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>>>Since technological advancement tends to make it easier to produce "things" in real terms, a perfect currency reflects this and makes time preference inheren

>>>Since technological advancement tends to make it easier to produce "things" in real terms, a perfect currency reflects this and makes time preference inherently valuable. This in turn forces the producers of goods and services to innovate in order to attract your economic surplus from under the mattress and into their cash registers, since not spending your economic surplus is in fact to your advantage. That. As production costs lower prices, money should increase in value just by sitting in your damn wallet. Not lose value. EDIT at add: Blah blah oil shortage, oil price increases, prices increase downstream. But we've been ripping oil out via fracking and if you believe the PR, oil should be plummeting in price. Somehow, it's only in clear-cut cases like manufacturing that prices can actually decrease.

kintamanimatt 14y ago
That's essentially deflation and is generally regarded as a very bad thing. Nice write-up by Krugman: http://krugman.blogs.nytimes.com/2010/08/02/why-is-deflation-bad/ http://krugman.blogs.nytimes.com/2010/08/02/why-is-deflation...
- jbooth 14y ago
  Shorter explanation of why deflation is bad: If your cash is increasing in value (because of deflation), then it's a smarter financial move to stuff cash under a mattress than to spend or invest it. This is why most economists think 1-5% inflation is about the sweet spot.
  - ghgr 14y ago
    Not necessarily if your investment generates Bitcoin (for example, it is wiser to invest in mining equipment rather than stuff BTC under the mattress)
  - VMG 14y ago
    Short rebuttal: a world in which people starve in deprivation on top of a cash-filled mattress is improbable.
    - kintamanimatt 14y ago
      It's just as likely, and in fact far more likely as the economy would radically slow as the velocity of money slows. As a consequence, unemployment would increase, fewer taxes would be paid (shrinking safety net, crumbling infrastructure, etc) and people would run out of cash, thereby increasing the likelihood of being unable to meet current expenses. Slight inflation is good and keeps the economy healthy.
      - VMG 14y ago
        I guess it depends on the perspective. I believe there are other ways to keep people employed and maintain infrastructure than to devalue savings. Fortunately, nobody forces you to participate in deflationary currencies.
        kintamanimatt 14y ago
        Savings only decrease in value when they're not exposed to some risk. Cash in a safe is going to devalue at the rate of inflation because it's exposed to (almost) no risk. Cash in a savings account is exposed to minimal risk and (at least in the UK and NL) can see interest rates at about the same rate as inflation. The more risk the capital is exposed to, the greater the return.
      - magoghm 14y ago
        A healthy economy is an economy which produces goods and services that people need and are able to buy. Although a high velocity of money might be an indicator of a healthy economy, it doesn't mean that using tricks like inflation to increase the velocity of money will produce a healthier economy. Inflation is an incentive to spend your money on stuff you don't really need, that might give the illusion of a healthy economy but you're just killing savings (which are the best safety net there is) and inducing a misallocation of productive resources.
        kintamanimatt 14y ago
        > Inflation is an incentive to spend your money on stuff you don't really need Most of the purchases we make are not to satisfy core needs, but wants. You buy slightly more expensive delicious foods instead of cheaper boring foods. You strive to live in a decent environment rather than a mud hut because the former is more pleasant than the latter. You buy things or experiences that are unnecessary to survival, but bring some form of happiness. (Research, has, however shown that buying experiences leads to greater happiness than buying tangible goods!) The list goes on. We do this in part because because we have dopamine. Eliminate dopamine and we not only struggle to feel pleasure, but our brains also stop functioning properly. Nobody ever says it, but inflation is really a good thing because of the way our brains are wired up. > you're just killing savings (which are the best safety net there is) Some savings are good to smooth out the bumps in the road, but when people save too aggressively people reduce their spending and the economy also slows. When the economy slows, you're more likely to find yourself out of work and having to use those savings so you don't end up living in that mud hut! > and inducing a misallocation of productive resources Your conclusion is a non sequitur.
  - mikecane 14y ago
    Something is very wrong in economics. Falling prices increase the standard of living and spread prosperity. This is what built America. I can't help but think this is a con game being played on us when people call it "deflation." If they had advised Henry Ford, he wouldn't increased wages to his employees and dropped the price of his car. There are also many unexpected events that would make you spend money: Pregnancy, illness, a Shiny New Thing, etc. Amazon would have kept its cloud services prices high too. I lived through the stagflation of the 1970s. There is no way in hell people can ever convince me inflation is a good thing.
    - drharris 14y ago
      I think you're only looking from a consumer perspective, not a business perspective. What is my incentive to start a business when it's constantly a race to the bottom? Furthermore, why invest in a business? It'd be stupid to put $1000 in an investment when the spending power of that money will only increase over time, and you'll never get your money back. No, I don't think you'll find many economists who like deflation. It doesn't spread prosperity, it spreads laziness.
      - mikecane 14y ago
        Then explain to me why Bezos has no problem constantly cutting prices for his cloud services. Why Jobs priced the iPad at $499 for the base model when even he acknowledged the buzz was $999 -- and he might have even gotten that. >>>It'd be stupid to put $1000 in an investment when the spending power of that money will only increase over time, and you'll never get your money back. How do you know you'll never get it back? The entire point of investing is to make money faster than via labor or interest or prices artificially increasing (a bubble).
        jbooth 14y ago
        He's cutting prices, but we are not in a deflationary environment. I think you're a little mixed up on the definitions of "inflation" and "deflation".
  - magoghm 14y ago
    When you spend money on some good or service it is because you expect to receive some benefit from the use of that good or service, and you value more that benefit than the money you spent on it. If you delay buying some good or service, because you expect it to become cheaper later on, then you are also depriving yourself of the benefit you expect from it. So, in a deflationary environment, you'll only delay buying something if you think that the money that you save is worth more than what you're losing from not enjoying the benefits of that product for that amount of time. You need to eat to stay alive, and staying alive is more important to you than saving money, so food purchases won't be delayed very long. You don't need to play video games to stay alive, so you can wait for a couple of years to buy a video game when it becomes cheaper; some people do it to save money while other people decide that they prefer to pay more and be able to play that new video game right away (some even pay a premium if it is sold out, even though they know they could pay regular price by waiting a few days).
    - psionski 14y ago
      Plus, since my money is constantly increasing in value, I can buy something "useless" every month and still have the same amount of money. Inflationary money I stick in deposits so I loose a little less than usual, deflationary - I spend.
      - ckrailo 14y ago
        I think you got the idea confused and/or backwards. You don't have to buy useless things in a deflationary economy. By not spending, you have more buying power for when you do decide to spend (holding all other variables constant, which isn't real-world truth). Thus, inaction is more profitable than "useless" actions/goods/services. In an inflationary economy, you stick money into deposits (instead of under your mattress) because you lose less that way. These deposits are used by banks to fund loans. These deposits probably guarantee a very low but fixed interest rate (such as 0.1%), which makes a tiny dent in how much you lose due to inflation. They also make the bank lots of profit when they do well and are insured against you losing any money (except by inflation, of course) as long as your deposits total <$100k.
- jtc331 14y ago
  First of all, Krugman is a hack. Regardless of which system of economics you subscribe to. Second, and more importantly, the idea that deflation is a bad thing because it encourages saving (derisively called hoarding) is not at all accepted by Austrian economics. Rather, saving is actually a Good Thing because savings is the source of investment.
  - kintamanimatt 14y ago
    Why is Krugman a hack? An excessive increase in savings causes a reduction in spending which causes the economy to slow which causes people to use their savings. Savings aren't really an investment, or at least not a very good one. The utility of savings is to smooth out changes in expenditures in relation to income. Some savings are good as a cushion to protect against temporary declines in income, in the same way body fat was a good way for our ancestors to maintain their energy expenditures when their food intake was insufficient (in the short term). Savings aren't an investment because the return they're expected to yield is not greater than inflation. This is why someone says they "invested" in something that should ordinarily be considered an expense, you know they're making bad financial decisions.
  - leot 14y ago
    "Hoarding" and "Investing" are usefully different (if informal) terms, because they distinguish between very different uses of capital. "Hoarding" consists of putting all one's assets into extremely conservative classes (gold, cash, vast parcels of real estate in the middle of nowhere) or otherwise removing it from the economy (a yacht that's never rented out and rarely used), thereby depriving useful capital from the economy (e.g., perhaps the "saver" is too lazy or stupid to do anything profitable with the land they own, and they are just holding it as an inflation hedge; or perhaps the yacht is only important as a symbol of status). "Investing" means making one's capital available to others in exchange for a return and thereby supporting economic exchange and development. In a finite world, "hoarding" increases one's relative wealth (the multiple by which one is wealthier than, say, the median person) at the expense of most everyone else. "Investing" increases wealth overall, but in doing so decreases one's relative wealth. Any idiot can hoard; and if an individual cannot invest in order to reliably earn a return that beats 1-5% inflation, it's a wonder they have the money at all in the first place.
venomsnake 14y ago
Money should increase in value only in debt/interest free society. If you have in the economy debts deflation is bad idea. Economy is positive feedback loops mostly. Exponential function is a bitch to control in the real world.

kintamanimatt 14y ago

That's essentially deflation and is generally regarded as a very bad thing. Nice write-up by Krugman: http://krugman.blogs.nytimes.com/2010/08/02/why-is-deflation-bad/ http://krugman.blogs.nytimes.com/2010/08/02/why-is-deflation...

jbooth 14y ago
Shorter explanation of why deflation is bad: If your cash is increasing in value (because of deflation), then it's a smarter financial move to stuff cash under a mattress than to spend or invest it. This is why most economists think 1-5% inflation is about the sweet spot.
- ghgr 14y ago
  Not necessarily if your investment generates Bitcoin (for example, it is wiser to invest in mining equipment rather than stuff BTC under the mattress)
- VMG 14y ago
  Short rebuttal: a world in which people starve in deprivation on top of a cash-filled mattress is improbable.
  - kintamanimatt 14y ago
    It's just as likely, and in fact far more likely as the economy would radically slow as the velocity of money slows. As a consequence, unemployment would increase, fewer taxes would be paid (shrinking safety net, crumbling infrastructure, etc) and people would run out of cash, thereby increasing the likelihood of being unable to meet current expenses. Slight inflation is good and keeps the economy healthy.
    - VMG 14y ago
      I guess it depends on the perspective. I believe there are other ways to keep people employed and maintain infrastructure than to devalue savings. Fortunately, nobody forces you to participate in deflationary currencies.
      - kintamanimatt 14y ago
        Savings only decrease in value when they're not exposed to some risk. Cash in a safe is going to devalue at the rate of inflation because it's exposed to (almost) no risk. Cash in a savings account is exposed to minimal risk and (at least in the UK and NL) can see interest rates at about the same rate as inflation. The more risk the capital is exposed to, the greater the return.
    - magoghm 14y ago
      A healthy economy is an economy which produces goods and services that people need and are able to buy. Although a high velocity of money might be an indicator of a healthy economy, it doesn't mean that using tricks like inflation to increase the velocity of money will produce a healthier economy. Inflation is an incentive to spend your money on stuff you don't really need, that might give the illusion of a healthy economy but you're just killing savings (which are the best safety net there is) and inducing a misallocation of productive resources.
      - kintamanimatt 14y ago
        > Inflation is an incentive to spend your money on stuff you don't really need Most of the purchases we make are not to satisfy core needs, but wants. You buy slightly more expensive delicious foods instead of cheaper boring foods. You strive to live in a decent environment rather than a mud hut because the former is more pleasant than the latter. You buy things or experiences that are unnecessary to survival, but bring some form of happiness. (Research, has, however shown that buying experiences leads to greater happiness than buying tangible goods!) The list goes on. We do this in part because because we have dopamine. Eliminate dopamine and we not only struggle to feel pleasure, but our brains also stop functioning properly. Nobody ever says it, but inflation is really a good thing because of the way our brains are wired up. > you're just killing savings (which are the best safety net there is) Some savings are good to smooth out the bumps in the road, but when people save too aggressively people reduce their spending and the economy also slows. When the economy slows, you're more likely to find yourself out of work and having to use those savings so you don't end up living in that mud hut! > and inducing a misallocation of productive resources Your conclusion is a non sequitur.
- mikecane 14y ago
  Something is very wrong in economics. Falling prices increase the standard of living and spread prosperity. This is what built America. I can't help but think this is a con game being played on us when people call it "deflation." If they had advised Henry Ford, he wouldn't increased wages to his employees and dropped the price of his car. There are also many unexpected events that would make you spend money: Pregnancy, illness, a Shiny New Thing, etc. Amazon would have kept its cloud services prices high too. I lived through the stagflation of the 1970s. There is no way in hell people can ever convince me inflation is a good thing.
  - drharris 14y ago
    I think you're only looking from a consumer perspective, not a business perspective. What is my incentive to start a business when it's constantly a race to the bottom? Furthermore, why invest in a business? It'd be stupid to put $1000 in an investment when the spending power of that money will only increase over time, and you'll never get your money back. No, I don't think you'll find many economists who like deflation. It doesn't spread prosperity, it spreads laziness.
    - mikecane 14y ago
      Then explain to me why Bezos has no problem constantly cutting prices for his cloud services. Why Jobs priced the iPad at $499 for the base model when even he acknowledged the buzz was $999 -- and he might have even gotten that. >>>It'd be stupid to put $1000 in an investment when the spending power of that money will only increase over time, and you'll never get your money back. How do you know you'll never get it back? The entire point of investing is to make money faster than via labor or interest or prices artificially increasing (a bubble).
      - jbooth 14y ago
        He's cutting prices, but we are not in a deflationary environment. I think you're a little mixed up on the definitions of "inflation" and "deflation".
- magoghm 14y ago
  When you spend money on some good or service it is because you expect to receive some benefit from the use of that good or service, and you value more that benefit than the money you spent on it. If you delay buying some good or service, because you expect it to become cheaper later on, then you are also depriving yourself of the benefit you expect from it. So, in a deflationary environment, you'll only delay buying something if you think that the money that you save is worth more than what you're losing from not enjoying the benefits of that product for that amount of time. You need to eat to stay alive, and staying alive is more important to you than saving money, so food purchases won't be delayed very long. You don't need to play video games to stay alive, so you can wait for a couple of years to buy a video game when it becomes cheaper; some people do it to save money while other people decide that they prefer to pay more and be able to play that new video game right away (some even pay a premium if it is sold out, even though they know they could pay regular price by waiting a few days).
  - psionski 14y ago
    Plus, since my money is constantly increasing in value, I can buy something "useless" every month and still have the same amount of money. Inflationary money I stick in deposits so I loose a little less than usual, deflationary - I spend.
    - ckrailo 14y ago
      I think you got the idea confused and/or backwards. You don't have to buy useless things in a deflationary economy. By not spending, you have more buying power for when you do decide to spend (holding all other variables constant, which isn't real-world truth). Thus, inaction is more profitable than "useless" actions/goods/services. In an inflationary economy, you stick money into deposits (instead of under your mattress) because you lose less that way. These deposits are used by banks to fund loans. These deposits probably guarantee a very low but fixed interest rate (such as 0.1%), which makes a tiny dent in how much you lose due to inflation. They also make the bank lots of profit when they do well and are insured against you losing any money (except by inflation, of course) as long as your deposits total <$100k.
jtc331 14y ago
First of all, Krugman is a hack. Regardless of which system of economics you subscribe to. Second, and more importantly, the idea that deflation is a bad thing because it encourages saving (derisively called hoarding) is not at all accepted by Austrian economics. Rather, saving is actually a Good Thing because savings is the source of investment.
- kintamanimatt 14y ago
  Why is Krugman a hack? An excessive increase in savings causes a reduction in spending which causes the economy to slow which causes people to use their savings. Savings aren't really an investment, or at least not a very good one. The utility of savings is to smooth out changes in expenditures in relation to income. Some savings are good as a cushion to protect against temporary declines in income, in the same way body fat was a good way for our ancestors to maintain their energy expenditures when their food intake was insufficient (in the short term). Savings aren't an investment because the return they're expected to yield is not greater than inflation. This is why someone says they "invested" in something that should ordinarily be considered an expense, you know they're making bad financial decisions.
- leot 14y ago
  "Hoarding" and "Investing" are usefully different (if informal) terms, because they distinguish between very different uses of capital. "Hoarding" consists of putting all one's assets into extremely conservative classes (gold, cash, vast parcels of real estate in the middle of nowhere) or otherwise removing it from the economy (a yacht that's never rented out and rarely used), thereby depriving useful capital from the economy (e.g., perhaps the "saver" is too lazy or stupid to do anything profitable with the land they own, and they are just holding it as an inflation hedge; or perhaps the yacht is only important as a symbol of status). "Investing" means making one's capital available to others in exchange for a return and thereby supporting economic exchange and development. In a finite world, "hoarding" increases one's relative wealth (the multiple by which one is wealthier than, say, the median person) at the expense of most everyone else. "Investing" increases wealth overall, but in doing so decreases one's relative wealth. Any idiot can hoard; and if an individual cannot invest in order to reliably earn a return that beats 1-5% inflation, it's a wonder they have the money at all in the first place.

venomsnake 14y ago

Money should increase in value only in debt/interest free society. If you have in the economy debts deflation is bad idea. Economy is positive feedback loops mostly. Exponential function is a bitch to control in the real world.