fun with numbers - wage "inflation"?

[bart]

Re: fun with numbers - wage "inflation"?

Wooden stakes work better. (No one’s ever tried kryptonite…)

Not any more... :eek:

But I’ve already given you two logical arguments. The first one was the one about the fact that the goods we use change over time, but our time itself does not. The other one was the simple fact that no justification at all has been given for the conventional tack of assuming the value of goods to be the stable datum.

So just to tally up what we have so far on both sides, we have two logical arguments in favor of my theory, and none whatsoever for the conventional view.

Given the current state of affairs, it seems to me that if I do nothing, I still come out ahead. At least until someone attempts to offer up some defense, however weak, for the conventional assumption …

:cool:

You fail to fully offer your view and then you call that a logical argument? :rolleyes: :eek: ;)

[Finster]

Re: fun with numbers - wage "inflation"?

You fail to fully offer your view and then you call that a logical argument? :rolleyes: :eek: ;)

So you're admitting that the conventional view must be thrown out. After all, if our criterion for a value standard is having a fully developed argument for it, it clearly fails, for there is none here.

Now, if we are in agreement on that point, then perhaps we can move on and develop the case for the time value standard. If not, then please offer up the argument in favor of the conventional view so that we can weigh the pros and cons of my theory against it in a rational manner.

Yea or nay?

Not any more... :eek:

Hmmm, maybe better stick with the wooden stakes and silver bullets ...

[bart]

Re: fun with numbers - wage "inflation"?

So you're admitting that the conventional view must be thrown out. After all, if our criterion for a value standard is having a fully developed argument for it, it clearly fails, for there is none here.

Now, if we are in agreement on that point, then perhaps we can move on and develop the case for the time value standard. If not, then please offer up the argument in favor of the conventional view so that we can weigh the pros and cons of my theory against it in a rational manner.

Yea or nay?

I can't say I agree, because its not an area in which I think I have much expertise (and also since I'm trying so very hard to avoid being finned ;)).

And yes, please proceed with the time value standard. I know I'm not the only one who doesn't fully understand it - seriously.

[Finster]

Re: fun with numbers - wage "inflation"?

So you're admitting that the conventional view must be thrown out. After all, if our criterion for a value standard is having a fully developed argument for it, it clearly fails, for there is none here.

Now, if we are in agreement on that point, then perhaps we can move on and develop the case for the time value standard. If not, then please offer up the argument in favor of the conventional view so that we can weigh the pros and cons of my theory against it in a rational manner.

Yea or nay?

I can't say I agree, because its not an area in which I think I have much expertise (and also since I'm trying so very hard to avoid being finned ;)).

And yes, please proceed with the time value standard. I know I'm not the only one who doesn't fully understand it - seriously.

Neither yea nor nay??? The goods standard of value requires no justification, but the time standard of value a full justification?

I must say, my good man, your acumen as a logician is every bit as good as the big V's. I leave it to you do decide whether that is a compliment or a cut ... :eek:

Meanwhile, I am satisfied to have established that the goods standard is without merit, leaving the time value standard the winner by default. :cool:

[bart]

Re: fun with numbers - wage "inflation"?

Neither yea nor nay??? The goods standard of value requires no justification, but the time standard of value a full justification?

I must say, my good man, your acumen as a logician is every bit as good as the big V's. I leave it to you do decide whether that is a compliment or a cut ... :eek:

Meanwhile, I am satisfied to have established that the goods standard is without merit, leaving the time value standard the winner by default. :cool:

Methinks it's both, especially since that answer stands the best chance of returning the tweak...

And yes, I must agree that you have defaulted... :eek:

Your time value standard can't even stand the light of day? ;)

[Finster]

Re: fun with numbers - wage "inflation"?

Methinks it's both, especially since that answer stands the best chance of returning the tweak...

And yes, I must agree that you have defaulted... :eek:

Your time value standard can't even stand the light of day? ;)

I take it back. I take it all back. Anybody that can put up with a finster for more than a few posts and counterposts ranks right up there with yours truly. Your a good man, Arth- Vang- ... I mean ... bart ...

[bart]

Re: fun with numbers - wage "inflation"?

I take it back. I take it all back. Anybody that can put up with a finster for more than a few posts and counterposts ranks right up there with yours truly. Your a good man, Arth- Vang- ... I mean ... bart ...

It must be that finely honed paranoia and respect for your (true) logic and points - I will never even approach your artistry and ability... but you're very kind.

And I really am still seriously curious to see the full theory, and I imagine there are more than a few questions and comments you'll get here on iTulip too.

[Jim Nickerson]

Re: fun with numbers - wage "inflation"?

“Value” as we may think about it most of the time is related to our money—the US Bonar. The relative value of the Bonar is generally obscured because we tend to look at price changes as real vs. considering them relative to the value of the Bonar.

The notion Finster put forward that the value of a man’s time has not changed since Shakespeare’s time strikes me as a statement that is perhaps profound in its meaning.

Reflection upon the notion, however, for a deep meaning brings none forth for me. I try to think about the value of an hour during my own life, and I cannot assign it a measurable value. When I worked if I performed certain operations, I made what to me was a lot of money on an hourly basis. When I read to attempt to improve my knowledge about what operations to perform upon whom, I made nothing per hour, but if I actually learned something from studying, the result may have been that I selected my patients better for operations and had better outcomes, thus resulting in fewer worries about having earned whatever I charged. If the latter occurred then it was very valuable to me but in no measurable sense.

I can reflect on the past 13-14 years since I quit practicing—during which time had I continued to work I might have made USB2-3 million in income—versus not having generated any income from work, and I conclude the last 13 years were mentally worth more than the prospects of having earned several million Bonars—but there is no measure of value that I can assign to the freedom from the burdens of trying to care for patients and the freedom to do nothing or to pursue other interests.

The value of a man’s time varies over time depending upon what the individual perceives in the way of some standard or value system. The standard might in fact be the Bonar, or whatever Shakespeare used, or it might be from contentment with good health, self, family, friends, freedom from debt, or discontent with the same things. This is how I see the value of time, and there is no defined standard for measure outside of some currency which in itself does not provide a measure for all things of “value” or for all things that are of no value.

[Finster]

Re: fun with numbers - wage "inflation"?

It must be that finely honed paranoia and respect for your (true) logic and points - I will never even approach your artistry and ability... but you're very kind.

And I really am still seriously curious to see the full theory, and I imagine there are more than a few questions and comments you'll get here on iTulip too.

Fair enough ... maybe we can pick this up tomorrow ... apparently my attempts to get out of doing some actual work here have failed miserably... ;) You and Jim have both made some observations well worthy of further discussion.

[Finster]

Re: fun with numbers - wage "inflation"?

Let’s preface this with Menger’s point about the subjectivity of value. Value is ultimately a function of an individual's judgment. Value is subjective. No need to redevelop that point here, as the literature does so fully. On the other hand, we can look at quotes in a large liquid market and say that the price of something at a given point in time was X. For example, a share of GM stock at the market close on July 7 had a value of X. The market value appears to be an objective quantity upon which all observers can agree. This in no way conflicts with Menger’s value subjectivity, it is merely an aggregated expression of many subjective judgments. A chemist can say that water is two hydrogen atoms joined with an oxygen atom and a swimmer can say that water is wet. The mere fact that the descriptions are different doesn’t mean that one is wrong. Here we will deal with the macro view - value in the aggregate - and hence treat it as an objective quantity.

We have three main candidates for a standard of value. One is currency, another is goods, the third is human time. Which is best?

We can look at the question from several different angles. For now, let’s take just two of them.

First, we have the Winston Churchill argument. This is the one alluded to above. Churchill, you may recall, famously stated that democracy is the worst form of government, except for all the rest. Similarly we can state that human time is the worst standard of value except for all the rest. That is, we can survey the candidates for a standard of value, and by progressively discarding the most unsuitable, find ourselves with human time as the last one standing.

We can eliminate currency immediately. Currencies obviously vary in value compared to each other, as evidenced by the forex markets, and with themselves over time, as evidenced by the existence of inflation and deflation. So we are left with just goods and human time. So the question boils down to which of there two is best?

Conventionally, the tacit reasoning goes something like this. Over time, advances in technology and productivity will make it possible to produce more goods with less time. Or looked at the other way around, it will require less time to produce the same goods. Therefore, comparing time and goods, the net value of goods will fall in comparison to time. This means that between the two, if we are to use goods as a standard against which to measure the value of our currency, our inflation statistics will come out lower than if we use a time standard. This point underlies Alan Greenspan’s famous productivity paradigm; which holds that increases in productivity will keep down inflation. Therefore, we choose a goods standard because it will depress our measurements of inflation. However, this reasoning is open to criticism on the grounds that we are choosing a standard not on the basis of fundamentals, but on the basis of which one gives yields the most convenient outcome for the inflationist.

Second, let’s look at it in terms of supply and demand. Suppose we use a goods standard. We immediately encounter a problem. Remember we observed that the advance of technology and productivity increases our ability to produce goods over time. The supply of goods, therefore, is highly variable, normally increasing with the passage of time. The overall demand, however, is not affected by technology and productivity. The ratio of supply to demand therefore tends to increase, meaning that goods in the aggregate should fall in value. If we are to use a constant unit of value in which to price them, goods should therefore fall in price over time.

Human time, on the other hand, is the same in supply and demand. Practically tautologically. Ten percent more people will demand ten percent more of people’s time, all else being the same. Meanwhile, ten percent more people can supply ten percent more, all else being the same. The ratio of supply and demand therefore in the aggregate remains constant.

We conclude that human time is the best candidate for a standard of value.

[Jim Nickerson]

Re: fun with numbers - wage "inflation"?

Thank you for your work, Finster. The VALUE of this to me is that it makes me once again contemplate the concept of VALUE.

Value is ultimately a function of an individual's judgment. Value is subjective.

And value is relative. A shovel is of no value to a person whose diseased lungs cannot utilize oxygen but is of inestimable value to a parent whose child is suddenly covered by a dirt slide in which case the shovel is of some real unquantifiable value. Gold is of no value to a person starving to death, if the choice were having gold or food, but again food were it available would have real unquantifiable value to the one with none.

For example, a share of GM stock at the market close on July 7 had a value of X. The market value appears to be an objective quantity upon which all observers can agree. This in no way conflicts with Menger’s value subjectivity, it is merely an aggregated expression of many subjective judgments. A chemist can say that water is two hydrogen atoms joined with an oxygen atom and a swimmer can say that water is wet. The mere fact that the descriptions are different doesn’t mean that one is wrong. Here we will deal with the macro view - value in the aggregate - and hence treat it as an objective quantity.

I reject the underlined. It seems to me that you are taking some quantity of subjective assessments that amount to a majority and by choice suddenly defining them as objective. I guess that means that at the top all the internet stocks in fact represented the real value of the underlying companies.

We have three main candidates for a standard of value. One is currency, another is goods, the third is human time. Which is best? ?

To ask "Which is best?" is the same as asking "Which is least subjective?" Why is human “time” even included in the group? Why not human accomplishment over a period of time? To include human time is to me arbitrary. The only thing objective about human time is the period in which one might choose to measure it, which in itself is relative to the human.

We can look at the question from several different angles. For now, let’s take just two of them.

First, we have the Winston Churchill argument. This is the one alluded to above. Churchill, you may recall, famously stated that democracy is the worst form of government, except for all the rest. Similarly we can state that human time is the worst standard of value except for all the rest. That is, we can survey the candidates for a standard of value, and by progressively discarding the most unsuitable, find ourselves with human time as the last one standing.

For whatever his reasons (perhaps he was intoxicated or was an individual who profited from the notion of democracy) he did not give adequate consideration to "benevolent dictatorship" as a form of government. Basically I reject acceptance of a proposition on the basis of it being the least bad, and thus deeming it the best. If something is not good, then it is not good. Killing 50 people is worse than killing one, so killing one is "good." No, killing is bad period, excepting the possibility that some people need killing.

We can eliminate currency immediately. Currencies obviously vary in value compared to each other, as evidenced by the forex markets, and with themselves over time, as evidenced by the existence of inflation and deflation. So we are left with just goods and human time. So the question boils down to which of there two is best?

Conventionally, the tacit reasoning goes something like this. Over time, advances in technology and productivity will make it possible to produce more goods with less time. Or looked at the other way around, it will require less time to produce the same goods. Therefore, comparing time and goods, the net value of goods will fall in comparison to time. This means that between the two, if we are to use goods as a standard against which to measure the value of our currency, our inflation statistics will come out lower than if we use a time standard. This point underlies Alan Greenspan’s famous productivity paradigm; which holds that increases in productivity will keep down inflation. Therefore, we choose a goods standard because it will depress our measurements of inflation. However, this reasoning is open to criticism on the grounds that we are choosing a standard not on the basis of fundamentals, but on the basis of which one gives yields the most convenient outcome for the inflationist.

Second, let’s look at it in terms of supply and demand. Suppose we use a goods standard. We immediately encounter a problem. Remember we observed that the advance of technology and productivity increases our ability to produce goods over time. The supply of goods, therefore, is highly variable, normally increasing with the passage of time. The overall demand, however, is not affected by technology and productivity. The ratio of supply to demand therefore tends to increase, meaning that goods in the aggregate should fall in value. If we are to use a constant unit of value in which to price them, goods should therefore fall in price over time.

Human time, on the other hand, is the same in supply and demand. Practically tautologically. Ten percent more people will demand ten percent more of people’s time, all else being the same. Meanwhile, ten percent more people can supply ten percent more, all else being the same. The ratio of supply and demand therefore in the aggregate remains constant.

We conclude that human time is the best candidate for a standard of value.

Standard = 4 : something set up and established by authority as a rule for the measure of quantity, weight, extent, value, or quality (Webster's Collegiate)

If anything cannot be measured, it cannot represent a standard.

I conclude that there is no true standard of value. Of the three mentioned: currency, goods, and an hour of a man’s time, the value of all are relative and subjective and the most relative, subjective and least measurable (actually totally immeasurable) value of all would be the last.

[Finster]

Re: fun with numbers - wage "inflation"?

Thank you for your work, Finster. The VALUE of this to me is that it makes me once again contemplate the concept of VALUE.

And value is relative. A shovel is of no value to a person whose diseased lungs cannot utilize oxygen but is of inestimable value to a parent whose child is suddenly covered by a dirt slide in which case the shovel is of some real unquantifiable value. Gold is of no value to a person starving to death, if the choice were having gold or food, but again food were it available would have real unquantifiable value to the one with none.

But here you’re reasoning from the particular to the general; from the micro to the macro. This essentially parallels the argument of the chemist who says that water is not wet, because it’s two atoms of hydrogen joined with an atom of oxygen. The truth of one does not negate the truth of the other. Likewise, the truth of your contention about value at the individual level does not negate the truth of mine about value in the aggregate.

To cite another example, there is no such thing as the "temperature" of a molecule. In statistical mechanics, we refer to its kinetic energy. Aggregating many such molecules, we can speak of an average kinetic energy. In a given volume of gas, we can speak alternatively of temperature, which is a macroscopic manifestation of the average kinetic energy of the molecules in the gas. But the mere fact that at the level of the individual molecule temperature does not exist does not invalidate the concept of temperature at the aggregate level. We could go on to cite a similar relationship between the microscopic phenomenon of molecular momentum and the macroscopic one of pressure.

I reject the underlined. It seems to me that you are taking some quantity of subjective assessments that amount to a majority and by choice suddenly defining them as objective. I guess that means that at the top all the internet stocks in fact represented the real value of the underlying companies.

It appears you misinterpreted the underlined. Nowhere did I define an aggregate of subjective judgments as objective. Rather, I said I would treat it as one. In fact, we treat such aggregate subjective judgments as objective every day. The closing price of GM stock on a given date - despite the fact that the value of that stock is purely subjective - is itself an objective fact.

Basically I reject acceptance of a proposition on the basis of it being the least bad, and thus deeming it the best. If something is not good, then it is not good. Killing 50 people is worse than killing one, so killing one is "good."

Again you are battering a straw man. Had I claimed that one must accept a proposition as good because it was the least bad, you would have a point.

The question of what value standard to use does not rise in a vacuum. It is implicitly employed every time someone remarks that "inflation is 3%", that "stock XYZ is up 15%" or makes any claim of that form. Any such statement embeds an assumed reference to some standard of value. It begs the question of in what units "stock XYZ" has risen. So if you are to carry your objection to its logical conclusion, all such statements are invalid.

Of course, you can fix the second statement ("stock XYZ is up 15%") by noting that it has risen 15% in comparison to the US dollar. But that can’t and won’t cure the problem with the first. So even if we talk about prices of things without violating your dictum, we nevertheless must deny the validity of any statement as to the rate of inflation.

In sum, in order to be logically consistent, you must either acknowledge the need for and relevance of a standard of value, or deny the existence of inflation … for whatever happens to the value of the dollar, you have nothing against which to measure it.

[jk]

Re: fun with numbers - wage "inflation"?

my $.02 on value.

i'll go with a basket of goods representing the consumption of a median income family, and allow some chain weighting to deal with changes in composition of the basket. i know this isn't perfect, but i think it's good enough.

[Finster]

Re: fun with numbers - wage "inflation"?

my $.02 on value.

i'll go with a basket of goods representing the consumption of a median income family, and allow some chain weighting to deal with changes in composition of the basket. i know this isn't perfect, but i think it's good enough.

For sure, that what's most of the conventional economics world goes with.

But it has problems. Suppose you put aside (picture under your mattress) some sum of money representing your entire production for a period of one year. And suppose you are the hypothetical average person in terms of the amount that you produced. Then suppose at some later time, say twenty years from now, you take out your money and purchase a typical market basket of goods with it.

Let's consider two scenarios. First, that there has been zero inflation as defined with respect to a market basket of goods, and second, that there has been zero inflation with respect to a unit of human time.

In the first scenario, you are able to buy the goods equivalent of what you could have (or did) produce at the time you put the money away. But recall that due to the usual advance in technology and productivity, that in the second scenario, the overall basket of goods that can be produced in the same unit of human time has expanded - i.e. that in the second scenario, your money will buy you more of a basket of goods than in the first. This is of course consistent with the assumption that expanding productivity helps hold inflation down.

So if your sum of money had remained unchanged with respect to a market basket of goods, it will buy you less than had it kept pace according to a unit of human time. In the first scenario, it maintains purchasing power with respect to physical goods, but in the second, it maintains purchasing power with respect to the same share of total goods that it started out with.

Finally, we pose a question. If your sum of money bought less under the first scenario than under the second (in which it would have bought the same share of goods), then where did the difference go? At the end of the twenty years, who had claimed the extra production brought about by advance in technology and productivity?

[jk]

Re: fun with numbers - wage "inflation"?

For sure, that what's most of the conventional economics world goes with.

But it has problems. Suppose you put aside (picture under your mattress) some sum of money representing your entire production for a period of one year. And suppose you are the hypothetical average person in terms of the amount that you produced. Then suppose at some later time, say twenty years from now, you take out your money and purchase a typical market basket of goods with it.

Let's consider two scenarios. First, that there has been zero inflation as defined with respect to a market basket of goods, and second, that there has been zero inflation with respect to a unit of human time.

In the first scenario, you are able to buy the goods equivalent of what you could have (or did) produce at the time you put the money away. But recall that due to the usual advance in technology and productivity, that in the second scenario, the overall basket of goods that can be produced in the same unit of human time has expanded - i.e. that in the second scenario, your money will buy you more of a basket of goods than in the first. This is of course consistent with the assumption that expanding productivity helps hold inflation down.

So if your sum of money had remained unchanged with respect to a market basket of goods, it will buy you less than had it kept pace according to a unit of human time. In the first scenario, it maintains purchasing power with respect to physical goods, but in the second, it maintains purchasing power with respect to the same share of total goods that it started out with.

Finally, we pose a question. If your sum of money bought less under the first scenario than under the second (in which it would have bought the same share of goods), then where did the difference go? At the end of the twenty years, who had claimed the extra production brought about by advance in technology and productivity?

the sum of money put aside represented the value of production of a year of labor with productivity determined by the technology of 20years earlier. it still represents that amount, which is less than you might produce with the latest technology. on the other hand, your skills might be obsolete, in which case you're unemployed, but you sure are glad you put that money aside.