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Growth of the economy without growth of the money supply leads to deflation, which harms consumption and investment, because hanging on to your money becomes co

Growth of the economy without growth of the money supply leads to deflation, which harms consumption and investment, because hanging on to your money becomes competitive with actively doing something with it. A small amount of inflation is an incentive to find productive uses for capital. Deflation rewards a kind of rentier class who own capital but don't do anything with it.

tastyfreeze 5y ago
Perpetuating the fear of deflation is the greatest feat the Fed has ever pulled off. Deflation is good. Every wage earner becomes more wealthy as their rate of pay buys more. Sticky wages arent a problem with deflationary money. Hell, at least half the complaints about the modern economy are the result of inflation. But, no, deflation would utterly destroy the economy.
- lmm 5y ago
  > Every wage earner becomes more wealthy as their rate of pay buys more. Income is not the same as wealth. Savers become wealthier, debtors (such as anyone with a mortgage) lose wealth. > Sticky wages arent a problem with deflationary money. Um, what? Your last sentence was all about how deflationary money guarantees wage earners increasing pay in real terms. That makes the sticky wages problem much worse.
- arcticbull 5y ago
  Wages have kept pace with inflation over the last decades. This means they earned more currency units over time. If we had 0% inflation, they would earn the same number of units. With deflation they would earn fewer units. If you want to change the amount of wealth low-income earners have, stop focusing on the units. This is not JPow's fault, it's a job for congress - it's social and fiscal policy not monetary policy. This is just a quixotic quest against the wrong opponent. If you want to help low-income folks, advocate for unions (so labor can push back against capital), advocate for wealth taxes, higher marginal taxes for the rich, minimum wage indexed to inflation, a strong social safety net and national zoning laws to stop metros from preventing adding enough housing supply to meet demand. Things that would help.
  - tastyfreeze 5y ago
    Wages have not kept pace with inflation at all. In real wealth terms everybody is poorer. https://www.forbes.com/sites/realspin/2013/10/09/measured-in-gold-the-story-of-american-wages-is-an-ugly-one/ https://www.forbes.com/sites/realspin/2013/10/09/measured-in...
    - arcticbull 5y ago
      That was from 2013, and written from the perspective that gold represents “real” worth - some platonic ideal constant measure, but it doesn’t. It’s a deflationary non-productive asset whose value is speculative and usually varied with general fear of inflation. Inflation is benchmarked against CPI. This is goldbuggery and fringe economics. By the way; that’s from the Forbes opinion piece section, not Forbes proper. The author suggests you cannot measure inflation except by dividing by the spot price of gold. This is false, and why we have the CPI. [1] https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/ https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us...
- imtringued 5y ago
  >Every wage earner becomes more wealthy as their rate of pay buys more. You will get wage cuts because it becomes harder to employ you at your currency salary or you just get fired. If you can't find a job, deflation will have made your life a lot worse. You are also incentivized to stick with your first job because future jobs will pay less than past jobs. Basically you hope you build a stash of cash in your 20s because your potential to earn money shrinks with every single year but your wealth gains in value from doing nothing. We are running into that problem with Bitcoin and land. Do you really think that if you signed a contract to get paid 10 BTC per year in 2017 (when it was $20k) that you will still get 10 BTC today? (at $38k). No, you will get 5 BTC this year. >Hell, at least half the complaints about the modern economy are the result of inflation Pretty much all of the complaints about the modern economy are about inadequate attempts to fight off deflation. The Fed has reached a point where it cannot do anything to fight off deflation, it takes a pandemic to fight off deflation, that's how bad the situation is. Just take a look at Japan, they have deflation and nobody is jealous of their economy.
sobani 5y ago
When I look at the IT industry, I see deflation that has been going on for at least 50 years. Every year you can buy more computer for less money. Yet, people keep buying computers. Why? I would argue deflation has been the most significant driver of the IT industry in the last 30 years and in turn has been one of the greatest drivers of prosperity in that same period. As computers become cheaper, more people can afford more them and more value is added to society. On the other side you have inflation that kills savings. And since most people save with a goal in mind, not because it's fun and exciting, the higher the inflation, the longer they will have to save before they reach that goal.
- imtringued 5y ago
  >Yet, people keep buying computers. Why? The majority of wealth is owned by the top 5%. Are they really spending a significant fraction of that wealth on computers? Deflation is never about what people buy, it's what they keep. >I would argue deflation has been the most significant driver of the IT industry in the last 30 years No it hasn't. The IT sector drives deflation and there is nothing wrong with productivity improvements. You just got cause and effect backwards. >and in turn has been one of the greatest drivers of prosperity in that same period. As computers become cheaper, more people can afford more them and more value is added to society. Inflation increases future incomes. If computers cost the same but you get higher salaries that's a good thing.
imtringued 5y ago
Deflation is basically rent seeking with money. It's bad enough to have rent seeking with land, why make everything worse?

tastyfreeze 5y ago

Perpetuating the fear of deflation is the greatest feat the Fed has ever pulled off. Deflation is good. Every wage earner becomes more wealthy as their rate of pay buys more. Sticky wages arent a problem with deflationary money. Hell, at least half the complaints about the modern economy are the result of inflation. But, no, deflation would utterly destroy the economy.

lmm 5y ago
> Every wage earner becomes more wealthy as their rate of pay buys more. Income is not the same as wealth. Savers become wealthier, debtors (such as anyone with a mortgage) lose wealth. > Sticky wages arent a problem with deflationary money. Um, what? Your last sentence was all about how deflationary money guarantees wage earners increasing pay in real terms. That makes the sticky wages problem much worse.
arcticbull 5y ago
Wages have kept pace with inflation over the last decades. This means they earned more currency units over time. If we had 0% inflation, they would earn the same number of units. With deflation they would earn fewer units. If you want to change the amount of wealth low-income earners have, stop focusing on the units. This is not JPow's fault, it's a job for congress - it's social and fiscal policy not monetary policy. This is just a quixotic quest against the wrong opponent. If you want to help low-income folks, advocate for unions (so labor can push back against capital), advocate for wealth taxes, higher marginal taxes for the rich, minimum wage indexed to inflation, a strong social safety net and national zoning laws to stop metros from preventing adding enough housing supply to meet demand. Things that would help.
- tastyfreeze 5y ago
  Wages have not kept pace with inflation at all. In real wealth terms everybody is poorer. https://www.forbes.com/sites/realspin/2013/10/09/measured-in-gold-the-story-of-american-wages-is-an-ugly-one/ https://www.forbes.com/sites/realspin/2013/10/09/measured-in...
  - arcticbull 5y ago
    That was from 2013, and written from the perspective that gold represents “real” worth - some platonic ideal constant measure, but it doesn’t. It’s a deflationary non-productive asset whose value is speculative and usually varied with general fear of inflation. Inflation is benchmarked against CPI. This is goldbuggery and fringe economics. By the way; that’s from the Forbes opinion piece section, not Forbes proper. The author suggests you cannot measure inflation except by dividing by the spot price of gold. This is false, and why we have the CPI. [1] https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/ https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us...
imtringued 5y ago
>Every wage earner becomes more wealthy as their rate of pay buys more. You will get wage cuts because it becomes harder to employ you at your currency salary or you just get fired. If you can't find a job, deflation will have made your life a lot worse. You are also incentivized to stick with your first job because future jobs will pay less than past jobs. Basically you hope you build a stash of cash in your 20s because your potential to earn money shrinks with every single year but your wealth gains in value from doing nothing. We are running into that problem with Bitcoin and land. Do you really think that if you signed a contract to get paid 10 BTC per year in 2017 (when it was $20k) that you will still get 10 BTC today? (at $38k). No, you will get 5 BTC this year. >Hell, at least half the complaints about the modern economy are the result of inflation Pretty much all of the complaints about the modern economy are about inadequate attempts to fight off deflation. The Fed has reached a point where it cannot do anything to fight off deflation, it takes a pandemic to fight off deflation, that's how bad the situation is. Just take a look at Japan, they have deflation and nobody is jealous of their economy.

sobani 5y ago

When I look at the IT industry, I see deflation that has been going on for at least 50 years. Every year you can buy more computer for less money. Yet, people keep buying computers. Why? I would argue deflation has been the most significant driver of the IT industry in the last 30 years and in turn has been one of the greatest drivers of prosperity in that same period. As computers become cheaper, more people can afford more them and more value is added to society. On the other side you have inflation that kills savings. And since most people save with a goal in mind, not because it's fun and exciting, the higher the inflation, the longer they will have to save before they reach that goal.

imtringued 5y ago
>Yet, people keep buying computers. Why? The majority of wealth is owned by the top 5%. Are they really spending a significant fraction of that wealth on computers? Deflation is never about what people buy, it's what they keep. >I would argue deflation has been the most significant driver of the IT industry in the last 30 years No it hasn't. The IT sector drives deflation and there is nothing wrong with productivity improvements. You just got cause and effect backwards. >and in turn has been one of the greatest drivers of prosperity in that same period. As computers become cheaper, more people can afford more them and more value is added to society. Inflation increases future incomes. If computers cost the same but you get higher salaries that's a good thing.

imtringued 5y ago

Deflation is basically rent seeking with money. It's bad enough to have rent seeking with land, why make everything worse?