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Gold is not deflationary from monetary perspective. More gold is mined constantly. Due to its high stock-to-flow ratio, the monetary inflation is very low. Fro

by Geee 3y ago

Gold is not deflationary from monetary perspective. More gold is mined constantly. Due to its high stock-to-flow ratio, the monetary inflation is very low. From the perspective of CPI (consumer price index), gold would be "deflationary", because prices would get cheaper. However, this is not a property of gold; it's the property of a capitalist economy, where companies compete to offer better products at cheaper prices. There's no good reason for diluting the currency to keep prices increasing, other than corruption and greed of those who control the money supply. Inflationary currency means that someone is profiting by creating money, and that profit is paid in the increasing price of products.

zpeti 3y ago
I don’t understand the entire first principles these anti deflationists stand on. Like every single electronics product in the last 50 years has been deflating in price (either literally or increasing in core value). Does that stop people buying them? No! But perhaps someone here who’s anti deflationist could explain to me why I’m wrong.
- jfengel 3y ago
  Deflation mostly matters with currency. Deflation of products is a good thing. The problem with deflating currency is that it encourages you to sit on it. Economists don't want you sitting on a hoard like a dragon. In the extreme case, GDP goes to zero today because everybody is expecting prices to be cheaper tomorrow. Then all the workers get fired because there's nothing to produce. Now they have no money, and buy nothing, so it gets even worse. Obviously the extreme case doesn't happen, but the thought experiment illustrates the problem. A tiny bit of inflation encourages purchasing and investment, which keeps money moving. You may want to stop working as an individual once you've acquired enough money, but the nation as a whole never retires, and relies on consumption to give everybody work. Prices of goods coming down is OK, because goods are consumed. You have to buy new goods tomorrow. Durable goods wear out; real estate is maintained; intellectual goods get boring. The economy rolls along, and people continue to make investments to get a bigger share of it for themselves. So economists aim for low but steady inflation. It benefits the economy as a whole, at a cost to those who want to accumulate cash and not spend or invest it. tl,dr: Sitting on cash removes it from the economy, and deflation encourages people to spend money tomorrow rather than today.
  - readthenotes1 3y ago
    "Sitting on cash removes it from the economy, and deflation encourages people to spend money tomorrow rather than today. " Since most people are in debt, this really says: encourage people to borrow to buy what they cannot afford today and then hope for inflation to make that borrowing less onerous.
    - jfengel 3y ago
      Precisely. Economists like debt. It gets the economy moving. A debt-less economy is very slow. Most non-trivial projects require debt: starting a business, buying a house, getting an education. If you had to pay for those in cash, you'd do so much later if ever. It's the reason most corporations have debt. They use it to fund expansion. As long as that expansion brings in more money than the interest payments, they literally never have to pay that debt back. Human beings, unlike corporations, retire. Inflation certainly puts a crimp in that, but there are many other problems with retirement with larger effects. Ultimately, those problems come down to an economy that continues to expand even after they've left the workforce, such that they can outpace inflation by either their own investments, or the government's. Which, as I started with, is all about somebody taking out debts so that the economy expands. A vastly slower economy without debts is more straightforward to understand, but it's also a much more primitive and less productive one, and so everyone is worse off.
  - Geee 3y ago
    That's the common misconception. In reality, people spend their money when they want or need something. Today it's possible to hoard wealth in real estate/gold/stocks. The value of the pile is guaranteed to go up because of guaranteed inflation. Yet for some reason the economy doesn't grind to halt. By your explanation, everyone would just sit on that pile like a dragon and never buy anything.
    - jfengel 3y ago
      Economists are perfectly happy with you buying stocks or real estate. That puts the money back in circulation, and funding something people use. They just don't want you sitting on cash.

by Geee 3y ago

zpeti 3y ago

I don’t understand the entire first principles these anti deflationists stand on. Like every single electronics product in the last 50 years has been deflating in price (either literally or increasing in core value). Does that stop people buying them? No! But perhaps someone here who’s anti deflationist could explain to me why I’m wrong.

jfengel 3y ago
Deflation mostly matters with currency. Deflation of products is a good thing. The problem with deflating currency is that it encourages you to sit on it. Economists don't want you sitting on a hoard like a dragon. In the extreme case, GDP goes to zero today because everybody is expecting prices to be cheaper tomorrow. Then all the workers get fired because there's nothing to produce. Now they have no money, and buy nothing, so it gets even worse. Obviously the extreme case doesn't happen, but the thought experiment illustrates the problem. A tiny bit of inflation encourages purchasing and investment, which keeps money moving. You may want to stop working as an individual once you've acquired enough money, but the nation as a whole never retires, and relies on consumption to give everybody work. Prices of goods coming down is OK, because goods are consumed. You have to buy new goods tomorrow. Durable goods wear out; real estate is maintained; intellectual goods get boring. The economy rolls along, and people continue to make investments to get a bigger share of it for themselves. So economists aim for low but steady inflation. It benefits the economy as a whole, at a cost to those who want to accumulate cash and not spend or invest it. tl,dr: Sitting on cash removes it from the economy, and deflation encourages people to spend money tomorrow rather than today.
- readthenotes1 3y ago
  "Sitting on cash removes it from the economy, and deflation encourages people to spend money tomorrow rather than today. " Since most people are in debt, this really says: encourage people to borrow to buy what they cannot afford today and then hope for inflation to make that borrowing less onerous.
  - jfengel 3y ago
    Precisely. Economists like debt. It gets the economy moving. A debt-less economy is very slow. Most non-trivial projects require debt: starting a business, buying a house, getting an education. If you had to pay for those in cash, you'd do so much later if ever. It's the reason most corporations have debt. They use it to fund expansion. As long as that expansion brings in more money than the interest payments, they literally never have to pay that debt back. Human beings, unlike corporations, retire. Inflation certainly puts a crimp in that, but there are many other problems with retirement with larger effects. Ultimately, those problems come down to an economy that continues to expand even after they've left the workforce, such that they can outpace inflation by either their own investments, or the government's. Which, as I started with, is all about somebody taking out debts so that the economy expands. A vastly slower economy without debts is more straightforward to understand, but it's also a much more primitive and less productive one, and so everyone is worse off.
- Geee 3y ago
  That's the common misconception. In reality, people spend their money when they want or need something. Today it's possible to hoard wealth in real estate/gold/stocks. The value of the pile is guaranteed to go up because of guaranteed inflation. Yet for some reason the economy doesn't grind to halt. By your explanation, everyone would just sit on that pile like a dragon and never buy anything.
  - jfengel 3y ago
    Economists are perfectly happy with you buying stocks or real estate. That puts the money back in circulation, and funding something people use. They just don't want you sitting on cash.