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It's a very interesting time we're going through. We begin to see that, even though we have long railed against the evils of inflation, there are worse things.

It's a very interesting time we're going through. We begin to see that, even though we have long railed against the evils of inflation, there are worse things. You have to guarantee inflation>=0 for an economy to work. Gold bugs would opt for inflation=0, and that's very good. But if you don't happen to have a gold backed currency, than inflation>0 needs to be your goal, since targeting inflation=0 is too easy to screw-up and go negative. Why do you need inflation>=0? So people are willing to spend. Otherwise, they'll shut down and wait till tomorrow to buy. Tomorrow, they'll do the same thing. Nobody buys anything, and the whole thing just dies. Sure, people will trade in "stuff", as you put it, but the efficiencies of that are very low, which is why money was invented in the first place. So, in theory, it is good to somehow devalue a currency based on time. We just have to be really careful we don't hurt too many generations in the process.

Tichy 18y ago
But if there is deflation, supposedly there is a reason for it? Seems to me like introducing artificial inflation is just messing with the symptoms, not removing the cause. I also don't think people wouldn't spend anymore. They need things, so they have to spend. If they don't need things, they shouldn't spend. I don't think making people buy stuff they don't need is really helpful in the long run.
- robotrout 18y ago
  It's more to do with investment, I think. Sure, you'll always buy food and clothes and soap and gasoline. But will you buy a house that will be cheaper tomorrow? Will you buy a computer that will be cheaper tomorrow? Will you hire somebody for $70K per year, when you can hire them for $50K per year in six months? You say that if somebody doesn't need something, they shouldn't buy it. Well, they don't buy it, in a deflationary environment. But, we really don't NEED all that much. As more and more people decide they don't need new cars, new houses, new clothes, clean water, electricity, etc., the society spirals back in time to the caveman days. That's an exaggeration, obviously, but you get my point.
  - mindslight 18y ago
    > Will you buy a computer that will be cheaper tomorrow? This is how consumer electronics works, and yes, people buy plenty. > As more and more people decide they don't need new cars, new houses, new clothes New cars and clothes? Well, they probably don't need these things. Overproduction is not a good thing - excess clothes sit unused in a closet, and a frivolous new car means an old car goes to the junkyard (circuitously). > clean water, electricity, etc One can do without these just as easily regardless of inflation (especially since you can't really store them), and yet people still buy them. Demand comes from widespread wealth, when the benefits of these things outweigh the relative cost. This independent wealth (and thus true progress) are encouraged by a monetary policy which rewards savings, not by one which induces spending for the illusion of temporary wealth.
    - robotrout 18y ago
      Granted people buy deflationary items. Consumer electronics, stock options, and perhaps one or two other things. That fact is proving that deflationary spirals are not something to be concerned about? I'm only responding at all, because I have a cool analogy that I want to use. Positive feedback. If you're not aware of what that is, since this is a digitally oriented site, it's not a good thing. It means that the more something happens, the more something happens. The less something happens, the less something happens. Economies tend to have this quality because of people's emotions. There's also negative feedback, which is capitalism, where supply and demand form a beautiful analog computer that is almost magical in it's ability to allow goods to appear where they're needed most, when they're needed most. But, on top of this wonderful capitalist negative feedback system, we have the evil positive feedback system of human greed and fear. With positive feedback caused by our greed and fear, in this case, fear, we end up in a deflationary spiral, where everything just shuts down, and the more it shuts down, the more people lose their jobs, and the more they hoard money and goods, and things shut down even tighter. This is not an especially difficult or non-intuitive point, and I only make it, since you didn't seem to grasp it, and I wanted to talk about feedback. Now, it's very nice to talk about savings. I quit my job two years ago to spend time on my start-up, and I could do it because I was a good saver. That said, what is good for a person, is not good for a people. A society that hoards, will soon be hoarding crumbs and dirt.

Tichy 18y ago

But if there is deflation, supposedly there is a reason for it? Seems to me like introducing artificial inflation is just messing with the symptoms, not removing the cause. I also don't think people wouldn't spend anymore. They need things, so they have to spend. If they don't need things, they shouldn't spend. I don't think making people buy stuff they don't need is really helpful in the long run.

robotrout 18y ago
It's more to do with investment, I think. Sure, you'll always buy food and clothes and soap and gasoline. But will you buy a house that will be cheaper tomorrow? Will you buy a computer that will be cheaper tomorrow? Will you hire somebody for $70K per year, when you can hire them for $50K per year in six months? You say that if somebody doesn't need something, they shouldn't buy it. Well, they don't buy it, in a deflationary environment. But, we really don't NEED all that much. As more and more people decide they don't need new cars, new houses, new clothes, clean water, electricity, etc., the society spirals back in time to the caveman days. That's an exaggeration, obviously, but you get my point.
- mindslight 18y ago
  > Will you buy a computer that will be cheaper tomorrow? This is how consumer electronics works, and yes, people buy plenty. > As more and more people decide they don't need new cars, new houses, new clothes New cars and clothes? Well, they probably don't need these things. Overproduction is not a good thing - excess clothes sit unused in a closet, and a frivolous new car means an old car goes to the junkyard (circuitously). > clean water, electricity, etc One can do without these just as easily regardless of inflation (especially since you can't really store them), and yet people still buy them. Demand comes from widespread wealth, when the benefits of these things outweigh the relative cost. This independent wealth (and thus true progress) are encouraged by a monetary policy which rewards savings, not by one which induces spending for the illusion of temporary wealth.
  - robotrout 18y ago
    Granted people buy deflationary items. Consumer electronics, stock options, and perhaps one or two other things. That fact is proving that deflationary spirals are not something to be concerned about? I'm only responding at all, because I have a cool analogy that I want to use. Positive feedback. If you're not aware of what that is, since this is a digitally oriented site, it's not a good thing. It means that the more something happens, the more something happens. The less something happens, the less something happens. Economies tend to have this quality because of people's emotions. There's also negative feedback, which is capitalism, where supply and demand form a beautiful analog computer that is almost magical in it's ability to allow goods to appear where they're needed most, when they're needed most. But, on top of this wonderful capitalist negative feedback system, we have the evil positive feedback system of human greed and fear. With positive feedback caused by our greed and fear, in this case, fear, we end up in a deflationary spiral, where everything just shuts down, and the more it shuts down, the more people lose their jobs, and the more they hoard money and goods, and things shut down even tighter. This is not an especially difficult or non-intuitive point, and I only make it, since you didn't seem to grasp it, and I wanted to talk about feedback. Now, it's very nice to talk about savings. I quit my job two years ago to spend time on my start-up, and I could do it because I was a good saver. That said, what is good for a person, is not good for a people. A society that hoards, will soon be hoarding crumbs and dirt.