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Steady deflation is natural and good. As technology and business grow more productive prices generally fall. Prices fell for most of the 1800s (pre central ba

Steady deflation is natural and good. As technology and business grow more productive prices generally fall. Prices fell for most of the 1800s (pre central bank). The problematic deflation associated with depressions is simply the consequence of fiat money credit bubbles collapsing. That deflation is an indictment of artificial interest rates and fiat money.

ubernostrum 17y ago
But a gold standard, today, wouldn't produce steady deflation, so you're not really arguing with what I said. (a gold standard, in this modern world, would tend to produce periods of wild price fluctuation, ending with a significant deflation from the previous status quo)
- kingkongreveng_ 17y ago
  Yes, gold money would result in steady deflation as the economy grows. We have wild price swings now. Look at chart of any major commodity over the last 10 years. Gold would stabilize it as there would be no hot money flows on a gold standard.
  - ubernostrum 17y ago
    I've explained this before, and probably will have to explain it again: http://news.ycombinator.com/item?id=629390 http://news.ycombinator.com/item?id=629390 If you're right, basic economics is wrong. More likely, basic economics is right and you're wrong.
    - kingkongreveng_ 17y ago
      You didn't explain anything. Why would the value of a constant amount of money increasing in proportion to productivity growth lead to "wild fluctuations"?
      - ubernostrum 17y ago
        You seem to take it as given that the opposite imbalance (rapid inflation) would lead to wild fluctuations. I'm inclined to agree, since actual prices do not move in perfect lockstep and there will be a great deal of uncertainty in all markets. But that's the same as an admission that rapid deflation (a necessary consequence of the effectively fixed amount of gold) would do so as well. This is true because, logically, the effects of either type of imbalance should be similar, with the only difference being the direction of the final stable point (up in the case of inflation, down in the case of deflation).
        rsheridan6 17y ago
        The US economy grows by about 3% a year, give or take a point. With gold money and a constant supply of gold, I fail to see why this would lead to "wild" deflation. It seems that deflation should mirror economic growth, which is hardly wild.
        ubernostrum 17y ago
        The problem isn't the average year over year. The problem is the outliers: we live in a modern world where massively game-changing events can occur and spawn whole new industries almost overnight without correspondingly wiping out old industries in the same time period (once such event -- the Internet -- is how you're talking to me right now). These events cause sudden huge upward swings in available goods and services, while gold remains stable. The only thing that can happen to a gold-standard economy in such a situation is crippling deflation.
        rsheridan6 17y ago
        I didn't see this for a week so you probably won't either, but here goes: Productivity has grown a few percentage points a year, give or take, consistently, for a long, long time. One industry may boom for a decade, but the economy as a whole is relatively stable. I'm still not seeing anything wild.
  - fexl 17y ago
    Here's a CPI (estimate) chart going back to 1784: http://nothirdsolution.com/wp/wp-content/uploads/2008/07/cpi.bmp http://nothirdsolution.com/wp/wp-content/uploads/2008/07/cpi... When the dollar was defined as a specific mass of gold, the prices of goods tended to fall slightly each year, which is what you would expect with productivity gains. With inflation you lose not only the nominal inflation rate, but also the wealth-enhancing effects of those productivity gains. "That which is seen, and that which is not seen." The use of coercion, including war, forced devaluation, asset seizure, and forced centralization of financial services, results in wild price inflation, volatility, bubbles, and crashes. This is because coercion moves wealth to its least productive use and hampers the discovery of true prices. For another example of increased price volatility, see this 200 year chart of the Dow/Gold ratio: http://www.sharelynx.com/chartstemp/DowGoldRatio.php http://www.sharelynx.com/chartstemp/DowGoldRatio.php Note well that you're looking at a logarithmic chart there, so the wild swings you see after about 1920 or so represent actual, sickening, and deadly phenomena and are not just optical illusions.

ubernostrum 17y ago

But a gold standard, today, wouldn't produce steady deflation, so you're not really arguing with what I said. (a gold standard, in this modern world, would tend to produce periods of wild price fluctuation, ending with a significant deflation from the previous status quo)

kingkongreveng_ 17y ago
Yes, gold money would result in steady deflation as the economy grows. We have wild price swings now. Look at chart of any major commodity over the last 10 years. Gold would stabilize it as there would be no hot money flows on a gold standard.
- ubernostrum 17y ago
  I've explained this before, and probably will have to explain it again: http://news.ycombinator.com/item?id=629390 http://news.ycombinator.com/item?id=629390 If you're right, basic economics is wrong. More likely, basic economics is right and you're wrong.
  - kingkongreveng_ 17y ago
    You didn't explain anything. Why would the value of a constant amount of money increasing in proportion to productivity growth lead to "wild fluctuations"?
    - ubernostrum 17y ago
      You seem to take it as given that the opposite imbalance (rapid inflation) would lead to wild fluctuations. I'm inclined to agree, since actual prices do not move in perfect lockstep and there will be a great deal of uncertainty in all markets. But that's the same as an admission that rapid deflation (a necessary consequence of the effectively fixed amount of gold) would do so as well. This is true because, logically, the effects of either type of imbalance should be similar, with the only difference being the direction of the final stable point (up in the case of inflation, down in the case of deflation).
      - rsheridan6 17y ago
        The US economy grows by about 3% a year, give or take a point. With gold money and a constant supply of gold, I fail to see why this would lead to "wild" deflation. It seems that deflation should mirror economic growth, which is hardly wild.
        ubernostrum 17y ago
        The problem isn't the average year over year. The problem is the outliers: we live in a modern world where massively game-changing events can occur and spawn whole new industries almost overnight without correspondingly wiping out old industries in the same time period (once such event -- the Internet -- is how you're talking to me right now). These events cause sudden huge upward swings in available goods and services, while gold remains stable. The only thing that can happen to a gold-standard economy in such a situation is crippling deflation.
        rsheridan6 17y ago
        I didn't see this for a week so you probably won't either, but here goes: Productivity has grown a few percentage points a year, give or take, consistently, for a long, long time. One industry may boom for a decade, but the economy as a whole is relatively stable. I'm still not seeing anything wild.
- fexl 17y ago
  Here's a CPI (estimate) chart going back to 1784: http://nothirdsolution.com/wp/wp-content/uploads/2008/07/cpi.bmp http://nothirdsolution.com/wp/wp-content/uploads/2008/07/cpi... When the dollar was defined as a specific mass of gold, the prices of goods tended to fall slightly each year, which is what you would expect with productivity gains. With inflation you lose not only the nominal inflation rate, but also the wealth-enhancing effects of those productivity gains. "That which is seen, and that which is not seen." The use of coercion, including war, forced devaluation, asset seizure, and forced centralization of financial services, results in wild price inflation, volatility, bubbles, and crashes. This is because coercion moves wealth to its least productive use and hampers the discovery of true prices. For another example of increased price volatility, see this 200 year chart of the Dow/Gold ratio: http://www.sharelynx.com/chartstemp/DowGoldRatio.php http://www.sharelynx.com/chartstemp/DowGoldRatio.php Note well that you're looking at a logarithmic chart there, so the wild swings you see after about 1920 or so represent actual, sickening, and deadly phenomena and are not just optical illusions.