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Comment by roughly | Hacker News Reader

> Suppose you're on an island where the economy only produces coconuts.

This is why nobody takes economists seriously. What you lose in simplifying down to this model is literally everything. The coconut economy has zero predictive power.

In the real world, distribution effects dramatically affect the functioning of the economy, because workers are also consumers and owners of capital are siphoning off the purchasing power of their customers. Productivity isn’t the question in the modern economy - we’re already massively overproducing just about everything - our problem is both our wealth and production allocations are borderline suicidal.

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>This is why nobody takes economists seriously. What you lose in simplifying down to this model is literally everything. The coconut economy has zero predictive power.

A simplified model is needed otherwise rigorous analysis becomes impossible, and people make handwavy arguments about how paying workers more means they can spend more, which means factories, and it's a perpetual growth machine!

>we’re already massively overproducing just about everything

No we're not. If we weren't, we shouldn't have seen the massive inflation near the end of covid. The supply disruptions hit almost immediately, but it wasn't until the stimmy checks hit that inflation went up.

>our problem is both our wealth and production allocations are borderline suicidal.

If you read my previous comments more carefully, you'd note that I'm not arguing against better wages for workers as a whole, only that contrary to what some people claim, they don't pay for themselves.

> A simplified model is needed otherwise rigorous analysis becomes impossible

If your tools aren’t capable of rigorous analysis of a model that retains enough detail to capture the salient features of the thing they’re trying to model, they’re not the tools for the job.

What's the "salient feature" that's missing? From all the other replies it sounds like people are still relying on the handwavy argument that "pay workers more -> workers spend more -> you can pay workers more -> repeat", but can't articulate where the actual growth is coming from. If this is true, the communism would have beaten capitalism, because they would be able to exploit this better than any capitalist system, but obviously that didn't happen.

Overall this feels like troll physics[1]. Yes, the idea that having a magnet pull you forward, which itself is pushed forward by you moving forward sounds superficially plausible as well, but it doesn't pencil out in reality. The only difference is that "the economy" is complex enough it's non-trivial to disprove, and people can handwave away any objections.

[1] https://knowyourmeme.com/photos/74256-troll-science-troll-ph...

> What's the "salient feature" that's missing?

As it sits, all of the members of your coconut economy are going to be dead of malnutrition or exposure in relatively short order, so maybe address that and then we can work our way up to the flaws in the economic theory that drove the greatest wealth expansion and boom in consumer spending the world has ever seen.

> What's the "salient feature" that's missing?

Multiple products. Multiple employers. A currency distinct from a consumable product.

A simplified model could be useful, but yours goes too far.

It doesn't take into account effects like that by paying more you can attract more, and more productive workers. Or that it puts pressure on other employers to increase wages.

> but can't articulate where the actual growth is coming from

I am not an economist, but I think one situation where this works is where you are competing for workers with other employers that have high margins, and pay their workers relatively little. In that case one of two things happens. Either other employers also increase wages, leading to their workers also having more money, which they can spend on your product, or they don't compete on wages, and you can outcompete them in getting the best workers.

The key is that total productivity doesn't necessarily improve, but wealth distribution becomes more equitable.

The salient feature is that people consume a higher percentage of their wages than investors do of their wealth. Redistributing some profits to wages means that money gets spent, inducing demand. This also has a higher multiplier effect than profits, because consumer spending can move through the economy multiple times in a measurement period.

> A simplified model is needed otherwise rigorous analysis becomes impossible, and people make handwavy arguments about how paying workers more means they can spend more, which means factories, and it's a perpetual growth machine!

I'm no economist but you can't live on an island that only produces coconuts, because the people on that island would quickly start producing other stuff, breaking your premise.

This is like saying cash is useless because amoeba haven't evolved a cash economy.

> No we're not. If we weren't, we shouldn't have seen the massive inflation near the end of covid. The supply disruptions hit almost immediately, but it wasn't until the stimmy checks hit that inflation went up.

What? The first Covid stimulus checks were April 2020. 271 billion in 2020 here per here: https://www.pgpf.org/article/what-to-know-about-all-three-ro.... 135B of the second round by Mar 2021. The third started about then. Inflation - and consumer activity in most areas - was low because nobody was going anywhere still, but at least we did a fair job of avoiding mass unemployment and homelessness.

Then inflation started accelerating during the economy's broader reopening in April 2021 (2.6 -> 4.2 percent from March). It didn't peak until near the end of 2022. Those stimulus checks were LONG gone by then for most people, since a huge portion of the country lives paycheck to paycheck, and the stimulus checks weren't available to people making more than 80-100k (single or avg-per-person in a married couple), which is the higher-income demographic that would have the disposable income to really drive inflation across the board by a "let's buy stuff we wouldn't otherwise" splashy purchase.

Instead, inflation was driven by people getting back out and doing/buying all the shit that had all been scaled down. The first stimulus checks didn't drive it because people weren't purchasing as broadly yet, and were still more in panic mode. Textbook bullwhip effect; at steady state we produced more than enough and never saw shortages, then in Covid demand types and volumes shifted enough to cause shortages of certain things and surpluses of far more other "non-quarantine consumer" things, so production changed, and then when things started to go back to normal ALL those things got hit again. I don't know if I'd agree that we're "massively" overproducing everything now that we're not in a quarantine scenario again, but the consistency of supply of most normal things suggests a lot of excess capacity in the system to absorb normal fluctuations in a way that nobody ever has to think about where their next roll of toilet paper is coming from again.

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