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Deflation in that sector has led to investment and growth. I would argue that the impetus is on you to prove that economics isn't scale-free. In other words,

Deflation in that sector has led to investment and growth. I would argue that the impetus is on you to prove that economics isn't scale-free. In other words, what works for an individual with thousands of dollars also works for a company with millions. I.e. that math doesn't change as the numbers get bigger. $1 + $1 is $2 the same as $100b + $100b = $200b. If an individual accrues wealth by saving and investing (how most people do it) that's basic arithmetic. Expenditures less than income over a period of time. Works for companies large and small. If we believe that this works at scales from the individual which is an organization of one person all the way up to organizations of hundreds of thousands or millions, why would it suddenly stop working that way once it's a "whole economy" that's nothing more than the organization of all individuals?

gnaritas 13y ago
Because economies aren't individuals, your spending is my income and my spending is your income. Household economics does not scale up to an economy, the rules for an economy are entirely different. And I don't have to prove anything, deflation has a well established meaning: reduction of the general level of prices in an economy. One or a few sectors dropping prices simply is not what economists mean when they talk about deflation. Now you're welcome to make up your own definitions of words, but then you're not really communicating with everyone else nor understanding what they're actually referring to since you're ignoring what they mean by those words.
nhaehnle 13y ago
You're running into a textbook case of the Fallacy of Composition. The essence is that the economy is full of feedback cycles. Your savings and spending decisions affect the size of the economy. Now, from an individual household perspective, your spending is only a drop in the bucket. It is small compared to the size of the economy, and it is small compared to the revenue of any individual firm. Any feedback effect your behavior may have is a rounding error compared to the sum of the effects of everybody else's behaviours. Therefore, it is reasonable to disregard the feedback effects when you make individual decisions. However, when you evaluate the economy as a whole, there is nobody else and the feedback effects are suddenly the dominant term. Disregarding those effects when making economy-wide policy decision is therefore a recipe for disaster.
- msandford 13y ago
  I'm not sure that the assumptions I've made are fallacious. I read the examples on the fallacy of composition and they are things like "if one runner runs faster they can win. so if all runners run faster, all can win" but I didn't say that. The original author made a very blanket, not at all specific statement about how "this leads to that" without any qualifications whatsoever. I have provided a specific counter-claim to that statement and asked for help reconciling. You can't just wave your hand and say "a whole economy is different than every other unit of organization in the world" just because. It's not as though my not spending money causes the economy to halt. The more I save the more bank deposits are available for banks to lend and spur further growth. This is one of the feedback cycles you've mentioned. This works at all scales so as anyone or everyone is not spending two things are happening in parallel: 1. bank deposits pile up which all things being equal will push the interest rate down 2. real resources (oil, steel, timber, etc) pile up or are not being actively consumed, thus making them available for use Then as the money loaned in 1 makes its way into the economy via loans, the real resources in 2 are readily available for those who secured the loans to make use of. I've just shown a situation where "deflation" leads to increased investment and growth rather than decreased. EDIT: If one person saves money, they can save money. Therefore if all people save money, all people can save money. That's the fallacy of composition I've supposedly made. There's a difference between "saving money" and "not spending any money at all, whatsoever" This is because even the most ardent saver would still have rent/mortgage, utilities, food, gas, insurance, clothing, etc. The necessities make up a large portion of what makes the world go 'round; nobody would stop eating for 6 months because they could buy twice as much bread in the summer for the same price. Furthermore bitcoin deflation isn't something that's guaranteed to happen forever, always no matter what. Many people are speculating in bitcoin right now the same way that investors speculate on a growing company, but that company's stock won't go up forever just because. At some point the exchange rate between bitcoin and the real economy will reach some kind of equilibrium and the price will level out.
  - deleted 13y ago
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  - nhaehnle 13y ago

gnaritas 13y ago

Because economies aren't individuals, your spending is my income and my spending is your income. Household economics does not scale up to an economy, the rules for an economy are entirely different. And I don't have to prove anything, deflation has a well established meaning: reduction of the general level of prices in an economy. One or a few sectors dropping prices simply is not what economists mean when they talk about deflation. Now you're welcome to make up your own definitions of words, but then you're not really communicating with everyone else nor understanding what they're actually referring to since you're ignoring what they mean by those words.

nhaehnle 13y ago

You're running into a textbook case of the Fallacy of Composition. The essence is that the economy is full of feedback cycles. Your savings and spending decisions affect the size of the economy. Now, from an individual household perspective, your spending is only a drop in the bucket. It is small compared to the size of the economy, and it is small compared to the revenue of any individual firm. Any feedback effect your behavior may have is a rounding error compared to the sum of the effects of everybody else's behaviours. Therefore, it is reasonable to disregard the feedback effects when you make individual decisions. However, when you evaluate the economy as a whole, there is nobody else and the feedback effects are suddenly the dominant term. Disregarding those effects when making economy-wide policy decision is therefore a recipe for disaster.

msandford 13y ago
I'm not sure that the assumptions I've made are fallacious. I read the examples on the fallacy of composition and they are things like "if one runner runs faster they can win. so if all runners run faster, all can win" but I didn't say that. The original author made a very blanket, not at all specific statement about how "this leads to that" without any qualifications whatsoever. I have provided a specific counter-claim to that statement and asked for help reconciling. You can't just wave your hand and say "a whole economy is different than every other unit of organization in the world" just because. It's not as though my not spending money causes the economy to halt. The more I save the more bank deposits are available for banks to lend and spur further growth. This is one of the feedback cycles you've mentioned. This works at all scales so as anyone or everyone is not spending two things are happening in parallel: 1. bank deposits pile up which all things being equal will push the interest rate down 2. real resources (oil, steel, timber, etc) pile up or are not being actively consumed, thus making them available for use Then as the money loaned in 1 makes its way into the economy via loans, the real resources in 2 are readily available for those who secured the loans to make use of. I've just shown a situation where "deflation" leads to increased investment and growth rather than decreased. EDIT: If one person saves money, they can save money. Therefore if all people save money, all people can save money. That's the fallacy of composition I've supposedly made. There's a difference between "saving money" and "not spending any money at all, whatsoever" This is because even the most ardent saver would still have rent/mortgage, utilities, food, gas, insurance, clothing, etc. The necessities make up a large portion of what makes the world go 'round; nobody would stop eating for 6 months because they could buy twice as much bread in the summer for the same price. Furthermore bitcoin deflation isn't something that's guaranteed to happen forever, always no matter what. Many people are speculating in bitcoin right now the same way that investors speculate on a growing company, but that company's stock won't go up forever just because. At some point the exchange rate between bitcoin and the real economy will reach some kind of equilibrium and the price will level out.
- deleted 13y ago
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- nhaehnle 13y ago