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Deflationary money (a fixed money supply) encourages people to hold money and not spend because the same money will buy more goods and services tomorrow. This l

Deflationary money (a fixed money supply) encourages people to hold money and not spend because the same money will buy more goods and services tomorrow. This leads to a decrease in economic activity. [update: I see this argument is raised over and over in other parts of this discussion, I didn't add much]

etr-strike 9y ago
Deflation isn’t guaranteed. Eventually people need to spend. A currency with fixed supply certainly encourages saving. Why is that a bad thing?
- DontTrustOver25 9y ago
  Depends what you consider "saving". Stuffing money under your mattress is useless but if you save with a bank or in a fund that money is still being cycled back into the economy. Deflation essentially means you could stuff money under your mattress and still come out with something more valuable with none of the associated risk leaving piles of cash sitting out of the market.
- once_inc 9y ago
  Because banks don't want us to save, they want us to _borrow_.
  - etr-strike 9y ago
    How is that an argument for inflation?
- pimmen 9y ago
  Because if you're saving your money, you're not doing anything constructive at all. I sure as hell don't want people saving their money, I want people to invest their money. Wether it's a savings account, a 401k or a revolutionary business idea everything is better for society than your mattress. And people won't invest in anything today when they can invest more tomorrow, but then they'll wait until after tomorrow, or the day after that, or not at all because they reached that time when they eventually have to spend (which would mean they're broke, which is bad).
  - etr-strike 9y ago
    I don’t buy your argument. People will still invest because investment generates a return on their money. Additionally, if the savings rate becomes too high the government has the ability to tax and reinvest that revenue as appropriate. Inflation is a hidden tax that impacts the poor and middle classes the most. Worse, wealthy people have the means to escape inflation. Today the worlds weathiest simply buy land and property. Is that the sort of “investment” you’re cheering for as a positive result of inflation?
    - pimmen 9y ago
      The problem is that with a deflationary currency, the only risk you run into is if the amount of stuff drops because that's the only way this global currency would drop in value; the perceived amount of stuff it could buy drops. Every other investment has much greater risks, so why would people chose them? And what's saying the return would be higher for that stuff anyway when everyone's saving rather than spending, why would anyone spend their money on the output of your investment? Not saying you're wrong, I'm saying there's a very high likelihood it won't result in investments, far higher than I would like. And it's good that you brought up land and property because that's exactly what I don't want people to invest in (unless they actually want to use it for production, like renting it out to people or companies) but housing is something a lot of people do invest in for retirement, especially in my country. I would much rather people invested it in their 401k, a mutual fund, their business idea, bonds or whatever would enable production. Inflation is a tax on people who have money in their mattresses, if you invest money rather than save it you will beat inflation over your life. That's what I want people to be incentivized to do, not to pile them up or freeze them in status symbols like homes. And inflation can actually help the poor, it makes it much easier for them to pay off their debts as the principal decreases in value. It's the main reason poor farmers fought for bimetalism in Gilded Age America because rich bankers were making a killing on low inflation.
  - equalunique 9y ago
    Saving is investment, as long as you mean it in terms of a bank account & fractional reserve banking, in which case banks just re-lend that money to someone else as for example a loan or mortgage.
colordrops 9y ago
The growth mindset precisely why we are headed for ecological destruction. What's wrong with holding?
- pimmen 9y ago
  We don't just spend money on consumer products and food. We need more health services, research, water, education, affordable housing and much more. None of this is free, all of it is dependent on people making money producing this stuff. No demand, no stuff.
- altern8tif 9y ago
  If everyone kept all their cash under their mattresses, what makes you think your employer would be able to pay your salary? Where would your employer get the cash to pay you? A healthy economy requires money to flow through it at a healthy, manageable rate.
- msla 9y ago
  If you think we can't have economic growth without resource extraction, you've missed centuries of history.
- danmaz74 9y ago
  > What's wrong with holding? To put it short: that people won't have jobs.
AnimalMuppet 9y ago
I don't think it leads to a decrease in economic activity, just discourages an increase. Why doesn't it lead to a decrease? Well, as soon as the economic output decreases (but the money supply didn't change!), then each dollar is worth less, so the incentive (to not spend because it will be worth more tomorrow) disappears, so the spending starts back up...

etr-strike 9y ago

Deflation isn’t guaranteed. Eventually people need to spend. A currency with fixed supply certainly encourages saving. Why is that a bad thing?

DontTrustOver25 9y ago
Depends what you consider "saving". Stuffing money under your mattress is useless but if you save with a bank or in a fund that money is still being cycled back into the economy. Deflation essentially means you could stuff money under your mattress and still come out with something more valuable with none of the associated risk leaving piles of cash sitting out of the market.
once_inc 9y ago
Because banks don't want us to save, they want us to _borrow_.
- etr-strike 9y ago
  How is that an argument for inflation?
pimmen 9y ago
Because if you're saving your money, you're not doing anything constructive at all. I sure as hell don't want people saving their money, I want people to invest their money. Wether it's a savings account, a 401k or a revolutionary business idea everything is better for society than your mattress. And people won't invest in anything today when they can invest more tomorrow, but then they'll wait until after tomorrow, or the day after that, or not at all because they reached that time when they eventually have to spend (which would mean they're broke, which is bad).
- etr-strike 9y ago
  I don’t buy your argument. People will still invest because investment generates a return on their money. Additionally, if the savings rate becomes too high the government has the ability to tax and reinvest that revenue as appropriate. Inflation is a hidden tax that impacts the poor and middle classes the most. Worse, wealthy people have the means to escape inflation. Today the worlds weathiest simply buy land and property. Is that the sort of “investment” you’re cheering for as a positive result of inflation?
  - pimmen 9y ago
    The problem is that with a deflationary currency, the only risk you run into is if the amount of stuff drops because that's the only way this global currency would drop in value; the perceived amount of stuff it could buy drops. Every other investment has much greater risks, so why would people chose them? And what's saying the return would be higher for that stuff anyway when everyone's saving rather than spending, why would anyone spend their money on the output of your investment? Not saying you're wrong, I'm saying there's a very high likelihood it won't result in investments, far higher than I would like. And it's good that you brought up land and property because that's exactly what I don't want people to invest in (unless they actually want to use it for production, like renting it out to people or companies) but housing is something a lot of people do invest in for retirement, especially in my country. I would much rather people invested it in their 401k, a mutual fund, their business idea, bonds or whatever would enable production. Inflation is a tax on people who have money in their mattresses, if you invest money rather than save it you will beat inflation over your life. That's what I want people to be incentivized to do, not to pile them up or freeze them in status symbols like homes. And inflation can actually help the poor, it makes it much easier for them to pay off their debts as the principal decreases in value. It's the main reason poor farmers fought for bimetalism in Gilded Age America because rich bankers were making a killing on low inflation.
- equalunique 9y ago
  Saving is investment, as long as you mean it in terms of a bank account & fractional reserve banking, in which case banks just re-lend that money to someone else as for example a loan or mortgage.

colordrops 9y ago

The growth mindset precisely why we are headed for ecological destruction. What's wrong with holding?

pimmen 9y ago
We don't just spend money on consumer products and food. We need more health services, research, water, education, affordable housing and much more. None of this is free, all of it is dependent on people making money producing this stuff. No demand, no stuff.
altern8tif 9y ago
If everyone kept all their cash under their mattresses, what makes you think your employer would be able to pay your salary? Where would your employer get the cash to pay you? A healthy economy requires money to flow through it at a healthy, manageable rate.
msla 9y ago
If you think we can't have economic growth without resource extraction, you've missed centuries of history.
danmaz74 9y ago
> What's wrong with holding? To put it short: that people won't have jobs.

AnimalMuppet 9y ago

I don't think it leads to a decrease in economic activity, just discourages an increase. Why doesn't it lead to a decrease? Well, as soon as the economic output decreases (but the money supply didn't change!), then each dollar is worth less, so the incentive (to not spend because it will be worth more tomorrow) disappears, so the spending starts back up...