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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

by 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.

by jtc331 14y ago

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.