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The problem with deflation (and hyper-inflation) is that people are irrational, not that the economies are illegitimate. The danger is that people acting irrat

by bmurphy1976 7y ago

The problem with deflation (and hyper-inflation) is that people are irrational, not that the economies are illegitimate. The danger is that people acting irrationally causes a vicious feedback loop. That feedback loop could potentially take down the best of economies

chiefalchemist 7y ago
The problem with economic theory is that it assumes people are rational. There is absolutely zero historic record to support that. Until economics embraces reality it's foolish for the rest of us to hold a false god so high.
- dodobirdlord 7y ago
  > The problem with economic theory is that it assumes people are rational. No, it doesn't. [0] > There is absolutely zero historic record to support that. Yes, there is. [1] > Until economics embraces reality it's foolish for the rest of us to hold a false god so high. Sorry to be kinda blunt here, but I'd like to appeal to you to try to maintain a higher standard of discourse on HN. [0]: https://en.wikipedia.org/wiki/Behavioral_economics https://en.wikipedia.org/wiki/Behavioral_economics [1]: https://en.wikipedia.org/wiki/New_Keynesian_economics https://en.wikipedia.org/wiki/New_Keynesian_economics
  - chiefalchemist 7y ago
    What % of economists are versed and apply Behavioral Economics? Ironic. Your reply does more to support my point than your own.
dahdum 7y ago
Deflation doesn't cause people to behave irrationally. The problem is that rational reactions to deflation such as hoarding cash, avoiding debt, and cutting spending become a drag on the economy.
- ced 7y ago
  hoarding cash, avoiding debt, and cutting spending Most of the people around here immediately buy something as soon as "they can afford it" - with credit. I find it hard to believe that these same people would suddenly hoard cash. Wikipedia says The Great Depression was regarded by some as a deflationary spiral.[35] A deflationary spiral is the modern macroeconomic version of the general glut controversy of the 19th century. Another related idea is Irving Fisher's theory that excess debt can cause a continuing deflation. Whether deflationary spirals can actually occur is controversial, with their possibility being disputed by freshwater economists (including the Chicago school of economics) and Austrian School economists. It sounds more like a theoretical concern than an immutable law of nature to me.
- bmurphy1976 7y ago
  That's kind of my point. Those are not rational reactions during a deflationary period but that's what people will do anyway.
  - dahdum 7y ago
    They are rational for individuals acting in their own self-interest, and that's what economic theory is based on.

chiefalchemist 7y ago

The problem with economic theory is that it assumes people are rational. There is absolutely zero historic record to support that. Until economics embraces reality it's foolish for the rest of us to hold a false god so high.

dodobirdlord 7y ago
> The problem with economic theory is that it assumes people are rational. No, it doesn't. [0] > There is absolutely zero historic record to support that. Yes, there is. [1] > Until economics embraces reality it's foolish for the rest of us to hold a false god so high. Sorry to be kinda blunt here, but I'd like to appeal to you to try to maintain a higher standard of discourse on HN. [0]: https://en.wikipedia.org/wiki/Behavioral_economics https://en.wikipedia.org/wiki/Behavioral_economics [1]: https://en.wikipedia.org/wiki/New_Keynesian_economics https://en.wikipedia.org/wiki/New_Keynesian_economics
- chiefalchemist 7y ago
  What % of economists are versed and apply Behavioral Economics? Ironic. Your reply does more to support my point than your own.

dahdum 7y ago

Deflation doesn't cause people to behave irrationally. The problem is that rational reactions to deflation such as hoarding cash, avoiding debt, and cutting spending become a drag on the economy.

ced 7y ago
hoarding cash, avoiding debt, and cutting spending Most of the people around here immediately buy something as soon as "they can afford it" - with credit. I find it hard to believe that these same people would suddenly hoard cash. Wikipedia says The Great Depression was regarded by some as a deflationary spiral.[35] A deflationary spiral is the modern macroeconomic version of the general glut controversy of the 19th century. Another related idea is Irving Fisher's theory that excess debt can cause a continuing deflation. Whether deflationary spirals can actually occur is controversial, with their possibility being disputed by freshwater economists (including the Chicago school of economics) and Austrian School economists. It sounds more like a theoretical concern than an immutable law of nature to me.
bmurphy1976 7y ago
That's kind of my point. Those are not rational reactions during a deflationary period but that's what people will do anyway.
- dahdum 7y ago
  They are rational for individuals acting in their own self-interest, and that's what economic theory is based on.