Talk:Money illusion

Fallacy

"This is a fallacy as modern not exactly [flat currency|fiat currencies]] have no inherent value and their real value is derived from their ability to be exchanged for goods and used for payment of taxes."

The word fallacy is not a flashier, more impressive and concise form of the phrase "false statement." It means a logically invalid argument. If the crap about money having no "inherent value" is anything other than just a pointless distinction, then assuming money has "inherent value" in this money illusion is not a fallacy, it's just wrong. Thus stating it to be true would be a false statement. A fallacy is using true assertions in a logically invalid way (e.g. a circular argument or affirming the consequent) to reach an unmerited conclusion. Changed in the article. —Preceding unsigned comment added by 66.190.55.163 (talk) 18:40, 4 September 2010 (UTC)

Clarity

Money illusion refers to the tendency of people to think of currency in nominal, rather than real, terms. In other words, people mistake nominal variables for real variables. This just replaces one form of gibberish with the exact same form of gibberish. The part after the in other words should explain the distinction not merely restate it. 71.102.132.76 08:28, 5 September 2007 (UTC)

Good idea, I'll fix it up. --I (talk) 02:33, 23 November 2008 (UTC)

misperceptions theory

This is the same as the misperceptions theory, right? Which dictates that short-term aggregate supply is a direct relationship, instead of a horizontal? Help? Mathwhiz 29 (talk) 04:02, 7 January 2008 (UTC)

Which theories?

from the article:

Some have suggested that money illusion implies that the negative relationship between inflation and unemployment described by the Phillips curve might hold, contrary to recent macroeconomic theories.

Which recent macroeconomic theories does the writer refer to? Please clarify this if you know, otherwise I think the text should just say that existence of the money illusion is evidence in support of the relationship described by the Phillips curve. --I (talk) 02:56, 23 November 2008 (UTC)

From what I understand, it's not that the Phillip's Curve was discredited by more modern theories, but by empirical evidence. The Phillip's Curve described a perfect, inverse relationship between inflation and unemployment, but it turns out that, fairly often, there will be "skips" where the economy moves to a different curve. Also, the relationship is not as strong as Phillip thought (he worked with a limited data set--a decade or so, I think).

I have no idea how the money illusion could support this disproven model. Maybe a short-run v. long-run story? That would be part of the "sticky prices" theory. However, I don't think that prices are sticky just because of money illusion. From what I remember, Milton Friedman theorized that inflation itself isn't the problem: the problem is unanticipated inflation. I believe that the Austrian school believes that it's about unequal dissemination of inflationary money, since it has to go through banks first.

From what I know about the experiments from behavioral economists, they seem to ignore both of these stories. In my mind, consumers suffer from money illusion in some instances, and not others. For example, they remember how much their house cost when they bought it and how much they could sell it for, but they forget the price of other goods when they bought their house. It's like a reverse version of the "unanticipated inflation" issue. If so, this shows a cost to retaining/relearning this information, rather than irrationality, but, whatever. Um the Muse (is too lazy to login) 128.198.32.130 (talk) 23:50, 10 April 2011 (UTC)

Helps to explain House Price crash and Financial Problems?

Banks understand the illusion, Joe Public doesn't. Explains alot about how Banksters get away with Financial mis-management. Governments also complicit but are not fully conversant with the illusion. Anon 22:47, 27 November 2008 (UTC) —Preceding unsigned comment added by 82.19.165.71 (talk)

Recent update in error?

The last line of the contribution by DontClickMeName on 13 August 2012 appears to be in error:

"...even though his purchasing power is decreasing because the interest rate matches inflation rate."

My understanding is that purchasing power is what can be purchased after adjusting for inflation. Inflation causes the decline in purchasing power.

If the man's money is inflating at the same rate of price inflation, then his purchasing power would remain constant, not decline as claimed.

It's been three decades since I took economics, so it would be nice if someone could verify and correct. — Preceding unsigned comment added by 98.243.110.86 (talk) 17:23, 30 September 2013 (UTC)

Incomprehensible

I can't make much sense of this article, although its subject fields are interesting to me. The first sentence is poor, particularly the phrase "at a previous point in the general price level (in the past)." Do levels have points in them? For a mathematician they do, but I suspect that's not the sense intended here.

I wonder if the article could be summarised "some people fail to allow for inflation"? Maproom (talk) 06:58, 11 October 2018 (UTC)