Why is this video incorrect?

[John_James]

@EmperorNero

^ Yes, precisely.

We are talking past each others, John James, because we are referring to different levels of analysis. My comment “that the numbers on price tags don’t go up is irrelevant, what matters is that the purchasing power of our money has decreased” was specifically about the effects of inflation. You thought that I was talking about the value of money in general. That sentence has to be taken in context with what went before it. I was saying “inflation doesn’t just cause a change in nominal prices, it causes a decrease in purchasing power”. It was a response to the claim that inflation doesn’t exist as long as there is no change in nominal prices.

So you admit that if prices haven’t changed, then it is impossible for purchasing power to be lower?

I’m only trying to get you to realize the error of your statement. If prices are the same, that literally means the purchasing power is the same…because obviously you can buy the same amount of stuff. Purchasing power has remained constant. Claim it was held constant when it should have increased all you want. That’s fine. But to claim that my purchasing power has decreased when I can still buy the same amount of goods is just plain wrong.

That is unless of course you have a different definition of “purchasing power” than I do. But again, I understand “purchasing power” to mean “the amount of stuff you can buy”. If the amount of stuff I can buy has not changed, then my purchasing power has not changed.

[Evilsceptic]

If only the olympics had a mental gymnastics event, this guy would be famous.

[nirgrahamUK]

Let me try and help both of you guys who are talking past each other.

So you admit that if prices haven’t changed, then it is impossible for purchasing power to be lower?

‘lower than what’ is the question.

Lower than what it used to be makes a comparison across time.

Lower than what it would have been had event x not occured makes a counterfactual comparison across possibilites.

If money printing and productivity increases roughly correlate so that the ‘price level’ seems to be the same as it was after some time than before. Then purchasing power across time has not fallen, even though it has fallen across possibilities. If we are doing analysis on market interventions (which government money printing certainly is) then it is most interesting to look across possibilities and do counterfactual analysis.

[John_James]

We are not talking past each other. As I said, I was only trying to get him to see the error of his statement. I already addressed the “well purchasing power ‘should be’ higher” notion. Just go directly to his statement:

@EmperorNero

whether the numbers on price tags don’t go up is irrelevant. What matters is that the purchasing power of our money has decreased.

That is a false statement. Unless you have a different definition of purchasing power than the one that is commonly accepted, if the amount of stuff you can buy hasn’t changed, your purchasing power hasn’t changed. If something hasn’t changed, then ipso facto it hasn’t decreased. If you’re going to claim “it stayed the same when it should have increased” = “decreased”, then I suppose “slowing the rate of increasing spending” = “spending cut” too, huh?

[gocrew]

@John James

As I said, I was only trying to get him to see the error of his statement.

He didn’t make an error in his statement. You’re not fairly listening to what he is saying.

[resist272727]

Let’s saying purchasing power is 100. Money supply in one year expansion has the effect of decreasing purchasing power by 5%, to 95. But productivity gains have the effect of increasing purchasing power by 10%, to 104.5 (95*1.1). So overall, purchasing power went up by 4.5%.

So what you two are saying is two totally different things, both with a solid argument. You, John, are saying that purchasing power didn’t go down from year 1 to year 2. EmperorNero is saying that inflation (of the money supply) decreased purchasing power because every dollar printed does make the purchasing power go down, but when productivity goes up it can make prices go down anyway.