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I believe the "danger " of deflation is a conveniently devised fable to keep the printing press running as a backdoor means of taxation without legislation. Inf

by bko 3y ago

I believe the "danger " of deflation is a conveniently devised fable to keep the printing press running as a backdoor means of taxation without legislation. Inflation is a kind of hidden tax. I've read all the arguments about the economy collapsing if things get cheaper over time and a vicious savings death spiral that can only be stopped with a steady 2% (and occasional 10%) annual inflation. But none of them address the fact that many of the hottest fastest growing industries are extremely deflationary. This iPhone version will drop prob 10% a year in price and people will still line up to get it. And the deflationary pressure is so high that it's got the same dollar price as an inferior model from a few years ago. According to Keynsians, no one would buy it if they knew a better version for the same price was coming out next year! So until someone can explain to me why deflation is awful and we need to continue to trust the central bank to create money out of thin air to keep the economy from collapsing, I'm going to think it's all a big scam.

alephnerd 3y ago
Your confusing micro- and macroeconomics. Monetary Policy falls under Macroeconomics (eg. Currency Liquidity, Interest Rates, etc) and the price of an individual good (eg. iPhone) is Microeconomics, as you are dealing with a single localized variable and it's interaction with the dynamic system, not the entire dynamic system itself. Also, old school Keynesianism hasn't really been played around with since the 50s. Modern Macroeconomics has changed significantly since the early 20th century. A full explaination would take forever, but I'd recommend reading a basic Econ textbook like Mankiw's Principles of Economics to get started. Econ is similar to ML - a lot of very complex ideas are being distilled into meme soundbite explanations that fail to provide an accurate explaination of very complex systems.
- bko 3y ago
  It's not a single localized variable. It's entire product lines. For instance, cars. You can buy last year's model at a discount. Or software. Or TVs. All electronics. Saying it's "micro" vs "macro" and a bunch of hand waving around dynamic localized variables is not an explanation. The core argument of the danger of deflation is "no one will buy anything if they know the price is going to come down". I can point to several counter examples and I can't get a straight answer why this is not true in these examples, or why deflation is so dangerous not relying on that argument I've read plenty of econ textbooks. I can easily explain why inflation is bad and it doesn't take me forever. Its a backdoor method of taxation. It robs people of their savings, especially the less fortunate who don't have their savings in financial assets. It also hurts mostly poor people that disproportionately spend their income on non-discretionary items like food and shelter. It provides uncertainty and inefficiencies and makes operating a business harder (in extreme cases). Every extreme inflationary cycle (and there are many examples) were disastrous in terms of any available metric (deaths, despair, poverty, crime, etc). https://www.visualcapitalist.com/inflation-chart-tracks-price-changes-us-goods-services/ https://www.visualcapitalist.com/inflation-chart-tracks-pric...
  - leetcrew 3y ago
    > The core argument of the danger of deflation is "no one will buy anything if they know the price is going to come down". I can point to several counter examples and I can't get a straight answer why this is not true in these examples, or why deflation is so dangerous not relying on that argument I don't think this is the core argument of anything, assuming you are talking about consumer spending. a large chunk of consumer spending is on daily necessities like food. even with luxury items, deflation has to be quite strong to outweigh the desire to "have it now". inflation/deflation are most impactful to entities that are sitting on large amounts of cash. this does not describe the majority of consumers. my understanding is that the major issue with deflation is on the investment/credit side. if you can get a solid risk-free return on your pile of cash, it lowers the incentive to do risky things like start a business or lend money to others to start a business. eventually the lack of credit and new investment decreases production to the point of reverting to an inflationary environment. this could either be a slow oscillation between the two or periodic shocks.
    - bko 3y ago
      I think you're wrong about the "deflationary spiral" as not being the central argument as to why deflation is dangerous. You can see it featured predominantly in the Wikipedia for example. As to no one investing, nominal interest rates are based in part on expectations and the risk free rate. Kind of like two years ago my savings account was paying nothing and now you can get close to 5% risk free just to park your money. So in a deflationary environment you can think of money appreciating in real terms ($1 would buy you more a year from now), so required investment rates would have to adjust. But it's still true today with technology. If I raise money for an AI startup today I would be using the money to buy GPUs, but if I wait a year from now I'll be able to buy them more cheaply (or buy better ones). But people still raise money to buy quickly deprecating assets. Or if someone wants to start a Laundromat and buys quickly deprecating machines. Or any industry that requires capital investment in a deprecating asset Of course you have to consider the deprecation of the assets you're buying but the world doesn't stop because prices go down and it's actually fairly healthy. And the benefit would be the opposite of the dangers I listed before about inflation. Imagine everyone getting a raise every year because of technologocal progress. Imagine spending less and less on groceries because we improve tech to deliver cheaper food. Instead that's all masked by money creation. https://en.wikipedia.org/wiki/Deflation https://en.wikipedia.org/wiki/Deflation
- nairboon 3y ago
  Where is the confusion? That's is just the internal division in economics. The point is that empirical observations don't agree with these widely believed economic theories on deflation beeing super scarry.
  - taylodl 3y ago
    Specific examples of the negative effects of deflation include: - The Great Depression, which began in 1929, was a period of severe deflation. The prices of goods and services fell by more than 25% between 1929 and 1933. This led to a decrease in aggregate demand, which caused businesses to cut production and lay off workers. The unemployment rate rose to over 25%, and the economy did not recover until the early 1940s. - In the early 1990s, Japan experienced a period of deflation. The prices of goods and services fell by an average of 1% per year between 1992 and 1999. This led to a decrease in aggregate demand, which caused businesses to cut production and lay off workers. The unemployment rate rose to over 5%, and the economy stagnated for several years. The reason these economic theories are widely believe is because of the close alignment with empirical observations.
    - oneTbrain23 3y ago
      That is basically correlation implying causation. Deflation has been happening with China mass producing cheaper goods than western world able to. My dollar able to purchase way more Nokia knock-off phones and yet my pay decrease during the same time. Yeah USA is experiencing decrease in aggregates demand. Economics are just number statistics fitting whatever school of economists decide to be. So many contradictions of theories in economics so bad that some have to actively attack the other schools (Misses? Chicago? Keynes?).
mensetmanusman 3y ago
We don’t have to worry about deflation. As the older workforce starts dying off, and our labor force continues to shrink, everything is going to get more expensive due to lack of humans.
- matwood 3y ago
  I thought technology and AI was about to replace all the jobs.

by bko 3y ago

alephnerd 3y ago

Your confusing micro- and macroeconomics. Monetary Policy falls under Macroeconomics (eg. Currency Liquidity, Interest Rates, etc) and the price of an individual good (eg. iPhone) is Microeconomics, as you are dealing with a single localized variable and it's interaction with the dynamic system, not the entire dynamic system itself. Also, old school Keynesianism hasn't really been played around with since the 50s. Modern Macroeconomics has changed significantly since the early 20th century. A full explaination would take forever, but I'd recommend reading a basic Econ textbook like Mankiw's Principles of Economics to get started. Econ is similar to ML - a lot of very complex ideas are being distilled into meme soundbite explanations that fail to provide an accurate explaination of very complex systems.

bko 3y ago
It's not a single localized variable. It's entire product lines. For instance, cars. You can buy last year's model at a discount. Or software. Or TVs. All electronics. Saying it's "micro" vs "macro" and a bunch of hand waving around dynamic localized variables is not an explanation. The core argument of the danger of deflation is "no one will buy anything if they know the price is going to come down". I can point to several counter examples and I can't get a straight answer why this is not true in these examples, or why deflation is so dangerous not relying on that argument I've read plenty of econ textbooks. I can easily explain why inflation is bad and it doesn't take me forever. Its a backdoor method of taxation. It robs people of their savings, especially the less fortunate who don't have their savings in financial assets. It also hurts mostly poor people that disproportionately spend their income on non-discretionary items like food and shelter. It provides uncertainty and inefficiencies and makes operating a business harder (in extreme cases). Every extreme inflationary cycle (and there are many examples) were disastrous in terms of any available metric (deaths, despair, poverty, crime, etc). https://www.visualcapitalist.com/inflation-chart-tracks-price-changes-us-goods-services/ https://www.visualcapitalist.com/inflation-chart-tracks-pric...
- leetcrew 3y ago
  > The core argument of the danger of deflation is "no one will buy anything if they know the price is going to come down". I can point to several counter examples and I can't get a straight answer why this is not true in these examples, or why deflation is so dangerous not relying on that argument I don't think this is the core argument of anything, assuming you are talking about consumer spending. a large chunk of consumer spending is on daily necessities like food. even with luxury items, deflation has to be quite strong to outweigh the desire to "have it now". inflation/deflation are most impactful to entities that are sitting on large amounts of cash. this does not describe the majority of consumers. my understanding is that the major issue with deflation is on the investment/credit side. if you can get a solid risk-free return on your pile of cash, it lowers the incentive to do risky things like start a business or lend money to others to start a business. eventually the lack of credit and new investment decreases production to the point of reverting to an inflationary environment. this could either be a slow oscillation between the two or periodic shocks.
  - bko 3y ago
    I think you're wrong about the "deflationary spiral" as not being the central argument as to why deflation is dangerous. You can see it featured predominantly in the Wikipedia for example. As to no one investing, nominal interest rates are based in part on expectations and the risk free rate. Kind of like two years ago my savings account was paying nothing and now you can get close to 5% risk free just to park your money. So in a deflationary environment you can think of money appreciating in real terms ($1 would buy you more a year from now), so required investment rates would have to adjust. But it's still true today with technology. If I raise money for an AI startup today I would be using the money to buy GPUs, but if I wait a year from now I'll be able to buy them more cheaply (or buy better ones). But people still raise money to buy quickly deprecating assets. Or if someone wants to start a Laundromat and buys quickly deprecating machines. Or any industry that requires capital investment in a deprecating asset Of course you have to consider the deprecation of the assets you're buying but the world doesn't stop because prices go down and it's actually fairly healthy. And the benefit would be the opposite of the dangers I listed before about inflation. Imagine everyone getting a raise every year because of technologocal progress. Imagine spending less and less on groceries because we improve tech to deliver cheaper food. Instead that's all masked by money creation. https://en.wikipedia.org/wiki/Deflation https://en.wikipedia.org/wiki/Deflation
nairboon 3y ago
Where is the confusion? That's is just the internal division in economics. The point is that empirical observations don't agree with these widely believed economic theories on deflation beeing super scarry.
- taylodl 3y ago
  Specific examples of the negative effects of deflation include: - The Great Depression, which began in 1929, was a period of severe deflation. The prices of goods and services fell by more than 25% between 1929 and 1933. This led to a decrease in aggregate demand, which caused businesses to cut production and lay off workers. The unemployment rate rose to over 25%, and the economy did not recover until the early 1940s. - In the early 1990s, Japan experienced a period of deflation. The prices of goods and services fell by an average of 1% per year between 1992 and 1999. This led to a decrease in aggregate demand, which caused businesses to cut production and lay off workers. The unemployment rate rose to over 5%, and the economy stagnated for several years. The reason these economic theories are widely believe is because of the close alignment with empirical observations.
  - oneTbrain23 3y ago
    That is basically correlation implying causation. Deflation has been happening with China mass producing cheaper goods than western world able to. My dollar able to purchase way more Nokia knock-off phones and yet my pay decrease during the same time. Yeah USA is experiencing decrease in aggregates demand. Economics are just number statistics fitting whatever school of economists decide to be. So many contradictions of theories in economics so bad that some have to actively attack the other schools (Misses? Chicago? Keynes?).

mensetmanusman 3y ago

We don’t have to worry about deflation. As the older workforce starts dying off, and our labor force continues to shrink, everything is going to get more expensive due to lack of humans.

matwood 3y ago
I thought technology and AI was about to replace all the jobs.