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Natural state of affairs? The G7 between them have been deflationary exactly twice in the last 100 or so years that we've been keeping good records on this. T

by jbooth 12y ago

Natural state of affairs? The G7 between them have been deflationary exactly twice in the last 100 or so years that we've been keeping good records on this. That's twice, for less than a decade each, in 700 country-years of economic experience. That includes time on the gold standard, time on fiat currency, pre-euro, post-euro, WWI, WWII and the cold war. Early industrial to post industrial, pre-computing and high frequency trading. Only a couple times through all those crazy situations was deflation a thing. So an extremely rare and divergent situation is the 'natural' state of affairs? Are we talking in the eating nuts and berries sense of natural here, or what?

toomuchtodo 12y ago
Japan has been in a deflationary state for the last ~20 years, yet they have what I think we could all consider a high quality of life.
- jbooth 12y ago
  Well, they've also got horrible growth and debt problems, but I was trying to point to probability of the scenario -- Japan is indeed one of the two cases I was thinking of but thanks for correcting me from a decade to ~~20 years (1995 will always be 10 years ago). So out of 700 country-years across the G7, we've got Japan deflationary for 20 with a mediocre-to-lousy economy, and the US deflationary for maybe 5 if we round up, during the great depression. From those datapoints, I'm supposed to conclude that deflationary at 25/700 is the 'natural' state of things, rather than exceptional, and additionally that it's a good place to be?
  - toomuchtodo 12y ago
    > From those datapoints, I'm supposed to conclude that deflationary at 25/700 is the 'natural' state of things, rather than exceptional, and additionally that it's a good place to be? I'm not sure what you're supposed to conclude. It appears, from my rough estimation, that as economies develop (as Japan's did, as the rest of the first world is currently) they'll reach an economic equilibrium which appears to be deflationary in nature. If you continue to become more and more productive, and there are only so many consumers and so much to consume in they physical world, prices should go down.
    - jbooth 12y ago
      Well, there's your rough estimation, and there's actual statistics recorded in, for instance, the G7 over the last 100 years[1]. They disagree. Did something change where this is the 'new normal' and I'm just misunderstanding you, or are you claiming all the statistics were recorded wrong? [1]You can use a different basket of countries if you want but changing political situations tend to overshadow the economics everywhere else.
  - sacado2 12y ago
    The G7 is not limited to US & Japan. Why don't you include those other 5 countries when talking about the great depression of the 1930s ? Why don't you include the 2008 and 2014 deflation in most of those countries ? Do so and you'll get close to 100 years. Now why do you limit your vision to 100 years ? Because you know this has been a period when inflation dominated more than ever ? For the bigger picture : http://upload.wikimedia.org/wikipedia/commons/thumb/2/20/US_Historical_Inflation_Ancient.svg/2000px-US_Historical_Inflation_Ancient.svg.png http://upload.wikimedia.org/wikipedia/commons/thumb/2/20/US_... Is inflation the norm, or is the period 1950-2000 an historical aberration ?
- collyw 12y ago
  The problem I see is the lost generation. Everything was set up expecting inflation. And a whole generation looses out on reasonable opportunities in life as result. A similar thing seems to be happening in Europe and the US.
  - toomuchtodo 12y ago
    What are considered "reasonable opportunities"?
    - collyw 12y ago
      Being able to afford pension payments that will result in a worthwhile retirement. Being able to afford an average house with an average wage. Being able to go to university without crippling debt.
carsongross 12y ago
Just think in simple terms: as technology allows us to produce more of what we want with less labor and time, ceteris paribus, prices should fall relative to our labor and time. A man gathering berries by hand makes for expensive berries. A man harvesting berries with basket and stick technology will make the price for them fall. What's true for this primitive example becomes even more powerful as you move up the production and technology chain: a woodworker with proper power tools can make chairs far more affordable to other people than someone working with simple hand tools can. So, yes, everything else being equal, the advance of technology will cause prices to decline over time and this is a natural and good thing. It's a measure of the level of corruption in economic discourse that this strikes intelligent people as a novel or insane concept.
- jbooth 12y ago
  Deflation doesn't mean a thing about prices of goods relative to our labor and time. It speaks to the nominal relationship between units of currency and prices of goods, labor, and time. Goods and labor are on the same side of the equation, although labor's price moves a little more slowly.
nostrademons 12y ago
Much of the late 19th century featured deflation: http://en.wikipedia.org/wiki/The_Great_Deflation http://en.wikipedia.org/wiki/The_Great_Deflation You could argue that the economic conditions today - a technological revolution, widespread social reorganization, whole industries replaced, and increasing automation - have much more in common with the late 19th century than with all of the 20th century.
- deleted 12y ago
  [deleted]

by jbooth 12y ago

toomuchtodo 12y ago

Japan has been in a deflationary state for the last ~20 years, yet they have what I think we could all consider a high quality of life.

jbooth 12y ago
Well, they've also got horrible growth and debt problems, but I was trying to point to probability of the scenario -- Japan is indeed one of the two cases I was thinking of but thanks for correcting me from a decade to ~~20 years (1995 will always be 10 years ago). So out of 700 country-years across the G7, we've got Japan deflationary for 20 with a mediocre-to-lousy economy, and the US deflationary for maybe 5 if we round up, during the great depression. From those datapoints, I'm supposed to conclude that deflationary at 25/700 is the 'natural' state of things, rather than exceptional, and additionally that it's a good place to be?
- toomuchtodo 12y ago
  > From those datapoints, I'm supposed to conclude that deflationary at 25/700 is the 'natural' state of things, rather than exceptional, and additionally that it's a good place to be? I'm not sure what you're supposed to conclude. It appears, from my rough estimation, that as economies develop (as Japan's did, as the rest of the first world is currently) they'll reach an economic equilibrium which appears to be deflationary in nature. If you continue to become more and more productive, and there are only so many consumers and so much to consume in they physical world, prices should go down.
  - jbooth 12y ago
    Well, there's your rough estimation, and there's actual statistics recorded in, for instance, the G7 over the last 100 years[1]. They disagree. Did something change where this is the 'new normal' and I'm just misunderstanding you, or are you claiming all the statistics were recorded wrong? [1]You can use a different basket of countries if you want but changing political situations tend to overshadow the economics everywhere else.
- sacado2 12y ago
  The G7 is not limited to US & Japan. Why don't you include those other 5 countries when talking about the great depression of the 1930s ? Why don't you include the 2008 and 2014 deflation in most of those countries ? Do so and you'll get close to 100 years. Now why do you limit your vision to 100 years ? Because you know this has been a period when inflation dominated more than ever ? For the bigger picture : http://upload.wikimedia.org/wikipedia/commons/thumb/2/20/US_Historical_Inflation_Ancient.svg/2000px-US_Historical_Inflation_Ancient.svg.png http://upload.wikimedia.org/wikipedia/commons/thumb/2/20/US_... Is inflation the norm, or is the period 1950-2000 an historical aberration ?
collyw 12y ago
The problem I see is the lost generation. Everything was set up expecting inflation. And a whole generation looses out on reasonable opportunities in life as result. A similar thing seems to be happening in Europe and the US.
- toomuchtodo 12y ago
  What are considered "reasonable opportunities"?
  - collyw 12y ago
    Being able to afford pension payments that will result in a worthwhile retirement. Being able to afford an average house with an average wage. Being able to go to university without crippling debt.

carsongross 12y ago

Just think in simple terms: as technology allows us to produce more of what we want with less labor and time, ceteris paribus, prices should fall relative to our labor and time. A man gathering berries by hand makes for expensive berries. A man harvesting berries with basket and stick technology will make the price for them fall. What's true for this primitive example becomes even more powerful as you move up the production and technology chain: a woodworker with proper power tools can make chairs far more affordable to other people than someone working with simple hand tools can. So, yes, everything else being equal, the advance of technology will cause prices to decline over time and this is a natural and good thing. It's a measure of the level of corruption in economic discourse that this strikes intelligent people as a novel or insane concept.

jbooth 12y ago
Deflation doesn't mean a thing about prices of goods relative to our labor and time. It speaks to the nominal relationship between units of currency and prices of goods, labor, and time. Goods and labor are on the same side of the equation, although labor's price moves a little more slowly.

nostrademons 12y ago

Much of the late 19th century featured deflation: http://en.wikipedia.org/wiki/The_Great_Deflation http://en.wikipedia.org/wiki/The_Great_Deflation You could argue that the economic conditions today - a technological revolution, widespread social reorganization, whole industries replaced, and increasing automation - have much more in common with the late 19th century than with all of the 20th century.

deleted 12y ago
[deleted]