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This is based on feelings and not fact, just the response to what I've read in this post, and these comments. Your insights make me feel that a deflationary ec

by sosuke 12y ago

This is based on feelings and not fact, just the response to what I've read in this post, and these comments. Your insights make me feel that a deflationary economy might be better, we're always running, rushing, we can't stop, we have to work harder all the time. To not move forward is to make less money, to be able to not afford this year what you could last year because the peg is always moving. A deflationary environment still rewards workers, because the dollars are worth more, but doesn't punish you for not constantly struggling. If you've gotten a house and you're happy where you are you won't have to worry about not being able to afford it in the future. Without being able to get into debt we would be forced to learn good saving habits. In this inflationary environment, with a limited savings and limited ability to invest my value is constantly going down no matter how hard I work or how much I learn I am worth less every day than I was the day before. My minutes are worth less, my hours, my free time is worthless now. If you don't job hop, stay in one spot, if you made $100k as a software dev in the 90s, which wasn't out of the question, and you still make $100k now, you're making a whole lot less money.

robotcookies 12y ago
"A deflationary environment still rewards workers, because the dollars are worth more, but doesn't punish you for not constantly struggling." It's true you get a small raise each year. But from the business owner's perspective, their costs go up each year. The salary stays the same number but you're paying them more. As you can charge less for your products (deflation means prices fall), you get less money to pay your employee with. So how do you stay in business? And your employees find it hard to leave because other companies can't match their salary. So it hurts the flexibility of labor to move to more suitable jobs. The result is a stifling and suffocating business environment. Many companies go out of business during deflation.
- sosuke 12y ago
  So assuming consumption doesn't increase in step with deflation, you'd have to give employees pay cuts. That would be very strange indeed.
  - mikeyouse 12y ago
    Exactly. Unfortunately for those employees, their mortgages, student loans, and credit cards are all based on nominal amounts so suddenly they're earning less to service the same amount of debt.
ChuckMcM 12y ago
So let's say you are an entrepreneur and you want to open a small business. You need a small loan to cover your startup costs which you can repay with your proceeds. And flip the coin, you are a bank with cash in your vault which is basically the depositors money. Now as the bank your deposits become more valuable by doing nothing, than they do by lending them out to the entrepreneur to start his business. So you go with the 'safe' choice, you sit on the money. The Entrepreneur either can't get a loan, or has to pay an extortionate interest rate because the bank doesn't care, if they don't lend they win. People stop buying large purchases like dryers or refrigerators because if they just wait long enough the price will come down and they can get a much better refrigerator for their money. So large appliances and other large investments (cars for example) sit unsold, that idles factory workers since there is plenty of stock in the market place. So they get laid off. Deflation has the effect of contracting the economy, modest inflation tends to expand it.
- sosuke 12y ago
  I guess this would become circular because I'm not well enough informed. Because if the dollar value goes up, the startup costs are less. The argument to wait for the money value to increase applies to the entrepreneur in this case too. I don't agree that people will go without clean clothes, or food storage today to save a dollar tomorrow. I've thought about cars as well, car costs don't go up year over year, you get more for less value theoretically, why would the price go down? The view that deflation is bad seems to always henge on a dramatic fall in prices and increase in the dollar value. Inflation doesn't work that way, it is very slow year to year, why would deflation be different?
- mindslight 12y ago
  The bank does not give you a loan, as your business itself does not function as collateral and any capital equipment you bought is worth half as surplus. Instead, they prefer low risk loans that can be turned into zero risk via financial magic. Furthermore, you only needed the loan in the first place because despite material living expenses being at an all time low, housing rent is at an all time high (thanks to those zero risk loans!) and you do not wish to squander the little savings you have. Your employer dismisses your idea of working 16 hours a week because it would simply confuse them and there is a long line of people still willing to work 50. You either keep your day job and forget about your idea, bootstrap while being distracted with a separate consulting business, or set out for the Silicon Valley Casino where you will possibly win 5% of $1B or more likely 5% of $0B.
anigbrowl 12y ago
Your insights make me feel that a deflationary economy might be better It's a superficially attractive option because who doesn't like stuff getting cheaper? but before long that turns into wage cuts or layoffs because there's less and less money to pay people with. If you've gotten a house and you're happy where you are you won't have to worry about not being able to afford it in the future. Sure - deflation is great if you already have all the fixed assets you want and are not dependent on cash flow. If you don't, it's just as bad as runaway inflation. If you have debt, it's a lot worse.

by sosuke 12y ago

robotcookies 12y ago

"A deflationary environment still rewards workers, because the dollars are worth more, but doesn't punish you for not constantly struggling." It's true you get a small raise each year. But from the business owner's perspective, their costs go up each year. The salary stays the same number but you're paying them more. As you can charge less for your products (deflation means prices fall), you get less money to pay your employee with. So how do you stay in business? And your employees find it hard to leave because other companies can't match their salary. So it hurts the flexibility of labor to move to more suitable jobs. The result is a stifling and suffocating business environment. Many companies go out of business during deflation.

sosuke 12y ago
So assuming consumption doesn't increase in step with deflation, you'd have to give employees pay cuts. That would be very strange indeed.
- mikeyouse 12y ago
  Exactly. Unfortunately for those employees, their mortgages, student loans, and credit cards are all based on nominal amounts so suddenly they're earning less to service the same amount of debt.

ChuckMcM 12y ago

So let's say you are an entrepreneur and you want to open a small business. You need a small loan to cover your startup costs which you can repay with your proceeds. And flip the coin, you are a bank with cash in your vault which is basically the depositors money. Now as the bank your deposits become more valuable by doing nothing, than they do by lending them out to the entrepreneur to start his business. So you go with the 'safe' choice, you sit on the money. The Entrepreneur either can't get a loan, or has to pay an extortionate interest rate because the bank doesn't care, if they don't lend they win. People stop buying large purchases like dryers or refrigerators because if they just wait long enough the price will come down and they can get a much better refrigerator for their money. So large appliances and other large investments (cars for example) sit unsold, that idles factory workers since there is plenty of stock in the market place. So they get laid off. Deflation has the effect of contracting the economy, modest inflation tends to expand it.

sosuke 12y ago
I guess this would become circular because I'm not well enough informed. Because if the dollar value goes up, the startup costs are less. The argument to wait for the money value to increase applies to the entrepreneur in this case too. I don't agree that people will go without clean clothes, or food storage today to save a dollar tomorrow. I've thought about cars as well, car costs don't go up year over year, you get more for less value theoretically, why would the price go down? The view that deflation is bad seems to always henge on a dramatic fall in prices and increase in the dollar value. Inflation doesn't work that way, it is very slow year to year, why would deflation be different?
mindslight 12y ago
The bank does not give you a loan, as your business itself does not function as collateral and any capital equipment you bought is worth half as surplus. Instead, they prefer low risk loans that can be turned into zero risk via financial magic. Furthermore, you only needed the loan in the first place because despite material living expenses being at an all time low, housing rent is at an all time high (thanks to those zero risk loans!) and you do not wish to squander the little savings you have. Your employer dismisses your idea of working 16 hours a week because it would simply confuse them and there is a long line of people still willing to work 50. You either keep your day job and forget about your idea, bootstrap while being distracted with a separate consulting business, or set out for the Silicon Valley Casino where you will possibly win 5% of $1B or more likely 5% of $0B.

anigbrowl 12y ago

Your insights make me feel that a deflationary economy might be better It's a superficially attractive option because who doesn't like stuff getting cheaper? but before long that turns into wage cuts or layoffs because there's less and less money to pay people with. If you've gotten a house and you're happy where you are you won't have to worry about not being able to afford it in the future. Sure - deflation is great if you already have all the fixed assets you want and are not dependent on cash flow. If you don't, it's just as bad as runaway inflation. If you have debt, it's a lot worse.