and what are the limits on how much they can encourage us to do the right thing because only they know what the right thing is
That's correct, that's because inflation is determined by supply and demand, not by the quantity of money.
As usual, you are off by 180 degrees. Savings does not fund investment. I=S not S=I savings is a "demand leakage" meaning that when people save dollars are removed from circulation. Think about it like this....An older couple wants to retire and sell their home. A young couple wants to buy it. They go and take a loan from a bank (which does not come from nor is impacted by savings) and buy the house. Thus it was the old couple's investment (house) that created the young couple's loan (without the investment there would be nothing to sell). The young couple goes into debt and the old couple gets the money which they deposit as savings. It was the investment that created the savings, not the savings creating the investment. The young couple had to go into deficit to create the money that the old couple saved. Don't feel bad, your's is a statement repeated so often is taken almost as law, yet if I ask you to justify it mathematically you cannot without fabricating banking processes that aren't true in reality. Banks don't lend from savings, thus savings does nothing to increase investment. The same goes for government deficit. When the government deficit spends it adds US dollar assets and those assets add to savings. Said another way....Government deficits ADD to our savings (to the penny). This is an accounting fact, not theory or philosophy. There is no dispute. It is basic national income accounting. For example, if the government deficit last year was $1 trillion, it means that the net increase in savings of financial assets for everyone else combined was exactly, to the penny, $1 trillion. (For those who have a basic understanding of economics, you might remember that net savings of financial assets is held as some combination of actual cash, Treasury securities and member bank deposits at the Federal Reserve.) This is Economics 101 and first-year money banking. It is beyond dispute. It’s an accounting identity. Yet it’s misrepresented continuously, and at the highest levels of political authority. They are just plain wrong.
Inflation is measured by the CPI. CPI looks at a basket of goods from year to year and averages the cost. I the cost is higher that's inflation. Some of the goods can go up and other can fall, but if on average they rise. That's inflation. Bread is not a unit of account, it is a product, a commodity that is limited by scarcity both in the effort it takes to create and the raw materials that make it up. Most money is digital and is, for all intents and purposes dollars are infinite and cost almost nothing to produce relative to the number of dollars in circulation. The point is, commodities are limited by factors that cannot be controlled, money creation can be directed to achieve social and political goals. Who decides? We decide. If you don't like the decision of your government, speak out, organize do something about it. If you believe your government isn't working in your best interest, you either don't understand what your government is doing or you should advocate for changes. The system we have is as good as it get's. Individuality and barter systems (Libertarian utopia) don't exist because they couldn't survive in this world. They are deeply flawed and weak relative to authoritarian regimes that would dominate them militarily. Which is of course why they don't exist. Again, we don't make purchases, pay our taxes or pay our mortgages in bread, which is why the cost in dollars is what matters and everything else moves and adjusts relative to dollars. Now, having said that, if the price of something rises and salaries stay the same then, in the aggregate fewer goods and services will be produced, so while the average price of bread is a smaller ratio of the average salary fewer goods will be made in the aggragate. So let's say there are (100) $20 salaries in some hypothetical economy, and there is $2000 worth of goods purchased in this economy between all 100 people ($20 each) of which bread is $500 ($5 x 100 people buying bread) of that $2000. The other $1500 is spent on several items, let's say potatoes, boots, and tobacco. If the price of bread rises to $7.50 if bread is a staple that people must have then they must decrease spending on all other things by $250. If tobacco is the non-necessity, most people will give up some or all of their tobacco. Unless salaries increase proportionally so that 100 people can consume bread at it's higher price and still purchase everything else they used to purchase (with the remaining $1500), if production can no longer be purchased, unemployment will result, in this case, tobacco producers will be out of work. This will result in a decrease in the number of $20 salaries resulting in even less overall consumption leading to more layoffs. Of course, as demand falls, prices will attempt to come into line, but the changes in employment will happen faster than the business can adjust and this economy enters a deflationary spiral. We don't live in a barter economy, ALL prices don't have to rise for inflation to exist.
So the price of the dollar must decrease for inflation to exist? I think that's what I was saying all along. Inflation is a decrease in the price of dollars.
It's the same exact thing, but people cannot "see" the erosion of purchasing power the way they can see an increase in prices. Having said that, prices can rise (resulting in increased purchasing power) without creating new dollars.
So bread is $5 per loaf, and cigarettes are $5 per pack. This means that a loaf of bread is equal to a pack of cigarettes. If the relative price of bread increases to $7.50, then the relative price of a pack of cigarettes goes from 1 loaf of bread to 1/2 loaf of bread. One price goes up and another goes down. There is no general increase in the price level.
First, 1/2 of $7.50 isn't $5, it's $3.75. Second, that's not how prices are measured no matter how many time or ways you say it. No one buys cigarettes with bread. You can keep ignoring the actual economics that surrounds pricing changes, employment, and salaries all you want, but oversimplify the world into relative prices overlooks the intricacies, not to mention the underlying cost of barter. The coincidence of wants problem.
If the price of bread goes up, then, given a constant money supply, the price of all other goods must go down correspondingly.
In a large population, what do you think should happen when the population increases by 33%. How do you think it would effect prices?
Not sure. A lot could change that would effect prices. But ultimately prices would be a function of supply and demand. But as I said, given a constant money supply, a rise in the price of bread would necessitate a drop the price of all other goods.
I can't help you understand if you're not willing to have a conversation. If you fear what you might learn, by all means stop now. I'm asking you how an increase in population might affect prices. Would demand go up or down? Obviously more people means more potential customers, but without money what can they buy? In a society that uses the money, how might you see their integration into society? If there were 666k people and within just a few years the population increases to 1 million how might the economy react?
Demand for what? I can't claim to predict prices. If I could, I would be a multi-billionaire. But I do know that the price for any particular thing is a function of the supply and demand. Without money? What happened to all the money? I don't know. What are each of those new 334,000 people doing? Are they producing anything? What specifically are they producing? Are they consuming anything? What specifically are they consuming? Prices are a function of supply (what are people producing) and demand (what are people consuming). But can we agree that if the price of bread goes up, ceteris paribus, the price of everything else must go down?
CPI measures the average change, increase/decrease, of a weighted and predetermined basket of goods and services, and unlike monetary inflation can have greatly varying effect upon individual consumers/families. The fact that the price of some items in the basket may have increased while others may have decreased can allow changes in spending to reduce/eliminate some/all the effects of inflation. Monetary inflation, on the other hand generally inflates the price of most everything, although not necessarily equally.
do you need a list of all 48,000 web sites?????????? mainly macro: Savings Equals Investment? https://mainlymacro.blogspot.com/.../savings-equals-investment.html Jan 14, 2012 ... Q: But surely savings equals investment by identity in the national ... + saving (S), but also expenditure (Y) = consumption (C) + investment (I). Why savings equals investment (S=I) and the financial sector notes www.freeeconhelp.com/.../why-savings-equals-investment-si-and.html Nov 12, 2011 ... Why Savings equals Investment: Using the GDP equation to explain saving and investing: Begin with our GDP equation for an open economy:. Asymptosis » Savings Equals Investment Equals … Zero? www.asymptosis.com/savings-equals-investment-equals-zero.html Oct 9, 2011 ... So if Savings = Investment, Investment = Zero ...... I still prefer the method Milton Friedman proposed: tax business profits as with S Corps: all ...
The kinds of things that people demand. Who asked you to predict prices? I'm just asking if the prices would go up, down or stay the same. It's like asking if I drop a standard glass lightbulb on a hard floor, will it break or not? Obviously, you can tell me it will break. You ask like I'm asking you how many pieces it will break into. Predicting what might happen to an economy where the number of people increases by a large amount should be reasonably easy. Feel free to include assumptions you feel are necessary. Where would new people get money assuming they didn't bring it with them. If the population increased by 1/3 via a rising birth to death ratio, again, where would the surging population get money as they entered the workforce? Make whatever assumptions you want. I'd suggest you assume that they are doing the kinds of things we're doing today in the US. Sure. Price is irrelevant, what matters is what people agree to pay. Perhaps that was assumed in your question, but I felt I should point it out. Now your question is, if someone buys bread at a higher price today ($7.50) than it was at yesterday ($5), the delta between today and yesterday would equal $2.50 and that would mean that there is $2.50 less could be spent on everything else. Now if I phrased your question correctly, the answer is no. People can create new money via borrowing. I could put that bread on my credit card. That would create new money for as long as the repayment is outstanding. If demand rises relative to supply, rationally, producers will try to increase market their share (and their market influence and decrease cost via economies of scale) and will use the money they earn from the increased cost to increase supply via purchases on new plant, equipment, labor etc. We saw this with gas/ oil prices over the last 10-12 years. Supply declined as OPEC cut production, the reaction was an increase in price for several years. The response to the increase in price was to expand energy production and today we see higher output here in the US. This is possible because the pool of money isn't static. The government can increase the supply of money "vertically" or endogenously or via deficit spending and the private sector can increase the money supply "horizontally" or exogenously via borrowing.