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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 increa

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.
  - magoghm 14y ago
    When savings go up there is more capital to invest in new ventures, interest rates go down (more money chasing investment opportunities) and it signals the markets that it is a good time to take risks. When savings go down, interest rates go up and it signals the markets that it is a bad time to take risks. Inflation distorts those signals and makes people take risks when there aren't enough savings to justify those risks. High risks and low savings are a recipe for disaster.
    - jbooth 14y ago
      If your money appreciates in value just by sitting there, why invest? It's the ultimate argument against investing. Take the sure thing, especially in a rough economy. Similarly, you know how we always hear that people put out of work by new technology should move up the value chain? Where they gonna move to if people aren't buying things? Wants as opposed to needs are the sign of economic progress.
    - 14y ago
jbooth 14y ago
Just as likely in theory and proven out in the real world in practice. Deflation is rare but this is what happens.

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.
- magoghm 14y ago
  When savings go up there is more capital to invest in new ventures, interest rates go down (more money chasing investment opportunities) and it signals the markets that it is a good time to take risks. When savings go down, interest rates go up and it signals the markets that it is a bad time to take risks. Inflation distorts those signals and makes people take risks when there aren't enough savings to justify those risks. High risks and low savings are a recipe for disaster.
  - jbooth 14y ago
    If your money appreciates in value just by sitting there, why invest? It's the ultimate argument against investing. Take the sure thing, especially in a rough economy. Similarly, you know how we always hear that people put out of work by new technology should move up the value chain? Where they gonna move to if people aren't buying things? Wants as opposed to needs are the sign of economic progress.
  - 14y ago

jbooth 14y ago

Just as likely in theory and proven out in the real world in practice. Deflation is rare but this is what happens.