10 ms·

Switzerland Offers Counterpoint on Deflation’s Ills

47 points by bpolania 11y ago

evanpw 11y ago
> Although wage growth has slowed in Switzerland, it was 0.6% on an annual basis in the second quarter A big part of the reason that economists think that deflation is bad is that people are very resistant to cuts in their nominal wages (much more than to cuts in real wages, like getting no raise with positive inflation). If the price of everything else suddenly dropped 10%, then cutting everyone's wages 10% would make them exactly as well off as they were previously, but the more likely outcome is that wages would drop by less than 10% and unemployment would increase. If nominal wages are still increasing in Switzerland, maybe that's part of the reason there haven't been many adverse consequences.
- AnimalMuppet 11y ago
  > If the price of everything else suddenly dropped 10%, then cutting everyone's wages 10% would make them exactly as well off as they were previously... Only if they had no debt.
  - dnautics 11y ago
    If the price of everything increases 10% then the increased cost of living disproportionately affects the poor for the duration of time that it takes for the wages to match the increase. Compared to this the amount of debt held is basically trifling. For example, if you are poor and are spending 80% of your income on living expenses, and 10% increase in prices drops your margin of survival from 20% to 12%, which is a 40% hit. If you are wealthy and spending 20% of your income, then your margin goes from 80% to 78% which is a 5% hit. If you were in the 'poor' case, would you rather have the 10% devaluation of your debt or would you rather have a 40% hit to your livable margin? The converse is true in a system of deflation. If you are spending 80% of your income on living expenses, a 10% DECREASE in prices increases your margin of survival from 20% to 28%, which is a 40% increase, which you would almost certainly take over a 10% increase in real value of your debt. Moreover the notion that the rich are not in debt is rediculous. A lot of things that the rich are able to partake in more easily (e.g. playing shorts on the short markets, options trade, margin trading, all currency FX trading) are debt-based instruments, so basically having secular inflation helps the rich play with money in innumerable ways.
    - AnimalMuppet 11y ago
      > If the price of everything increases 10% then the increased cost of living disproportionately affects the poor for the duration of time that it takes for the wages to match the increase. True. > Compared to this the amount of debt held is basically trifling. False. Let's say you're middle class. You have a house, for which you have a mortgage. You have a car loan. You have credit card debt. You have a steady income, but your debt consumes 40% of your income. Your (non-debt) living expenses consume another 55%. (Your example of the poor person understates your case. Poor people don't have 20% survival margins to start with, so the impact of inflation on the poor is worse than you said.) Now deflation happens. Your non-debt expenses drop 10%, and so does your salary. But your debt expenses don't drop at all. Now where are you? Labeling your previous income as 100%, your debt still takes 40%. Your non-debt living expenses now takes 55% * 90% = 49.5%. Your total expenses are now 89.5%, and your income is 90%. Your margin went from 5% to 0.5%. Now, in fairness, as a middle class person, you have much more room than the poor person does to cut your expenses before you hit the edge of survival. Never the less, this shows how bad deflation can be if you're in debt. (Note well, though: The deflation has to be sustained enough to affect your income. If prices drop but your income stays the same, deflation is wonderful even if you are in debt.)
      - dnautics 11y ago
        Uhm, why would your salary go down when there's deflation? It's not like your employer is actively tracking living expenses daily and adjusting your salary to match.
        AnimalMuppet 11y ago
        Not daily, but yearly, certainly they are. Where do you think they get the cost-of-living adjustment numbers from?
- nickff 11y ago
  It is possible to find an infinite number of differences between Switzerland and any other country. It is very tempting to look for reasons not to update your beliefs in response to new data, but we must not give in to this temptation. Bayesian logic would dictate that events in Switzerland should cause us to be more skeptical of arguments in favor of inflation.
  - evanpw 11y ago
    Absolutely, but to know how much more skeptical to be, you have to know likely this outcome was, given your prior hypothesis. And for that purpose, knowing ways in which this situation differs from textbook, across-the-board deflation is very relevant. P.S., I found this discussion (http://www.wsj.com/articles/john-cochrane-whos-afraid-of-a-little-deflation-1415919082 http://www.wsj.com/articles/john-cochrane-whos-afraid-of-a-l...) to be pretty convincing. His guess is that sudden, dramatic, Depression-style deflation will have effects that are a lot different from slow, predictable, Swiss-style deflation.
  - marcosdumay 11y ago
    The same theory that says that deflation is bad is saying that this one is not big enough to produce much effect. The result is perfectly supported by the theory. Whatever mathematical names you bring on can not change this. Now, if you came up with examples of countries with decreasing nominal salaries and a growing economy, you could make a point. There's a paper with a few in another thread.
  - snowwrestler 11y ago
    > Bayesian logic would dictate that events in Switzerland should cause us to be more skeptical of arguments in favor of inflation. Depends on prior evidence. Current thinking on inflation/deflation did not drop into economists' heads from space yesterday. It was developed by analyzing hundreds of years of real experience in real economies. Before we alter our beliefs too much today, we should at least be aware of the full scope of evidence on the topic.
    - mike_hearn 11y ago
_delirium 11y ago
A complexity here is that Switzerland is a small country heavily integrated with the Eurozone, but with its own currency that has recently risen strongly in value. In CHF terms, yes, Swiss prices are currently deflating. But this isn't really a domestic deflation phenomenon in the sense that a similar decline in prices would be in a bigger economy like the USA: the role of CHF in Switzerland isn't nearly as canonical/exclusive as the role of USD in the USA, since so much Swiss business, even individual business, takes place in EUR-priced marketplaces. As the article briefly mentions, the Swiss Franc is now worth about 10% more vis-a-vis the Euro than it was a year ago. Many things in Switzerland are actually inflating if you care about EUR value, which many Swiss people and businesses do: prices and wages have decreased 2% in nominal CHF values, while the CHF has simultaneously appreciated 10%. Many Swiss employees therefore in practice have a salary that represents more European buying power than it did a year ago. That could be expected to have some effects more similar to inflation rather than deflation, in this context. I think the same would probably happen with any small European country. If Denmark broke the DKK/EUR peg and let the DKK appreciate by ~10%, many things would deflate in DKK terms to compensate.
- finnh 11y ago
  Many Swiss employees therefore in practice have a salary that represents more European buying power than it did a year ago. That could be expected to have some effects more similar to inflation rather than deflation, in this context. That's backwards wrt prices (the article spoke more about prices deflating, not wages). Deflation of prices increases purchasing power.
- mike_hearn 11y ago
  The theory that deflation is bad for an economy doesn't say "but only when that economy is over a certain size". It is an absolute theory that claims to apply everywhere. I've been saying this theory is bunk for years, so it's nice to finally see the view start to surface in mainstream publications. You only have to review the data to discover that there's no empirical link between deflation and depression. For instance, take this paper, written by economists at the Minneapolis Fed: https://www.minneapolisfed.org/research/sr/sr331.pdf https://www.minneapolisfed.org/research/sr/sr331.pdf Abstract: Are deflation and depression empirically linked? No, concludes a broad historical study of inflation and real output growth rates. Deflation and depression do seem to have been linked during the 1930s. But in the rest of the data for 17 countries and more than 100 years, there is virtually no evidence of such a link. But you don't really need data to convince yourself that the 2%-inflation-is-best theory is nonsense. Basic common sense should be good enough. The entire thing rests on the assumption that there's a class of investments that people would refuse to invest in if left to their own devices, but which suddenly become attractive only if their savings are shrivelled by a few percent a year. Such a class of investments certainly does exist: they're called bad investments!
scribu 11y ago
The article is behind a paywall, unless you access it via a Google search.
- binaryanomaly 11y ago
  Yep, always wonder why folks post these at all, here...
  - morgante 11y ago
    Because it's an interesting article which is trivially easy to access.
    - GalacticDomin8r 11y ago
      trivially easy to access == clicking a link and reading expected article. hyperbole == most things which contain the word 'trivially'. I'd bet a dollar most of us have better things to do than find a way around a paywall.
      - morgante 11y ago
        It takes about 3 seconds to Google the article title, far less than it takes to write incessant complaints about people charging for content.
        caminante 11y ago
        I think the nuance is that the WSJ offers a non-paywall link in its interface -- which the WSJ encourages folks to use. Not all paywall sites offer this functionality. These comments help make the poster aware. If the poster is aware and still doesn't use the non-paywall link, then that's wasting everyone's time.
        GalacticDomin8r 11y ago
        > It takes about 3 seconds to Google the article title Assuming Google will fix it all is an incorrect assumption. Assuming 3 seconds is an incorrect assumption. But let's roll with that: 3600 / 3 = 1200 viewers. So it takes 1200 viewers to waste 1 hour of time assuming all other resource consumption is zero cost. > far less than it takes to write incessant complaints about people charging for content. Bitching about efficiency in this case is the height of irony. Bitching about bitching has always been an exercise in futility. Do it right the first time.
roymurdock 11y ago
Deflation is a largely misunderstood bogeyman in economics. Ultimately, central banks are scared of deflation because they lose power over conventional stimulus tools once the interest rates, and consequently inflation, reach zero, or move into negative territory due to market forces outside of the central bank's control. Why does the Fed see a 2% yearly inflation target as good? The Committee judges that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve's statutory mandate. Communicating this inflation goal clearly to the public helps keep longer-term inflation expectations firmly anchored, thereby fostering price stability and moderate long-term interest rates and enhancing the Committee’s ability to promote maximum employment in the face of significant economic disturbances. Very vague and hand-wavey, but basically just saying that they like to have a 2% cushion between expected inflation and the traditional 0% floor, beyond which lies the spooooooky land of deflation. This 2% gives them room to raise and lower the federal funds rate (short term interest rate) to their heart's content without setting off any deflationary fire alarms in the economy. If you're really interested, here's a good overview from Bernanke (2003) on how and why the practice got started in the 1970s. [2] Ok, let's see what our favorite Austrian economist, Friedrich von Hayek has to say about inflation targeting: "any form of inflation, even mild inflations, ultimately produce the recurring depressions and unemployment which have been a justified grievance against the free enterprise system and must be prevented if a free society is to survive." [1] He argues that inflation distorts signals such as price and profit. This leads to the misallocation of resources to firms that look good on paper, but that could actually be failing to produce meaningful and sustainable economic returns: The initial general stimulus which an increase of the quantity of money provides is chiefly due to the fact that prices and therefore profits turn out to be higher than expected. Every venture succeeds, including even some which ought to fail. But this can last only so long as the continuous rise of prices is not generally expected. Once people learn to count on it, even a continued rise of prices at the same rate will no longer exert the stimulus that it gave at first. One might argue that we are seeing QE inflation, not in the direct economy, but in the investment market - property, stocks, bonds, anything traded not for short-term consumption, but for capital gains. I don't have the data, so I don't know. Ultimately, it doesn't matter if we have small amounts of inflation or deflation, or if we have no change in the money supply at all. Expectations are what matters - if the markets know that inflation will be 10% next year with 100% certainty, they will plan accordingly and prices/wages will rise accordingly (not perfectly as there will be some friction/lag, but better than if nobody knows what to expect inflation-wise). The problem occurs when nobody knows what the hell is going on in the market, and they keep waiting for the Fed to raise interest rates to get back to 2%, but are losing faith because the Fed has kept rates at 0% for 6 years (!) now. It's all about unexpected shocks and how quickly the economy can adjust to new information. Deflation is not to be feared if it is expected, announced, and executed by a central bank. It is to be feared when the central bank is fighting valiantly to bring about a favorable economic background in which they can raise interest rates without slowing down the recovery/growth of the economy. That's when you know they've lost control, that everything is not ok in the financial markets, and when panic takes over. [1] https://mises.org/library/denationalisation-money-argument-refined https://mises.org/library/denationalisation-money-argument-r... [2] http://www.federalreserve.gov/Boarddocs/speeches/2003/20030325/default.htm http://www.federalreserve.gov/Boarddocs/speeches/2003/200303...
tim333 11y ago
It's a question of what's causing the deflation. If prices fall because spending has collapsed, people lose their jobs, businesses go bust. This is what happened in the 1930s depression and it's bad. If prices fall because the currency is strong making imports cheaper as in the Swiss case then that's not such a problem.
caminante 11y ago
non-paywall link: http://on.wsj.com/1i9IjuB http://on.wsj.com/1i9IjuB
carlos22 11y ago
Many companies in Switzerland force their workers to work longer (between 5 and 10 %) to compensate the so called "Franken Schock". As they don't have strong regulations on working time (compared to Germany for example) this is not a problem. They also started to pay some of their workforce in EUR instead of CHF (this happens to new employees and especially for people crossing boards to work there).
- SeoxyS 11y ago
  Do you have any references on this? Would love to learn more.
  - carlos22 11y ago
    Most of the articles are in German: https://www.tagesschau.de/wirtschaft/schweiz-mehrarbeit-101.html https://www.tagesschau.de/wirtschaft/schweiz-mehrarbeit-101.... http://www.swissinfo.ch/eng/strong-franc-woes_workers-to-be-paid-in-euros-due-to-strong-franc/41245550 http://www.swissinfo.ch/eng/strong-franc-woes_workers-to-be-... Its hard to get real data at this time.
scriptman 11y ago
Everyone is scared of deflation, but is completely comfortable with the rapid drop in the price of electronic goods over the last few decades. I'm simplifying a bit. The traditional theories that warn against deflation are concerned about consumers delaying spending in the hope of waiting for even cheaper prices. This delay theoretically forces the economy to grind to a halt. I think most people accept now that this is an unlikely outcome. Now when Central Banks worry about deflation they are concerned that it might trigger a fall in real incomes, while debt remains at the same level, meaning people aren't able to pay back their debts. In our debt addicted economies, this is a real risk.
- vinceguidry 11y ago
  > Everyone is scared of deflation, but is completely comfortable with the rapid drop in the price of electronic goods over the last few decades. Those are two absolutely different things. One stems from production, transportation, and financial improvements across the board, the other comes because fewer people want to buy anything. > The traditional theories that warn against deflation are concerned about consumers delaying spending in the hope of waiting for even cheaper prices. This delay theoretically forces the economy to grind to a halt. It's not so much about consumers delaying spending. It's what happens further up the chain. If the holders of wealth that seed the economy figure out that it's better for them to hold on to their assets rather than invest them, then people lose jobs. We need them to keep investing their money. Deflation also penalizes debt holders. The dollars you spend to pay back your mortgage are worth more than the dollars you make now. Since most Americans hold more debt than assets, deflation hurts common people more than it helps.
  - tsotha 11y ago
    >If the holders of wealth that seed the economy figure out that it's better for them to hold on to their assets rather than invest them, then people lose jobs. That's the theory, but I'm skeptical. If the economy is healthy they'll have investment opportunities that compensate adequately for risk and they'll still invest. Conversely, in an inflationary environment people with savings may invest their money, but they may also buy fixed assets like gold or real estate. That doesn't help the economy very much. >Deflation also penalizes debt holders. And inflation hurts savers. I don't see a benefit to prioritizing the interests of debtors over savers.
sauronlord 11y ago
"Deflation death spiral" "Hoarding" Any else notice how harsh the language is yet there is not one actual case of it occurring in the wild? Looks to me like the powerful are doing a good job at keeping inflation above 0% Even 0.1% (tenth of a percent) is disastrous for a currency over 500 years. You know why we're told ( and we are told, since there are no actual experiments performed on this matter)... it's because the system of extracting value from the unsuspecting consumer/middle-class/non-investor is based on the assumption that having money means you should automatically get more of it in the form of interest. People still have to eat, cloth their children and get a roof over their heads. Many people are not in a situation to "hoard": they are struggling to merely stay afloat. The target should be 0% ( or very close to 0% like 0.01%) inflation. But that would mean investors would actually have to provide greater and greater value to the world.
- evanpw 11y ago
  > Looks to me like the powerful are doing a good job at keeping inflation above 0% I've seen the opposite argument much more often: the rich and powerful are pressuring central banks to keep inflation too low to help with unemployment, because higher inflation hurts savers and helps borrowers. I don't buy the conspiracy theory in either direction, but the pro-inflation direction especially doesn't make sense to me.
  - tsotha 11y ago
    What you're missing is people with first access to new money are the ones who benefit the most in an inflationary environment. In a fractional reserve system that's the banks. Banks generally benefit from higher inflation up until the point where it's high enough to damage the economy. It should come as no surprise that banks spend so much to influence public opinion and the political process.
    - evanpw 11y ago
      That doesn't make very much sense to me. It's not as if the "new dollars" are worth $1.02, while the "old dollars" are worth $1.00. Some people talk about "Cantillon Effects" in the context of QE, but it's a pretty fringe idea. The first-order effect is: banks are owed an amount of money denominated in nominal terms, and inflation will decrease the value of those debts. And even if this theory was true, inflation has been historically low (and below central-bank targets) for quite a few years, so whoever is pushing for higher inflation isn't very good at it.
s3nnyy 11y ago
I think it is great to be an employee in Switzerland, because it is the only place where net-salaries are comparable to the Bay Area or NYC. I live in Zurich, read my story here: "Eight reasons why I moved to Switzerland (to work in IT)": https://medium.com/@iwaninzurich/eight-reasons-why-i-moved-to-switzerland-to-work-in-it-c7ac18af4f90 https://medium.com/@iwaninzurich/eight-reasons-why-i-moved-t... If you are interested in coming to Switzerland, just shoot me a mail.

47 points by bpolania 11y ago

> Although wage growth has slowed in Switzerland, it was 0.6% on an annual basis in the second quarter A big part of the reason that economists think that deflation is bad is that people are very resistant to cuts in their nominal wages (much more than to cuts in real wages, like getting no raise with positive inflation). If the price of everything else suddenly dropped 10%, then cutting everyone's wages 10% would make them exactly as well off as they were previously, but the more likely outcome is that wages would drop by less than 10% and unemployment would increase. If nominal wages are still increasing in Switzerland, maybe that's part of the reason there haven't been many adverse consequences.

AnimalMuppet 11y ago
> If the price of everything else suddenly dropped 10%, then cutting everyone's wages 10% would make them exactly as well off as they were previously... Only if they had no debt.
- dnautics 11y ago
  If the price of everything increases 10% then the increased cost of living disproportionately affects the poor for the duration of time that it takes for the wages to match the increase. Compared to this the amount of debt held is basically trifling. For example, if you are poor and are spending 80% of your income on living expenses, and 10% increase in prices drops your margin of survival from 20% to 12%, which is a 40% hit. If you are wealthy and spending 20% of your income, then your margin goes from 80% to 78% which is a 5% hit. If you were in the 'poor' case, would you rather have the 10% devaluation of your debt or would you rather have a 40% hit to your livable margin? The converse is true in a system of deflation. If you are spending 80% of your income on living expenses, a 10% DECREASE in prices increases your margin of survival from 20% to 28%, which is a 40% increase, which you would almost certainly take over a 10% increase in real value of your debt. Moreover the notion that the rich are not in debt is rediculous. A lot of things that the rich are able to partake in more easily (e.g. playing shorts on the short markets, options trade, margin trading, all currency FX trading) are debt-based instruments, so basically having secular inflation helps the rich play with money in innumerable ways.
  - AnimalMuppet 11y ago
    > If the price of everything increases 10% then the increased cost of living disproportionately affects the poor for the duration of time that it takes for the wages to match the increase. True. > Compared to this the amount of debt held is basically trifling. False. Let's say you're middle class. You have a house, for which you have a mortgage. You have a car loan. You have credit card debt. You have a steady income, but your debt consumes 40% of your income. Your (non-debt) living expenses consume another 55%. (Your example of the poor person understates your case. Poor people don't have 20% survival margins to start with, so the impact of inflation on the poor is worse than you said.) Now deflation happens. Your non-debt expenses drop 10%, and so does your salary. But your debt expenses don't drop at all. Now where are you? Labeling your previous income as 100%, your debt still takes 40%. Your non-debt living expenses now takes 55% * 90% = 49.5%. Your total expenses are now 89.5%, and your income is 90%. Your margin went from 5% to 0.5%. Now, in fairness, as a middle class person, you have much more room than the poor person does to cut your expenses before you hit the edge of survival. Never the less, this shows how bad deflation can be if you're in debt. (Note well, though: The deflation has to be sustained enough to affect your income. If prices drop but your income stays the same, deflation is wonderful even if you are in debt.)
    - dnautics 11y ago
      Uhm, why would your salary go down when there's deflation? It's not like your employer is actively tracking living expenses daily and adjusting your salary to match.
      - AnimalMuppet 11y ago
        Not daily, but yearly, certainly they are. Where do you think they get the cost-of-living adjustment numbers from?
nickff 11y ago
It is possible to find an infinite number of differences between Switzerland and any other country. It is very tempting to look for reasons not to update your beliefs in response to new data, but we must not give in to this temptation. Bayesian logic would dictate that events in Switzerland should cause us to be more skeptical of arguments in favor of inflation.
- evanpw 11y ago
  Absolutely, but to know how much more skeptical to be, you have to know likely this outcome was, given your prior hypothesis. And for that purpose, knowing ways in which this situation differs from textbook, across-the-board deflation is very relevant. P.S., I found this discussion (http://www.wsj.com/articles/john-cochrane-whos-afraid-of-a-little-deflation-1415919082 http://www.wsj.com/articles/john-cochrane-whos-afraid-of-a-l...) to be pretty convincing. His guess is that sudden, dramatic, Depression-style deflation will have effects that are a lot different from slow, predictable, Swiss-style deflation.
- marcosdumay 11y ago
  The same theory that says that deflation is bad is saying that this one is not big enough to produce much effect. The result is perfectly supported by the theory. Whatever mathematical names you bring on can not change this. Now, if you came up with examples of countries with decreasing nominal salaries and a growing economy, you could make a point. There's a paper with a few in another thread.
- snowwrestler 11y ago
  > Bayesian logic would dictate that events in Switzerland should cause us to be more skeptical of arguments in favor of inflation. Depends on prior evidence. Current thinking on inflation/deflation did not drop into economists' heads from space yesterday. It was developed by analyzing hundreds of years of real experience in real economies. Before we alter our beliefs too much today, we should at least be aware of the full scope of evidence on the topic.
  - mike_hearn 11y ago

_delirium 11y ago

A complexity here is that Switzerland is a small country heavily integrated with the Eurozone, but with its own currency that has recently risen strongly in value. In CHF terms, yes, Swiss prices are currently deflating. But this isn't really a domestic deflation phenomenon in the sense that a similar decline in prices would be in a bigger economy like the USA: the role of CHF in Switzerland isn't nearly as canonical/exclusive as the role of USD in the USA, since so much Swiss business, even individual business, takes place in EUR-priced marketplaces. As the article briefly mentions, the Swiss Franc is now worth about 10% more vis-a-vis the Euro than it was a year ago. Many things in Switzerland are actually inflating if you care about EUR value, which many Swiss people and businesses do: prices and wages have decreased 2% in nominal CHF values, while the CHF has simultaneously appreciated 10%. Many Swiss employees therefore in practice have a salary that represents more European buying power than it did a year ago. That could be expected to have some effects more similar to inflation rather than deflation, in this context. I think the same would probably happen with any small European country. If Denmark broke the DKK/EUR peg and let the DKK appreciate by ~10%, many things would deflate in DKK terms to compensate.

finnh 11y ago
Many Swiss employees therefore in practice have a salary that represents more European buying power than it did a year ago. That could be expected to have some effects more similar to inflation rather than deflation, in this context. That's backwards wrt prices (the article spoke more about prices deflating, not wages). Deflation of prices increases purchasing power.
mike_hearn 11y ago
The theory that deflation is bad for an economy doesn't say "but only when that economy is over a certain size". It is an absolute theory that claims to apply everywhere. I've been saying this theory is bunk for years, so it's nice to finally see the view start to surface in mainstream publications. You only have to review the data to discover that there's no empirical link between deflation and depression. For instance, take this paper, written by economists at the Minneapolis Fed: https://www.minneapolisfed.org/research/sr/sr331.pdf https://www.minneapolisfed.org/research/sr/sr331.pdf Abstract: Are deflation and depression empirically linked? No, concludes a broad historical study of inflation and real output growth rates. Deflation and depression do seem to have been linked during the 1930s. But in the rest of the data for 17 countries and more than 100 years, there is virtually no evidence of such a link. But you don't really need data to convince yourself that the 2%-inflation-is-best theory is nonsense. Basic common sense should be good enough. The entire thing rests on the assumption that there's a class of investments that people would refuse to invest in if left to their own devices, but which suddenly become attractive only if their savings are shrivelled by a few percent a year. Such a class of investments certainly does exist: they're called bad investments!

scribu 11y ago

The article is behind a paywall, unless you access it via a Google search.

binaryanomaly 11y ago
Yep, always wonder why folks post these at all, here...
- morgante 11y ago
  Because it's an interesting article which is trivially easy to access.
  - GalacticDomin8r 11y ago
    trivially easy to access == clicking a link and reading expected article. hyperbole == most things which contain the word 'trivially'. I'd bet a dollar most of us have better things to do than find a way around a paywall.
    - morgante 11y ago
      It takes about 3 seconds to Google the article title, far less than it takes to write incessant complaints about people charging for content.
      - caminante 11y ago
        I think the nuance is that the WSJ offers a non-paywall link in its interface -- which the WSJ encourages folks to use. Not all paywall sites offer this functionality. These comments help make the poster aware. If the poster is aware and still doesn't use the non-paywall link, then that's wasting everyone's time.
      - GalacticDomin8r 11y ago
        > It takes about 3 seconds to Google the article title Assuming Google will fix it all is an incorrect assumption. Assuming 3 seconds is an incorrect assumption. But let's roll with that: 3600 / 3 = 1200 viewers. So it takes 1200 viewers to waste 1 hour of time assuming all other resource consumption is zero cost. > far less than it takes to write incessant complaints about people charging for content. Bitching about efficiency in this case is the height of irony. Bitching about bitching has always been an exercise in futility. Do it right the first time.

roymurdock 11y ago

Deflation is a largely misunderstood bogeyman in economics. Ultimately, central banks are scared of deflation because they lose power over conventional stimulus tools once the interest rates, and consequently inflation, reach zero, or move into negative territory due to market forces outside of the central bank's control. Why does the Fed see a 2% yearly inflation target as good? The Committee judges that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve's statutory mandate. Communicating this inflation goal clearly to the public helps keep longer-term inflation expectations firmly anchored, thereby fostering price stability and moderate long-term interest rates and enhancing the Committee’s ability to promote maximum employment in the face of significant economic disturbances. Very vague and hand-wavey, but basically just saying that they like to have a 2% cushion between expected inflation and the traditional 0% floor, beyond which lies the spooooooky land of deflation. This 2% gives them room to raise and lower the federal funds rate (short term interest rate) to their heart's content without setting off any deflationary fire alarms in the economy. If you're really interested, here's a good overview from Bernanke (2003) on how and why the practice got started in the 1970s. [2] Ok, let's see what our favorite Austrian economist, Friedrich von Hayek has to say about inflation targeting: "any form of inflation, even mild inflations, ultimately produce the recurring depressions and unemployment which have been a justified grievance against the free enterprise system and must be prevented if a free society is to survive." [1] He argues that inflation distorts signals such as price and profit. This leads to the misallocation of resources to firms that look good on paper, but that could actually be failing to produce meaningful and sustainable economic returns: The initial general stimulus which an increase of the quantity of money provides is chiefly due to the fact that prices and therefore profits turn out to be higher than expected. Every venture succeeds, including even some which ought to fail. But this can last only so long as the continuous rise of prices is not generally expected. Once people learn to count on it, even a continued rise of prices at the same rate will no longer exert the stimulus that it gave at first. One might argue that we are seeing QE inflation, not in the direct economy, but in the investment market - property, stocks, bonds, anything traded not for short-term consumption, but for capital gains. I don't have the data, so I don't know. Ultimately, it doesn't matter if we have small amounts of inflation or deflation, or if we have no change in the money supply at all. Expectations are what matters - if the markets know that inflation will be 10% next year with 100% certainty, they will plan accordingly and prices/wages will rise accordingly (not perfectly as there will be some friction/lag, but better than if nobody knows what to expect inflation-wise). The problem occurs when nobody knows what the hell is going on in the market, and they keep waiting for the Fed to raise interest rates to get back to 2%, but are losing faith because the Fed has kept rates at 0% for 6 years (!) now. It's all about unexpected shocks and how quickly the economy can adjust to new information. Deflation is not to be feared if it is expected, announced, and executed by a central bank. It is to be feared when the central bank is fighting valiantly to bring about a favorable economic background in which they can raise interest rates without slowing down the recovery/growth of the economy. That's when you know they've lost control, that everything is not ok in the financial markets, and when panic takes over. [1] https://mises.org/library/denationalisation-money-argument-refined https://mises.org/library/denationalisation-money-argument-r... [2] http://www.federalreserve.gov/Boarddocs/speeches/2003/20030325/default.htm http://www.federalreserve.gov/Boarddocs/speeches/2003/200303...

tim333 11y ago

It's a question of what's causing the deflation. If prices fall because spending has collapsed, people lose their jobs, businesses go bust. This is what happened in the 1930s depression and it's bad. If prices fall because the currency is strong making imports cheaper as in the Swiss case then that's not such a problem.

caminante 11y ago

non-paywall link: http://on.wsj.com/1i9IjuB http://on.wsj.com/1i9IjuB

carlos22 11y ago

Many companies in Switzerland force their workers to work longer (between 5 and 10 %) to compensate the so called "Franken Schock". As they don't have strong regulations on working time (compared to Germany for example) this is not a problem. They also started to pay some of their workforce in EUR instead of CHF (this happens to new employees and especially for people crossing boards to work there).

SeoxyS 11y ago
Do you have any references on this? Would love to learn more.
- carlos22 11y ago
  Most of the articles are in German: https://www.tagesschau.de/wirtschaft/schweiz-mehrarbeit-101.html https://www.tagesschau.de/wirtschaft/schweiz-mehrarbeit-101.... http://www.swissinfo.ch/eng/strong-franc-woes_workers-to-be-paid-in-euros-due-to-strong-franc/41245550 http://www.swissinfo.ch/eng/strong-franc-woes_workers-to-be-... Its hard to get real data at this time.

scriptman 11y ago

Everyone is scared of deflation, but is completely comfortable with the rapid drop in the price of electronic goods over the last few decades. I'm simplifying a bit. The traditional theories that warn against deflation are concerned about consumers delaying spending in the hope of waiting for even cheaper prices. This delay theoretically forces the economy to grind to a halt. I think most people accept now that this is an unlikely outcome. Now when Central Banks worry about deflation they are concerned that it might trigger a fall in real incomes, while debt remains at the same level, meaning people aren't able to pay back their debts. In our debt addicted economies, this is a real risk.

vinceguidry 11y ago
> Everyone is scared of deflation, but is completely comfortable with the rapid drop in the price of electronic goods over the last few decades. Those are two absolutely different things. One stems from production, transportation, and financial improvements across the board, the other comes because fewer people want to buy anything. > The traditional theories that warn against deflation are concerned about consumers delaying spending in the hope of waiting for even cheaper prices. This delay theoretically forces the economy to grind to a halt. It's not so much about consumers delaying spending. It's what happens further up the chain. If the holders of wealth that seed the economy figure out that it's better for them to hold on to their assets rather than invest them, then people lose jobs. We need them to keep investing their money. Deflation also penalizes debt holders. The dollars you spend to pay back your mortgage are worth more than the dollars you make now. Since most Americans hold more debt than assets, deflation hurts common people more than it helps.
- tsotha 11y ago
  >If the holders of wealth that seed the economy figure out that it's better for them to hold on to their assets rather than invest them, then people lose jobs. That's the theory, but I'm skeptical. If the economy is healthy they'll have investment opportunities that compensate adequately for risk and they'll still invest. Conversely, in an inflationary environment people with savings may invest their money, but they may also buy fixed assets like gold or real estate. That doesn't help the economy very much. >Deflation also penalizes debt holders. And inflation hurts savers. I don't see a benefit to prioritizing the interests of debtors over savers.

sauronlord 11y ago

"Deflation death spiral" "Hoarding" Any else notice how harsh the language is yet there is not one actual case of it occurring in the wild? Looks to me like the powerful are doing a good job at keeping inflation above 0% Even 0.1% (tenth of a percent) is disastrous for a currency over 500 years. You know why we're told ( and we are told, since there are no actual experiments performed on this matter)... it's because the system of extracting value from the unsuspecting consumer/middle-class/non-investor is based on the assumption that having money means you should automatically get more of it in the form of interest. People still have to eat, cloth their children and get a roof over their heads. Many people are not in a situation to "hoard": they are struggling to merely stay afloat. The target should be 0% ( or very close to 0% like 0.01%) inflation. But that would mean investors would actually have to provide greater and greater value to the world.

evanpw 11y ago
> Looks to me like the powerful are doing a good job at keeping inflation above 0% I've seen the opposite argument much more often: the rich and powerful are pressuring central banks to keep inflation too low to help with unemployment, because higher inflation hurts savers and helps borrowers. I don't buy the conspiracy theory in either direction, but the pro-inflation direction especially doesn't make sense to me.
- tsotha 11y ago
  What you're missing is people with first access to new money are the ones who benefit the most in an inflationary environment. In a fractional reserve system that's the banks. Banks generally benefit from higher inflation up until the point where it's high enough to damage the economy. It should come as no surprise that banks spend so much to influence public opinion and the political process.
  - evanpw 11y ago
    That doesn't make very much sense to me. It's not as if the "new dollars" are worth $1.02, while the "old dollars" are worth $1.00. Some people talk about "Cantillon Effects" in the context of QE, but it's a pretty fringe idea. The first-order effect is: banks are owed an amount of money denominated in nominal terms, and inflation will decrease the value of those debts. And even if this theory was true, inflation has been historically low (and below central-bank targets) for quite a few years, so whoever is pushing for higher inflation isn't very good at it.

s3nnyy 11y ago

I think it is great to be an employee in Switzerland, because it is the only place where net-salaries are comparable to the Bay Area or NYC. I live in Zurich, read my story here: "Eight reasons why I moved to Switzerland (to work in IT)": https://medium.com/@iwaninzurich/eight-reasons-why-i-moved-to-switzerland-to-work-in-it-c7ac18af4f90 https://medium.com/@iwaninzurich/eight-reasons-why-i-moved-t... If you are interested in coming to Switzerland, just shoot me a mail.