Dutch King declares end of welfare state

[moda0306]

Kshartle,

So you're admitting that unemployment does come with at least some reduction in lifestyle, while it is a full reduction in productivity.  Let's assume this scenario.

- Person A is employed, and produces and consumes 10 units of GDP per year.

- Gov't comes out with new program, and Person A goes on Unemployment because he'd rather not work.

- Gov't pays him 6 units of income for 0 units of work.

- Person A spends 6 units of income into economy.

--- Therefore, Real Production has dropped by 10 units, while Nominal Spending has only dropped by 4 units.

This is extremely inflationary when spread about the economy.  Moral hazards have indicators to tell us they are happening.  They create massive pricing signals.


What I'm suggesting is this is more likely the cause of our problems:

- Person A is employed and produces and consumes 10 units of GDP per year.

- Due to not enough fiat-paper-to-potential-GDP ratio (and a financial crisis), demand drops below productive capacity, and Person A is unemployed.

- Person A now produces 0 and spends 6 into the economy because of welfare.

- Person B, C, and D, who used to produce and spend 15 units into the economy each, lower that to producing 15 and spending 13 each, because their 401k got hit, and their boss isn't hiring because Person A (and others like him) just decided to decrease their spending by a bunch, and orders for widgets are down.

--- So here you have production dropping by 10 units, and consumption dropping by 10 units.

This will see little/no inflation, as it wasn't caused by a moral hazard, but by a side-effect of a single-currency legal tender system that can't adjust as robustly as a barter system (but is far more efficient and productive over the long haul).


It seems evident to me that our situation mimicks the latter scenario much more than the former.

[Kshartle]

Kshartle,

So you're admitting that unemployment does come with at least some reduction in lifestyle, while it is a full reduction in productivity.  Let's assume this scenario.

Moda me admitting that is the sun admitting it's hot.

I'll take a look at the scenarios.

[Kshartle]

Kshartle,

So you're admitting that unemployment does come with at least some reduction in lifestyle, while it is a full reduction in productivity.  Let's assume this scenario.

- Person A is employed, and produces and consumes 10 units of GDP per year.

- Gov't comes out with new program, and Person A goes on Unemployment because he'd rather not work.

- Gov't pays him 6 units of income for 0 units of work.

- Person A spends 6 units of income into economy.

--- Therefore, Real Production has dropped by 10 units, while Nominal Spending has only dropped by 4 units.

This is extremely inflationary when spread about the economy.  Moral hazards have indicators to tell us they are happening.  They create massive pricing signals.

Nominal spending isn't relevant in my opinion. The general price level is a function of the total money supply divided by the goods and services available. There are so many factors affecting the supply of money it would really be tough to list them all.

I would say you have to ask where the government gets the 6 units from that it hands out. That's important because you have to realize it has to take that from someone. That person is person B from the prior posts. B will fight against this in a number of ways, most of which include B producing less. So A stops producing by 10, then B produces less because he was robbed to give to A.

You also need to understand why A lost his job. Maybe he was in industry that was an unsustainable bubble blown up by the government. Maybe his employer couldn't make a profit due to taxes (The employer was B) and had to lay him off. Maybe he just took a look and said he can get units without working at all so why bother.

The welfare begets more welfare and makes everyone poorer because less is produced. It doesn't make anything better. So much of the poverty is manufactured by the system. Yes there would be involuntary poor even if the government stopped interfering with everyone's lives. We would be so rich that charity would take care of this tiny amount of people. The fact that we have tens of millions of people voting for a welfare state is proof positive that people care about the poor.

I get it that you guys have a heart and want the poor cared for. Everyone does, even the most ardent anarchist (me). The difference is people who call for the dismantling of the welfare state are thinking with their heads not their hearts. Rather than handing people a crutch we want the government to stop breaking their leg in the first place. We want everyone producing, working, keeping their money, spending it how they like, and loving their lives. The tiny amount of involuntary poor will be more than cared for by friends, family, charities. If no one will care for them it's because they bad people and no one wants to waste their money on them. A 30 year old guy who is able-bodied should not be getting food stamps and charity, at least not from me.

[Kshartle]

Kshartle,

- Due to not enough fiat-paper-to-potential-GDP ratio (and a financial crisis), demand drops below productive capacity, and Person A is unemployed.

The problem is that there was too much money in the first place. The inflationary boom is over. The economy had adjusted to the skewed demand from the money printers and engaged in economic activity not productivity or growth. This is the key point. It's the money printing in the first place that is the cause of the recession.

Printing to stimulate and alleviate the pain of the recession will just prolong it. The misallocation of resources and worthless economic activity has to end. Even when people recognize that they say "well that's where we're at so we can't go back and change it". Well, we can try to not repeat the same mistakes. Let prices fall, let everyone adjust; let people decide how to use resources that are lying around, both human and capital. It will suck but man if they would ever not screw with the process we would come out the other end so much better off.

Would the money supply shrink? Sure, the dollar would get a lot stronger. We'd be able to import a lot cheaper. There are worse things that could happen

I know that wasn't really what you are looking at as far as why consumer prices haven't risen at the same pace as the base money creation but I think we've gone over that so many times and there are so many factors (trade imbalance, timing, etc.) Look at stocks and bonds and real estate. They have been blown back up from the printed money. It's only a matter of time for the consumer goods. Look at the inflation of medical care and tuition. The effects of inflation are all around us.

[moda0306]

Kshartle,

Assuming that we have a fiat monetary system, and there's nothing we can do about that, how much "money" (to be defined in another conversation that we'll never agree on anyway haha) should exist per unit of real productive capacity?

[Kshartle]

Kshartle,

Assuming that we have a fiat monetary system, and there's nothing we can do about that, how much "money" (to be defined in another conversation that we'll never agree on anyway haha) should exist per unit of real productive capacity?

However much there is right now and no more. If the government permits the banks to keep creating new money and still forces people to take the paper this is a downer but then at least require sufficient reserves so that we don't have banking crisis. Or don't bail them out.

The government should just stop printing today and leave it be. When everyone has to factor in long-term inflation it screws with everyone's planning and wastes resources. They should just stop.

As productivity increases prices will gradually fall in the long-run. Awesome. I don't know about you, but I like to buy stuff on sale, not when prices get hiked.

The biggest bonus is the encouraging of savings. That's what provides the fuel for new investment and an increasing standard of living.

[moda0306]

Kshartle,

Assuming that we have a fiat monetary system, and there's nothing we can do about that, how much "money" (to be defined in another conversation that we'll never agree on anyway haha) should exist per unit of real productive capacity?

However much there is right now and no more. If the government permits the banks to keep creating new money and still forces people to take the paper this is a downer but then at least require sufficient reserves so that we don't have banking crisis. Or don't bail them out.

The government should just stop printing today and leave it be. When everyone has to factor in long-term inflation it screws with everyone's planning and wastes resources. They should just stop.

As productivity increases prices will gradually fall in the long-run. Awesome. I don't know about you, but I like to buy stuff on sale, not when prices get hiked.

The biggest bonus is the encouraging of savings. That's what provides the fuel for new investment and an increasing standard of living.

Kshartle,

If the government "stops now," the market will have to factor in long-run DEflation.  Hardly any easier... in fact it's much harder.

Because the fed gives us pretty good guidance on this.... they fully state they want inflation at-or-around 2%, and even if we factor in a 1% or 2% cushion up to what they really give us, we get a much better idea of what the general price level might look like going forward than if we just fix the money supply and say "done with it."


Also, we buy stuff with income... if prices go down, and our income goes down, we're not getting anything "on sale."  Likewise, we're not necessarily losing anything just because there's inflation.

In fact, if you look at real GDP of countries where depressions are allowed to occur, and countries where high inflation is allowed to occur, it's obvious that deflation is far more dangerous for productivity than inflation.

[Kshartle]

Kshartle,

Assuming that we have a fiat monetary system, and there's nothing we can do about that, how much "money" (to be defined in another conversation that we'll never agree on anyway haha) should exist per unit of real productive capacity?

However much there is right now and no more. If the government permits the banks to keep creating new money and still forces people to take the paper this is a downer but then at least require sufficient reserves so that we don't have banking crisis. Or don't bail them out.

The government should just stop printing today and leave it be. When everyone has to factor in long-term inflation it screws with everyone's planning and wastes resources. They should just stop.

As productivity increases prices will gradually fall in the long-run. Awesome. I don't know about you, but I like to buy stuff on sale, not when prices get hiked.

The biggest bonus is the encouraging of savings. That's what provides the fuel for new investment and an increasing standard of living.

Kshartle,

If the government "stops now," the market will have to factor in long-run DEflation.  Hardly any easier... in fact it's much harder.

Because the fed gives us pretty good guidance on this.... they fully state they want inflation at-or-around 2%, and even if we factor in a 1% or 2% cushion up to what they really give us, we get a much better idea of what the general price level might look like going forward than if we just fix the money supply and say "done with it."


Also, we buy stuff with income... if prices go down, and our income goes down, we're not getting anything "on sale."  Likewise, we're not necessarily losing anything just because there's inflation.

In fact, if you look at real GDP of countries where depressions are allowed to occur, and countries where high inflation is allowed to occur, it's obvious that deflation is far more dangerous for productivity than inflation.

The dollar gained purchasing power (doubled I think) throughout the 19th century and the country went from poor farmers to an industrial power where all the greatest inventions were made and standards of living rose faster than any time in history.

No one is talking about deflation. No one is talking about a rapid decline in the money supply. That's what occurs after an inflationary bubble pops.

Why does everyone's income have to fall? Won't we have the same number of dollars pretty much year after year? Doesn't that mean we have the same income in dollars, year after year? It just buys more stuff as productivity grows. And grow it will because people will save and invest more if they know their purchasing power can safely grow. Interest rates can be lower.....without a guy with a nice beard conjuring up money and bidding up bonds to push down yields.

[Pointedstick]

Oh but that beard…

[Kshartle]

Oh but that beard…

It's very well groomed. He has a nice smile too as he gleefully prints away.