> The way to break the cycle is to have cash start to lose value, or inflate. Then the interest rates drop, and people start to spend their money.
If people's money starts losing value, the last thing they would do is to be concerned with interest rates. With less valuable money, people would simply be able to afford a smaller consumption basket and, thus, spending will stay flat & consumption will decrease.
> ... people make 10x the salary ...
Where did this come from? Just because the productivity would increase 10x / cost would decrease 10x, it does not mean that workers would receive 100% of the relevant benefits. Most likely, 90%, if not more, of those would be routed to business owners (and robots' owners, if the machines are leased instead of bought).
> If people's money starts losing value, the last thing they would do is to be concerned with interest rates. With less valuable money, people would simply be able to afford a smaller consumption basket and, thus, spending will stay flat & consumption will decrease.
If your money starts losing value, do you A) put it under the mattress or B) trade it for things that you can either use now or that retain/grow their value in the future?
Now, if you're talking about erosion of wages over, that's less of an issue of inflation, and more an issue of the power dynamic between owners of capital and owners of labour.
> Where did this come from? Just because the productivity would increase 10x / cost would decrease 10x, it does not mean that workers would receive 100% of the relevant benefits. Most likely, 90%, if not more, of those would be routed to business owners (and robots' owners, if the machines are leased instead of bought).
Sorry, I understand the confusion given I used the term 'salary'. I should have said something along the lines of 'value' or 'goods'. The split between workers and owners depends on the surrounding conditions.
The point is that dollars are tokens that represent goods produced, at the time they were produced. Not how much energy or effort went into those goods.
> If your money starts losing value, do you A) put it under the mattress or B) trade it for things that you can either use now or that retain/grow their value in the future?
It depends on the situation. For example, if one lives paycheck to paycheck or close to that, then I don't see how they would not put a bit "under the mattress" (emergency fund) and spend the rest on basic needs. There is only so much food one can buy to store at home for future consumption. On the other hand, if income >> costs, that's a totally different story ...
> Sorry, I understand the confusion given I used the term 'salary'. I should have said something along the lines of 'value' or 'goods'. The split between workers and owners depends on the surrounding conditions.
No problem. Re: "depends on the surrounding conditions" - it is a very diplomatic way of avoiding touching the core of the income inequality issue.
> The point is that dollars are tokens that represent goods produced, at the time they were produced. Not how much energy or effort went into those goods.
Not sure I understand this point. It seems to be against one of the basic economic principles that I remember (price of goods = cost of production + margin / added value) - where cost of production implies exactly "how much energy or effort went into those goods". Perhaps, I'm dumb as rock or completely forgot Economics 101. :-) For example, if a TV model A costs $200 and model B costs $2000, it is not just because they "represent [different] goods produced", but because model B is much more expensive to produce and/or it has much more added value [real and/or perceived] than model A.
> On the other hand, if income >> costs, that's a totally different story ...
I'm looking at excess capital used for funding loans, business, etc. So I'm more focused on this case. I take you point that inflation eats up ~2% of cash savings yearly, and that it's a bigger deal the less wealthy you are.
> it is a very diplomatic way of avoiding touching the core of the income inequality issue.
I'd say that deflation is much worse for income inequality, since sitting on cash becomes profitable, so the people who can afford to do it the longest win out.
I don't think either inflation or deflation will solve income inequality. I think that's controlled by taxation of capital gains vs. income. Specifically, the lower capital gains tax, and the ability to sit on unrealized capital gains without paying taxes on them in the mean time.
> For example, if a TV model A costs $200 and model B costs $2000, it is not just because they "represent [different] goods produced", but because model B is much more expensive to produce and/or it has much more added value [real and/or perceived] than model A.
I think where we're diverging is:
- You're comparing two different goods produced at the same time.
- I'm comparing two identical goods produced at different times.
So if you make a baguette in 1921 and sell it for 5$, and then try and buy a baguette in 2021, it should cost 5$, despite the fact that the amount of energy/work it takes to produce a baguette in 2021 is much lower than in 1921. The money represents the value of the end good, not the work that went into producing it. And so if the good becomes cheaper to produce over time, you'd want to inflate the cost of it to keep it level.
Money is a debt from society to its holder. You can exchange work or stuff for it, with the expectation that society will accept it at a later time for some stuff. So it's just a matter of deciding how the debt evolves over time.
That part is specifically meant to contrast deflation with either stagflation or inflation. If you drop the nominal price over time, you're setting a Ponzi scheme. By virtue of selling something in the past and holding on to the token, you're entitled to more of it in the future, without any risk. And you're preventing the token from being spent by someone now who could use it.
And likewise, I appreciate the line of questioning, it helps me reflect and think about this. The details are a bit fuzzy, and I'll need to think more about some goods that seem deflationary (computers for example)
I disagree. Money is a store of value that is separate from society - gold is an international currency accepted organically because of its useful and intrinsic properties, with thousands of years of history in a wide variety of cultures that had no link before trade began.
There is no "debt" here. Society doesn't "owe" the holder of money anything, necessarily.
I think your confusion stems from the imperfect wording in the original phrase. What @karpierz meant (and his/her subsequent sentence supports it) is a) that society in this context implies government and b) that money is a legal tender that, upon tendering (i.e., offering as payment), discharges any debts (e.g., loans, purchases, taxes).
By the way, you're wrong in that money a) is only a store of value (it also functions as a medium of exchange and a unit of account) and b) is separate from society (in the modern world, in most countries, it is only government who has legal right to issue [primary] money).
If people's money starts losing value, the last thing they would do is to be concerned with interest rates. With less valuable money, people would simply be able to afford a smaller consumption basket and, thus, spending will stay flat & consumption will decrease.
> ... people make 10x the salary ...
Where did this come from? Just because the productivity would increase 10x / cost would decrease 10x, it does not mean that workers would receive 100% of the relevant benefits. Most likely, 90%, if not more, of those would be routed to business owners (and robots' owners, if the machines are leased instead of bought).