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bboygravity: I agree with everything you just said except that deflation is bad for the economy in general. It doesn't have to be. The Guilded Age (Belle Epoque

bboygravity: I agree with everything you just said except that deflation is bad for the economy in general. It doesn't have to be. The Guilded Age (Belle Epoque in Europe), 1871-1914 had several percentages of deflation each year and this was a period where a massive number of people went from being poor farmers to middle class city dwellers and the period saw a massive growth in productivity. Deflation will destabilize the economy if there is massive borrowing, and since most Western government owe about 100 % of GDP, they will prevent deflation for the very reasons you describe. But the middle class should embrace deflation and so should the general economy as it encourages savings which encourages investments which is where the growth in productivity comes from.

maze-le 7y ago
I think the main reason behind the better economic situation in the 1871-1914 period was not a deflationary economy, but the steady increase in factory output -- the industrialization was on its height -- and medical knowledge -- proper sanitation, proper medical procedures, hygiene. Add to that the benefits Europe and the US reaped from colonial imperialism: the "masses" gained access to commodities like sugar, tea, coffee but also cheap alcohol and opium. Usually it was not a gradual improvement in the lifes of common people from poor farmers to well-off middle class. By far the most people not employed in the agrarian sector were working class (working in factories, mines, etc.) and their situation was, compared to today, a hellish nightmare: overcrowded slums, poor access to water and medicine, unstable food-supply. These conditions only improved slightly by the end of that period, usually out of pressure/fear of socialist/communist mass agitation. ----- You are right, the life of most people living in that time period improved significantly. But I would say despite of a deflationary economy, not because of it. And only a minimal percentage of those were middle class.
- lawn 7y ago
  Couldn't you use the same argument against inflation as well? That the improved life and economic growth in the 20th and 21th centuries have been driven by technological advances, and not by the inflationary economy?
  - bboygravity 7y ago
    Yes and no. Yes, technological advances have improved life and have allowed economic growth. No. Society as it is currently could not have been financed by those things alone. Massive loans that cannot and will not ever be paid back cannot exist without an inflationary economy (powered by fiat currency with no limit to currency supply and fractional reserve banking). And those types of loans and the inflationary economy have been crucial for the US/The West to attain and maintain their world domination politically, economically and militarily. That's where the term "military industrial complex" comes from. Nixon moved away from the gold standard for a reason: the US was unable to afford its wars (Vietnam at the time) and keep its military happy and in check without an inflationary economy. Inflationary economy = massive free buying power out of thin air for whoever controls the world currency, until they control the world currency no more and an empire falls. Again: I'm no expert at all, this is just my limited understanding.
    - lawn 7y ago
      That is a good point, particularly your ending that it's for those who control the world currency... Until they fail. But did that really improve the lives for people globally? Couldn't it be seen as a global redistribution of wealth, from countries who used the USD to the U.S? If you were cynical you might even say the U.S. robbed the other countries. I wouldn't be so sure to conclude that inflation has allowed economic growth from your example, but more a redistribution of one.
bboygravity 7y ago
> Deflation will destabilize the economy if there is massive borrowing, and since most Western government owe about 100 % of GDP, they will prevent deflation for the very reasons you describe. But the middle class should embrace deflation and so should the general economy as it encourages savings which encourages investments which is where the growth in productivity comes from. You're right. Deflation is not always a bad thing. But runaway deflation is. And runaway deflation is especially likely when there is no increased productivity (like their was in the period you mention) combined with massive debts (which didn't exist in the period you mention, because there was not fractional reserve banking like we have now and value of currencies where intrinsically backed by scarcity of gold). A little deflation shouldn't be bad for a healthy economy with "sound money", but as you describe yourself: that's not what we're working with here. It's not just governments who have massive amounts of debt. It's also large businesses and most real estate owners. The middle class should definitely not embrace deflation right now, because deflation could very quickly spiral into runaway deflation. Runaway deflation = lower wages, lower housing prices, less government budget (less absolute taxes coming in). Less government budget = greater inequality, worse educational quality, leading to decrease in productivity, more crime, more corruption, more waste of resources and aside from government issues: less investments by companies, lower stock market prices, insufficient pension fund reserves due to investments going down (= lower pensions), people losing their house (lower wage = some people can't afford payments on house credit and are foreclosed), housing prices going down more because of foreclosures and bad economy, people increasingly start selling their house at an increasing loss, housing prices go down further, more people start losing and so on. End result: Japan. Or perhaps worse: the 1930's crash (a prime example of runaway deflation), subsequent poverty, social unrest and wars. I feel this is not a great explanation though, perhaps someone else can do better.

maze-le 7y ago

I think the main reason behind the better economic situation in the 1871-1914 period was not a deflationary economy, but the steady increase in factory output -- the industrialization was on its height -- and medical knowledge -- proper sanitation, proper medical procedures, hygiene. Add to that the benefits Europe and the US reaped from colonial imperialism: the "masses" gained access to commodities like sugar, tea, coffee but also cheap alcohol and opium. Usually it was not a gradual improvement in the lifes of common people from poor farmers to well-off middle class. By far the most people not employed in the agrarian sector were working class (working in factories, mines, etc.) and their situation was, compared to today, a hellish nightmare: overcrowded slums, poor access to water and medicine, unstable food-supply. These conditions only improved slightly by the end of that period, usually out of pressure/fear of socialist/communist mass agitation. ----- You are right, the life of most people living in that time period improved significantly. But I would say despite of a deflationary economy, not because of it. And only a minimal percentage of those were middle class.

lawn 7y ago
Couldn't you use the same argument against inflation as well? That the improved life and economic growth in the 20th and 21th centuries have been driven by technological advances, and not by the inflationary economy?
- bboygravity 7y ago
  Yes and no. Yes, technological advances have improved life and have allowed economic growth. No. Society as it is currently could not have been financed by those things alone. Massive loans that cannot and will not ever be paid back cannot exist without an inflationary economy (powered by fiat currency with no limit to currency supply and fractional reserve banking). And those types of loans and the inflationary economy have been crucial for the US/The West to attain and maintain their world domination politically, economically and militarily. That's where the term "military industrial complex" comes from. Nixon moved away from the gold standard for a reason: the US was unable to afford its wars (Vietnam at the time) and keep its military happy and in check without an inflationary economy. Inflationary economy = massive free buying power out of thin air for whoever controls the world currency, until they control the world currency no more and an empire falls. Again: I'm no expert at all, this is just my limited understanding.
  - lawn 7y ago
    That is a good point, particularly your ending that it's for those who control the world currency... Until they fail. But did that really improve the lives for people globally? Couldn't it be seen as a global redistribution of wealth, from countries who used the USD to the U.S? If you were cynical you might even say the U.S. robbed the other countries. I wouldn't be so sure to conclude that inflation has allowed economic growth from your example, but more a redistribution of one.

bboygravity 7y ago

> Deflation will destabilize the economy if there is massive borrowing, and since most Western government owe about 100 % of GDP, they will prevent deflation for the very reasons you describe. But the middle class should embrace deflation and so should the general economy as it encourages savings which encourages investments which is where the growth in productivity comes from. You're right. Deflation is not always a bad thing. But runaway deflation is. And runaway deflation is especially likely when there is no increased productivity (like their was in the period you mention) combined with massive debts (which didn't exist in the period you mention, because there was not fractional reserve banking like we have now and value of currencies where intrinsically backed by scarcity of gold). A little deflation shouldn't be bad for a healthy economy with "sound money", but as you describe yourself: that's not what we're working with here. It's not just governments who have massive amounts of debt. It's also large businesses and most real estate owners. The middle class should definitely not embrace deflation right now, because deflation could very quickly spiral into runaway deflation. Runaway deflation = lower wages, lower housing prices, less government budget (less absolute taxes coming in). Less government budget = greater inequality, worse educational quality, leading to decrease in productivity, more crime, more corruption, more waste of resources and aside from government issues: less investments by companies, lower stock market prices, insufficient pension fund reserves due to investments going down (= lower pensions), people losing their house (lower wage = some people can't afford payments on house credit and are foreclosed), housing prices going down more because of foreclosures and bad economy, people increasingly start selling their house at an increasing loss, housing prices go down further, more people start losing and so on. End result: Japan. Or perhaps worse: the 1930's crash (a prime example of runaway deflation), subsequent poverty, social unrest and wars. I feel this is not a great explanation though, perhaps someone else can do better.