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So Keynesian economics forces everyone to invest in order to avoid the inflation tax while Austrian economics encourages saving allowing savers to reap the bene

by reedlaw 14y ago

So Keynesian economics forces everyone to invest in order to avoid the inflation tax while Austrian economics encourages saving allowing savers to reap the benefits of deflation. Both serve as proxies for the economy, so tell me again the downside of saving and prices going down over time?

zanny 14y ago
Money you are saving that isn't being used for monetary exchange is effectively dead weight in an economy. Due to modern inflation rates, nobody really "saves" in any modern economy by just hoarding fiat currency - and because of this, the vast majority of the monetary supply is being used for exchange and commerce, and you get peak utility of the currency that way. If you sit on money you get from the economy, you are taking it out of the exchange system as long as you don't spend it, which slows exchange.
- dreamdu5t 14y ago
  That money sits... forever? Prices don't respond to money being removed? Savings would still be invested with a fixed money supply, because investment provides a return whether nominal prices are falling or rising. Sound investments will account for either inflationary or deflationary trends, just as they do now.
  - stouset 14y ago
    Savings would be invested significantly less with a fixed money supply, because every possible alternative investment is statistically guaranteed to have a lower expected value than simply holding onto your money. Obviously, there are still going to be people who attempt to beat the market. But it will happen significantly less often since the "default" of holding onto your money is both the safest possible investment and the most optimal. This is clearly the case when nominal prices are falling. But when prices are rising, the reason they are rising is a contraction of the economy… and again, your money is still best left alone. Because while your investments might pay off when the economy rebounds, you'd still be statistically better off with your money sitting under the digital equivalent of your mattress; when the economy rebounds, prices will fall again, and your untouched money will be worth more in direct proportion to how much the economy has rebounded.

by reedlaw 14y ago

zanny 14y ago

Money you are saving that isn't being used for monetary exchange is effectively dead weight in an economy. Due to modern inflation rates, nobody really "saves" in any modern economy by just hoarding fiat currency - and because of this, the vast majority of the monetary supply is being used for exchange and commerce, and you get peak utility of the currency that way. If you sit on money you get from the economy, you are taking it out of the exchange system as long as you don't spend it, which slows exchange.

dreamdu5t 14y ago
That money sits... forever? Prices don't respond to money being removed? Savings would still be invested with a fixed money supply, because investment provides a return whether nominal prices are falling or rising. Sound investments will account for either inflationary or deflationary trends, just as they do now.
- stouset 14y ago
  Savings would be invested significantly less with a fixed money supply, because every possible alternative investment is statistically guaranteed to have a lower expected value than simply holding onto your money. Obviously, there are still going to be people who attempt to beat the market. But it will happen significantly less often since the "default" of holding onto your money is both the safest possible investment and the most optimal. This is clearly the case when nominal prices are falling. But when prices are rising, the reason they are rising is a contraction of the economy… and again, your money is still best left alone. Because while your investments might pay off when the economy rebounds, you'd still be statistically better off with your money sitting under the digital equivalent of your mattress; when the economy rebounds, prices will fall again, and your untouched money will be worth more in direct proportion to how much the economy has rebounded.