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Author Topic: Krugman makes some good points  (Read 6970 times)
TradeFortress
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March 25, 2013, 09:11:18 AM
 #61

You are hungry. A hamburger costs 3.89 mBTC. What do you do?

> Wait four months when deflation reduces the price to 3.88 mBTC
> Buy the hamburger now and not worry about small amounts of deflation.

But people will pay via fiat! Or that only applies to necessities!

You want this shiny new game that's released. It costs $60

> Wait six months before it costs $30
> Enjoy the game now and pay $60

We can see a "deflationary environment" in League of Legends. Champions costs more the first week that it is released (or something, I don't care, I'm using it as an example). People still pay for it because they want it now and slow but predictable deflation won't significantly impact spending.
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March 25, 2013, 09:54:05 AM
 #62

A purely deflationary currency provides no incentive for investment or economic activity

I'd like to point out, that this might actually be a positive aspect. Right now the worlds monetary system is geared towards infinite growth. This strikes me as not very smart since last time I checked, we were living on a planet with finite resources

There is certainly something to be said to create a more sustainable society, but I dont think the way to get there is by causing massive unemployment and killing the economy.  Sure, doing so  will preserve some resources for a bit longer, just like for instance the killing of 5 billion people would,  but surely there are better ways to achieve that? A deflationary currency doesnt discriminate between resource intensive economic activity and eco friendly one, it will affect either in the same way. So if your claim is that it will decrease economic activity and therefore is desirable, then I think thats a silly proposition. You might as well argue for mass killings, war or famine

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March 25, 2013, 10:13:36 AM
 #63

A purely deflationary currency provides no incentive for investment or economic activity

I'd like to point out, that this might actually be a positive aspect. Right now the worlds monetary system is geared towards infinite growth. This strikes me as not very smart since last time I checked, we were living on a planet with finite resources

There is certainly something to be said to create a more sustainable society, but I dont think the way to get there is by causing massive unemployment and killing the economy.  Sure, doing so  will preserve some resources for a bit longer, just like for instance the killing of 5 billion people would,  but surely there are better ways to achieve that? A deflationary currency doesnt discriminate between resource intensive economic activity and eco friendly one, it will affect either in the same way. So if your claim is that it will decrease economic activity and therefore is desirable, then I think thats a silly proposition. You might as well argue for mass killings, war or famine

Your premise is, providing incentive for economic activity is the duty of a currency alone. If the currency doesn't motivate economic activity, all markets grind to a halt. This is very hard to argue for, especially with practical examples. Also, I want to repeat my question: If that is so, why didn't all markets grind to a halt till now because of gold?
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March 25, 2013, 10:29:18 AM
 #64


Your premise is, providing incentive for economic activity is the duty of a currency alone

Where did I say or imply that?
I am saying it actually creates a major economic disincentive and results in the transfer of wealth from economic activity to economic inactivity. The ones creating the goods and services end up making richer  the ones doing nothing. I cant see how thats a good thing, unless you happen to be on the receiving end of this scheme.
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March 25, 2013, 10:46:46 AM
 #65

I agree that Krugman is a complete and total idiot and/or a fraud and that Bitcoin has little to fear from deflation.  The infinite divisibility helps to mitigate the upper limit of bit coins which will really never actually be reached but will just become smaller and smaller - the pay out gets halved over and over till infinity right?

Anyway if it stops or just becomes very small no matter.

One thing I disagree with though is the guy that said if deflation is -8% and people want a 5% return they'll just loan at -3% - this is impossible.  Interest must be positive otherwise why would someone make a loan which involves so element of risk to earn less than sitting and doing nothing which involves no risk?  I believe in this environment interest would need to be positive but it could be very slow.  If Bitcoins are forever becoming more valuable then very low rates of interest could pay off big.

Either way I think it's a totally false statement promoted by the powers that be that have something to gain by the status that deflation is so disastrous. 
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March 25, 2013, 10:54:52 AM
 #66


Your premise is, providing incentive for economic activity is the duty of a currency alone

Where did I say or imply that?
I am saying it actually creates a major economic disincentive and results in the transfer of wealth from economic activity to economic inactivity. The ones creating the goods and services end up making richer  the ones doing nothing. I cant see how thats a good thing, unless you happen to be on the receiving end of this scheme.

Correct me if I'm wrong, but "doing nothing" means not participating in the allocation of productive force. The claim that it is harmful seems to imply that inflation provides the only incentive for economic activity.

The ones creating goods and services are trying to make those who save give up their savings. That's the game. If you can resist that, you deserve to get richer. I think the only proof we need to understand that this works is the fact that this is already the case. That was the intention of my follow-up question.
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March 25, 2013, 11:12:40 AM
 #67

Correct me if I'm wrong, but "doing nothing" means not participating in the allocation of productive force. The claim that it is harmful seems to imply that inflation provides the only incentive for economic activity.

Its harmful because it actually increases in value, not just because its idle. Someone has to produce the goods and services that are represented by this increase, and the benefactor is the one that just happens to have money.

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The ones creating goods and services are trying to make those who save give up their savings. That's the game. If you can resist that, you deserve to get richer.

Think about it. lets say your currency appreciates by 10% per year and you can live a luxury life spending only 5% of your savings. Whats happening? You get richer every day by doing absolutely nothing. You could end up owning the world,  but you say you deserve it? How? Wealth doesnt create itself, someone is making that happen and not getting the fruits of his labour. In the end everything will be owned by precious few and we wont have an economy anymore, just slavery.

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I think the only proof we need to understand that this works is the fact that this is already the case.

No its not. You cant get  richer today without taking risks and participating in the economy. Your money is worth less every year, if you dont do anything to maintain its value your fortune will dwindle rather than grow.
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March 25, 2013, 11:14:03 AM
 #68

Krugman is a goddamn fool
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March 25, 2013, 12:40:48 PM
 #69

You get richer every day by doing absolutely nothing. You could end up owning the world,  but you say you deserve it? How? Wealth doesnt create itself, someone is making that happen and not getting the fruits of his labour. In the end everything will be owned by precious few and we wont have an economy anymore, just slavery.

You must be using "doing nothing" in a different sense now, because if things do move the way you say, that means economic activity and redistribution of wealth. You know, to own something, you need to buy it first.

To be clear though, I said they "deserve" it in order to describe how the world works, not as an ethical statement.

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I think the only proof we need to understand that this works is the fact that this is already the case.

No its not. You cant get  richer today without taking risks and participating in the economy. Your money is worth less every year, if you dont do anything to maintain its value your fortune will dwindle rather than grow.

What are you talking about? My money isn't worth less every year, because I invest in immovables like every other sane person. Actually land is more valuable to me than a house, so no incentive for economic activity there...

By the way, what is the difference between me getting paid in gold and paid in USD, as long as I can freely exchange USD<->Gold? Absolutely nothing, am I right? It seems to me that we are already living in your dystopia. What am I missing?

The way you put it, the only thing holding the economy together must be friction.
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March 25, 2013, 12:44:20 PM
 #70

there is some truth to this but i would argue that more savings and less spending isnt necessarily a bad thing.

also you can look at it this way, bitcoin is a lot like gold in this respect when gold was the widely accepted medium of exchange. Yet the modern abundance of capitalism still arose out of this system. Which meant that many people chose to invest in capital instead of gold. Sure having a gold standard may have dissuaded some people from consumption, but it did not prevent people from investing in capital and capital investment is the real source of societal wealth.

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March 25, 2013, 01:02:47 PM
 #71


What are you talking about? My money isn't worth less every year, because I invest in immovables like every other sane person. Actually land is more valuable to me than a house, so no incentive for economic activity there...

By the way, what is the difference between me getting paid in gold and paid in USD, as long as I can freely exchange USD<->Gold? Absolutely nothing, am I right? It seems to me that we are already living in your dystopia. What am I missing?

The way you put it, the only thing holding the economy together must be friction

Do you really not see the difference?
Your land is only becoming more valuable because you express its value in an inflationary currency.  Try expressing its value in bitcoin for a laugh.
The actual purchasing power that the land you own represents isnt going up significantly every year unless you made an above average clever investment.  You and future generations cant live of the value of your land for the rest of your lives and accumulate more wealth in the process, not without taking economic risks. At best it preserves your wealth.

The same goes for gold btw,  an ounce of gold buys you a lot less labor today than it did 50 years ago. It also buys you roughly as much bread as it did 2000 years ago (despite massive productivity increases in farming and baking which ought to reduce its real price). Unlike a deflationary currency, buying gold or land doesnt make one get eternally richer, its only a way to preserve wealth.
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March 25, 2013, 01:15:02 PM
 #72


What are you talking about? My money isn't worth less every year, because I invest in immovables like every other sane person. Actually land is more valuable to me than a house, so no incentive for economic activity there...

By the way, what is the difference between me getting paid in gold and paid in USD, as long as I can freely exchange USD<->Gold? Absolutely nothing, am I right? It seems to me that we are already living in your dystopia. What am I missing?

The way you put it, the only thing holding the economy together must be friction

Do you really not see the difference?
Your land is only becoming more valuable because you express its value in an inflationary currency.  Try expressing its value in bitcoin for a laugh.
The actual purchasing power that the land you own represents isnt going up significantly every year unless you made an above average clever investment.  You and future generations cant live of the value of your land for the rest of your lives and accumulate more wealth in the process, not without taking economic risks. At best it preserves your wealth.

The same goes for gold btw,  an ounce of gold buys you a lot less labor today than it did 50 years ago. It also buys you roughly as much bread as it did 2000 years ago (despite massive productivity increases in farming and baking which ought to reduce its real price). Unlike a deflationary currency, buying gold or land doesnt make one get eternally richer, its only a way to preserve wealth.

While this is generally true, land values do tend to rise over time simply because the population increases and thus there are more people competing for a finite resource.  It's a value change that can only be measured accurately over decades, however.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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March 25, 2013, 01:35:43 PM
 #73


Krugman does not have the foggiest idea what he is talking about. Krugman is a bloody fool.
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March 25, 2013, 01:42:57 PM
 #74


Krugman does not have the foggiest idea what he is talking about. Krugman is a bloody fool.

Krugman knows exactly what he is doing.  It's in his own interest to make the arguments that he does, in the forums that he does so.  At least, he believes that it's in his own interest.  To some degree, he may have even convinced himself that he's generally correct.  It's very difficult to convince anyone to understand the truth when their income requires that they don't understand.

That said, Krugman is no fool.  Krugman is a con-artist performing a long con on half of America.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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March 25, 2013, 01:46:38 PM
 #75

While this is generally true, land values do tend to rise over time simply because the population increases and thus there are more people competing for a finite resource.  It's a value change that can only be measured accurately over decades, however.

Indeed; although there is a historic  counter argument to my point. Not so long ago land was such an important economic asset and it was concentrated in so few hands that those who owned any could easily live off their ownership for generations and even accumulate more wealth in the process, while everyone else was doing the actual labor.  It was called the feudalism. And that is precisely what a deflationary currency would result in.
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March 25, 2013, 01:48:55 PM
 #76

Your land is only becoming more valuable because you express its value in an inflationary currency.  Try expressing its value in bitcoin for a laugh.

Now you are being ridiculous. Land doesn't and can't stagnate in value, it's a scarce resource. It fits ideally to your model. When economies develop, land owners get rich by doing absolutely nothing. This is more true than it was a thousand years ago.

Furthermore, no one, including Kurgman, is arguing about Bitcoin doubling in value every week. At best, it will be like gold when it's established.

The actual purchasing power that the land you own represents isnt going up significantly every year unless you made an above average clever investment.

Nope, it does, on average, because there is economic development and there is population growth. I'm not a clever investor, I just buy up land whenever I think the area needs more development. It never fails.

You and future generations cant live of the value of your land for the rest of your lives and accumulate more wealth in the process, not without taking economic risks.

Just like Bitcoin you mean?

At best it preserves your wealth.

You need to find land in a fundamentally barren place in order to meet that criterion.

The same goes for gold btw,  an ounce of gold buys you a lot less labor today than it did 50 years ago. It also buys you roughly as much bread as it did 2000 years ago (despite massive productivity increases in farming and baking which ought to reduce its real price). Unlike a deflationary currency, buying gold or land doesnt make one get eternally richer, its only a way to preserve wealth.

So, your claim is Bitcoin is more deflationary than gold? How and why?
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March 25, 2013, 01:58:25 PM
 #77

While this is generally true, land values do tend to rise over time simply because the population increases and thus there are more people competing for a finite resource.  It's a value change that can only be measured accurately over decades, however.

Indeed; although there is a historic  counter argument to my point. Not so long ago land was such an important economic asset and it was concentrated in so few hands that those who owned any could easily live off their ownership for generations and even accumulate more wealth in the process, while everyone else was doing the actual labor.  It was called the feudalism. And that is precisely what a deflationary currency would result in.

That is a nonsense comment.  First off, feudal lordships were functionally mini-governments, and thus the quality of life varied significantly; and the only practical difference today is that your lord is an elected political class and your lands are much larger.  The government still takes a portion of your earnings regardless of whether or not they let you think that you own the means of production or not.  The perception of practical differences are a matter of technicalogical progress and educational propaganda.

Second, the currency unit has little to do with this.  The rise of nation states (as opposed to fuedal lordships) occurred during a time period that there was literally no alternative to gold, silver, copper and barter.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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March 25, 2013, 02:55:21 PM
 #78

I hope I'm not alone in not buying this whole "deflation is bad" argument.  By your logic, Samsung should be broke because the SGS3 that used to retail for $800 is now available for $350.  And by the same logic, I will never buy a computer because in a month's time it will always be cheaper than buying today.

Thats not currency deflation. Cellphones and computers actually are getting cheaper to produce. Its called an increased productivity and if that is what is causing the price deflation; then there is nothing wrong with that, on the contrary. We had the same during the industrial revolution; we got massive increases in productivity causing price deflation. But also causing more production of actual physical wealth because we produced more goods more efficiently. As a society we actually got richer and the increased purchasing power of our money was just a reflection of that. But you cant reverse that. Making money more scarce doesnt cause an increase in productivity or production, let alone wealth- anymore more than printing more money can make everyone rich.

Do you really want to hold 10 cars in your home because they are physical goods? Or you prefer to hold $200,000 in your bank account?

The biggest demand in the world is money. Modern economic school always try to twist the people's mind to deny their nature understanding of money, tell them that eventually it is the consumption matters. Even Ben has this false illusion. That is totally wrong, money means a store of value and spending power, the flexibility of usage and transfer, security, many things you name it, it is the ultimate form of wealth after thousands of years test. Just look at california gold rush, because gold was found, cities were built, industries were established, the economy center of US shifted towards the west coast

But unfortunately in today's inflationary monetary system, the value of money is decreasing constantly, so people do not have a good medium for saving

And even worse, those money are all debt based, that dwarfs all those concerns about deflation/inflation etc... A money can be deflative or inflative, but it should not be debt based (you must work to generate that money), it is this simple fact that Krugman don't get it



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March 25, 2013, 03:01:09 PM
 #79

Now you are being ridiculous. Land doesn't and can't stagnate in value, it's a scarce resource. It fits ideally to your model. When economies develop, land owners get rich by doing absolutely nothing. This is more true than it was a thousand years ago.

Buying land is an investment and like any other investment it can turn out good or bad. If you think it consistently gains value then you are misguided or you havent gone through a severe recession yet. Check out land prices in greece or spain, and if that doesnt look bad enough, adjust for inflation.  LIke any other investment Im aware off, its true value (purchase power) is linked to the overall economy and in the long run isnt going to outperform it.

But even if land were the only risk free investment in the world that was guaranteed to increase its inflation adjusted purchasing power over time, it would do little to refute my argument because land isnt our currency. Our wages are not paid in acres, food prices arent set in it, loans are not made in it and its not what drives our economies primarily. I can do business without owning any land, I cant to business without having any money.

Quote
Furthermore, no one, including Kurgman, is arguing about Bitcoin doubling in value every week. At best, it will be like gold when it's established.

And when would you consider it established? If bitcoin were to become the default world currency, its actual purchasing power would go up along with the world economy because each bitcoin would represent 1/21000000th of it.  So it would go up year after year unless you foresee a future with permanent recession (which is actually more unlikely in this scenario).  You cant have it both ways. You cant have economic growth and stable value if the amount of money is unable to adjust to the economy the way credit money can.

As for gold; I already pointed out its not deflationary.  We mine over $100B dollar worth of the stuff per year or roughly 1-2% of reserves.
Thats hardly less inflationary than fiat money.

As for the gold standard, the huge difference there is that even under the gold standard, money was credit money and its supply could vary along with the economy even if we didnt mine a single ounce of gold. Something bitcoins can not (ripple could however).

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So, your claim is Bitcoin is more deflationary than gold? How and why?

Of course it is, or at least will be in a decade or two. But more important is that its infinitely more deflationary than even credit money under a gold standard.
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March 25, 2013, 03:17:50 PM
 #80

Money, when it comes to it, is just accounting. What it needs to function correctly, amongst other things, is to be predictable to a reasonable degree and to be a secure store of value. Bitcoin has problems with the former but the government has blown the latter out of the water. The deflationary spiral is an argument used by those who wish to help themselves to the fruit of your labor.

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