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Actually, it's a dream

Your Humble Blogger has been intending, since the interesting chat that my mention of inflation the other day went all happy, to write more generally about money and inflation. Money, as I’ve mentioned before, is a kind of mass hallucination. A wonderful one; our civilization depends on our ability to all pretend to believe that money exists and is valuable. Not just the little pieces of paper that, as Douglas Adams pointed out, aren’t generally the ones who are unhappy, but the whole deal. When my employer directly deposits my pay into my bank account, nothing at all moves or changes hands; there is a tally that changes at my employer’s bank, and a tally that changes at my bank. But that’s enough, because everybody thinks that it’s enough. Aren’t humans amazing?

Anyway, because money does not, in any significant sense, exist, and its value is a mass hallucination, the concepts of inflation and deflation and so on are essentially psychological ones. Which is fine, and in fact a good thing. You see, the easiest way to pretend to believe that money exists and has value is to actually believe that money exists and has value, and as everybody else is also acting as if money exists and has value, that’s fairly easy to do. And if everybody acts as if money has more or less the same value, it’s even easier. But they don’t, not quite, or not really. If you’ve ever been in a poker game with six people with completely different affluence levels, you have experienced something like this. A ten-dollar buy-in for a graduate student is the whole discretionary income for the week; a ten-dollar buy-in for an insurance broker is a tip. The game doesn’t work, until and unless everybody starts treating the chips as having the same value, the mental switch flips and then little plastic discs are valuable, because we treat them as valuable.

But all that wasn’t my point. My point was this: on April 25, the Hartford Courant printed a graph titled Gas Pains: The Worst Ever (pdf), which shows thirty years of gas prices. The top line, the yellow one, is labeled price adjusted for inflation; the bottom line, the red one, is labeled actual price. Actual price? In what sense? The occasion for the graph is that the inflation-adjusted price of gasoline at the pump has just surpassed the inflation-adjusted price in 1981, after being quite low for fifteen years or so. If the red line is the actual price, then who cares?

But it isn’t. You could label that red line the nominal price, or the unadjusted price, or some other phrase that indicates what you are talking about. Because there is no sense in which that red line indicates anything actual.

Tolerabimus quod tolerare debemus,
-Vardibidian.

Comments

Historical price data (actual prices) that aren't adjusted for inflation is important for a couple of reasons, I think. First is that people remember posted prices, and often remember them wrong, and it helps to keep people on the same page. Movies were not actually a nickel when I was a kid, and gas was not 59 cents even though that's what the sign said on my model railroad gas station (there's conceptually absurd product placement for you). But also, inflation is even less of a fact than money, because there are lots of reasonable ways to calculate an inflation rate that all give you different answers. It's good to remind people that inflation happens, and it's good to give them some sort of adjusted data, but as a reader I may have an easier time making my own historical price comparisons if I have actual prices to work with. Or, as you'd prefer, unadjusted prices.


oh i know how this ends. start with inflation and then you're into the CPI and unemployment and soon you'll be hectoring GDP for not tallying housewives and douglas firs and art.


I agree that it's useful to include the unadjusted prices, in part just to remind people what the graph is about, but it's a good point that people forget when prices really were what they were. I remember first-run movies going to five dollars, but I have no idea when that happened, whether I was twelve or seventeen.

On the other hand, the idea that the yellow line is less of a fact than the red one perplexes me. Yes, there is some calculation that goes into the yellow line, but then there is some calculation that goes into the red line, and if the spread between various versions of the inflation-adjusted line is (undoubtedly) larger than the spread between various versions of the unadjusted line, anywhere within that yellow line spread is closer to the “actual” value of a gallon of gas than anywhere within the red line spread.

The yellow line, after all, tells you the equivalent value in terms of goods or services or wages or housing or food, things that actually exist. The red one just tells you the equivalent in terms of money, which doesn't.

Thanks,
-V.


Weelll.

Hmm.

May I venture that money is less of a psychological construct than a _legal_ construct. When we move money around, we are circulating "legal tender." It's not happy participation in fantasies of value that causes us to accept that money is worth something: it's legal obligation.

Now, if you want to go on to make the case that law is another mass hallucination, then we can talk.

When we get rid of all the hallucinations, we'll be left with guns and butter and the Almighty, and our two good hands.


hm. since we drive more miles in less efficient vehicles now, it probably hurt equally a few months ago.


When we get rid of all the hallucinations, we'll be left with guns and butter and the Almighty, and our two good hands.

You sure about that? ;)

peace
Matt


Why, when I was a teen, all a fellow needed was *one* good hand.

Having gotten that out of the way, I do remember the oil shock in 1979 when regular gas hit 69.9 cents per gallon, and how I thought that was amazingly expensive. Four years earlier it had been 39.9 cents per gallon. But back then, you could buy a Honda Civic that got about 50 miles per gallon. The Civic got bigger, more powerful, and (candidly) much better looking, but it isn't an economy car anymore. There isn't much available car-wise that uses gasoline that efficiently today.


According to some random website I just looked at, the Honda Civic Hybrid remains one of the most fuel-efficient vehicles of which the website cared to acknowledge the existence. 45 MPG, highway.

peace
Matt


Hey, Chris (sub Cobb, as opposed to sub Brown) - I tend to interpret your statement "we'll be left with guns and butter and the Almighty, and our two good hands" as a statement of personal responsibility for climbing gas prices, inflation outstripping earnings, and criminals inheriting the White House (along the lines of "we have no one to blame but ourselves"). Is that an accurate framing of your intent with that construction?

peace
Matt


Now, if you want to go on to make the case that law is another mass hallucination, then we can talk.

Well, and obviously law is a mass hallucination. And I am against stripping us of our mass hallucinations, which are, among other things, our ISVRs. But of all the legal obligations that we pretend bind us (and thank goodness we do), this idea of money is perhaps the most fictional.

Thanks,
-V.


Matt,

My intent was not to make the point that we have no one to blame but ourselves, though I accept that as an implication of the statement. I would not disown that implication, either, as long as "ourselves" includes everybody, living and dead. Thus, any individual can be rendered helpless in the face of circumstance, but collectively we are never helpless.

My intent was to make clear that if one starts to describe what I would call social constructions "mass hallucinations," as if they could suddenly vanish, the only things that aren't will-o-the-wisps are food, violent force, and our capacity to work. As a believer, I include the Creator among things that are not socially constructed, but reasonable minds may differ on this point.

I question whether it is accurate to single out money among our social constructions as particularly hallucinatory. I would venture to agree that it is more degrading to love money than to love most other of our social constructs, however.


average fuel economy has dropped something like 5 mpg since the late OPECrageous era. with real wages stuck since before then, it matters that the civic hybrid is $9,000 more expensive than the old civic's true inheritor, the fit.


average fuel economy has dropped something like 5 mpg since the late OPECrageous era. with real wages stuck since before then, it matters that the civic hybrid is $9,000 (2/3 more expensive) more expensive than the old civic's true inheritor, the fit, which gets 10mpg less than the hybrid -- amazing, even criminal, for a much lighter car -- and 15 less than the old civics.


one! more! time!


hapa: You are absolutely right.

Chris: may unreasonable minds differ on the point? I need to know whether I should bother...

I feel like any social construct is wholly hallucinatory. Degrees of hallucinatory-nessificationitudeity are illusory.

peace
Matt


Well, and we have lots of instances when, for reasons of various kinds, suddenly everybody stops believing in one currency or another. The Weimar Deutchmark is the canonical example of this, but the Zimbabwean Dollar is an excellent example.

There are also examples of, for instance, the rule of law breaking down utterly, or the social value of a particular academic degree going poof, so perhaps you are right that money is not to the far end of that spectrum. Still, I think that it's something that we all deal with daily, that we can't (and oughtn't) think of as a hallucination (or construct), but that could be upended at any time. Not in a day, perhaps, but tomorrow we could start that spiral that ends six months from now in a million dollar gallon of gas. Again, I don't think it's going to happen, I don't think there's any great value in constantly keeping in mind that it might happen, I think there are serious drawbacks in basic policies on minute changes in the slim likelihood of it someday happening. I'm thrilled that this social construct works, and generally keeps on working unless something dire occurs.

Thanks,
-V.


When Ithaca Hours started as a local alternative currency, it got a lot of people thinking in a fresh way about the social construction of money. That didn't hurt anything, as far as I could tell -- it helped stabilize some aspects of the local economy (since hours aren't subject to inflation, and time is measurable).


On laws (and money, as a legal construct) being mass hallucinations -- isn't the point that laws are expressions of forceful capability? And that, yes, at times that Gordian knot can be cut, but it leaves behind not the fading nothing of a dream but some number of pieces of rope and a sword? (Your butter, Almighty, and number of hands may vary.)

I know I've nattered on at you about this before, V., so forgive the repetitiveness -- I continue to hope to goad you into writing the posts that will Explain It All on this topic.


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