Where does inflated value go?

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Pfhorrest
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Where does inflated value go?

Postby Pfhorrest » Tue Jan 09, 2018 11:26 pm UTC

So as inflation happens, money becomes worth less, and everyone has to ask for more of it in order to keep their incomes the same, which then means that everyone's expenses also go up because everyone else is asking for more money. Obviously this doesn't happen perfectly symmetrically, but from any given party's perspective, inflation means everyone else asks for more money, so they have to ask for more money too. E.g. a random worker's expenses from everyone they buy goods and services from go up, so they have to ask for a raise, and (if they get it) the employer then has to raise the price of their product to cover that, etc.

If any one party in that chain doesn't ask for (or just doesn't get) more money, it's obvious that they lose out because of it. E.g. costs go up, everyone asks for raises to cover them, many people don't get them, and they just have lower real incomes because of it.

But what would happen if, by some impossible miracle of coordination, nobody demanded more money? The workers don't ask for raises, the businesses don't raise their prices, and so on. But more money is still being printed and the value of every dollar is still going down. Does everyone lose in that scenario? Or does the value that they lose accumulate in some party's hands? If so, whose? (I suspect it's whoever gets the newly-printed dollars, but who is that?)
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Re: Where does inflated value go?

Postby Thesh » Tue Jan 09, 2018 11:39 pm UTC

If no one asks for more, then there is no inflation. If the money supply increases faster than the economy, but there is no inflation in the prices of goods, services, profits, or wages, then this means the money is just sitting in the bank but not being spent or lent out. Likely, interest rates would drop and financial assets would inflate in value.
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Re: Where does inflated value go?

Postby Pfhorrest » Wed Jan 10, 2018 12:27 am UTC

So the newly created money is just given to private banks? Who then have a greater supply of their product (lent money) and can consequently offer a lower price (interest rates) to attract more customers and make more profit, which reduces the value of competing products (other financial instruments besides these new low-interest loans), costing those competitors, who then have to increase their incomes to make up for those costs, which raises everyone else's costs, setting the whole chain in motion?

Sounds like (if I'm understanding that correctly) my suspicion was right, and the inflated value goes to those who were given the newly-printed money, the banks. If that's the case, what is the case (besides bald-faced corruption and finance industry regulatory capture) for just giving banks money like that? (As opposed to, say, giving everyone a refundable tax credit and distributing the new money supply into the economy that way).
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Re: Where does inflated value go?

Postby ucim » Wed Jan 10, 2018 12:28 am UTC

Getting this money into circulation requires the government that printed it to buy goods and services with it. If this doesn't cause competition (people magically keep prices and wages the same), then this makes the government itself richer than it would otherwise be (they can buy more with this new money), but the people are just as wealthy (or poor) as they were before. But now they are working harder, because they have to work enough to do their regular jobs and to supply whatever it was the government is buying with this new money, that it couldn't buy before. (This is necessary to preserve the presumption that the money is actually making it into circulation).

IANAE, but it seems to me that this is what would happen (given the magic) at the fundamental level - it wouldn't matter whether the money was introduced by direct government spending, or by government essentially backing the loans that put the cash into circulation.

However, if it's by backing loans, this means more money is being lent out. To whom? With credit looser, probably to higher risk people. So, the risks of their defaulting go up too.

A similar question for illustration and contrast: Suppose all of a sudden firkins become very valuable, and those who have firkins are now wealthy. Where did that wealth "come from"? It's the same firkin, after all. When people get tired of firkins and the market crashes, where did that wealth "go"?

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Re: Where does inflated value go?

Postby slinches » Wed Jan 10, 2018 1:03 am UTC

The way I understood macroeconomics, the money supply is not usually increased by the government directly printing more money. Instead, it's mostly through banks lending more out than they actually have through leveraging and using fractional reserves. This is legal for some reason. Then sometimes the federal reserve actually does essentially print money and uses it to buy government bonds or mortgage backed securities as they did as part of the housing bubble bailout.

I really don't understand it well, though. I'm not economist, but I'm pretty sure most economists haven't figured it out either.

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Re: Where does inflated value go?

Postby Thesh » Wed Jan 10, 2018 2:31 am UTC

The government could print money and spend with it if or give it out if they wanted, we just normally don't. Deficit spending increases the money supply. Banks borrow money from the Fed to increase the money supply. Banks lend out deposits to increase the money supply. If you are presupposing no changes in prices, then the increased money supply is going to be distributed among deposits and interest rates will be affected. At the very least, you would expect a change in the relative cost of some items even if there is no net inflation.
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Re: Where does inflated value go?

Postby ucim » Wed Jan 10, 2018 2:32 am UTC

slinches wrote:...the money supply is not usually increased by the government directly printing more money.
I think "printing" is metaphorical in this question.
slinches wrote: Instead, it's mostly through banks lending more out than they actually have...
We can do that too. It's called writing a bum check. It creates an obligation on our (the bum checkwriter's) part that balances it out, and so long as the check is never actually cashed, but instead, traded away to others (sign the back), nobody's ever the wiser.

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Re: Where does inflated value go?

Postby slinches » Wed Jan 10, 2018 6:52 am UTC

ucim wrote:
slinches wrote:...the money supply is not usually increased by the government directly printing more money.
I think "printing" is metaphorical in this question.
slinches wrote: Instead, it's mostly through banks lending more out than they actually have...
We can do that too. It's called writing a bum check. It creates an obligation on our (the bum checkwriter's) part that balances it out, and so long as the check is never actually cashed, but instead, traded away to others (sign the back), nobody's ever the wiser.

Jose

And if anyone does call the bluff, just put together a package of checks so you can hide the one bad one in with the good and sell it to someone else. Problem solved. I'm sure no harm will ever come from doing that on a massive scale.

But seriously, the money supply is manipulated by the Fed using monetary policy. Which is accomplished by using one of three tools: changing the rate that they charge to loan money to banks, changing the amount that banks can leverage their deposits or by buying/selling government securities.

So, I think, inflation tends to go into the profits of the banks and/or investors in government securities.

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Re: Where does inflated value go?

Postby sardia » Wed Jan 10, 2018 7:08 am UTC

ucim wrote:
slinches wrote:...the money supply is not usually increased by the government directly printing more money.
I think "printing" is metaphorical in this question.
slinches wrote: Instead, it's mostly through banks lending more out than they actually have...
We can do that too. It's called writing a bum check. It creates an obligation on our (the bum checkwriter's) part that balances it out, and so long as the check is never actually cashed, but instead, traded away to others (sign the back), nobody's ever the wiser.

Jose

Ucim You're smarter than this, maybe you're making a mean joke?
https://en.wikipedia.org/wiki/Money_creation#Re-lending
The act of obtaining a loan to buy something (which likely is deposited into another bank account ) creates/prints more money.

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Re: Where does inflated value go?

Postby Zamfir » Wed Jan 10, 2018 7:36 am UTC

Sounds like (if I'm understanding that correctly) my suspicion was right, and the inflated value goes to those who were given the newly-printed money, the banks. If that's the case, what is the case (besides bald-faced corruption and finance industry regulatory capture) for just giving banks money like that?

Central banks do not just give new money to banks. It is loaned to them, through an auction every Monday or so. Who offers the highest interest gets the loan. And the banks have to post collateral in return. Typically government bonds, sometimes other highly stable loans.

In the short run, this is about the banks who need more or less liquidity this week. But they need to get collateral (loan money to someone whose bond is accepted as collateral), so in the longer run the central bank is effectively loaning out money to the sources of that collateral, with the banks only as an in-between stop.

Since most of the collateral comes from the government, the central bank.is mostly loaning money to the government. The government pays interest to the bank who owns the bond that is put up as collateral, the bank pays interest to the central bank for the money loan, that goes to the profits of the central bank, which goes back to the government

So the simplified answer is (unsurprisingly) that newly printed money is mostly a free loan to the government. If the money is never asked back by the CB it becomes a kind of taxation, except that it is rather opaque who exactly is paying. So current Common Wisdom says that governments should not rely on it too much.

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Re: Where does inflated value go?

Postby ucim » Wed Jan 10, 2018 2:57 pm UTC

sardia wrote:Ucim You're smarter than this, maybe you're making a mean joke?
https://en.wikipedia.org/wiki/Money_creation#Re-lending
The act of obtaining a loan to buy something (which likely is deposited into another bank account ) creates/prints more money.
Yes, I know lending creates money; that's kind of my point. Money is the plus side of a transaction - the thing that's actually exchanged. The minus side (the debt that created it) is ignored, usually. But it's there. I was a bit flip, but didn't intend to be mean. (mean to whom? I don't even see...)

Writing a check is a kind of loan. When I write a check, I'm making a promise to pay you dollars at some point (when you cash the check). Dollars are money (a token that represents value and can be exchanged for goods and services). But this check also represents value - my promise to pay. By signing the back (literally), you can transfer my promise to somebody else. This is a "second party check". There's no limit to how long this can occur (though there's a practical limit on how many signatures fit on the back, and also a limit to how much trust people will put in such a check, but that's kind of the point). But so long as people have absolute faith that this (nth-party) check will still be honored, it's "as good as cash".

However, it is now an additional token, added to all the actual dollars presently in circulation. I created money, to the extent that people continue to trade this check rather than cash it at my bank.

Dollars are similar; they have no value in themselves; they are essentially a loan from the entity that made them (the government), representing (at least in the past) a promise of gold or silver. That promise has been rescinded; dollars are now "bum checks" from the government ("fiat currency"); government's primary fundamental backing is that they are accepted in payment of taxes (our debt to the government). Government can regulate the money supply and influence the economy in many ways, but those are details that I was not touching upon.

My point was to the issue of "creating money"... and what that fundamentally is.

Bitcoin and its ilk are another example. Miners "create money" by finding certain numbers that assist in keeping track of transactions. But when and if bitcoin becomes a significant part of our economy, the scare quotes can be removed.

A funny thing money is. It's a lubricant, not a commodity.

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Re: Where does inflated value go?

Postby CorruptUser » Wed Jan 10, 2018 3:55 pm UTC

slinches wrote:The way I understood macroeconomics, the money supply is not usually increased by the government directly printing more money. Instead, it's mostly through banks lending more out than they actually have through leveraging and using fractional reserves. This is legal for some reason.


Because it works? Imagine for a second you live in some primitive society where the currency is shovels and other tools. You aren't using all your tools at all hours of the day, so you deposit them in a shed. The shed then loans out the picks and post-holers and so forth, and the result is that the tools get far more use than they otherwise would if you had just kept them in your hovel, making it as if there were 5 times as many tools than if there was no shed. Fractional reserve isnt where the shed loans out tools it doesn't have, but where it is allowed to loan out the tools that others had deposited with them, so long as it has some tools still there in case a few want their tools back. With no fractional reserve, well, there would be fewer tools in the system and youd have to pay the shed owner to watch your tools instead of him giving you a few apples a month for the ability to loan out your tools.

It's a bit more complicated than that, but that's the idea. The money multiplier effect can exist without banks, and is theoretically worse. Instead of going to a bank for a loan, you go to Fred. Fred doesn't have rules on how much he can lend out, so he lends out 100% of what he has. You spend that money at Grace's, Fred's wife, who then lends out 100%, and so on. The result is a near infinite supply of money, limited only by the speed at which purchases and loans can be made. Your bank is more like an institutionalized Fred, one with rules to prevent Fred being a complete asshole or idiot. Which have failed for a lot of reasons.

The purpose of banks in society is actually about investing. The bank loans money to Alice so she can expand her restaurant, resulting in more business sooner. Problem is, the loans are NOT being invested, but spent on consumption. Unless you are a rental company, spending money on a bigger home is a terrible investment as far as society is concerned. Worse still is if government subsidizes the home loans, effectively tearing down farms and businesses to build homes. Because the bank can only collect the interest if there actually is some extra value in the system that represents that interest. You loan out 100 tons of corn, and after expenses the farmer now has 120 tons of corn, so you get 110 tons back. You loan out 100 tons of steel to a mine, the mine produces the equivalent of 120 tons at the end. You loan out 10 tons of bricks for a home, but that doesn't result in 12 tons of brick at the end if the person is consuming the home instead of, say, selling it.

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Re: Where does inflated value go?

Postby Pfhorrest » Wed Jan 10, 2018 4:18 pm UTC

You loan out money to buy a home, someone now owns a home instead of renting one, and has all of what would have been their rent money to spend on other things, including paying back the loan.

Alternately, more primitively, you loan out money to buy a home, and someone now lives in one instead of outdoors, with the subsequent improvement in their health and wellbeing and therefore overal productivity.

Housing is capital, not consumables.
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Re: Where does inflated value go?

Postby CorruptUser » Wed Jan 10, 2018 7:52 pm UTC

Houses are NOT capital.

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Re: Where does inflated value go?

Postby morriswalters » Wed Jan 10, 2018 8:57 pm UTC

I didn't play an Economist on TV. Having said that though, it ends up if you are a home owner and maintain your property, then you are returning something to the money stream. Houses are money pits. You buy all kinds of neat goods to keep them from collapsing in upon themselves. And unless people are moving back into caves somebody is going to own residential property. The only question is who? Trump? Or one of his cronies? I can see not giving the tax break, but exactly what is your heartache with me parking my money in my house?

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Re: Where does inflated value go?

Postby CorruptUser » Wed Jan 10, 2018 10:00 pm UTC

Spend your money however you want, you earned it so you are entitled to use it. But when you get a tax break or subsidy to do so, that's my money you are spending. And when you get a loan to buy a house, in some ways the loan isn't entirely making home ownership easier but in part it's just jacking up the price of the home by the value of the loan.

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Re: Where does inflated value go?

Postby Pfhorrest » Wed Jan 10, 2018 10:29 pm UTC

Sorry, houses are capital, the same way that stables in which to keep your workhorses / factories in which you keep your machines are capital. You are your own primary workhorse/machine that you use to generate value and housing is part of maintaining that productive capacity. Unless you really think you would be every bit as productive without a roof over your head.
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Re: Where does inflated value go?

Postby elasto » Thu Jan 11, 2018 1:32 am UTC

Pfhorrest wrote:Sorry, houses are capital, the same way that stables in which to keep your workhorses / factories in which you keep your machines are capital. You are your own primary workhorse/machine that you use to generate value and housing is part of maintaining that productive capacity. Unless you really think you would be every bit as productive without a roof over your head.

Houses are capital in that sense, but a house that costs 10x as much won't add 10x the productivity.

So it's somewhat like calling the swanky new designer head offices, or the luxurious corporate jets, or the 100k company cars 'capital'. Yes they are in one sense, but most of the value is of an economically inefficient kind, hence having more in common with a consumable.

Contrast with a typical manufacturing plant, say; Usually there is a much better correlation between cost and productivity boost there.

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Re: Where does inflated value go?

Postby ucim » Thu Jan 11, 2018 2:21 am UTC

elasto wrote:...but most of the value is of an economically inefficient kind, hence having more in common with a consumable.
What I'm hearing is that only the lowest acceptable quality {house | car | plane | milling machine | loom | robot | whatever } is "efficient", and anything better is a waste of resources.

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Re: Where does inflated value go?

Postby elasto » Thu Jan 11, 2018 2:25 am UTC

ucim wrote:What I'm hearing is that only the lowest acceptable quality {house | car | plane | milling machine | loom | robot | whatever } is "efficient", and anything better is a waste of resources.

In economic terms it definitely is.

Like you, I don't measure everything in economic terms though. Personally I think government should be in the business of maximising happiness rather than anything else - hence why I believe in strong social safety nets for example - but I am definitely in the minority.

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Re: Where does inflated value go?

Postby CorruptUser » Thu Jan 11, 2018 2:48 am UTC

From Wikipedia
Homes and personal autos are not usually defined as capital but as durable goods because they are not used in a production of saleable goods and services.


Now, if you run a taxi company, your cars are capital. If you run a business out of your basement, your home is capital. Otherwise, no.

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Re: Where does inflated value go?

Postby elasto » Thu Jan 11, 2018 2:58 am UTC

To be fair, there seems to be a lot of overlap between the concepts of capital and durable goods in the instance that the latter empowers personal productivity.

For example, a fridge in the office and a fridge at home provide almost identical utility despite one presumably being classed as capital and the other as a durable good.

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Re: Where does inflated value go?

Postby morriswalters » Thu Jan 11, 2018 3:02 am UTC

ucim wrote:What I'm hearing is that only the lowest acceptable quality {house | car | plane | milling machine | loom | robot | whatever } is "efficient", and anything better is a waste of resources
I don't know about this. Certainly it's a waste of money to buy more of a machine than what you need to get whatever you are doing, done. And buying a 15 room McMansion seems a bit of a waste for a 4 person family.

CorruptUser seems to have a point. But the end of the article he cites there seems to be a lot of fuzzy thinking.

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Re: Where does inflated value go?

Postby Pfhorrest » Thu Jan 11, 2018 3:16 am UTC

Where do you draw the line between "a business" that produces "salable goods and services" and... not? Take a W2 employee who telecommutes from home doing software engineering or graphic design or something on his computer. Not a business producing salable goods and services, you reckon? Home and computer are not productive capital, no? Well, change him to a 1099 contractor; if you like, let him incorporate behind an LLC, with just himself as the sole proprietor and employee, and one customer, his old employer. The exact same person doing the exact same work with the exact same equipment, but now his home office is a place of business and his computer is productive capital?

Or, take a business that has a bunch of ordinary employees living in their own homes and driving their own cars into the office every day. For some reason, this business needs to go do whatever it does somewhere far away for a long while; or maybe better, it has some remote site that it intermittently needs to bring its staff out to. (An antarctic research station or something, fill in the gaps yourself). To get the employees to come along, far away from their homes somewhere on another continent where they have no means of transportation, the business offers to house them near the new offices and provide transportation for them to get around the new site. That company-owned housing and fleet are surely capital investments. But the equivalent that the employees were providing for themselves, to enable themselves to live near the usual office and get to and from it, were not?

Legal structures like tax forms and incorporation aside, when the rubber hits the road every individual person doing any kind of work is producing salable goods or services. The work they do produces some good or more usually service, and they are selling that to their employer. The investments needed to keep themselves alive and able to work productively are capital investments in the business that is themselves.
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Re: Where does inflated value go?

Postby CorruptUser » Thu Jan 11, 2018 3:25 am UTC

You are splitting hairs where it doesn't need to be split. Does it unambiguously generate revenue? If yes, then capital. If not, then not capital.

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Re: Where does inflated value go?

Postby Pfhorrest » Thu Jan 11, 2018 3:31 am UTC

Great, then personal housing unambiguously generates revenue. If I lost my house (and couldn't replace it quickly enough), I would also lose my job, because I would be unable to do it.

You (and your Wiki source, and its sources) are splitting hairs.

Treating individuals and their costs to maintain their productive capacity differently from incorporated business and their costs to maintain their productive capacity is a widespread problem in contemporary economic thought.
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Re: Where does inflated value go?

Postby elasto » Thu Jan 11, 2018 3:36 am UTC

CorruptUser wrote:You are splitting hairs where it doesn't need to be split. Does it unambiguously generate revenue? If yes, then capital. If not, then not capital.

- How does a factory building directly generate revenue? It doesn't. It shelters the labour that does.
- How does a house directly generate revenue? It doesn't. It shelters the labour that does.

Without both forms of shelter labour could not be productive. There is much more overlap than you pretend.

[Edit: Mostly repeating what Pfhorrest said]

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Re: Where does inflated value go?

Postby CorruptUser » Thu Jan 11, 2018 3:48 am UTC

I feel like you are being deliberately obtuse here. Do you honestly believe that, longterm, diverting loans away from industry/businesses and directing them to individual consumption is something that is good for the overall health of the country?

Oh and to pre-empt the inevitable, I also believe that executives diverting money away from businesses and industries to line their own pockets is disruptive to the economy, probably one of the biggest problems facing the modern economy. In all honesty, I'm more concerned about the maximum wage than the minimum...

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Re: Where does inflated value go?

Postby Pfhorrest » Thu Jan 11, 2018 4:03 am UTC

CorruptUser wrote:away from industry/businesses and directing them to individual consumption

This is the problem here, the equivocation of "individual" with "consumption", and conversely "businesses" with "investment". Diverting away from investment to consumption might be bad, but diverting toward individuals isn't the same thing as that. Individuals can invest in themselves just like businesses can.
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Re: Where does inflated value go?

Postby CorruptUser » Thu Jan 11, 2018 4:10 am UTC

Yeah, it's called "human capital", which includes things like education and health. No one is claiming that certain spending on your people, such as vaccines or education or basic healthcare or, yes, basic housing, isn't good for the country/economy. It's the question of whether investing in larger homes is actually an improvement to the economy, especially as resources are not infinite and they may be better used elsewhere. Economics is the study of how societies use scarce resources, after all.

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Re: Where does inflated value go?

Postby Pfhorrest » Thu Jan 11, 2018 4:19 am UTC

As other have already mentioned upthread, there are analogues in business investment as well. There are definitely diminishing returns on investment in many kinds of capital. Bigger houses, bigger offices, nicer company cars, and so on, are all increasingly questionable investments the further beyond the minimum you need. But that's true of all kinds of capital, held by all kinds of entities, not just personal housing, and it doesn't draw a clear line between capital or not-capital.
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Re: Where does inflated value go?

Postby ucim » Thu Jan 11, 2018 4:42 am UTC

This discussion is exactly why "tax simplification" is a chimera. Yeah, there are some things that are unnecessariliy complex ("take line two, add it to line three, divide by two, double the result, and write the answer in line four. Subtract line four from line two...") but by and large, tax law is complex because life is complex and simple questions don't have simple answers. Hairs are split because there are consequences to being on the wrong side of the hair.

But back to the topic at hand...

morriswalters wrote:...buying a 15 room McMansion seems a bit of a waste for a 4 person family.
elasto wrote:In economic terms [anything more than minimal quality] definitely is [a waste of resources].

Like you, I don't measure everything in economic terms though.
Even the economy doesn't measure everything in economic terms. Look at Apple products. They do the same thing as PC or Android products, arguably worse in some ways, but certainly more elegantly in almost all ways. They are better by many measures. And this invites the question of just why "better" is better, and what (or who) it's better for. If a ten room house allows a harried executive to relax and consider things in depth, and therefore make better strategic corporate decisions, then maybe that ten room house is ten times better for the economy. That same ten room house for the schlub who solders wires together may have much less of an economic effect. So, by this logic, the value (to the economy) of the house depends on who lives in it, and maybe it's best to let the pigs wear clothes.

elasto wrote:Personally I think government should be in the business of maximising happiness...
I think that puts too much responsibility on government. Happiness should be our own pursuit; government should be in the business of ensuring that nothing gets in the way. Subtle but important difference.

Pfhorrrest wrote:This is the problem here, the equivocation of "individual" with "consumption", and conversely "businesses" with "investment"...
Well put.

Jose
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Re: Where does inflated value go?

Postby elasto » Thu Jan 11, 2018 5:20 am UTC

ucim wrote:Even the economy doesn't measure everything in economic terms. Look at Apple products. They do the same thing as PC or Android products, arguably worse in some ways, but certainly more elegantly in almost all ways. They are better by many measures. And this invites the question of just why "better" is better, and what (or who) it's better for.

Noone said businesses can't be economically inefficient just like people.

(Remember, the goal shouldn't be to be as economically efficient as possible - whether you're talking businesses or individuals. Apple would be a good example of a business that prioritises happiness (via user experience etc.) over efficiency.)

Happiness should be our own pursuit; government should be in the business of ensuring that nothing gets in the way. Subtle but important difference.

No. I think government should both be maximising happiness where it can and maximising people's ability to make themselves happy.

For example, providing universal healthcare is not merely a question of 'ensuring nothing gets in the way of someone maximising their own happiness' but providing happiness (via peace of mind etc.) directly.

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Re: Where does inflated value go?

Postby ucim » Thu Jan 11, 2018 6:29 am UTC

elasto wrote:Noone said businesses can't be economically inefficient just like people.
Efficiency is only meaningful relative to a goal. For this purpose, the goal (of business) can't be "to make money"; were that the case, every business that makes less money than {fill in big moneymaker} should switch to whatever the big moneymaker is doing. If everyone does that, the economy collapses. What good is oil if nobody makes cars to put it in?

Apple isn't being inefficient by wasting money on style, it has adopted a different goal in its business. This goal requires certain expenditures (whether measured in CPU cycles or designer salaries). And this requires {...turtles...} that the workers enjoy the life that working at Apple lets them pursue. So, if that is large houses and fancy cars, which might be inefficient on one scale, it is very efficient on another scale, as it allows Apple (I'm not picking on them, just an example) do pursue their goal effectively. And, if it is the least expensive way to be effective, then it is the most efficient.

The choice of goal defines what it means to be effective, and only then can we meaningfully apply the idea of efficiency to the process.

And yes, you said something like that in your next paragraph, but I think the difference in the way I'm saying it is important.

elasto wrote:government should both be maximizing happiness where it can and...
Nah. Government doesn't know what it takes for me to be happy. That's my job. Other people around me are trying to prevent me from being happy (by robbing my house, selling me dangerous goods, polluting my environment, bombing my cities, keeping me from advancing in my career...) That is the primary thing government should focus on. Secondarily, disease and such keeps me from being happy, and government has a role to play here too. But good health doesn't make me happy. Rather, it helps keep me from being unhappy. "Peace of mind" isn't so much a source of happiness as an absence of fear-induced unhappiness. Subtle but important difference. (Yogis aside)

Jose
Order of the Sillies, Honoris Causam - bestowed by charlie_grumbles on NP 859 * OTTscar winner: Wordsmith - bestowed by yappobiscuts and the OTT on NP 1832 * Ecclesiastical Calendar of the Order of the Holy Contradiction * Please help addams if you can. She needs all of us.

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Re: Where does inflated value go?

Postby Pfhorrest » Thu Jan 11, 2018 6:40 am UTC

Just to nitpick an otherwise excellent post, since we're pointing out important nuances: I doubt other people are trying to prevent you from being happy, per se. Rather, they're trying to make themselves happy, and just don't care if that has the side-effect of preventing your happiness. There are some exceptions of course, sadism and vengeance and so on.
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Re: Where does inflated value go?

Postby CorruptUser » Thu Jan 11, 2018 6:42 am UTC

Going to put my libertarian-esque foot down and say government isn't there to make you happy but to prevent others from preventing you from making yourself happy, as specifically stated by "pursuit of happiness" in the declaration of independence... until we actually get into the details of what that actually means, because platitudes are easy while reality is complicated, not to mention that the declaration actually has no legal weight :P

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Re: Where does inflated value go?

Postby elasto » Thu Jan 11, 2018 8:14 am UTC

ucim wrote:Efficiency is only meaningful relative to a goal. For this purpose, the goal (of business) can't be "to make money"; were that the case, every business that makes less money than {fill in big moneymaker} should switch to whatever the big moneymaker is doing. If everyone does that, the economy collapses. What good is oil if nobody makes cars to put it in?

If nobody is making cars then the first person that does so will make huge bucks. Free markets are pretty self-correcting in this regard: Companies that are less efficient tend to get outcompeted by those that are more efficient, to the extent that even small margins can cause the second-place company to go bust.

Apple isn't being inefficient by wasting money on style, it has adopted a different goal in its business.

No. Its goal is the same as any other company: To make money. Its means is different however: To appeal to a desire for quality rather than saving money. Some people are happy with cheap and cheerful while others get more enjoyment from quality, and still others get enjoyment by having something exclusive etc. etc.

(Economies become inefficient when they intentionally generate a need for a product via advertising, hype etc. and then meet that need. Such artificial 'needs' tend to be fleeting and lead to consumers endlessly chasing a high that never arrives.)

Nah. Government doesn't know what it takes for me to be happy.

I disagree. IMO there are universals like being fed, clothed, housed, feeling free of the fear of crime, feeling free of the fear of oppression, feeling free of the fear of ill health etc. that governments everywhere have a duty to meet.

For me, governments have a duty both to make me happy and to prevent me from being unhappy, in so much as they are able. Yes, everyone is different, which is why in addition to healthcare, legal aid etc. I support a citizen's wage, so that the government supports both those things which make everyone happier and allows people to freely choose their own path to happiness.

(We've veered away from the original topic though so I guess I'll leave it there.)

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Re: Where does inflated value go?

Postby morriswalters » Thu Jan 11, 2018 11:14 am UTC

ucim wrote:If a ten room house allows a harried executive to relax and consider things in depth, and therefore make better strategic corporate decisions, then maybe that ten room house is ten times better for the economy. That same ten room house for the schlub who solders wires together may have much less of an economic effect.
That is an interesting juxtaposition, schlub versus harried executive.

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Re: Where does inflated value go?

Postby paha arkkitehti » Thu Jan 11, 2018 11:34 am UTC

elasto wrote:
Apple isn't being inefficient by wasting money on style, it has adopted a different goal in its business.

No. Its goal is the same as any other company: To make money. Its means is different however: To appeal to a desire for quality rather than saving money. Some people are happy with cheap and cheerful while others get more enjoyment from quality, and still others get enjoyment by having something exclusive etc. etc.

(Economies become inefficient when they intentionally generate a need for a product via advertising, hype etc. and then meet that need. Such artificial 'needs' tend to be fleeting and lead to consumers endlessly chasing a high that never arrives.)


Also Apple's huge profits are partly because the industry it operates on provides network goods, where having a huge user base makes the product better (in Apple's case the user base makes it more profitable to make apps on Apple's platform, and having plenty of apps on the platform makes it more desirable for users). Network goods are monopolistic by nature, and therefore don't really follow the rules of "normal" markets.

Basically Apple's (and facebook's and google's) market value is a result of a market failure, and isn't really a good example when talking about markets in general.

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Re: Where does inflated value go?

Postby elasto » Thu Jan 11, 2018 4:22 pm UTC

I'm not sure I'd call it market failure, more just that there are larger than normal virtuous circles and economies of scale.

It's only a market failure if it fails to serve the customer well as well as the supplier. Apple takes some liberties but no more so than any other company really. For the most part it genuinely meets a need.

Contrast that with, say, issues in utilities like broadband where there is true market failure and genuine duopolies/monopolies. If Apple push their luck people will switch to Android, whereas if a broadband provider abuses their position there is often nowhere for anyone to go.


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