Australian Economics

[IanG]

Australia ranks last in manufacturing self-sufficiency but coronavirus may change that

Australia ranks last in the developed world for the amount of manufactured goods we produce compared to what we consume, but the COVID-19 pandemic may be a catalyst to arrest the decline.

www.abc.net.au

 

[DavidSSS]

Wealth is not limited to goods and services, just ask the finance industry, their wealth consists of numbers in computers.

If wealth only consisted of goods and services what would be the point of accumulating wealth beyond the amount of goods and services you could consume in your lifetime? There would be no point. Yet wealthy people continue to pursue more wealth well beyond any capacity to consume that wealth.

They do this for one simple reason: wealth gives you power.

DS

 

[Giardiasis]

You seem to be saying that a country printing more money will increase the wealth in that country, but not in the world overall?

No I'm not saying that. What I'm saying is that the only people that benefit from counterfeiting are the people with first access to the new money. For example, if the US government prints more USD then the people that get first access to the money will benefit, but everyone else that uses USD will suffer. The people that suffer the most are poor people.

 

[Giardiasis]

Wealth is not limited to goods and services, just ask the finance industry, their wealth consists of numbers in computers.

In order to remove the confusion around the effect of money printing on overall economic prosperity it helps to think of wealth as goods and services only. So if you are having an economics discussion it is better to frame it thus. However, if you are just having a conversation about your own situation at any point in time then sure you can think of your money stock as your wealth, but a lot of assumptions are tied up in that, including assuming the future purchasing power of that money.

If wealth only consisted of goods and services what would be the point of accumulating wealth beyond the amount of goods and services you could consume in your ]lifetime? There would be no point. Yet wealthy people continue to pursue more wealth well beyond any capacity to consume that wealth.

They do this for one simple reason: wealth gives you power.

What relevance does this have to the point about the effects of increasing the supply of money?

 

[DavidSSS]

It might suit your self contained model to just think of wealth as goods and services only, it might even make it sound like the model works as long as you say ceteris paribus often enough.

Just doesn't reflect reality.

Financial institutions create wealth by creating money, surely you have seen those simplified economic models where there is only one bank and deposits lead to lending, leads to deposits, leads to more funds to lend etc?

But let us look at this in the opposite direction.

In 1870 total private assets (net of debt) in various countries was as follows:
Germany: 640% of national income
United Kingdom: 700% of national income
France: 700% of national income

By 1960 this had reduced to:
Germany: 200%
UK: 320%
France: 310%

It has risen again since.

Now there are a lot of factors involved here, but that is a very dramatic fall. If we take your view that wealth can only be thought of as goods and services, given wealth is lower, then there must be less goods and services. Really? Less goods and services in 1960 than in 1870? When your theory is contradicted by reality then it is time for a new theory.

The whole point about this is that wealth can be built on increasing the supply of money as banks and financial institutions do. As long as the money is accepted as a store of wealth, more money is more wealth. Thinking of wealth as goods and services only, removes the point of large amounts of wealth. I'd go further, it deliberately hides the point of large amounts of wealth and the desire to accumulate endless amounts of wealth - the point of wealth beyond the level at which you can meet every good or service you could possibly consume is power.

I understand completely where you are coming from, it is standard run of the mill monetarist theory, yawn. It's also rubbish. It works in a nice neat self contained model with lots of ceteris paribus assumptions, but it just ain't the way the world works. Yes, in a totally enclosed economy if you increase the money supply and hold the stock of goods and services static then prices will likely rise. In the real world not all wealth is chasing goods and service, wealth is stored and accumulated not just for the purpose of consumption, but also for the power it gives the holder of said wealth.

DS

 

[Giardiasis]

It might suit your self contained model to just think of wealth as goods and services only, it might even make it sound like the model works as long as you say ceteris paribus often enough.

It doesn't suit anything besides the truth. I need to say ceteris paribus to be correct and to avoid people getting the wrong idea.

Financial institutions create wealth by creating money, surely you have seen those simplified economic models where there is only one bank and deposits lead to lending, leads to deposits, leads to more funds to lend etc?

No they don't. You might say they indirectly create wealth by providing a mechanism for lenders and borrowers to come together for mutual benefit. However, if in this process they fraudulently create claims to wealth out of nothing then this act will work to destroy wealth. Yes I've seen them, what is your point? No wealth is created by the process of credit expansion.

But let us look at this in the opposite direction.

In 1870 total private assets (net of debt) in various countries was as follows:
Germany: 640% of national income
United Kingdom: 700% of national income
France: 700% of national income

By 1960 this had reduced to:
Germany: 200%
UK: 320%
France: 310%

It has risen again since.

Now there are a lot of factors involved here, but that is a very dramatic fall. If we take your view that wealth can only be thought of as goods and services, given wealth is lower, then there must be less goods and services. Really? Less goods and services in 1960 than in 1870? When your theory is contradicted by reality then it is time for a new theory.

A ratio of private assets (net of debt) to national income doesn't tell you anything about wealth. It doesn't tell you anything about how many goods and services and of what quality are on offer to alleviate consumer uneasiness. Your understanding of what constitutes reality is the issue here.

The whole point about this is that wealth can be built on increasing the supply of money as banks and financial institutions do. As long as the money is accepted as a store of wealth, more money is more wealth. Thinking of wealth as goods and services only, removes the point of large amounts of wealth. I'd go further, it deliberately hides the point of large amounts of wealth and the desire to accumulate endless amounts of wealth - the point of wealth beyond the level at which you can meet every good or service you could possibly consume is power.

Your point is incorrect. Money is a medium of exchange, all trade at the end of the day is trade of goods and services for goods and services. All money does is provide a common yardstick with which to judge trade exchanges and resource allocation decisions. Without it, we'd be reaching in the dark with a blindfold on, which is why a system without markets, prices and money enviably leads to destitution (as an aside). However, spending money created out of nothing is an exchange of goods and services for nothing. It does not create wealth, it works to reduce it. This process hurts poor people the most. I'd guess you would claim to care about the plight of poor people, yet you advance policies that hurt poor people. Curious...

Your fixation on an irrelevant point about the purpose of accumulating wealth is really quite bizarre.

I understand completely where you are coming from, it is standard run of the mill monetarist theory, yawn. It's also rubbish. It works in a nice neat self contained model with lots of ceteris paribus assumptions, but it just ain't the way the world works. Yes, in a totally enclosed economy if you increase the money supply and hold the stock of goods and services static then prices will likely rise. In the real world not all wealth is chasing goods and service, wealth is stored and accumulated not just for the purpose of consumption, but also for the power it gives the holder of said wealth.

No you really don't David, you are clueless inflationist, something you share in common with monetarists.

 

[DavidSSS]

You keep spouting monetarist theory and then claim you are not a monetarist, curious.

Money is a store and a measure of wealth, geez, that's not even economics 101 that's far more basic. Or, what, you think Geoff Bezos has around a trillion in goods and services lying around do you? How do you measure wealth?

The ratio of private assets to national income show the change that occurred mainly between the outbreak of WWI and the decades following WWII. In the context of what had happened this is a useful piece of data because it shows the extent of the reduction in wealth that happened.

The reality is (I know, you don't like reality, I get that) that if your proposition that wealth is only goods and services was true then there would be no point in accumulating wealth beyond what you could consume in goods and services. Yet, the very rich accumulate wealth well beyond the goods and services they can consume in one lifeltime - what is your explanation for this, why do they accumulate as much wealth as they possibly can?

DS

 

[Giardiasis]

You keep spouting monetarist theory and then claim you are not a monetarist, curious.

Monetarism suggests increasing the supply of money is inflationary, that's about the extent of my agreement with it. A monetarist has no concept of capital theory, Austrian business cycle-theory or time preference theory. A monetarist advocates for government control of the money supply to adjust for changes in money demand. You also support this, I do not.

Money is a store and a measure of wealth, geez, that's not even economics 101 that's far more basic. Or, what, you think Geoff Bezos has around a trillion in goods and services lying around do you? How do you measure wealth?

So hang on, first you claim money is wealth but now money is also a measure of wealth? It can't be both a measure of something that it already is. Money doesn't measure anything, there aren't units of money like there are units of mass or energy or speed. For example, when you measure length with a ruler, you are assuming that there is an objective property of an object called its length and that you can use an object (namely a ruler) possessing a standardised amount of this property in order to determine the magnitude that adheres to the specific object. Nothing like this applies to money. It provides a mechanism for people to make sense of the exchange ratios for all the various goods and services in the economy by comparison to the money exchange ratio. Instead of needing an exchange ratio between shoes and bread, you just look at the exchange ratio between money and shoes and money and bread and you can make sense of what the ratio between shoes and bread is.

Geoff Bezoz has around a trillion in goods and services? What does that even mean?

You can't "measure" wealth. Value is subjective after all. Here's an example to demonstrate the point: Compare someone stranded on a desert island with trillions of dollars and someone with $100 in their pocket standing in a Bunnings. Who is more wealthy? By your understanding, the desert islander is of course! All you can really do is make an approximation of how able someone is to relieve their uneasiness, but this requires an understanding beyond a simple look at their bank balance. You can't measure subjective value.

The ratio of private assets to national income show the change that occurred mainly between the outbreak of WWI and the decades following WWII. In the context of what had happened this is a useful piece of data because it shows the extent of the reduction in wealth that happened.

No it doesn't.

The reality is (I know, you don't like reality, I get that) that if your proposition that wealth is only goods and services was true then there would be no point in accumulating wealth beyond what you could consume in goods and services. Yet, the very rich accumulate wealth well beyond the goods and services they can consume in one lifeltime - what is your explanation for this, why do they accumulate as much wealth as they possibly can?

The problem is your claim (if wealth is only goods and services then there would be no point in accumulating wealth beyond what you could consume in goods and services) is in error. You are confusing concepts. In the economic sense, wealth is goods and services that can be used to alleviate uneasiness. People acquire money to use it to exchange for goods and services because it is highly marketable, has low storage costs, is easy to transport, etc. So if you want to describe someone's level of wealth, you can point to their bank balance, as it provides an indication of their ability to lay claim to goods and services if this understanding is overlaid within the context of the goods and services available to them at the time. Given how marketable money is, people find it more useful to mix this understanding of what wealth is for ease of communication, but it leads people unfamiliar with economics (and even those that apparently are familiar!) into error.

 

[DavidSSS]

You claim that people acquire money in order to exchange for goods and services, so why do they accumulate more money than they could possibly use to exchange for goods and services? Why do they accumulate more wealth than they can ever use?

You just refuse to answer this because you know it is all about power.

I said money was a store and measure of wealth, learn to read.

Geoff Bezos has almost a trillion in wealth, not in goods and services, again, learn to read.

Where have I ever advocated for controlling the money supply, I don't agree with private property which sort of negates the need for money. I made observations on the way that pumping money into real existing economies has not led to inflation that you choose to answer with theory that only works in Austrian.

I understand the world does not resemble the theories you love so much, such is life. Just makes you sound exactly the same as the socialists who would defend the Soviet Union back in the day. The world didn't fit their theories either.

DS

 

[Giardiasis]

You claim that people acquire money in order to exchange for goods and services, so why do they accumulate more money than they could possibly use to exchange for goods and services? Why do they accumulate more wealth than they can ever use?

You just refuse to answer this because you know it is all about power.

I explained money's function, I didn't explain the myriad of reasons why people want to control resources indirectly through holding money. The existence of money would not change the claim you are making. If money didn't exist, then this wouldn't remove the desire for people to control resources for reasons of "power". They would have to exercise direct ownership without money instead of indirect ownership with money. However, this whole line of argument you are making is completely irrelevant to the actual point of discussion, i.e. what effect does increasing the supply of money have on the economy?

I said money was a store and measure of wealth, learn to read.

You've made various incoherent claims on what money and wealth are. This is what you have said:
"Wealth is a means to secure future consumption and accumulation of more wealth (measured in a sovereign currency)" - and what is the means we use to secure future consumption if not money? Therefore you are claiming, money is wealth.

"Wealth is not limited to goods and services, just ask the finance industry, their wealth consists of numbers in computers." i.e. money is wealth

"Financial institutions create wealth by creating money" i.e. money is wealth

"As long as the money is accepted as a store of wealth, more money is more wealth" i.e. money is wealth

Learn to stay coherent.

Geoff Bezos has almost a trillion in wealth, not in goods and services, again, learn to read.

My reading is fine, thank-you, it is your ability to remain coherent that is the issue here. You could say he has a trillion dollars, or a trillion gold bars, or a trillion bowls of cereal, but the statement "a trillion in wealth" does not make sense.

Where have I ever advocated for controlling the money supply, I don't agree with private property which sort of negates the need for money. I made observations on the way that pumping money into real existing economies has not led to inflation that you choose to answer with theory that only works in Austrian.

I understand the world does not resemble the theories you love so much, such is life. Just makes you sound exactly the same as the socialists who would defend the Soviet Union back in the day. The world didn't fit their theories either.

Sorry I gave you too much credit. Here we go back to your staunch agreement with communists to end private property and money, a policy that directly leads to wide scale destitution, famine and death.

 

[DavidSSS]

How does a billionaire hold their wealth if not in financial assets which are valued in, you guessed it, money? They certainly don't hold their wealth in goods and services, they hold their wealth in financial instruments which do not exist without money.

You still fail to answer the question as to why someone would accumulate more wealth than they could possibly use in a lifetime on goods and services if not for the power that the wealth gives them.

You fail to understand what communist governments such as the USSR did with property. All they did was switch property ownership. Just as free-marketeers and so-called libertarians like yourself consider private property to be somehow sacred, the government of the USSR considered state property to be somehow sacred. You want to abolish any property which is not private property, they wanted to abolish any property which was not state-owned property. You and the communists are just 2 sides of the same coin - ideologically driven control through property relations, private/state who cares, property as a means to power and control on both sides of that coin.

DS

 

[DavidSSS]

Oh, and as an aside, if increasing the money supply leads suppliers to make more of their goods in anticipation of more people being able to afford to purchase their goods, and do not increase the price of their goods, then how is that not adding to production in the economy?

The problem is that all else does not stay the same. In fact, free market theories would suggest that if more people can afford to purchase a product then, if the current suppliers attempt to exploit this by increasing prices, other suppliers will enter the market. Of course, this ignores barriers to entry to markets but free market ideologues tend to assume these away so their theories look like they may work outside of cloud cuckoo land.

DS

 

[Brodders17]

Oh, and as an aside, if increasing the money supply leads suppliers to make more of their goods in anticipation of more people being able to afford to purchase their goods, and do not increase the price of their goods, then how is that not adding to production in the economy?

The problem is that all else does not stay the same. In fact, free market theories would suggest that if more people can afford to purchase a product then, if the current suppliers attempt to exploit this by increasing prices, other suppliers will enter the market. Of course, this ignores barriers to entry to markets but free market ideologues tend to assume these away so their theories look like they may work outside of cloud cuckoo land.

DS

but the marketplace is also altruistic, so sellers wont just increase their prices because they can- they can be trusted to do the right thing.

 

[Giardiasis]

How does a billionaire hold their wealth if not in financial assets which are valued in, you guessed it, money? They certainly don't hold their wealth in goods and services, they hold their wealth in financial instruments which do not exist without money.

Again you are confusing matters. Money is not the ultimate means to achieving the end of removing uneasiness. It is an intermediate step. People choose to hold money instead of goods and services because it allows them to lay claim to goods and services without inuring any of the problems of storage, perishability, change in desired mix of goods and services, etc.

You still fail to answer the question as to why someone would accumulate more wealth than they could possibly use in a lifetime on goods and services if not for the power that the wealth gives them.

And what does that prove? Please explain why the question is relevant? I think the answer you have given is one answer, but certainly not the only answer.

You fail to understand what communist governments such as the USSR did with property. All they did was switch property ownership. Just as free-marketeers and so-called libertarians like yourself consider private property to be somehow sacred, the government of the USSR considered state property to be somehow sacred. You want to abolish any property which is not private property, they wanted to abolish any property which was not state-owned property. You and the communists are just 2 sides of the same coin - ideologically driven control through property relations, private/state who cares, property as a means to power and control on both sides of that coin.

As long as scarcity exists, there exist trade-off decisions. Without some form of ownership, trade-off decisions can not be made and all action would not be possible. Please explain how people could act without an ownership framework, I look forward to having a good chuckle.

 

[Giardiasis]

Oh, and as an aside, if increasing the money supply leads suppliers to make more of their goods in anticipation of more people being able to afford to purchase their goods, and do not increase the price of their goods, then how is that not adding to production in the economy?

Because the resources they will use (i.e the real pool of funding) to make more of their goods will now not be used to make other goods that would have been created had the money supply not been increased.

The problem is that all else does not stay the same. In fact, free market theories would suggest that if more people can afford to purchase a product then, if the current suppliers attempt to exploit this by increasing prices, other suppliers will enter the market. Of course, this ignores barriers to entry to markets but free market ideologues tend to assume these away so their theories look like they may work outside of cloud cuckoo land.

That's not a problem, it is a requirement for understanding that there are a multitude of other variables at play. Good work with the strawman you built there, I guess it makes you feel better about yourself at least...

 

[DavidSSS]

People choose to hold money instead of goods and services because it allows them to lay claim to goods and services without inuring any of the problems of storage, perishability, change in desired mix of goods and services, etc.

Again I will ask: why, then, do people accumulate more money than they can possibly spend in many lifetimes on goods and services?

As long as scarcity exists, there exist trade-off decisions. Without some form of ownership, trade-off decisions can not be made and all action would not be possible. Please explain how people could act without an ownership framework, I look forward to having a good chuckle.

Geez, here we go again. Apart from the fact that property as you and I experience it is quite different to property in earlier societies, and apart from the fact that restricting access to resources etc makes scarcity worse, most human societies happily existed for millennia without the need for exclusive private property. If action is not possible without the sacred god of private property (or state property if you follow the communist version of property obsession), how the hell did we get to this point considering that private property is a relatively recent invention?

DS

 

[Brodders17]

G, serious question, you said when more money is printed it only makes though who it initially goes to wealthier.
does that mean if 'new' money is given to the poor, or to fund services they use- such as public hospitals or schools, printing more money will help reduce inequality?

 

[DavidSSS]

This all started, as far as I can remember, with the government throwing money at an ailing economy closed down as a result of COVID19.

What hasn't happened is the monetarist prediction that this will cause inflation, and then the monetarists go into meltdown.

One of the issues with economic theory is that the real world provides a context which cannot be ignored. The context of the government throwing money at the economy was that demand was collapsing as incomes were disappearing. Hence, no inflation. In a different context inflation may happen. Theoretical rigidity which ignores context is one of the problems economists seem to have.

Brodders, if you ask 5 economists that question, you will get 10 answers. It all depends on many factors and also on which factors the economists focus on, which is often related to which school of economic theory they subscribe to.

I'll give you an example. You hear a lot of economists say that progressive taxation does not help with inequality, these are generally the economists who subscribe to the trickle down theory. Other economists will state that progressive taxes will help with inequality. Personally, I just trust the facts: after WWII taxation in many countries was made very progressive, rates above 70% to over 90% in many countries including the USA, UK, Japan, Germany, France. These taxes were not only on income but also on large inheritances (generally only on the top 1% or thereabouts). Income inequality dropped: the top 10% of income earners dropped from around 40-45% of income share in 1940 to 25-35% by 1980. Wealth inequality also dropped from the top 10% owning 75% of capital in 1940 to a 50% share by 1980. There are a lot of factors at play but it is noticeable that since 1980 taxation has become less progressive and there has been a rise in both income and wealth inequality, almost back to the levels of 1940.

Theory in economics is generally nicely self contained, reality is far messier and far more difficult to explain, let alone predict. However, observation and hard data does help. Raising taxes on the wealthy and reducing them on the poor, then using the taxes to fund services which provide more benefit to the less well off, would, on the evidence of the post war period, tend to reduce inequality.

DS

 

[Giardiasis]

Again I will ask: why, then, do people accumulate more money than they can possibly spend in many lifetimes on goods and services?

I've already answered this irrelevant question. Answer me why you think it is relevant to the point of discussion.

Geez, here we go again. Apart from the fact that property as you and I experience it is quite different to property in earlier societies, and apart from the fact that restricting access to resources etc makes scarcity worse, most human societies happily existed for millennia without the need for exclusive private property. If action is not possible without the sacred god of private property (or state property if you follow the communist version of property obsession), how the hell did we get to this point considering that private property is a relatively recent invention?

Happily existed for millennia? A hand to mouth brutish existence is your idea of a happy life? Makes sense I guess.

I said action without ownership is impossible, not action without private property. You made the point that ownership (either public or private) are 2 sides of the same coin, so what do you have left without either one of these? No ownership structure at all. Property as a starting point includes your own body first and then extends out to external resources. So if you don't believe yourself the owner of your body, how could you take any action? If anyone uses their body to perform a conscious action then they are assuming they own the right to their body, the alternative is that they believe they are acting against someone else's ownership right, but for the most part pretty much everyone in existence has assumed themselves the rightful owner of their bodies. Action presupposes ownership. Now would we have gotten out of a hand-to-mouth brutish existence without private property? Of course not, we would have continued down that horrible path for further millennia.

 

[Giardiasis]

G, serious question, you said when more money is printed it only makes though who it initially goes to wealthier.
does that mean if 'new' money is given to the poor, or to fund services they use- such as public hospitals or schools, printing more money will help reduce inequality?

Perhaps, but not so much by making the poorer wealthier, but by making the wealthier poorer. When the wealthy have access to new money they tend to buy assets, which provides a bigger more stable boost to their wealth than it would had they used the money on consumption as it would be used in your example.

The benefit to the first user of the new money is a short term benefit, they too are hurt by the pernicious effect the money printing has on the production structure and on prices (in the longer term). The poor are the most vulnerable to increases in prices for consumer goods as a much higher portion of their income goes to it.

Why the fixation on inequality? Surely what is of more importance is generally well-being and access to resources to alleviate uneasiness? The poor Australian today has riches far beyond the kings of antiquity.