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> 1) Deflation causes debt to become more expensive. Inflation causes your money to become worth less. There's a simple solution to debt becoming more expensive
> 1) Deflation causes debt to become more expensive. Inflation causes your money to become worth less. There's a simple solution to debt becoming more expensive, but no practical solution to you getting a pay-cut every year, especially when a sizable chunk of people don't even realize they're getting a pay-cut and don't want to be unthankful for a "raise." That issue alone already causally explains much of the rise in inequality. Cut people's wages in a stable or deflationary system and there will be hell to pay. Cut them in an inflationary system and they say thank you.
You don't cut people's wages in a deflationary system, you just cut people.
That's true even in the short term, but if the deflation is expected to be sustained, you might as well cut all of them, because if you turn all your assets into hard currency your purchasing power increases every year, whereas if you take the risk of actually hiring people to make stuff during a period of sustained deflation then it might not and on average you have to get them to make more stuff for less money simply to maintain the amount of money you started off with...
There is a simple solution to debt being expensive, but that simple solution involves paying wealthier people a greater proportion of their income to have somewhere to live. Remarkable how people can act like this is favourable to workers and yet pay rises (an inflationary phenomenon!) are bad for them....
You're engaging in a pretty common fallacy by taking the contemporary standard, in a world full of wild inflation and funny money, retroactively applying it backwards, seeing [correctly] that it wouldn't work, and thus concluding that funny money is needed. But you need to consider the impacts of the funny money itself.
One fundamental difference is that inflationary systems incentivize the hoarding of 'things', like housing, as a means of escaping inflation. This is because the price of 'things' will always increase with inflation. But in stable or deflationary systems there's no inflation to hide from and the price of 'things' is stable or can even decrease over time, so there's no longer a hoarding incentivization for 'things.'
So you can see a visible impact of this in housing prices. In the 50s a typical house used to cost about 2 median salaries. [1] Go further back in time and you're down to 1 median salary. In modern times, we're at historic highs of a median home costing 5x a median salary, and in desirable locations like western California it even gets up to 12x local median salary for a median home. [2] That's median, not Beverley Hills.
So yes, in modern times you need endless funny money to do achieve even basic societal things, like owning a roof over your head. But that's because of the funny money. And this is before we get into realities like the fact that when the government 'prints' a trillion dollars, most all of that is going to end up in the pockets of the wealthiest of society giving them even more money to speculate with, driving prices up even more. And much more, there are endless self feedback mechanisms that have left us in a vicious cycle that's probably inescapable at this point.
Real wages are up 14% over the past 47 years [3], and we now have a trillionaire. That's inflation for you. What do you think they'll call this era in the future?
[1] - https://www.huduser.gov/portal/sites/default/files/pdf/Housing-Situation-1951.pdf https://www.huduser.gov/portal/sites/default/files/pdf/Housi...
[2] - https://www.jchs.harvard.edu/blog/home-prices-surge-five-times-median-income-nearing-historic-highs https://www.jchs.harvard.edu/blog/home-prices-surge-five-tim...
[3] - https://fred.stlouisfed.org/series/LES1252881600Q https://fred.stlouisfed.org/series/LES1252881600Q
> One fundamental difference is that inflationary systems incentivize the hoarding of 'things', like housing, as a means of escaping inflation. This is because the price of 'things' will always increase with inflation. But in stable or deflationary systems there's no inflation to hide from and the price of 'things' is stable or can even decrease over time, so there's no longer a hoarding incentivization for 'things.'
It would incentivise the hoarding of currency instead. Holding or investing in anything else is, on average, a losing bet in a sustained deflation.
By definition, deflation is people choosing not to contribute to production obtaining increasing returns on doing and risking absolutely nothing at the expense of those who do contribute to production working harder or taking more risks to serve them. You're accusing me of "engaging with a pretty common fallacy" whilst arguing against a tautology.
> So you can see a visible impact of this in housing prices. In the 50s a typical house used to cost about 2 median salaries. [1] Go further back in time and you're down to 1 median salary. In modern times, we're at historic highs of a median home costing 5x a median salary, and in desirable locations like western California it even gets up to 12x local median salary for a median home. [2] That's median, not Beverley Hills.
That's the supply and demand of housing, as well evidenced by the large disparity of house price changes. Deflation does not incentivise building more houses (quite the opposite actually). In practice, it just means you pay higher mortgage rates and end up with a house that isn't worth anywhere near as much as your mortgage repayments, or you rent - both of which involve more of your lifetime income being transferred to richer people.
> Real wages are up 14% over the past 47 years [3], and we now have a trillionaire.
The trillionaire is arguing the same position as you on currency. I'm sure he and the other billionaire funded think tanks attacking "fiat money" almost as strongly as they attack tax and regulation on billionaires and services for the poor do so because they care about giving the little guy more...
> By definition, deflation is people choosing not to contribute to production obtaining increasing returns on doing and risking absolutely nothing
Deflation results from not printing money. When the growth in the amount of stuff in the economy exceeds the growth in the amount of money in the economy - each dollar becomes worth more over time. That is deflation. Yeah you can sit on it and take it as passive gains. You can also use those gains in your spending power to achieve even greater things. It's up to the person.
As for the past having higher mortgages, this provides data on such from 1950. [1] "...the typical monthly mortgage payment [of] $54.31 for principal, interest, FHA mortgage insurance premium, hazard insurance, taxes and special assessments, and any miscellaneous items such as ground rent." 1950 median personal was $3300, so a house mortgage cost 20% of that. Current median personal income is $45k, so that'd be a mortgage on a new house of about $750 with tax/insurance/assessment/etc included in that. We can safely reject the claim that mortgages were higher.
However, your critique that your house would not be worth as much as you paid is 100% true. When things do not endlessly increase in value, going into debt to purchase them comes with a real cost. That is one of the many reasons prices were able to be kept in check. Housing becoming a vessel for speculation just inevitably drives their prices endlessly up while people actually trying to find a place to live and raise a family suffer for it all. This is all only magnified when you add the surplus of funny money. It being speculation or supply and demand are not somehow different things as you seem to be implying.
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Basically I find most of all arguments about the past tend to be false or exaggerated, and not at all intentionally. We're all taught that economic policy in the past primitive and misguided, as true as the sky is blue and grass is green. Yet when you look at what people could buy in the past on a typical median salary, or the lifestyle it could provide - it almost sounds like make believe, and is way more than enough to make one wonder what went wrong? And I think currency policy is largely the answer to that question.
[1] - https://www.huduser.gov/portal/sites/default/files/pdf/Housing-Situation-1951.pdf https://www.huduser.gov/portal/sites/default/files/pdf/Housi...
> But in stable or deflationary systems there's no inflation to hide from and the price of 'things' is stable or can even decrease over time, so there's no longer a hoarding incentivization for 'things.'
Here's how things worked in the early 20th century: Let us say a farmer had taken out a mortgage in 1928, and let us say his mortgage payment was US$20 (equivalent of 1 oz. of gold). In May 1929 he would have had to have sold 114 pounds of cotton to earn $20 (or 18 bushels of wheat, 23 of corn, 44 of oats). By May 1932 he would have had to sold 369 pounds of cotton (or 38 bushels of wheat, …):
* https://www.sciencedirect.com/science/article/abs/pii/0304393287900456 https://www.sciencedirect.com/science/article/abs/pii/030439...
* https://econbrowser.com/archives/2012/02/why_not_abolish https://econbrowser.com/archives/2012/02/why_not_abolish
If he had 4 farm hands and paid each $5 (total $20), that's a lot more crops that need to be sold to cover payroll.
And it would have been the same for selling any good or service: a company that makes widgets needing to pay the same wages: sell more widgets to cover payroll, or reduce payroll (per head, or total heads).
Falling prices may seem good from a buyer/consumer point of view, but there's also the seller/supplier side of the equation.
I don't think assessing data during the Great Depression is meaningful. It's in the same way that I wouldn't look at data from the ever-recurring crashes/bubbles in modern times to critique things, outside of the frequency of those events themselves.
But, that said, your overall point is perfectly reasonable, but does something the other poster also did in that you're taking present times and retroactively applying it, when that's not really accurate. For instance this [1] is from the 1910 census. There were about 3.95 million farms operated by owners and about 66% of them were owned with no mortgage. Page 8 / table 7. And that was at a record high for the time owing to the increasing trend of becoming a debt riddled society. Go back not that much further in history and near to 100% of farmers owned their farmers, free and clear.
Modern times incentivizes going deep into debt, past times disincentivized it. I think it's becoming fairly clear that a debt driven society is unsustainable, largely because it requires infinite exponential growth to sustain itself. We swapped to a completely free floating currency only in 1971, after defaulting on our debt obligations under Bretton Woods. And that's also when the digitization expansion started taking off, which drove decades of unimaginable growth, making that infinite exponential growth seem briefly viable. But now that growth phase is slowing. We need either LLMs or space to trigger another exponential growth phase. If they don't, then there's going to be rough seas ahead.
[1] - https://www2.census.gov/library/publications/decennial/1910/bulletins/agriculture/384-agriculture-tenure-mortgage-indebtedness-color-nativity-of-farmers-size-of-farms.pdf https://www2.census.gov/library/publications/decennial/1910/...
> If a billionaire wants to bury all his money, he's only hurting himself.
Nope, if you're fixing the supply of money, you're making the monetary economy zero sum. If a rich person buries his money, that's less money available to everyone else that needs money, forcing them to work harder to earn the same amount of income to pay their bills. The billionaire on the other hand ends up richer than before without taking any risks or doing any work, or even maintaining anything
> By contrast inflation is very different. Ostensibly everybody has their spending power reduced, but the wealthy can sidestep this by hoarding assets, whereas lower income individuals lack the resources to do so. In both systems the rich get richer. The major difference is what happens to the non-rich. In deflationary systems, they see their spending power increase over time. In inflationary systems, they see it decrease.
This is just nonsense though, isn't it? The rich can hoard assets in any sort of system, but you are the person explicitly advocating a system rigged to ensure that the asset they hoard is fixed in supply and required by the non-rich as a means of payment, guaranteeing the rich risk free gains in perpetuity from starving the economy of resources. By contrast when the economy isn't rigged to preserve people who hold cash's wealth at the expense of those who need to earn cash, rich people have to invest in stuff like companies, which carries risk and actually contributes towards stuff being made and people having jobs
Non rich people can't afford to hoard cash in either system, they have bills to pay and need somewhere to live. In the US today, most non-rich people store most of their net worth in their house, an asset you are advocating becoming an expensive burden on them which will never increase in value.
As for the poor people living month to month, they don't get to store any non-trivial amount of value in either system. But an economy that isn't starved of capital offers them jobs, which is a lot better than "hey, that cash you need to spend on this month's food would buy you even more food this time next year if you didn't need to eat, why are you even worried about the unemployment rate?"
> The thing I think you're not appreciating is self-feedback within systems. Consider education. Why are education costs inflating far ahead of already high inflation rates? It's because education is/was perceived as relatively priceless, and the government passed various laws mandating and enabling the ease of access to debt. So you take something that was perceived as priceless and give people vast sums of debt to purchase it. The exact same is true of housing. The endless inflation-driven price increases make it seem like a priceless asset. Now insert debt and away we go.
The thing I think you're not appreciating is that I'm the participant in this discussion that understands how supply and demand works. The reason why the price of education grows ahead of income, and the growth in the number of people that would like graduate jobs exceeds the growth in reputable college places, and since college places also proportionally boost people's lifetime incomes, it's usually a good bet. This is nothing to do with it being "priceless". Suffice to say non-rich people who want college places are not helped by either by making it expensive or impossible to access finance or depressing their future incomes, even though both factors will ceteris paribus depress tuition fees.
> The reason I've focused on data from 1950 is because that's the final decade before we entered the full-on money printing era.
The reason you've focused on data from 1950s which is not an example of the policy you advocate is the last time we had the two things you favour (policy actually encouraging year on year deflation due to the US money supply being limited by its redeemability for gold) was a time of misery almost unprecedented in modern history. And if you want a money supply that's actually fixed in terms of commodities rather than going through repeated inflation/crash cycles as banks try to deal with the gold supply being insufficient, we're going back to pre-industrial times. There's a reason why there's no period of sustained deflation in modern history for you to compare with outside a massive credit crunch, and that's that sustained deflation is synonymous with a credit crunch, with all the side effects that entails.
CPI inflation in the 1950s averaged around where it's been for most of this century (and the Fed's actual target), just with more volatility. It was much higher the decade before (during which the US won a war, and also found enough money left over to boost the housing stock). The fact a decade with inflation averaging just under 2% is actually compatible with the job outlook being relatively rosy and more people being able to buy homes than before actually fits my argument better than yours.
Memes about 1950s purchasing power[1] to counter boomer arguments is not an argument against the tautology that deflation is sustained by people who contribute to the economy working harder and taking more risks with their investments to ensure that the people can increase their purchasing power by not contributing to the economy.
[1]fwiw there are an order of magnitude more cars in the US today, and you can definitely buy a better car than most people were driving in the 1950s with a part time job today. And it's funny how those memes never mention other consumer goods, or food or that more people actually manage to buy their home today...
> I've also already said I fully agree that the data we're using isn't ideal in terms of inflation.
It's not a case of it being not ideal. It's the case of it being an example of literally the opposite phenomenon from the one you're arguing for. Arguing that the 1950s are a good example of how deflation helps people is like arguing that Barack Obama is a good example of how Republican candidates make good presidents.
> As for investment, expected value [2] is a term you do not seem familiar with. It is a risk adjusted value of expected return on something.
hahahahahahaha
Again, it's a basic definitional thing that EV isn't adjusted for the investor's risk tolerance (it's a probability weighted average, as your link and many better introductory economics and finance texts you should probably read will tell you.)
Not only am I familiar with what expected value actually means and its use as a synonym for risk-neutral return in investment parlance, I'm also apparently the only participant in the discussion aware that 0.1% expected return isn't likely to leave enough of a risk premium[1] and (ii) investors also have to consider opportunity cost, so even in a world filled with insane risk-neutral investors who'd in principle be comfortable betting their house on a fair coin flip, they still wouldn't touch an investment at a nominal 0.1% return in a gold standard world, because the opportunity cost would be giving up much higher returns on lending the money elsewhere. Because unlike you I know that market and base interest rates are a thing and why they're relevant to the argument. And also they're not the same thing as inflation and are in fact generally inversely related[2].
Once we've got past the basic definitional stuff and the "why doesn't this hypothetical gold standard economy where you're considering investing in a productive venture for a 0.1% return have anyone else that wants to borrow your money?", I could question what sort of venture would get a 0.1% nominal return when prices of stuff it might make are going down, and only get a 0.1% nominal return in an inflationary environment where the prices of stuff it might make are going up[3]. It's easier to make more than 0.1% making stuff to sell next year when prices of everything are going to be 2% higher, and harder when prices of everything are going to be 2% lower.
Again, if you don't have the basic grasp of the relevant terms you're quoting (some of them more high school than undergrad) never mind sufficient grasp to understand even an argument as simple as "risking money to earn 0.1% is not attractive when money is in short supply" have the decency to the possibility that you might not be in a position to know best about how the economy works. Also, if you don't like billionaire capital owners having too much money, maybe don't pin your hopes on the only policy prescription that hasn't trended towards the CATO institute, von Mises and Ayn Rand's[4] arguments in favour of letting billionaires keep more of their money since the 1950s...
[1]in any economy except, ironically, an economy with lots of money printing (seriously, go learn about QE. Hint: it's printing lots of money because printing lots of money is a way to get people interested in investing when interest rates are very low)
[2]and also why, and covering the relevant transmission mechanisms might take half a semester of undergrad macro, but even understanding that money isn't cheap to borrow when its in short supply would get you there.
[3]I mean, when I say wonder, I actually know that the most likely way of achieving that with actual goods and services is if it's an inferior good with negative income elasticity. I'm just not sure why anybody would want to base economic policy on incentivising the production of inferior goods with negative income elasticities, even if such a policy were feasible.
[4]weird how it's all these extremely rabidly pro-billionaire personalities and organizations and none of the pro-worker organizations that want the gold standard back, considering your conviction that it will be good for workers and bad for billionaires.
In the 40s the inflation was, in and of itself, liminal and driven by short-term actions in response to WW2, similar to what happened during the Civil War, WW1, and other such eras. The funny money took off as policy much later. It has very little to do with the current era of the routine 'printing' of trillions of dollars as a normal policy, let alone with a wealth of systems adapted to exploit that to this maximal. This is why the 40s, in terms of outcomes, looked more like previous eras then the current.
In investing, you seem to be trying to derive variance from expected value, which is impossible. And risk is not the same thing as variance. It's entirely possible for an investment with a 0.1% EV to have a lower variance than one with a 15% EV. The obvious example there would be hedges against black swans, contrasted against a government bond from a stable country.
In any case, this argument also works against you. Because the point is that anything with a real expected return of "x" in an inflationary system has a real return of e.g. "x+5" (or whatever the exact delta happens to be) in a non-inflationary system. You cannot, in good faith, try to argue that is a bad thing. Whatever 'x' happens to be, whether 0.1 or 50, it's going to be better in a non-inflationary system.
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As for social equalities, you likely missed the above note. I'll simply quote it here: "Somebody else just submitted this [1]. The Fed just released a paper showing (or at least affirming) that the labor share of income in the US is at its lowest post-war level which is, more or less, equivalent to stating that it's at its lowest level ever. They're likely just using data starting at the 40s for the same reason I am.
But the really interesting thing? Go open their graphs and look where the inflection point is. It's, again, the funny money."
[1] - https://news.ycombinator.com/item?id=48734234 https://news.ycombinator.com/item?id=48734234
> In investing, you seem to be trying to derive variance from expected value, which is impossible. And risk is not the same thing as variance.
It's funny, because two posts ago you wrote the words "expected value is a term you do not seem familiar with. It is a risk adjusted value of expected return on something". So you're really only arguing against yourself here
But variance is, in fact a way for investors to assess risk (again, if you had an adult-level of understanding of the subject matter or even a modicum of self awareness you wouldn't keep contesting definitions for no reason). And since investors care about risk adjusted returns, they do not think an expected 0.1% nominal return on productive activity is attractive, least of all in a deflationary environment. (Sure, you can't directly derive variance from expected return, but you don't need to do that to rule out ludicrous scenarios like a sub 10 basis point risk premium on investing in productive activity whilst prices fall, which means you don't invest at 0.1%)
> It's entirely possible for an investment with a 0.1% EV to have a lower variance than one with a 15% EV.
Sure. It is however entirely impossible for a productive venture with a 0.1% EV to have an attractive risk adjusted return under deflation. Nobody with an adult level understanding of finance would make this argument, let alone still be trying to defend it by arguing against their own attempted gotcha multiple posts later. Because they understand basics like "deflation causes debt to be more expensive" (remember a week ago when you wrote that, apparently without understanding what it means), and 0.1% is not a high return on risky activity when debt is expensive. And also, they understand that the risk-adjusted return will be negative, particularly as risks to commercial activity increase under deflation caused by monetary policy intentionally starving the economy of capital).
> Because the point is that anything with a real expected return of "x" in an inflationary system has a real return of e.g. "x+5" (or whatever the exact delta happens to be) in a non-inflationary system
Again, this is just an assertion that only somebody with no understanding of basic stuff like how inflation/deflation affects sales prices and interest rates would make. It is very easy to argue that the price somebody has to pay a wealthier person to borrow money being x+5 rather than x is a bad thing, if you believe that it is better for economies to reward people that make stuff rather than people that have stuff.
The actual point was that it's harder to make a positive money return producing stuff to sell when next year's price is y-2 rather than y+2, and in those circumstances also easy to make a small real return doing nothing or a big real return lending to cover short term debts instead.
Again, I'm sorry you don't understand this, but it's really, really not possible to contest the fact that deflation does not incentivise investment if you understand supply and demand to high school level (never mind the actual nuances of interest rates and transmission mechanisms). I guess I can look forward to you eventually accepting that it doesn't whilst attempting to attribute your current position to me in five days time.
If only you could trade some of your unmatched reserves of persistence for a little actual knowledge...
(you could, for example,read a book instead of doubling down on being wrong by Googling more economic terms to insinuate I'm missing whilst not even being able to define them without making mistakes)
> But the really interesting thing? Go open their graphs and look where the inflection point is. It's, again, the funny money
The really interesting thing is that you've actually managed to find an economic chart without an inflection point to make argument about inflection points, which is quite an achievement! The trend line over the period displayed appears to be a noisy concave function with the noise attributable to economic cycles.
Although if you put a gun to my head any asked me to point to what looks most like an inflection point in this graph without an actual inflection point, I'd probably point to the steepening of the downslope of the curve around the millennium which doesn't seem to have much to do with leaving the gold standard or inflation being high....
Watching you pretend to understand the subject matter:
https://www.youtube.com/watch?v=2WZLJpMOxS4 https://www.youtube.com/watch?v=2WZLJpMOxS4