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Author Topic: The real problem behind inflation  (Read 10026 times)
fergalish
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January 26, 2011, 01:21:12 PM
 #21

It's a misconception that "the economy" is an entity of its own, that it is anything other than the aggregate of what is done by people. You are essentially saying that people should be forced to do something other than what is in their best interests, for the benefit of a statistic called "the economy".

You have all raised good points.  But the fact is, if there were deflation, I would *NOT* buy a new cellular phone, I would *NOT* buy anything I considered unnecessary (taking into account how high the deflation actually is).  As a matter of fact, I'm doing exactly that with the bitcoins I have - they're still going up, and I'm keeping them until I need them.  I wouldn't invest unless I was guaranteed a return greater than the appreciation of my currency (measured in purchasing power).

There are many examples of where something that harms an individual can be good for society in general.  e.g. traffic, environment, queues, paying taxes, damn I've a mind-blank and can't think of others.  But the Prisoner's Dilemma is a great place to start studying these phenomena.  (this goes way back to a long debate about morality, see "should you kill the fat man" on philosophyexperiments.com; let's not get so deep here.).

The economy may be a statistic, but it's important.  Do you deny when the economy suffers (i.e. recession, depression) that people suffer more?  Or that people are better off when the economy improves?  It is a statistic - a very important one, something like the average of people's earnings or wealth.

#grondilu: someone who hoards is restricting others' ability to make their necessary purchases, *especially* if there's no new money coming into the market.  Your suggestion about the police is curious - how long before that actually happens do you suppose?  Ever read "Brave New World" by Aldous Huxley?  As for us not being cows and sheep... are you sure?  Cows behave uniquely for their own benefit, not the herd's; exactly unlike that feature of human society that you would remove. So maybe we're not cows, but you would make us so.  And freedom - "freedom's just another word for nothin' left to lose" (Kris Kristofferson) - you want to have all your wealth, and keep your freedom.  But we can't all have both.

@caveden: how can savings feed investment?  You need fractional reserve banking for that - otherwise the bank has to keep all your savings in its coffers, and can't give it out as investments.  I'll try to check out mises.org when I have time.  But saying hi-tech prices are deflationary is, I think, wrong.  Their prices decrease, not because of deflation, but because the *inherent value* of the object decreases.  If you compare dollars to bread (or whatever basket you choose), you can calculate inflation or deflation.  Compare hi-tech prices to bread, though, and you get an estimate of value, and I'll bet that the price of mobile phones in loaves of bread (i.e. their value) has been coming down too - and I'm sure you wouldn't say the bread is inflating there.  With deflation, if people like me don't buy phones, then the lack of income will cause R&D to falter, and the hi-tech stuff won't get cheaper quite so much.

#ribuck: the economy *is* an entity of its own.  That's the central message of the science of complexity - the whole is more than the sum of the parts.  Look at an ant colony for example.  Look at your own brain, or your DNA.  The economy does *not* follow the same rules as its members and, therefore, something good for its members is not necessarily good for itself, and vice-versa.

Thanks for the discussion folks.
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January 26, 2011, 01:31:25 PM
 #22

Maybe you are unusual. I have a really hard time believing that when the newest cool cell phone of 2015 comes out and you still have your 100BTC that you aren't going to part with .00001 of them to get your holographic phone. But if you insist that there is nothing you'll ever pay any fraction of a coin for, I can buy it and I'll play along.

Why are you holding them if you are never going to spend a single tiny bit of one?!

I can't answer your question about the economy, maybe you can answer this: Is it better to care for your garden and hope this improves your plants or to care for your plants and hope this improves your garden?

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January 26, 2011, 01:40:04 PM
 #23

You have all raised good points.  But the fact is, if there were deflation, I would *NOT* buy a new cellular phone,

Do you realize cellular phones do go down in prices all the time and you have bought it anyways? It seems to me you are contradicting yourself.

Electronics in general go down in price all the time, and people keep buying it. Everybody knows that if they wait 6 months the phone, the tv, the computer,... they are going to buy will be cheaper. And yet, they still buy it.

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I would *NOT* buy anything I considered unnecessary

This is actually good. You should not buy anything that you dont want to buy just because you know you need to spend the money before it devaluates. The function of the economy is not to make people consume, consume and consume more. The function of the economy is to provide what people need and want. And if someday (that I dont think I will see) we have too much of everything, that day we can stop working this much and just work 1 day a week (in fact this has happened a bit, since 200-300 years ago, people used to work a lot more hours).

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(taking into account how high the deflation actually is).  As a matter of fact, I'm doing exactly that with the bitcoins I have - they're still going up, and I'm keeping them until I need them.  I wouldn't invest unless I was guaranteed a return greater than the appreciation of my currency (measured in purchasing power).

Bitcoin is a special case, because is starting, mainly for two reasons.

1. As much as it hurts to admit, there is still not much you can buy with bitcoins.
2.Also, there is still not a financial system that operates in bitcoins that allows to transmit bitcoins savings into bitcoin investments.

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There are many examples of where something that harms an individual can be good for society in general.  e.g. traffic, environment, queues, paying taxes, damn I've a mind-blank and can't think of others.

This is a fallacy as big as it gets. First of all you need to define what is good for society in general, because this is the typiucal discourse the elite use to mean you do as I command. But assuming you mean what its better for the majority or for the longer term, its still false.

Traffic? The first roads in the USA where privately built by cooperatives formed in the different towns. There are examples of private roads that work fine.

Environment? Precisely this is an example how the government is managing it and not letting the market manage it by not allowing environmental property rights. You can see the horrible results.

Queues?Huh

Paying taxes?Huh?

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But the Prisoner's Dilemma is a great place to start studying these phenomena.  (this goes way back to a long debate about morality, see "should you kill the fat man" on philosophyexperiments.com; let's not get so deep here.).

The economy may be a statistic, but it's important.  Do you deny when the economy suffers (i.e. recession, depression) that people suffer more?  Or that people are better off when the economy improves?  It is a statistic - a very important one, something like the average of people's earnings or wealth.

So? It seems to me you are implying that more spending can heal the economy. If this were true, all the government spening should have taken the USA out of the recession. It has not. Its an economic fallacy.

Only the people working and producing what they need through NON DISTORTED market signals are going to solve the depression. All the government spending its hurting the economy.

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#grondilu: someone who hoards is restricting others' ability to make their necessary purchases, *especially* if there's no new money coming into the market.

Prices go down if there is less money. Also the banking system reacts (or should react) creating more bills if there is an increase in the deman for money. This is not an issue.

I could keep going.
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January 26, 2011, 01:48:25 PM
 #24

But the fact is, if there were deflation, I would *NOT* buy a new cellular phone.
Well, you are an individual, so of course only you know what you think you would do.

For the masses, deflation means going into the cellular phone shop and saying "wow, I thought I could only afford a dumphone, but it turns out I can buy a smartphone". Deflation means Joe Public saying "My TV has broken, and it seems that I can buy a 46-inch TV rather than a 32-inch TV like my old one". Deflation means Fred saying to Martha "Last year we could only afford a week's holiday just across the state border. This year let's have two weeks in the Bahamas".

This, of course, is good for the individual. Some might even say it's good for the "economy".
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January 26, 2011, 01:53:26 PM
 #25

fergalish, I see now that you said 'unnecessary', so my post isn't quite right.
 

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ribuck
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January 26, 2011, 02:56:02 PM
 #26

(it's free to view it online)

For certain definitions of free:



Here's an excerpt:
http://www.youtube.com/watch?v=SvSJY3Xiwdg
grondilu
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January 26, 2011, 03:10:10 PM
 #27

the economy *is* an entity of its own
http://www.southparkstudios.com/full-episodes/s13e03-margaritaville

i had to post the link here. if you have 20 or so minutes, watch that episode (it's free to view it online)

Yeah, margaritaville is indeed quite a smart South Park episode.
simond
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January 26, 2011, 03:30:43 PM
 #28

I have just discovered this site today, and have been looking at monetary reform for a few years - see Stephen Zarlenga in the US and Ben Dyson's Positive Money site in the UK. I feel reform of the current world money system is nearly impossible as the bankers have a vice like grip on the creation of money, they are able to do legal forgery by issuing new money as a debt with interest. As many here know, this causes ever increasing debt, high taxation, reductions in public spending, poverty, boom, bust, and huge inflation, and enriching a few at the expense of the many.

My question is this - How, if at all can I transfer my wealth (in my case UK £s), into Bitcoins, and then can I use Bitcoins to buy the essentials of life, ie food and energy ?? It would be great if I could because the £, $ and Euro are corrupted by the banking system, and we all suffer loss of wealth through inflation whichever currency we use. The present debt based world money system is the greatest form of slavery ever devised -

" Banking was conceived in iniquity and was born in sin. The Bankers own the earth. Take it away from them, but leave them the power to create deposits, and with the flick of the pen they will create enough deposits to buy it back again. However, take this power away from them, and all the great fortunes disappear, and they ought to disappear, for this would be a happier and better world to live in. But, if you wish to remain the slaves of Bankers and pay the cost of your own slavery, let them continue to create money and control credit." Attributed to Josiah Stamp, governor of the Bank of England in the 1940s.

Bitcoin may be in it's infancy, but if it could become a large trading community where essentials like food can be bought and sold, then the power of the bankers can be gradually eroded, and the majority will be very much better off, and not enslaved by debt.
ribuck
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January 26, 2011, 03:43:47 PM
 #29

My question is this - How, if at all can I transfer my wealth (in my case UK £s), into Bitcoins
I think it would be unwise to transfer all of your wealth into bitcoins. Bitcoin is still in its infancy, and problems might emerge that would make bitcoins worthless.

You could transfer some part of your wealth into bitcoins. You can use an exchange like MtGox, or you can trade person-to-person via #bitcoin-otc.

You can't yet buy all "the essentials of life, ie food and energy" using bitcoins. But the number of things that you can buy is increasing every week. Many of them are listed on the "Trade" page at bitcoin.org.

If you can't wait to get started, you can get 0.05 bitcoins for free from the Bitcoin Faucet, thanks to the kindness of Gavin Andresen and those who have donated coins to the site.

Enjoy the ride!
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January 26, 2011, 06:53:16 PM
 #30

You have all raised good points.  But the fact is, if there were deflation, I would *NOT* buy a new cellular phone, I would *NOT* buy anything I considered unnecessary (taking into account how high the deflation actually is).

The "I considered unnecessary" bit is important, I expect it actually translates as "is economically rational to buy".

From a mathematical point of view, consider you want to buy a computer. The computer provides you with b benefits in efficiency savings per unit of time and costs p(t) at time t. If I decide to buy the computer later when the price has decreased, I will save p(t) - p(0), but I will lose bt in efficiency savings. The rational thing to do is to maximize bt - p(t) + p(0). Since p(0) is a constant, that is equivelent to maximizing bt - p(t). If b is positive (i.e. the computer is beneficial to you) and p(t) is never negative (buying something costs money), then bt - p(t) over (t >= 0) must have a maximum somewhere (because to decrease p(t) must increase faster than bt, if this happens p(t) will eventually go negative), so you people will still buy stuff eventually if the price is going down.
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January 26, 2011, 09:04:05 PM
 #31

#grondilu: someone who hoards is restricting others' ability to make their necessary purchases, *especially* if there's no new money coming into the market.

I very much doubt so.  I don't see how anyway.   To me if somehow the amount of money in circulation decreases, because of hoarding from a few people, then there is deflation and thus falling prices.  Then people can buy again with whatever money they have left.

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Your suggestion about the police is curious - how long before that actually happens do you suppose?
I wasn't quite serious.   It was rather ironic.

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Ever read "Brave New World" by Aldous Huxley?

Yeah, but I don't remember anything about policemen beating people to force them to shop.

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As for us not being cows and sheep... are you sure?  Cows behave uniquely for their own benefit, not the herd's; exactly unlike that feature of human society that you would remove. So maybe we're not cows,

I'm not advocating for removing cooperation from society.  Not at all.   Is it possible that you think the state is the only kind of social organisation ?
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January 26, 2011, 09:35:44 PM
 #32

#grondilu: someone who hoards is restricting others' ability to make their necessary purchases, *especially* if there's no new money coming into the market. 

No, it's the other way around. Someone who hoards is abstaining himself to consume his share of production. His hoarding will make prices lower what will make it easier for others to consume and invest. He's making it easier for others.

@caveden: how can savings feed investment? 

What else could?
"Real savings come first, if you want to invest." http://www.youtube.com/watch?v=d0nERTFo-Sk

Investment means employing goods and services with the goal of increasing productivity capacity by accumulating capital (=means of production).
Savings means sparing a share of what was produced (consuming less that your share of production).
If all goods and services produced by the economy are consumed (no savings), nothing is left for investment.
Some amount of production has to be saved and redirected to investments so there can be economic growth.

Savings => Investments => More capital => More production => Possible increase in consumption

Often people tend to view only the last part of this cycle (increase in consumption) and try to stimulate that, with authoritarian policies like lowering the interest rates through inflation, for example. This is awful, as by stimulating consumption you'll decrease savings. In the short run, you'll get an economic expansion. But that's unsustainable. Lots of capital will be lost in bad investments, who should not have started in the first place.

  But saying hi-tech prices are deflationary is, I think, wrong.  Their prices decrease, not because of deflation, but because the *inherent value* of the object decreases. 

First, there's no such a thing as "inherent value". This is a fallacy: http://www.thefreemanonline.org/featured/the-fallacy-of-quotintrinsic-valuequot/
Value is on the eye of the beholder. It's a subjective opinion people have on stuff, not an inherent attribute of valued stuff.

So, I don't know what you mean exactly. Do you mean that the demand decreases? I think that's more the supply which increases fast, but it doesn't make any difference actually. The fact is that it's very well known by everyone that eletronic prices fall down quite quickly, and that doesn't stop people from consuming them at all. And electronics are superfluous! Do you really think people would stop consuming "important" stuff just because it might get like 5% or 10% cheaper the next year?
And even if a percentage of society decides to go ultra-hoarding under price deflation, they'll just be making it even easier for those who want to consume or invest as I said before. No problem there.

And by the way, another thing that people often don't pay attention is that, for price deflation to happen in a scenario of stable monetary base, economic growth must have happened before. Otherwise prices will be stable. So, this claim that deflation would stop economic growth is quite weird since deflation would only happen after economic growth. Tongue

#ribuck: the economy *is* an entity of its own.  That's the central message of the science of complexity - the whole is more than the sum of the parts.  Look at an ant colony for example.  Look at your own brain, or your DNA.  The economy does *not* follow the same rules as its members and, therefore, something good for its members is not necessarily good for itself, and vice-versa.

Sorry, this is nonsense.
The economy and entity of its own?
Something good for people is bad for the economy these people participate in?
 Huh Huh

Individuals are an end in themselves. They are not ants in a colony or pieces in a body.

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January 26, 2011, 10:09:48 PM
 #33

#ribuck: the economy *is* an entity of its own.  That's the central message of the science of complexity - the whole is more than the sum of the parts.  Look at an ant colony for example.  Look at your own brain, or your DNA.  The economy does *not* follow the same rules as its members and, therefore, something good for its members is not necessarily good for itself, and vice-versa.

OMG I had missed that part.  Yeah I know about this kind of emergence of complexity out of a large number of small simple entities.  Very interesting stuffs.

But I am not an ant, nor am I a brain cell or a DNA molecule.  An ant would immediately give its life for its queen, just because it will blindely obey olfactive orders.  I won't.  Maybe it's because I am diploïd, and not haploïd.  Maybe it's because I have a bigger brain, and thus I don't obey simple chemical and olfactive signals.

I don't consider myself as a part of a larger organisation that I would value more than my own existence.  Call me selfish if you want, I don't care.

Please feel free to cut your arm and give it to society if you think it's better for human kind as a whole.  But don't expect people to be as fool as you are.
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January 26, 2011, 11:45:22 PM
 #34

... inflation would cause them to spend and the economy might just recover ...

It's a misconception that "the economy" is an entity of its own, that it is anything other than the aggregate of what is done by people. You are essentially saying that people should be forced to do something other than what is in their best interests, for the benefit of a statistic called "the economy".

But if "the economy" can only show the statistics that you want to see, when society is structured against the best interests of the people within it, then I think you're looking at the wrong side of the equation.

Absolutely. There is nothing that is good for my family that is bad for my family members. There is no such thing as hurting the trees to help a forest. If you want to help then help individuals; they actually exist.

The forest analogy is inaccurate.  Forest fires are an important part of a forest ecology, by clearing out the tall trees they allow fast growing undergrowth to flourish and keep he forest from stagnating and becoming a bog.  Forest fires are absolutely bad for a great deal of individual trees while good for the forest as a whole.

The economy meanwhile, is going to be structured to favor one group or another, traditionally this has been by government intervention of one sort or another, it would still be the case in a stateless society however simply due to distribution of resources and local social pressures.  An ideal market favors the have nots at the expense of the haves because this encourages a constant flow of resources, haves that become have nots due to the markets forces are then favored, and able to become haves once again.

A market that favors the haves over the have nots leads to increased concentration of wealth and the have nots being trapped in a cycle of poverty.

How to accomplish a market that favors the have nots is, of course, a matter of debate.  I maintain that without the state to maintain the privilege of the haves that it would soon fall.

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January 27, 2011, 05:51:07 AM
 #35


The forest analogy is inaccurate.  Forest fires are an important part of a forest ecology, by clearing out the tall trees they allow fast growing undergrowth to flourish and keep he forest from stagnating and becoming a bog.  Forest fires are absolutely bad for a great deal of individual trees while good for the forest as a whole.

<Shrug>

I'm not tied to the analogy, but it seems to me that the old forest would be gone and a new one would grow.

But if there is a decision to be made between burning most individuals or not; I'd rather no one burned us, regardless of how it will help the economy.


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January 27, 2011, 02:47:49 PM
 #36

Sorrry for the long reply folks.

you aren't going to part with .00001 of them to get your holographic phone
Touché!  Like I said though, I'd weigh things up - how bad is the deflation, how necessary is the object.  I hate mobile phones (didn't get one until 2002), but they have become, there you go, a necessity of modern western life.  I guess I'm just not a good consumer - I don't have a tv, I prefer small cars, I eat at home, I sew my clothes up instead of buying new, and I only buy a new mobile phone when the old one dies... etc.  But here's what I think would happen in a deflationary scenario - there's less money so many people can afford only necessities, those that can afford luxuries see their money appreciating and hoard.  Nobody buys new mobile phones, so the mobile phone manufacturers stop investing in R&D.  Existing mobile phones, therefore, don't get any easier to manufacture (though their monetary price might still decrease due to deflation), AND your lovely holographic phone won't ever get invented. (But I really need to read up at mises.org). All the phone employees are laid off and then have no money, so even though prices are decreasing they can't buy necessities, let alone luxuries.  That's fine is when only a few hoard, and most people still have jobs.  But when this cascades throughout all sectors of the economy, it's a disaster.  Correct me if I'm wrong, but wasn't that the Great Depression?  Plenty of money there, but it wasn't circulating and there weren't any jobs.

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Why are you holding them if you are never going to spend a single tiny bit of one?!
I'm saving them.  When I need to, or want something enough, then I will spend them.  Do you ever save?  The modern economy is based on debt not credit, and the libertarians of this very forum deplore that fact.

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I can't answer your question about the economy, maybe you can answer this: Is it better to care for your garden and hope this improves your plants or to care for your plants and hope this improves your garden?
I'd say best care for the garden.  Do I understand you'd say the opposite?  All you need are a few snails, or mold, or greenfly, or whatever, undetected in one corner and in the space of a season, they'll destroy all your plants.  Instead of plants and a garden, I'd ask the same question about the economy and the environment.  What d'ya think?

@ribuck: The masses confuse deflation with reductions in cost.  Deflation is when your money buys more because the money has become more valuable, NOT because you buying things that have a fundamentally lower value.  Let's try to use the correct terminology instead of making the same mistake as Joe Public.  (p.s. cheaper holidays, I gather, are largely due to government subsidies for the airlines - can anyone verify?).  Imagine if someone discovered a process of making bread from thin air.  Bread becomes virtually free.  Is that deflation?  Assuredly not.

@hugolp:
traffic: if everyone drove more reasonably, there would be less traffic jams and, on average, all trips would be quicker. However, such a situation is open to abuse by people who drive agressively who can, at everyone else's expense, shorten their own trip. Individual benefit, system wide harm.
environment: clear example: farmers in Bangladesh can choose to remove trees and increase their crop.  This reduces soil quality and increases the probability of flood for everyone.  Or Brazil chops trees for its own benefit, amazon dies, world suffers.
queues: you can join the end of the queue, or skip to the front. The confusion at the front causes, on average, longer delays for everyone, except you.
taxes: you can pay taxes with money you don't "need" - no loss to you, benefit to society (let's ignore govt corruption and inefficiencies).
Government spending might end the recession, but at the moment the spending is not finding it's way into the economy.  It's staying in the banks' and their bankers' coffers.  But you're right, the govt spending distorts the market.
Central banks printing more money when people hoard is risky.  If the bank prints too much, inflation occurs, all those hoarders stop hoarding, and suddenly the market is awash with liquidity and you've the opposite problem.

Oh crap, there are loads more replies (I started this yesterday).

@grondilu:
brave new world: just as a mobile phone is a modern necessity, in that book, many other luxuries had become (let's say frivolous) necessities, and the point of existence was simply to spend. there were no police, because they weren't necessary - social engineering had obtained the desired result.
cooperation: depends on how big you make the state - a village chief, a town council, city state, nation state, international union, intergalactic federation...
My point is that people suffer *exactly* because some seek personal gain at the expense of others, like the twat who uses the turn-right lane to turn left, and so causes a delay for everyone who wanted to turn left.  We all do that in one way or another, and we all suffer because of all the others that do it.  We're all selfish, 'cos that's how we're 'programmed'.  Really, check out the prisoner's dilemma - when there are only two they can easily cooperate, but when there are 7 billion, cooperation becomes extraordinarily unlikely.  If I hoard (under deflation), then people who *need* money to buy bread will suffer - the fact that the price is decreasing means nothing because they have no money.  I gain, they lose.
cut off arm: some people have done this and more. They're called martyrs.  I'm not a martyr.  Look at the riots in Egypt and Tunisia - people confronting police and suffering brutality, because they want a better society for everyone.
police: me too (being ironic).

@caveden:
savings/investment: debt can create investment. no savings necessary. But you're right, investments through savings would be much better; of course it involves risk for the investor, and this has been centralised in the present system of fractional reserve banking.
inherent value: someone said "energy is the only real currency". You could use that as an estimate of intrinsic value, and then modify it according to individuals' requirements and expectations.  I'll bet if you look at the energy required to produce a 80386 in 1990 and a CoreII x4 today, the coreII requires MUCH less energy per FLOPS/MIPS.  That's technological progress in a nutshell - doing the same or better with less energy.  But maybe you're right too - even energy is too abstract an estimate, so let's talk of *relative* inherent value - bread made with flour and water becomes inherently less valuable after the discovery of air-made bread.
price decreases: see ptd's post.
economy an entity: I didn't explain myself properly.  I mean that some members can profit at the expense of others in such a way that *the average* is a loss, i.e. the "economy" suffers.  But there is nothing can can produce an *average loss* and yet be good for the economy, or vice-versa.
electronics: are certainly NOT superfluous. How could any business or individual survive in the modern economy without electronics?  Unless you're willing to abandon all and live as a peasant scratching a living from the earth without even so much as a clock on the wall.

folks, I have to stop now, this post is *way* too big.
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January 27, 2011, 03:08:08 PM
 #37

@grondilu:
brave new world: just as a mobile phone is a modern necessity

Well, I don't have a mobile phone (or at least none with an active SIM card).   Yet, I'm still breathing.

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in that book, many other luxuries had become (let's say frivolous) necessities, and the point of existence was simply to spend. there were no police, because they weren't necessary - social engineering had obtained the desired result.

I don't get it.  Do you actually whish you lived in Huxley's world ?

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My point is that people suffer *exactly* because some seek personal gain at the expense of others

Most people here think that personal gain doesn't have to be at the expense of others.  We beleive free market is a win-win game.  Most of the things I use in my every day life come from free market, i.e. from people wanting to reach personal gain.  I'm thankful to them.

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We all do that in one way or another, and we all suffer because of all the others that do it.  We're all selfish, 'cos that's how we're 'programmed'.  Really, check out the prisoner's dilemma - when there are only two they can easily cooperate, but when there are 7 billion, cooperation becomes extraordinarily unlikely.
F.cking prisonner dilemma, I always forget about it.  Nah, I don't see it as important as you seem to think.  Yes, cooperation is usefull.  But please let people make their own associations and decide how and with whom they want to cooperate.  Forced cooperation is not cooperation, it's slavery.

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If I hoard (under deflation), then people who *need* money to buy bread will suffer - the fact that the price is decreasing means nothing because they have no money.  I gain, they lose.

If they have no money then money has become useless and people will use an other one.  It's just an accounting tool, it's not real wealth, damned it !  Think about this.

PS. The very success of bitcoin could prove this point.  We're not happy with national currencies, so we're using a new one.

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cut off arm: some people have done this and more. They're called martyrs.  I'm not a martyr.  Look at the riots in Egypt and Tunisia - people confronting police and suffering brutality, because they want a better society for everyone.

So Huh  Some people kill themselves too.  It's not because some people do silly or desperate things that I should copy them.
hugolp
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January 27, 2011, 03:11:49 PM
 #38

You have not answer to the main issue. You said that you would not buy things if prices were going down, but you have a cellphone and a computer...

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@hugolp:
traffic: if everyone drove more reasonably, there would be less traffic jams and, on average, all trips would be quicker. However, such a situation is open to abuse by people who drive agressively who can, at everyone else's expense, shorten their own trip. Individual benefit, system wide harm.

So? What does this has to do with individual rights? This issue you are talking about can be dealt with private roads.

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environment: clear example: farmers in Bangladesh can choose to remove trees and increase their crop.  This reduces soil quality and increases the probability of flood for everyone.

Right, and they would reduce their soil quality and hurt their property in mass. I dont know the system in Bangladesh, but it sounds terribly similar to India, where the market was accused, and turns out the problem was that government imposed regulations to favour Monsanto seeds that comsumed much more water. I am sure that if I dig into Bangladesh agricultural system something similar will come up.

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Or Brazil chops trees for its own benefit, amazon dies, world suffers.

Right, and where in the process are individual rights respected? Do you realize that in the amazon the government is taking away the land from its rightful owners to allow foreign corporations to cut the trees?

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queues: you can join the end of the queue, or skip to the front. The confusion at the front causes, on average, longer delays for everyone, except you.
taxes: you can pay taxes with money you don't "need" - no loss to you, benefit to society (let's ignore govt corruption and inefficiencies).

................

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Government spending might end the recession, but at the moment the spending is not finding it's way into the economy.  It's staying in the banks' and their bankers' coffers.  But you're right, the govt spending distorts the market.

You are confusing things. The money the government is spending its (obviously) "finding its way into the economy". The money that is stuck is the money given to the banks (mainly by the central bank).

But tell me how government spending helps the economy.

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Central banks printing more money when people hoard is risky.  If the bank prints too much, inflation occurs, all those hoarders stop hoarding, and suddenly the market is awash with liquidity and you've the opposite problem.
ribuck
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January 27, 2011, 03:24:49 PM
 #39

The masses confuse deflation with reductions in cost.  Deflation is when your money buys more because the money has become more valuable, NOT because you buying things that have a fundamentally lower value.  Let's try to use the correct terminology instead of making the same mistake as Joe Public.

Most people here appreciate the distinction between price deflation and monetary deflation. But the consumer doesn't care about the difference.

Suppose you want to buy a new cellphone which costs $100. You have $200, which also needs to cover your expenses for the rest of the month, which you estimate at $100.

If you think there will be price inflation, $100 may not be enough to cover your expenses for the rest of the month. With prices going up, you might need $120 for the rest of the month. So maybe you won't buy the phone this month. Or maybe you'll buy a cheaper one for $80.

If you think there will be price deflation, you'll happily buy the phone because you might only need to use $80 of your remaining $100 for your expenses for the rest of the month. If you're not a cautious type, you might even splash out on a $120 phone.

The consumer doesn't care whether the price inflation/deflation is due to monetary policy or due to technological change. That's not what they base their behavior on.

The "inflation is good" myth is promulgated by those who have gotten themselves into debt, and want their burden to be eased at the expense of those who haven't.
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January 27, 2011, 05:56:51 PM
 #40

One's wages will also go down in times of deflation.

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I then use the money to buy BitCoins. You can too!
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