Why inflation is a terrible tax

[Naskra]

The gold standard fixes the price of gold. That is its definition. Gold is not money under the gold standard. Money is supposedly (but not actually) "backed by" money under the gold standard.

I can't make any sense out of this. "Fixes the price of gold" means what? 1oz = 1oz?

 

[Cutlass]

A deep misunderstanding here. Under a gold standard, there is no market price for gold, it's money, that thing which has no price.

But people trade outside of that. The government must intervene to keep the price people trade gold in line with the government designated price of gold.

 

[Naskra]

But people trade outside of that. The government must intervene to keep the price people trade gold in line with the government designated price of gold.

Yes, this is the job of what used to be called a currency board, to keep the paper issuance somewhat in accord with foreign demands for specie. It's not specifically a government function, it's every currency issuers problem; i.e. banks, back when they were issuers.

 

[Lexicus]

I can't make any sense out of this. "Fixes the price of gold" means what? 1oz = 1oz?

Thus the United States moved to a gold standard, making both gold and silver the legal-tender coinage of the United States, and guaranteed the dollar as convertible to 1.5 g (23.22 grains) of gold.[10]

So, the gold standard guaranteed the price of gold at $1 for 1.5 grams.

 

[Cutlass]

Yes, this is the job of what used to be called a currency board, to keep the paper issuance somewhat in accord with foreign demands for specie. It's not specifically a government function, it's every currency issuers problem; i.e. banks, back when they were issuers.

So you agree with me. This is what the US and French government's did after WWI to the point where it collapsed the economy.

 

[Naskra]

So, the gold standard guaranteed the price of gold at $1 for 1.5 grams.

No. No. It is not a price, it's a definition of the dollar and a convertibility ratio, one dollar paper will get you X weight of gold on demand. Forex rate may vary, depending on all sorts of things.

 

[Hygro]

That would be setting a price.

 

[Naskra]

So you agree with me.

Don't be silly. They were trying to escape the gold standard, not maintain it. The gold standard, such as it was, ended in 1914, everything afterward was a series of ad hoc measures to deal with the consequences of that change.

 

[Cutlass]

Don't be silly. They were trying to escape the gold standard, not maintain it. The gold standard, such as it was, ended in 1914, everything afterward was a series of ad hoc measures to deal with the consequences of that change.

You're being silly. Every country goes off the gold standard during war. The reason being is that the gold standard is idiotic, and prevents the nation from doing what it wants to do. After the war nations go back on the gold standard, or at least try to, because they are idiots, and rich people want it.

 

[El_Machinae]

Were france and the states trying to increase the amount of gold that a dollar could buy, or increase their gold reserves? I would call that protecting the gold standard.

 

[Cutlass]

Were france and the states trying to increase the amount of gold that a dollar could buy, or increase their gold reserves? I would call that protecting the gold standard.

They had big increases in their gold reserves, and were trying to protect the reserves from being sold because of the value difference.

If you declare that an ounce of gold is equal to $35US, and then people are willing to pay $40 for an ounce of gold then people buy away all your gold, and you have none left to back the value of your dollars.



BTW, for a background on the original question, get the book The Undercover Economist Strikes Back. It gives a good layman's background of the subject in a short format.

 

[Hygro]

Don't be silly. They were trying to escape the gold standard, not maintain it. The gold standard, such as it was, ended in 1914, everything afterward was a series of ad hoc measures to deal with the consequences of that change.

I know what you are saying. There were two internationally agreed upon gold standards. One was from around 1870-1914 the other was Bretton Woods. However there was an informal, nation by nation gold standard of the 1920s into the early 30s. And two countries on fixed gold standards that trade with each ends up resembling a formal shared gold standard.

 

[Lexicus]

The whole 1920s was spent trying to revive the international gold standard.

 

[Hehehe]

It's not really controversial that the reason the stock market collapsed, and the banks after that, was that the money supply contracted do to US and French central bank actions to defend the gold standard. You need to get the timeline right.

The stock market collapse happened before the central banks started defending their gold standard
https://en.wikipedia.org/wiki/Timeline_of_the_Great_Depression

I'm saying that the creation of debt and the repayment of debt is not in sync. And because it is not in sync it does not act as the cycles theory claims that it does. Now there's a minor amount of syncing which comes from the fact that there's more loans when the Fed is easing, and less when it is tightening. But that doesn't lend itself to a sufficient volume of sync to make the theory work.

I guess at this point we're just going nuh-huh yuh-huh, but your objection has been noted

On this I'm a little heterodox, in that I'm more of an open economy kind of guy than most people. That being that money flows across borders with the ease of water. You lose the correlation when the economy is not closed.

Indeed, the global economy is connected. Economic conditions have a tendency of spreading, which is why many central banks are pursuing strategies that are somewhat similar. Economy is closed if you look at the entire world. Of course, in that case, the analysis becomes complicated, but the real world is also complicated

Not necessarily. It could. But then too much of gets spent on coke and hookers.

Well you gotta stimulate the economy, no?

 

[Lexicus]

Please move over your argument as to how we could afford a universal basic income that provides enough money so that people can choose to not work into my inflation thread. You are once again conflating production with money

Simple: the tremendous boost in consumption would more than make up for the relatively small effect of reducing the immediate incentive to get a job. Indeed, I'm confident that a UBI would actually lead to net gains in employment as all that spending will allow employers to offer higher wages that entice some people back off the UBI.
Basically, I think you're conflating production with money here, unless your argument is that a UBI would drive labor force participation to such low levels that we wouldn't be producing enough to consume, which I think is pretty clearly false. Information we have on UBI "trial runs" suggests the decline in work hours is modest. And that doesn't take into account how many people might use UBI money to increase their productivity rather than simply working whatever dead-end job is immediately available.

Also worth mentioning that in capitalism production is conflated with money. Production is undertaken using money to make more money. The entire real economy is arguably incidental to this process.

 

[El_Machinae]

Lexicus, thank you for replying with your underlying theory. But you have provided no numbers. You need to show that production would rise fast enough to compensate participation dropout. Nearly no examples of UBI experiments show that recipients end up producing more than they consume, so it cannot scale on first order.

As well, unless you're including a proactive mechanism for inflation, you need to have the person at home with an X-Box still having an equivalent income one year later.

UBI would cause a shift in consumption patterns, but you need to show an increase in production to handle the baseload consumption (easy) as well as a compensation for the concomitant reduction in production with the increase in attempted comsumption.

 

[Lexicus]

But you have provided no numbers.

How on Earth would I provide numbers when we're not talking specific proposals?

You need to show

you need to have

you need to show

When we socialist millennials take over the government, we will show you by demonstration. I find the idea that we cannot "afford" a UBI to be patently ridiculous. The US is the "richest country in the history of the countries, in the history of riches."

 

[El_Machinae]

How on Earth would I provide numbers when we're not talking specific proposals?

We currently cannot afford a universal basic income that allows people to not work. But eventually, we will. That's why it needs to scale with a tax on profits.

"People don't need to work" is the target number. Pick a number. Set a minimum quality of life, and allow as many people to drift there as would choose to. We can set that as a real target, even though obviously the nominal target would shift over time.

Sure we can. What we can't afford is to keep people involuntarily unemployed in the name of fighting inflation.

You felt confident enough to make a base claim. Then you replied with theory.

Some factors: UBI data that doesn't have an expiry date (nearly everyone will behave differently if they have $17k for the next two years only vs. $17k for every year in perpetuity); ideas: lottery winners, early retirement takers, people on cyclical EI, people who inherit large amounts of money, people receiving generous alimony. There's also the mechanism whereby inflation is countered so that $17k today gets the same (equivalent) income next year, not super-easy to actually implement, but easy enough to model.

Seriously, you can only tax consumption in the end. There will obviously be some beneficial distortionary effects on consumption (well, except that the US is over consuming my share of the natural capital), but the benefit of our current price system is that the net consumption of the labourer+capital owner will be (in aggregate) less than the economic surplus caused by the relationship, especially since most (rich) capital owners use a portion of the producer surplus to merely shift ownership of an existing asset (i.e., savings).

You're proposing that net production will rise to compensate both the increased consumption AND the drop-off in labour participation. Unlikely. Too many people fail the marshmallow test.

Finally, does your UBI proposal scale with social wealth? Or is Mr X-Box stuck with an X-Box even as holodecks come online?

When we socialist millennials take over the government, we will show you by demonstration. I find the idea that we cannot "afford" a UBI to be patently ridiculous. The US is the "richest country in the history of the countries, in the history of riches."

I never said that the US couldn't afford one (though Warpus and I are Canadian, but ehn, productivity is close enough). I said that we couldn't afford one sufficiently generous that would allow people to not work. Obviously, designed correctly, we will someday. As long as it properly scales to sustainable growth.

 

[Cutlass]

Lexicus, thank you for replying with your underlying theory. But you have provided no numbers. You need to show that production would rise fast enough to compensate participation dropout. Nearly no examples of UBI experiments show that recipients end up producing more than they consume, so it cannot scale on first order.

As well, unless you're including a proactive mechanism for inflation, you need to have the person at home with an X-Box still having an equivalent income one year later.

UBI would cause a shift in consumption patterns, but you need to show an increase in production to handle the baseload consumption (easy) as well as a compensation for the concomitant reduction in production with the increase in attempted comsumption.

UBI changes the mix of consumption. Not the total consumption.

 

[El_Machinae]

I know. It also changes production, which then allows another shift of consumption. Lexicas is proposing that the total shiftable consumption is sufficient that people can choose to not work. And that this will not sufficiently reduce production to make it unsustainable