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> 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 - ea
> 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.
It is, indeed up to the person. But if you offer billionaires risk free gains from turning their billions into cash and burying it in the ground (quite literally at the expense of everyone else having to work harder to make up for it), even the ones that are willing to invest or lend need to extract more out of the poor to make it worth their while.
Again, when it's tautological the policy you are advocating gives the idle rich risk free real gains at the expense of the working poor, it is impossible to argue with a straight face that the implications are beneficial for equity and growth...
> 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.\
I am not sure why you are pretending that this was a period of sustained deflation though. Au contraire, the large increase to housing supply in the 1940s coincided with CPI being much higher than recent averages, driven in part by a relaxation in monetary policy to support war financing and full recovery from the Great Depression.[1]
We're not interested in reinventing the 1950s though, we're interested in how to achieve deflation. Since monetary base growth has an inverse relationship with interest rates, eliminating it implies structurally higher base interest rates, which implies homebuyers pay more money to the bank for the same house (which is almost guaranteed to be worth significantly less than its financing costs). No amount of inaccurate historical claims is going to dress that up as a progressive move that will make housing more affordable.
> 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?
Seriously, you'd rather live in the 1950s where according to the report there's a 5% chance you don't have a toilet, never mind extreme luxuries like a toilet or television. Well I guess at least aspiring to that lifestyle is consistent with your enthusiasm for policies that enrich the haves at the expense of the have nots...
[1]A Great Depression which is the last period to actually sees sustained price falls for more than a quarter or two, which was also the last period to see free convertibility of the USD to gold. It was a period of 25% unemployment...
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In deflation you're not fighting against the system, like you are with inflation. If you earn 0.001% on your money, you're seeing a net increase in your wealth. Your comment implies you were equating it with inflationary systems where you need to beat inflation just to stop losing money. So both the rich and poor constantly see their spending power increase. If a billionaire wants to bury all his money, he's only hurting himself.
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.
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.
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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. Such had already commenced by then, but it was relatively modest. The reason I think they did some things much better is because of the median standard of life. Somebody could go to university, buy a car, and graduate with enough squirreled away for the downpayment on their first home - on the back of a part time job. This is not a trope - I can cite the exact figures if you fancy.
This is a large part of the reason that the boomers were largely completely out of touch with modern economics, and wondered why people didn't just work harder, like they did. In any case, all of the arguments I'm making are even more pronounced if you go further back than the 50s (sans catastrophes of course), but then we get to economic eras that are more and more alien. The 50s still feels at least kind of 'real', though when you look at what they could afford on the median, it already feels a bit like make believe.
> 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