a lot of people die due to contaminated food. Now that's so rare that it makes the news when it happens. Food safety rules were written in blood.
Some states such as California do have special exemptions for "cottage" production of low risk foods such as bread.
> Selling bread is hard mostly due to health regulations. We used to have a lot of people die due to contaminated food. Now that's so rare that it makes the news when it happens. Food safety rules were written in blood.
Bread was just an example. Just try to open a small corner shop and see how easy it is. Almost any small business has legal obstacles and a barrier as a high to entry as a large corporation. While the corporation can pass that barrier, little guys can't.
> Want to make screwdrivers and sell them to the local hardware store? Go ahead.
I doubt you can do it without having to pay attention to thousand of different regulations.
Your claim is trivially falsified. There are literally hundreds of small restaurants and retail stores within a few miles of me that are run by small businesses or individual proprietors. The barriers are more in high rents than in regulatory compliance.
The bread example seems pretty bad too. There are tons of local bakeries that take more of an artisanal spin on things in my neck of the woods, and I bet all over the US. They'd have to be niche because it's not like they're going to compete with a national brand that has automated factories that crank bread out. That's who a corner store in the US is going to buy from.
But the point is that you can compete against these national brands, quite trivially. I wasn't exaggerating on the cost. You can make a loaf of bread literally for pennies. And it's better in every single way than what you buy in the store besides the fact that it will tend to go stale within a few days if not refrigerated. But even that's arguably a benefit as well. It goes stale because it's not jam full of chemical preservatives.
It's only when you start making all sorts of things for yourself that you really start to see how completely irrational the markup on many things is, which then begs the question - why isn't anybody simply dropping the prices by 50% and making a killing? And the only answer I can really see is because it's become really quite painful to be able to sell things in America, unless you want to go all-in on it.
I'd also add that in terms of food safety, the big concern is not small business, but big business. Buy food from an individual or a family and you're eating what they're also eating for dinner, and probably have been for decades. By contrast at e.g. McDonalds, those executives probably aren't touching their "product" except for photo ops. Their only motivation is to maximize profit, which often comes in the form of sacrifices in quality or even safety of what's sold. [1] And this has always been true. "The Jungle" wasn't about Joe Bob's streetside shop.
The answer that you see is just totally wrong and ignorant. Instead of making a fool of yourself here perhaps go talk to an actual commercial baker. Ask them how much they spend on licensing and regulatory compliance versus other costs like rent, labor, insurance, utilities, machinery, etc.
Sure if you bake a few loaves of bread at home then that probably seems cheap in terms of ingredients. Now add in your labor, allocate costs for utilities and kitchen appliances, and figure out what it would cost to drive around all day delivering that bread to retailers. Suddenly it's not so cheap.
The false dichotomy you're assuming is precisely the problem I'm talking about. There's a huge range of production between 0 and industrial scale commercial baker. At least there can and should be. But this false dichotomy isn't really so false in America, precisely because of our systems. Go to most of any (and to my knowledge literally any) "developing" country, and you'll see everything I've described here, and it's awesome! The effects on prices, independence, society, 'neighborliness', and more just have such great knock-on effects.
At my corner store, you can buy a taco wrapped in foil that was clearly made by some local next to a crack pipe and milligram scales. The bread is Mrs. Baird's or some other national brand. If you think that strict regulation is what created this state of things, then you may want to re-evaluate that.
> For instance hitting on this topic (of food prices), why can't I simply start baking bread and selling it?
Excessive bureaucracy and excessive legislation have the perverse effect to seemingly protect the consumer while in reality helping the big players. Small players will go out of business while new players can't enter. It wouldn't be much surprise if powerful lobbies ask for such legislation while they pretend they think of the public good.
No one likes competition, even entering the bar as a new lawyer is difficult.
>1. Interest-free money for businesses to launch, grow, and advance. This leads to more goods in the market and thus lower prices
We tried that. It all went into real estate and stocks and gave birth to a massive scam industry involving crypto and other get rich quick schemes as the world is full of stupid people and opportunists.
The average joe didn't see much trickle down to him unless he was already invested in real estate or stocks.
It was basically a wealth transfer. Housing is now about 30% more expensive than pre pandemic but take home wages are not.
Giving away free money without any strings attached to individuals or corporations is a bad idea.
Exactly this. And it’s not anecdotal either. In the UK, 75% of that new money goes to asset purchases[1], that’s likely a similar number in the US. Chronically low interest rates is a wealth redistribution program to the ones who get the biggest loans (guess who). The legend of the honest guy who needs a tractor or a fishing boat may as well be a mythical creature.
At least giving money directly to poor people is spent on things that can grow local economies. It is not perfect, but a lot more “stimulating” than giving money to institutions, corporations and rich people.
> Chronically low interest rates is a wealth redistribution program to the ones who get the biggest loans
What's the mechanism? A big loan is a big risk. With a big risk you can have either a big reward or a big failure. Smaller loans, smaller risks, smaller rewards and smaller failures. It's proportional. Why do you think of wealth redistribution?
Big risk are if you use that big loan to start a new business, but not if you dump it all on stocks and desirable real estate in hot or future hot areas.
> We tried that. It all went into real estate and stocks and gave birth to a massive scam industry involving crypto and other get rich quick schemes as the world is full of stupid people and opportunists.
You tried the wrong thing. You shouldn't hand money without conditions. Instead of letting speculative assets grow, you should only let productive bussineses borrow money with low interests. Businesses which produce tangible goods and are creating jobs.
I always thought "trickle-down" economics was about giving money to businesses via tax-breaks and that money would make it's way back to the people as wages. We know this doesn't happen and companies do stock-buybacks with that money.
Here, we're discussing a different paradigm: interest-free money vs free money. The issue is that interest-free money has little to no use for individuals. They can't put that interest-free money into an existing business and reap the returns. That's why most people just use that "interest-free" money for stocks (margin trading) and even then it wasn't fully interest-free.
The fundamental issue is how to give individuals interest-free money and have them see returns. Maybe using that money toward job training, or starting incubators that find small businesses and infuse them with money, mentorship, etc.
The government can also buy things (like infrastructure) and employ people to provide public services, which directly injects money into the economy by paying it to the people who do that work.
The current UK government has not been doing much of this.
> The government can also buy things (like infrastructure) and employ people to provide public services, which directly injects money into the economy by paying it to the people who do that work
With interest free money, people will just borrow money and spend them massively which will raise inflation. Just what happened in the US with very low interest rate or in EU with negative interest rates.
Borrowing + consumption doesn't in particular generate inflation.
Debt is a heat sink, which is why Japan failed to spur inflation for two decades despite pulling every spending lever they could come up with. Debt kills economic dynamism, robbing the economy of the capital it requires to invest, expand.
To get to inflation out of borrowing + consumption, you need supply to not keep up. For most of the prior two decades for the US, supply kept up (courtesy of the China manufacturing juggernaut, which was a deflationary force for US consumers). The China effect has reached its end in terms of peaking, the next two decades will not see that kind of offset benefit (at least for the US).
Over the coming decades, the US will see similar problems that Japan did in terms of being unable to spark expected levels of inflation, despite high spending and debt problems. The cause will be the same, more and more of the economy will be locked up in the freezer as debt (typically yielding ever lower interest, in a downward spiral).
No, but communist countries were the poster child for "public owned".
To a degree you can do it, have the state own companies. But it will kind of be economically inneficient, high position employees and some politicians will steal money. No one will have the motivation to push farther.
That's not an accurate way to describe HK MTR or Japan Rail and it's definitely not accurate for Brightline.
Most US transit systems are bad because the government puts even more effort into stopping them from working (via bad land use, incredibly slow decision making, power-harassing Andy Byford) than it does operating them.
So in yourcideology it is wrong for governmnet to invest i to economy directly and it is wrong for government to give money to individuals for them to invest it
It is only acceptable to give money to corporations.
Seems very convenient and totally unbiased
So I go and register an LTD company now I am eligible for free government money.
Yeah, the reality is that this will always be the case as long as the national minimum wage (rebranded as the living wage) is in no way related to inflation or the GDP of the country.
As long as execs and CEOs are free to reap the benefits brought by their staff without paying any of it back this problem will continue to be exasperated.
Another contributing factor in the matter is the fact that politicians seem to be immune from the affects of their policies.
This gives them very little incentive to actually help people at the bottom of the totem pole as their funding is coming from the very same people whom are essentially exploiting a desperate workforce.
Is a shelf stacker in Sainsburys a high skilled job? No. Is it absolutely crucial in order for Sainsburys to have a working business? Yes.
The same is true for the cleaner in a bank. If a bank is covered in dirt and stinks people are not going to bank there. Likewise with cleaners of trains and pretty much any other industry.
When you pair the fact that governments are funded by the same people whom are also funding a divisive narrative throughout all media outlets you end up with a grim and bleak outlook for society.
As someone that has come from below 0 to get a good job and try and get out of the council estate poverty cycle it really strikes a nerve when people act as though we get given handouts for nothing.
My mother worked her damn arse off through my childhood and continues to do so now as a 69 year old woman with chronic health issues. She has been left behind and forgotten by society and ill informed people seem to lack any ability to see beyond the outliers in shows like benefits Britain.
> This gives them very little incentive to actually help people at the bottom of the totem pole
Err, votes are the biggest incentive for politicians.
> Is a shelf stacker in Sainsburys a high skilled job? No. Is it absolutely crucial in order for Sainsburys to have a working business? Yes.
Not really, they will soon use robots.
> The same is true for the cleaner in a bank. If a bank is covered in dirt and stinks people are not going to bank there. Likewise with cleaners of trains and pretty much any other industry.
I think in Japan cleaning is robotized already.
> When you pair the fact that governments are funded by the same people whom are also funding a divisive narrative throughout all media outlets you end up with a grim and bleak outlook for society.
Votes matter a lot less in an FPTP voting system, and the point about media division and ownership plays into the fact that people can easily be mislead into voting against their own interests.
Not sure if you are aware of the little old B word which was proven to have been based on a campaign of lies.
As for your remark about robots replacing shelf stackers and cleaners. I’ll leave that as the ill-informed and provocative comment it is.
Regarding government funding, governments spend public tax payer money, yes. Political parties receive their funding from private donors who ultimately end up expecting some kind of payback for their donation/bribe. Which ultimately comes out of the tax payer’s pocket.
This creates a cyclic system which is built to extract wealth from the bottom and middle classes in order to feed it back to the society’s richest people.
"Trickle Down Economics" is a talking point of those who oppose whatever it is that they want to attack at a given moment.
It can, and has at times, meant:
- Corporate bailouts and "welfare"
- Tax cuts
- Deregulation
- Lobbying / big money donations
Sometimes it means some of the above, other times it means all of the above. But the point is that no one on the fiscal conservative side of the aisle has ever come out and used the term "trickle down economics." Their opposition uses that word because it is loaded and it speaks to their base.
> Those spending never reaches the "lower classes"
What spending are you talking about? The OP was talking about removing barriers to creating business and attributed these barriers to good intentions. We can probably safely assume that the OP is a fiscal-conservative who favours deregulation and a business-friendly environment. And for what it's worth I am not trying to take one side over the other, you just lost me at "spending." The OP is talking about the exact opposite of spending. They are taking a "private solutions over public solutions" position. One where you spend less by having less overhead and red tape standing in the way of those who want to produce goods & services thus creating abundance of supply which lowers prices in addition to more jobs which puts more money in peoples' pockets.
https://www.epi.org/productivity-pay-gap/ shows that producing more stuff per person since 1978 hasn't fixed inflation (not graphed there), and we can afford less of it because real wages haven't kept up.
No, that's not what real wages mean. Real wages going up means we can afford more stuff, full stop.
The fact that real wages haven't kept up with productivity means that we can't afford as much more stuff as is being produced, but we can still afford more stuff.
I'm not making a point about society, I'm making a point about what real wages mean.
You're quoting the outputs of a propaganda industry, not the outputs of credible independent research.
These are the orgs who persistently try to sell trickle-down economics, minimal taxation, low regulation, and other discredited, disastrous, and irrational neoliberal policy arguments.
Many are also enthusiastic climate change denialists.
> and other discredited, disastrous, and irrational neoliberal policy argument
Never mind. I guess we have nothing to agree on.
> Many are also enthusiastic climate change denialists.
You're clearly influenced by the outputs of a propaganda industry, not the outputs of credible independent research. See what I did there? I'll even one-up you with some links:
Inflation in 1980, when Carter's presidency ended, was at 12% YoY, the highest they'd ever been in his entire presidency. Rising oil prices were not the only, or even primary, cause of inflation.
From the article: "In the early 1960s, a pair of Nobel Prize–winning economists, Paul Samuelson and Robert Solow, argued that in order to keep unemployment around 3 percent, U.S. policy makers should be willing to accept that "the price index might have to rise by as much as 4 to 5 percent a year. That much price rise would seem to be the necessary cost of high employment." Both economists were close to Kennedy, who pushed for low interest rates, hoping to spur rapid economic growth."
This idea turned out to be false.
Also from the article: "In the early 1960s, a pair of Nobel Prize–winning economists, Paul Samuelson and Robert Solow, argued that in order to keep unemployment around 3 percent, U.S. policy makers should be willing to accept that "the price index might have to rise by as much as 4 to 5 percent a year. That much price rise would seem to be the necessary cost of high employment." Both economists were close to Kennedy, who pushed for low interest rates, hoping to spur rapid economic growth."
This turned out to be true. And, lastly:
"In the 1970s, that is exactly what happened in the American economy, often by design. As Frum wrote, "The United States had consciously chosen to inflate its currency. It made that choice because of the political ideology and personal weakness of the men entrusted with the job of managing the American economy: their utopianism, their arrogance, and then finally their cowardice." The inflation that vaulted Reagan into office was not an accident or an incidental effect of policy. It was the result of deliberate policy choices."
As I said. Took several years and Volcker was appointed late '79. To R's credit, he didn't get in the way of that part.
Although tax cuts don't help inflation so wasn't a clean assist.
He also vastly increased govt spending later in his term, despite the common narrative about being frugal.
"It was only after the election, when Volcker knew Carter had lost, that he really clamped down on the money supply. This illustrates an important point: Presidents get the Fed policy they want, no matter how “independent” the Fed may be. If there had been any doubt about this, it was settled in 1967, when Fed Chairman William McChesney Martin buckled under pressure from Lyndon Johnson and eased monetary policy even though Martin knew he should be tightening. This caused inflation to jump from 3 percent in 1967 to 4.7 percent in 1968 and 6.2 percent in 1969."
And:
"Few people now remember how much pressure there was on Reagan to get rid of Volcker and have the Fed run a more accommodating monetary policy. Yet Reagan not only supported Volcker publicly, he appointed like-minded people to the Fed whenever he had the chance. He reappointed Volcker to the chairmanship in 1983 and appointed Alan Greenspan to replace him in 1987.
The result of the Fed’s tight money policy was a far faster reduction in inflation than most economists thought feasible. From 12.5 percent in 1980, inflation fell to 8.9 percent in 1981 and 3.8 percent in 1982. It is difficult to explain just how remarkable this achievement was. Most economists would have considered it impossible in 1980, especially given the big 1981 tax cut, which economists schooled in Keynesian economics generally viewed as pouring gasoline on the fires of inflation."
You can be as self-assured as you like, and that's your prerogative, but why post a response if you're not going to take the time to be convincing in any way, such as by providing any evidence, information, or even rhetoric? I'm certainly not going to change my mind because you said you read a book.
Cutting and pasting someone else’s work is not a discussion. Not to mention what you added didn’t exactly contradict my take so there’s not much else to say.
I mean, I did contradict your take. I contradict that inflation dropped primarily due to Carter picking Volker, or that dropping oil prices were a major factor. How much more contradictory can I be?
The authors claims that the Reagan tax cuts were a key ingredient without which the inflation reduction may not have occurred at all, or it at least would have occurred at a much slower rate.
But, look at me not carrying on a "discussion" because I keep citing other sources. I should just respond with one single sentence stating my belief as fact, right?
Inflation has been remarkably low since 1980 though… and that graph doesn’t mention prices. Theoretically if more is being produced then you don’t need wages to keep up to afford the same luxuries. In fact all the stats I’ve seen shown that we can and do afford a lot more these days
Meanwhile the headline article is saying the exact opposite.
We're not talking about luxuries, we're talking about essentials. A nice iPhone is useless if you can't afford to feed your family or pay your energy bills - which is quite literally the situation many families in the UK are now finding themselves.
>By giving money to people without producing more stuff - or even making it harder to produce the same - you MUST have inflation, rationing, or empty shelves - and often all three.
Completely inaccurate. Giving people money that came from taxes does not increase the money supply.
Giving people money that came from selling bonds does not increase the money supply.
The main driver in inflation is monetary velocity - the rate at which money is exchanging hands in the market. Increases in monetary supply almost invariably lead to increases in monetary velocity, so the two are generally equated - but this is not strictly necessary. If I gave you a quadrillion dollars tomorrow, and you chose to simply keep it under your [rather large] bed, but otherwise continued living as you do - then obviously no inflation is going to happen, even though you just increased the monetary supply quite substantially.
So while one could nitpick some points about the specifics of government actions in relation to the monetary supply, even if we take all of your points for granted - there would almost certainly be inflation proportional to the amount given. The only way there would be no inflation is if this action didn't increase monetary velocity.
>The main driver in inflation is monetary velocity
I would say this is also mostly innacurate. Velocity is one factor, but may or may not be the driving factor depending on circumstances.
If a global pandemic shuts down most of the manufacturing cities in China, and a war in Ukraine takes Russian energy and Ukrainian grain out of the supply equation, then the velocity of money is irrelevant compared to supply constraints.
Again this is not really a solution to the problem. Because the issue is not one of monetary supply, but of velocity. Giving money to people who will spend that money increases monetary velocity. The only way to prevent this is to reduce the amount of money people are spending.
That's why, for instance, the Fed is currently raising interest rates. They want to 'gently' brake the economy (while trying to avoid breaking it) such that people stop spending so much money, and inflation cools down. By contrast countless countries have tried to solve inflation by simply naively tackling the problem.
People don't have enough money to buy chicken? Well obviously we just need to give them more money! And that's how you get Zimbabwe. [1] Alternatively, another direct approach is to say "Okay - companies may no longer charge more than $0.50 for a chicken." That's how you get Venezuela. [2]
Printing Money == Borrowing Money in our modern banking systems. And borrowing is often exactly how this gets funded.
Also, it's not just about the money supply. It's about who has the money and what they do with it.
Taking money from a rich person who might have had it tied up in stock, and giving it to a poor person who takes it to the grocery store - will not put anything more on the shelves in that grocery store. In the aggregate, it MUST do one of those three things. It may ALSO decrease the price of stock as it's sold by the rich people.
Clearly the economy is complicated, and it's hard to follow around the money. That's why I like to get back to fundamentals. Not even economics, but basically physics: We can't consume what isn't produced. Money is to some degree beside the point. If we want people (of any class) to have more stuff, then we must allow for that stuff to be produced.
>Printing Money == Borrowing Money in our modern banking systems.
Not exactly. Printing simply introduces new money supply. Borrowing (or selling bonds in our case) comes with a corresponding liability that decreases the supply over time in an aggregate amount greater than the original amount, and results in a corresponding difference in behavior from the borrower.
Actually money from selling bonds does increase the money supply.
The government hands out that money, and people use it to buy more bonds, then the government hands out more money, and repeat. There is now more money in the world.
Yes, if you unwind everything it will go back down, but that's never actually done.
> Actually money from selling bonds does increase the money supply.
With a corresponding liability that will eventually remove more money from the system than was introduced. This is of course a dramatically different equation.
We avoid inflation by taxing the wealthy and redistributing that to the lower socioeconomic classes.
Global ecosystems are already in a free fall, we don’t need to “encourage production” [by deregulating industries? perhaps getting rid of those pesky environmental and worker protections? (that’ll definitely help out those workers) ] and even more rapid resource consumption.
The biggest growth period in the Western world - after WWII - happened to coincide with enthusiastic social spending programs, aggressive government funding of new R&D, and very high tax rates.
In the US the rate peaked at 91% on earnings over $400k - which is about $4m adjusted.
I often see the arguments made about how the US didn't suffer from the 90% tax rate. Those same arguments universally and intentionally ignore the elephant in the room: the US was the prime industrial power left standing in pristine shape after WW2 and largely inherited the globe accordingly. The US stepped right into being globally dominate in manufacturing, which produced a temporary, artificial prop for the middle class of gigantic proportions. That can't be repeated today and it wasn't the high tax rate that helped make things so great for the middle class.
This is also why middle class tax rates are so high in Nordic countries, and most affluent nations with good social welfare structures. Taxing the rich isn't nearly enough. The US would have to shift to a much higher tax system for everyone, and the US middle class (which is spoiled by relatively low income tax rates) will not go for it (not yet anyway).
You avoid inflation by taxing everybody. That takes money out of the system. The "wealthy" are already taxed pretty heavily, and they don't buy a lot of stuff. In fact, your best bang-for-the-buck on reducing inflation is to tax the lower classes, since their money tends to be higher-velocity than the money of the wealthy. It sounds fucked up, but mathematically speaking, you need to tax the poor if you want to stop inflation.
>By giving money to people without producing more stuff - or even making it harder to produce the same - you MUST have inflation, rationing, or empty shelves - and often all three.
Says who? Why can't the people producing stuff simply take lower profit margins instead?
Prices lower than the market-clearing price necessarily mean rationing or empty shelves. If you have a hundred potatoes and two hundred people, lowering prices just mean some people won't be able to buy at the low price.
Exactly this - the current inflation is not demand driven. It is supply constraints that is causing it.
This means that the normal way of controlling inflation (e.g. taking money away from people so they can't spend it) is not going to work. And in many ways is probably counter productive as it is making supplying goods more difficult.
There is a very strong disconnect between the value created by the lower class though their labor and what they are paid in wages.
Companies don't use some formula where they give a percentage of what you create to you in return, they try to squeeze your wages down as low as possible. It doesn't matter if you produce 5000 bucks an hour or 100 bucks an hour in value for your company, they still want to pay you as little as possible.
Stuff like staff loyalty and retention has been to a large part abandoned in favor of simply keeping wages down.
Is it? Are the rich people eating up all the bread? Buying up all the shoes?
It you take all the cars from the top 1% and give them to the other 99%, how many additional cars do you suppose the average family will get? How about for houses? How about for haircuts?
> Imagine, for example, just giving everyone £10M to spend on whatever they want. This would not create any more stuff - but it would sure be a big equalizer for people buying that stuff!
This is mostly true, but it isn’t always, and it isn’t a perfect formula.
For example, there are some goods that have zero or negligible marginal costs to provide. For example, a streaming service. If people use the extra money they get to buy Netflix subscriptions, it isn’t like there will suddenly be a shortage of Netflix streams. It doesn’t take many resources to add additional subscribers for Netflix… it isn’t exactly zero margin, but it is pretty damn close.
This is even somewhat true for some physical goods. There is a lot of latent productivity in our economy… factories only running at 50% capacity, for example, or mines that aren’t producing all the ore they can because the demand doesn’t exist for what they produce. If demand suddenly increases because there is more money being spent, they can increase productivity without putting strain on the productive capacity of the industry.
Obviously this is not infinite capacity, but it is why it is not as simple as “creating more money == 1 to 1 equivalent inflation”. In other words, you aren’t going to get a 10% inflation if you add 10% to the money supply. It would be some fraction of that 10%.
And what's good of having high GDP like Ireland (neighbour to UK) if then there's no housing and prices are insane and people who don't already have a secure situation are screwed and have to leave anyway?
Why do tax reliefs and strategies always benefit the big companies with lots of lawyers.
Lower the taxes of the common folk. Their interests are not being met, but those of the lobbyists.
The wealthy in the UK are largely landed gentry. They can't flee with their property and if they sell it off at firesale prices to ordinary folk to avoid being taxed that would largely solve the housing crisis.
The problem wouldn't be that they would leave. The problem would be that they would stay and become violent.
Not the structure built on it (well ... not much ... and you can often just tax that through the resources it consumes).
Not only are you taxing the asset that can't flee the country, and which the poor typically don't own, you also incentivise efficient land usage (it becomes too expensive to be a NIMBY).
Not really sure I'd call the "Hinduja" family wealth "British" although what small % of their wealth they do have in the UK is undoubtedly in property.
There's quite a number of very rich foreigners who economically have very little effect on the UK apart from monopolizing scarce inner city property.
In NYC for example, 40% of the tax revenue comes from 1% of the tax payers[1]. High taxes are causing high earners to leave the city. What's going to fill that gap in revenue?
Cristobal Young and Charles Varner did a study “Millionaire Migration and State Taxation of Top Incomes” and found that when taxes were jacked up on New Jersey residents they tended to stay despite low tax states (e.g. Connecticut) being quite close.
If people are reluctant to move to a nearby state to save on taxes theyre gonna be even more reluctant to move to a whole other country.
They can leave if they want, as long as they pay an exit tax. But personally I think that's bullshit, they'd rather be less rich in France than more rich in Romania.
And if you're talking about companies leaving France, then that's flimsy too. French citizens are among the richest in the world. International companies will pay higher taxes to access that market, and if they don't that's fine, a domestic company can step in or the government can snap up the productive capacity to invest in infrastructure.
Government has funded those things way more, but when a rich person runs a museum it's "philanthropy", when the government does it it's a "waste of taxpayer money".
There's no reason the government couldn't fully fund those things instead.
In fact, "businesses that require high capital" are almost always funded by the government. It's called infrastructure spending.
Good? It's not like they're using that money to enrich the country they live in or the other people or society, they're not building hospitals and funding schools anymore or employing people or raising wages. They're buying assets and becoming landlords and lobbying politicians and making things worse. Not just 'let them go', get rid of them, let them be somewhere else's problem.
>The lower class does suffer the most, but unfortunately it is the policies intended to help them which actually cause most of the problem. By giving money to people without producing more stuff
Which specific policies of this Conservative government amount to a change in the direction of giving more money to more nonproductive people? If anything, exactly the opposite has been happening, and yet inflation has been getting worse.
At some point AI will produce stuff for us. It is just a matter of time until AI can do the basics: grow food, build houses, operate people, etc. I mean, that is what technology was always for: making life better. So clearly there cannot be a correlation between how much you produce, and how much you consume.
I understand where you're for: patching things for some at the bottom doesn't help produce more.
But focusing on the alleged producers while fleecing the people in the middle (who are not the lower end either) is equally bad.
The people in the middle get high taxes, no real possiblity of ownership, no benefits of the bottom (state help) or of the top (the top just increases their own margins).
The top lobbies government and sets an unfair advantage for themselves, making the whole alleged democratic representation a farce.
The government should be more frugal with their won bureocracy and corruption and lower the taxes for the middle and bottom. The pretende that increasing conditions to the top will drip down is demonstrably false. It's mostly a rigged game, depending on where you started.
Whatever we do with corn is a good example. We have way more of it than anyone wants, but it continues to be produced because the producers are subsidized. (We have found alternate uses for the corn glut; high fructose corn syrup, ethanol in your gasoline, etc. Neither of these things exist in countries that don't subsidize corn production.)
In theory, you could do this with toilet paper or loaves of bread too.
Or you know, deregulate things? Things like allowing free import of cabbage seeds, removing restrictions on manufacturing in residential areas, letting folk build homes which are different to what the local urban planners envisioned?
> but unfortunately it is the policies intended to help them which actually cause most of the problem.
In the US, the Fed is not concerned about the bottom. They're solely concerned on the top. Check the numbers, zero interest rates did *not* trickle down. Instead they helped further increase the income inequality gap.
To blame to poor (read: the powerless) in any way, shape or form is, at best, misinformation. Worse it gives those responsible a free pass.
"I sit on a man's back choking him and making him carry me, and yet assure myself and others that I am sorry for him and wish to lighten his load by all means possible… except by getting off his back."
> The lower class does suffer the most, but unfortunately it is the policies intended to help them
I defy you to find any policies in capitalist countries that are intended mainly to "help the poor." Even the liberals' beloved FDR claimed he was just trying to save capitalism with his social programs.
I know this is probably going to give a heart attack to some of the libertarian tech-bros here, but there is an easy and tested solution for that: price controls. Inflation has a very clear source, it happens when someone decides to raise the prices. Why not stop the problem at the source?
The rises are due to a power dynamic: the companies raising the prices can basically get away with it ("whatever the market will bear").
Why can they do this? One reason is monopoly power- monopolies must be broken up.
But what else can be done (besides central bank driven demand destruction)? So instead of price controls, a more palatable solution is collective buying. This gives buyers more clout, allows them to bargain for lower prices.
So we need more large non-profit buyers clubs, things like that. In the US, allow medicare to bargain with drug companies- it's insane that they can not.
An example where this works: my parents live in a gated community. They pay very little for the cable + internet + cell phone because the entire community has a deal with the provider.
Large retailers have this exact role: they certainly demand and get lower prices from their suppliers. We need a non-profit version of this, why should Walmart owners only benefit from their buying power?
Grocers are typically a commodity business, one feature of which is that the companies do not have pricing power. So unless the grocers have increased their net profit margins, I don't think evil-powerful-corpos is a tenable answer. It's a nice simple, market-based answer that gives people someone to blame, but it's just wrong for grocers.
Target has a NET 2.6% profit margin, Walmart has 1.9%, which are on the low side of what you'd expect for a sustainable commodity business. Tesco appears to have a GROSS (not net: this is after cost of goods but before salaries, etc.) margin of 6.5% and Sainsbury's has 7.6%. [1] Obviously their net profit margin is going to be less. This is hardly a company with a huge pricing power dynamic. If you want to see that, look at Apple (24.5% NET margin), Coca-Cola (22.2% NET margin), Visa (50.3% NET margin). (Note however that Coca-Cola's customers are its bottlers and Visa's customers are merchants so their pricing power might be invisible to end consumers)
>Large retailers have this exact role: they certainly demand and get lower prices from their suppliers. We need a non-profit version of this
This was tried a lot in the 20th century (starting in the 19th century), usually emerging from the labour movement. I think in food retail and energy it has mostly failed or simply stopped making a difference. The profit margins of food retailers are small to begin with and easily lost by being a bit less efficient.
But Europe and the UK in particular has been using a similar model pretty successfully to keep drug prices low. Some argue that costs were merely shifted over to the U.S. I think this is only partially true.
Price controls are equivalent to welfare payments, except instead of being handled by an at least theoretically accountable government, the responsibility is imposed on random third parties with no oversight. Unsurprisingly, most of those third parties decide they'd rather keep their wealth instead of selling at a loss.
Gives anybody with elementary knowledge of econ a heart attack. How far up the supply chain do you want to go with these price controls to try and avoid the inevitable shortages and black markets? Labor price controls? Would that be effective?
> "It happens when someone decides to raise the prices"
What would drive someone to raise the price of something with the confidence it will still sell at that price?
Rising demand and limited supply. Someone with a monopoly on all the widget production can arbitrarily decide to limit supply (e.g. your "limited edition" MTG card), which is a farce.
More often and importantly, in an environment where there are many producers of a commodity like toilet paper, they suffer input shortages or other increases to the cost of production/delivery. On and on this analysis goes until you get to your question, "why not stop the problem at the source". Where is the source in the price increase in toilet paper? Paper production costs are up? Ink costs are up? Shipping costs are up? Regulatory costs are up? Energy prices are up? Labor costs are up? Freeze all of these by government mandate?
As the guy cutting down trees for toilet paper with a shortage of gas for your chainsaw (meaning it costs more to run), do you want the cost of your product arbitrarily frozen with no regard to your input costs? What if the cost of your logging lease from the government increased? Can you raise the price of the toilet paper logs you're selling? No? How is that fair? What if landslides decreased your tree availability by half, but the number butts that needed wiping hasn't changed, or worse, has increased? Are you to sell your now scarce trees at the same price you always did? Or shall you sell to the highest bidder? What if the government says you can't auction the trees but must sell them for the same price? Maybe you look for off-the-books compensation - free tickets to the game, whatever. Someone still bears that increased cost.
If rising demand relative to limited supply is the actual source of the problem (too many people want toilet paper) why not stop the problem there by simply rationing toilet paper? Turns out this is what happens more frequently - rationing eggs, toilet paper, trying to prevent hoarding, scalping, etc.
Arbitrarily limiting the supply costs of a product or the demand for a product is a temporary solution at best.
Price controls and rationing go hand in hand. Ultimately the goal is to ensure that everybody is able to acquire the goods that they need to survive. We are not talking about luxury yachts here, we are talking about food. If the source of the price increases is an insufficient supply of the raw materials, would you rather allow the market to increase prices until the point that some people are starving while others are buying ten times the food that you need to survive to feed their pets?
> Gives anybody with elementary knowledge of econ a heart attack
Plainly, this isn't true. This opinion is not uncommon amongst so-called "Marxist economists" such as Richard Wolff. You can disagree that price controls and rationing would be the best way to solve the problem, but it is outright ignorant and needlessly insulting to make this claim.
That went really well in my country 30-40 years ago.
My father once went to buy me diapers and returned with living room furniture set(ugly one also), because this was only one available since month or so, and he had to take it on the spot, because entire shipment will be gone in next few hours.
Then he had to go back to the diaper line and wait a few hours, because I wasn't impressed with the furniture enough to stop eating.
I'm not sure you really get how markets work. Price controls can have a few different effects depending on the good in question, but one of those is shortages, which can be really bad when the good is food.
People don’t decide to raise prices out of the blue… it isn’t quite this simple, but for the purpose of understanding the basic concept, you can think of it as the price goes up when you can easily sell your inventory at the current price… if your product sells out quickly, and you still have people eager to buy your product, you raise prices, and you keep raising them until you can just barely sell all your product (of course it is more complicated, because you are trying to maximize profit and not minimize inventory, but the basic idea is the same)
If you fix prices, it just means the product keeps selling out quickly and most people can’t get the product.
This is why prices go up when there is a supply shock (like with eggs and the bird flu). There are fewer eggs available, and raising prices reduces demand until it matches the supply (as people who only kinda like eggs switch to cheaper alternatives). While it sucks that eggs are more expensive, at least you can still buy them if you really like eggs. With price controls, it becomes a crapshoot on whether you can get them or not.
With eggs its kind of a different story. The price of eggs has increased for the supermarket to buy, by maybe a cent or two coming down to up to 16 cents.
Packaging takes 4 cents per egg.
Meanwhile the eggs in the supermarket cost 56 cents each.
The solution to allowing lower classes to have more stuff is to make it easier for everybody to produce more stuff.
Giving money CAN help with distribution of stuff, allowing poor people to purchase a larger share. But it requires lots of money given directly to the people that need it (vs allowing the gov't to spend it themselves). And also requires lots of high inflation. Imagine, for example, just giving everyone £10M to spend on whatever they want. This would not create any more stuff - but it would sure be a big equalizer for people buying that stuff!
But really - if we could all focus a bit more on production - allowing, encouraging, and celebrating it - then we'd all have a lot more stuff.