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Author Topic: The real problem behind inflation  (Read 10027 times)
grondilu
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January 27, 2011, 07:08:00 PM
 #41

Absolutely! Inflation is good for debtors, deflation is good for savers. Choose your side! And if you are saving make sure you are saving in deflating currency i.e. gold or silver or bitcoins all all of them.

Yeah, and what about we let people who like inflation use an inflationic currency, and let the others use an other kind of currency, hum ?

What do you think of that, fergalish ?  You like paper worthless money ?  Good for you.  Personnaly I'll stick to gold and bitcoins.

What I mean is that with current IT technology it should be easy to have many currencies cohabitate.  Currency conversion should take seconds so that it should be easy to enter a dollar only accepting shop and instantanously convert bitcoins in dollars in order to pay the merchand.
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kiba
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January 27, 2011, 07:12:33 PM
 #42

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

True. However, the problem in the bitcoin economy is the lack of demand for labor, not the other way around. As a result, I don't specialize in any kind of jobs. Instead, I do writing, drawing, and programming. In addition, I need to accept cheap compensation compared to the larger US dollars economy in order to make it palatable to my clients.

I did at least double my saving in the end. It went from 250 BTC ish at the beginning of the month to 581 bitcoins so far. Even though I have plenty of spare capacity unfulfilled, I can't really complain much.

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January 27, 2011, 08:36:36 PM
 #43

The topic has grown a lot, I'll answer only what was directed to me.

@caveden:
savings/investment: debt can create investment. no savings necessary.

Savings is totally necessary. It's the only way. Investments need to use good and services. These good and services had to be produced before the investment take place, and they must not had been consumed. Something that is produced and not consumed = savings.

A debt contract is nothing more than a "savings rental" contract. Somebody has savings, somebody else hasn't but need it for now, they loan. The interest rate is the price of such rental.
As of any price, in a free market it reflects the supply/demand. So, in a free market, the interest rate reflect the supply/demand of savings available for "renting" (lending).
When the government intervenes with its authoritarian inflation to push down interest rates, it causes price distortion. When the price of something decreases, that normally stimulate consumption of this something and inhibits its production. That's what happen when government artificially pushes down interest rates: people spend more and save less. But newly printed money is not real savings. People are consuming as if there were lots of savings to back up their long term projects, but there isn't. Voluptuous investments will start and won't be able to finish. You have a boom followed by a bust that destroys capital.

And the worst of all is that it all takes years, normally more than the term of the despots who rule us under most democracies... their goal is always to push to the future the more they can, and enjoy only from the boom.


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.

I don't get your point. There's no inherent value, value is subjective. Your bread just got "less valuable" not "less inherently valuable" as value is not a property of bread.

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.

Ok, some members can do that, sure. Particularly those who are allowed to use coercion. If property rights were respected, that wouldn't happen.

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January 27, 2011, 09:31:39 PM
 #44

Absolutely! Inflation is good for debtors, deflation is good for savers. Choose your side! And if you are saving make sure you are saving in deflating currency i.e. gold or silver or bitcoins all all of them.

A friend of mine disagrees and wrote a blog post about this topic.
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January 31, 2011, 11:58:20 AM
 #45


Absolutely! Inflation is good for debtors, deflation is good for savers. Choose your side! And if you are saving make sure you are saving in deflating currency i.e. gold or silver or bitcoins all all of them.

What vladimir says indicates that either he or I have a gross misunderstanding of deflation.  Gold does NOT deflate OR inflate, and by design, bitcoins can't either.  There is a fixed quantity of gold in the world, inflation and deflation are caused by changes in quantities of money. Ok, let me qualify that, they're caused by changes in /availability/ of money.  So, yeah, if everyone suddenly started trading in gold, it would become much more available, and the price of bread, measured in gold, would decrease.  But there's no long-term change.  Damn, I remember I saw a graph of the price of oil in terms of gold, from the 1900's to today.  It went up & down like a yo-yo, but the long-term trend was flat.  That's also what I meant by "the only real currency is energy". http://www.incrediblecharts.com/economy/gold_oil_ratio.php  (that's the best I could find now - 1973 to today).

Right now, dollars (and €) are inflating, and everybody should be spending, but they're not.  I don't understand why.  I can only assume it's because the money supply is shrinking, even though there have been huge injections of liquidity.  Some have said that we're in a "liquidity trap" right now http://en.wikipedia.org/wiki/Liquidity_trap .  "Liquidity traps typically occur when expectations of adverse events (e.g., deflation, insufficient aggregate demand, or civil or international war) make persons with liquid assets unwilling to invest."  If this leads to widespread unemployment as it seems to be doing, then deflation will eventually set in.  The only way out of deflation is to inject more liquidity, and the result of that would eventually be hyperinflation.  Isn't this one of the main bones of contention between modern schools of economic thought?  What are they called, Austrian Vs neo-Keynesian?  Can anyone clarify please?  (e.g.
http://www.humanaction.co.za/2010/09/hyper-inflation-and-deflation-are-two-sides-of-the-same-coin/ )

@grondilu: Paper money is not yet worthless.  You can buy stuff to eat with it.
accounting tool: yes, money is just that.  But when an economy fails, it takes time to generate a new currency, and to get the new currency into circulation.  The transition is tough, because it takes time for people to understand the value of the new currency, and they will be reluctant to buy or sell at any price.

@hugolp: cellphone and computer are necessities for my job. I could not compete in the economy without them.
re. brazil: I mean, Brazil benefits by chopping down the Amazon.  Brazil (one member) benefits, world (society) suffers.  In the long run, I daresay Brazil will suffer too.
govt. spending: it helps the economy because all those civil servants buy stuff with their salaries - bread, mobile phones, everything. Giving jobs to loads of other people, who spend in turn etc etc.  Right now it would be a disaster for the govt to significantly cut spending.  It would be like putting a choke on the economy.  Now, that's a discussion of the status quo.  I'm not intending a discussion on whether Big Govt versus Small Govt, just how things are now.

@caveden:
bread: ask a hungry man if bread has inherent value. Then ask him if a half-a-kilo steak has a relatively greater inherent value.  Maybe you could think of inherent value, as the amount of time a person is willing to work in order to obtain that object.  Tell you what though, forget about "inherent value".  Your statement "Your bread just got "less valuable"" seems to me to indicate we're saying the same thing with different terminology.  "less valuable" is fine by me.  Now, is price reduction by deflation equivalent to price reduction due to a lesser value?  I'm sure you think not.
savings: the credit-fueled boom of the past 40 or more years has done some wonders for western society (and now eastern too). But I agree with you, the politicians are selling us the present at the expense of the future, though I don't understand why all the capital created should now be destroyed as you suggest.  Be sure your kids know how to train an ox to till a field :-)  But, in any case, fractional reserve banking FRB allows investment *without* savings.  Or, more precisely, it allows $10 investments for every $1 saved (or whatever the fraction in FRB is) (ok, it's not quite like that, but there are already threads about FRB).
despots: agreed. Politicians don't take a long term view anymore, if they ever did.
property rights: property rights will never stop people abusing the rules at the expense of others, *except* in small communities.  And rights are worthless unless there is a police force to enforce them, and libertarians don't like things like police forces.

#bittertea: that's a good post by your friend, it say things much better than I could, and goes back to a post I wrote a long while ago: in the long term, you can't have inflation without interest and vice-versa.  Since bitcoins can't inflate, then the bitcoin economy can't support, in the long term, anyone who charges interest for a loan. (see "pros and cons of anonymous digital cash" http://bitcointalk.org/index.php?topic=67.0;all).

keep it up folks!
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January 31, 2011, 01:20:17 PM
 #46

OK, for simplicity let's assume that all 21m bitcoins are already issued and all gold is digged out of the ground and none of those ever lost. Let's also assume that money velocity is constant as well. So we have constant amount of money.  However, good economy does create wealth, amount of goods and services and assets grow over time. For this larger amount of goods we have constant amount of money. More goods are chaising the same money, hence the same amount of money buys more goods, therefore one unit of money becomes more valuable, hence we have deflation.

Ok, sorry, you're right.  I had made the assumption of a constant economy, neither growing nor shrinking.
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January 31, 2011, 01:25:23 PM
 #47

@caveden:
...  Now, is price reduction by deflation equivalent to price reduction due to a lesser value?  I'm sure you think not.

Price reduction either means society values less the priced thing, or values more whatever you're using to measure such price (the money), or both at some degree.

In a scenario of monetary stability (insignificant or zero monetary inflation/deflation - not to confuse with price inflation/deflation), it's normal for most prices to fall on the long run because society will accumulate more capital, what will make it more productive. More production, the supply of "stuff" increases. The supply increasing, the value decreases.

Did I answer your question? By the way, why the question, I'm not sure I understood?

savings: the credit-fueled boom of the past 40 or more years has done some wonders for western society (and now eastern too). But I agree with you, the politicians are selling us the present at the expense of the future, though I don't understand why all the capital created should now be destroyed as you suggest.

I didn't say all. If I did, it was a mistake, sorry.
What I think I said was that lots of capital will have to be destroyed. And this is simply because the boom was artificial. There were no real savings to sustain it. And the projects that can't be continued due to lack of savings might have to be abandoned, what implies in capital loss.

The typical example is the guy that starts building his home believing he'll be able to spend the equivalent of 1 millions dollars in resources and labor, but in reality there are only 500k available, and he doesn't know. He'll probably start a voluptuous project that he'll not be able to finish. If he discovers the problem in the beginning, say, after having spent 50k somebody prevents him there are only 450k more available instead of 950k, he might still be able to "patch" the project and in one way or another reuse part of the resources already spent. But if he figures out the issue after having spent something like 400k, he's probably screwed and will have to abandon the whole project. All the savings spent will be lost.

This is what happens when people start big investments possible only due to the artificially low interest rates central banks produce with their inflation. And, as in the example, the longer the illusion keeps going on, the bigger the damages will be. That's why the best thing would be not to prevent the recession, but let it come with all its strength to reorganize prices and capital allocation as fast as possible.

But, in any case, fractional reserve banking FRB allows investment *without* savings.

No... FRB doesn't create actual resources, it only creates new money. How is that going to allow investments to take place? Capital is not made of dollar bills. Smiley

Investments need resources. These resources had to be previously produced and not consumed, otherwise they wouldn't be available for the investment. Resources that are produced but not consumed is the definition of savings. Conclusion, investments need savings.

What might be said about FRB alone (without central banking) is that it puts saved resources available for investments more efficiently. I confess I'm not sure whether this is true or false, there's a big debate there. But, in spite of that, it's quite clear that central bank inflation only does damage.

property rights: property rights will never stop people abusing the rules at the expense of others, *except* in small communities.  And rights are worthless unless there is a police force to enforce them, and libertarians don't like things like police forces.

We don't like state police, don't mix things up. Wink
Voluntarily providing protection services is perfectly fine and fundamental, as you note.

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fergalish
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January 31, 2011, 02:19:06 PM
 #48

This is great!  For about the first time, I find myself agreeing with the forum. I can't figure out if it's because the forum convinced me, or I convinced the forum.  I think, mostly, I just learned the correct terminology for what I was thinking.  Thanks to all!

Quote
Gold does NOT deflate OR inflate, and by design, bitcoins can't either.
More goods are chaising the same money, hence the same amount of money buys more goods, therefore one unit of money becomes more valuable, hence we have deflation.
[/quote]
So, let's imagine a deflationary scenario sets in, causing (my hypothesis) people to reduce spending.  The lack of spending causes companies to lay off employees to reduce costs.  This further reduces the spending *BUT* increases the value of the remaining currency because you now have less currency chasing an equal amount of goods.  HOWEVER, what if companies ALSO decrease production to save costs?  Well, now you have a deflating currency chasing less goods - which wins?  Will the price of goods go up or down?  Depends, I guess on whether the economy shrinks faster than the money supply, or vice-versa.  So, therefore, this forum's assumption (see earlier) that hoarders cause others' currency to become more valuable, is not necessarily a valid assumption.  Then is just depends on whether the reduced-spending -> cost-cutting-and-reduced-production -> reduced-spending spiral becomes epidemic or not.  The monetary powers have to walk a tightrope between deflation and inflation, trying to match the money supply to economic growth or decline.

Economics is not a simple thing, by any means. Lots of variables and they are variables i.e. they change all the time. Basically, lots of shades of gray in N-dimensional model space, where N is not trivially small. It will never be easy to build understanding of this by trying to simplify it to black and white one dimensional level abstractions.
That's what the study of complexity is all about.

Did I answer your question? By the way, why the question, I'm not sure I understood?
You did - it's the difference btw monetary and price deflation.  I didn't realise there existed the term "price deflation".  That's what I was trying to express by "reduced value" - the reduction in price due to "progress", even though monetary inflation is zero (i.e. the "value" of money is appx. constant).

Quote
I didn't say all. If I did, it was a mistake, sorry.
You didn't, my mistake.  Your example of the guy building his house explains it, but only for work-in-progress.  All the roads, hospitals, bridges etc, already built and completed, will not be destroyed (except after N years of degradation).

Quote
Capital is not made of dollar bills. Smiley
No, but since debt-$ are equivalent to savings-$, then you can use debt to /stimulate/ increased production. i.e. you can buy stuff with debt just as easily as with savings.  And they don't have to have been previously produced.  They just need to be produced in the near future.   Have you seen "money as debt" (see other thread)?  It's a great video explaining (amongst other things) how the colonial powers needed debt to fuel their continued expansion.

Quote
We don't like state police, don't mix things up. Wink
Voluntarily providing protection services is perfectly fine and fundamental, as you note.
But this just begs the question.  What if two protection services have a dispute?  Is there a voluntarily provided protection-services-dispute centre?  And if two of /those/ disagree?  Etc.  Eventually, you need a Supreme Court whose decision is final and binding.  But for that to be final and binding, you need a "special" police force that can legitimately enforce the supreme court's rulings.  Hey, I don't want to get into a discussion of libertarianism, these are old debates that have never been adequately resolved (at least, not for me).  And, I'm also playing devil's advocate.  While a Non-State would be great, I just have a feeling that it would never work.  It would either dissolve from within, or be taken over by a foreign power.
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January 31, 2011, 02:44:41 PM
 #49


So, let's imagine a deflationary scenario sets in, causing (my hypothesis) people to reduce spending.  The lack of spending causes companies to lay off employees to reduce costs.  This further reduces the spending *BUT* increases the value of the remaining currency because you now have less currency chasing an equal amount of goods.  HOWEVER, what if companies ALSO decrease production to save costs?  Well, now you have a deflating currency chasing less goods - which wins?  Will the price of goods go up or down?  Depends, I guess on whether the economy shrinks faster than the money supply, or vice-versa.  So, therefore, this forum's assumption (see earlier) that hoarders cause others' currency to become more valuable, is not necessarily a valid assumption.  Then is just depends on whether the reduced-spending -> cost-cutting-and-reduced-production -> reduced-spending spiral becomes epidemic or not.  The monetary powers have to walk a tightrope between deflation and inflation, trying to match the money supply to economic growth or decline.


People like me chase money by lowering our price so that we can acquire goodies. So labor can remain constant, or even increase in quality.

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January 31, 2011, 05:47:41 PM
 #50

/quote caveden
No... FRB doesn't create actual resources, it only creates new money. How is that going to allow investments to take place? Capital is not made of dollar bills. Smiley
/quote

Someone else already mentioned that when you offer to buy, even with debt, production of resources can maybe be started up to meet your offer.

But I am reminded of a post I saw elsewhere in these forums claiming that the fact that some sequences of bits have in the past been sold, and some might likely in the future be sold, can be construed as a tax obligation on the part of people coming into possession of sequences of bits. Specifically, a miner making a block during the 50 botcoin block regime might be liable for tax on whatever some other bitcoins had around that time in history contrived to get exchanged into dollars for, or maybe even the mere existence of an offer at or around that time might suffice to create a tax obligation.

So when a banker's magickal flourish of his magickal pen conjures yet more megabucks into existence, if someone, including that banker, chose to offer some of those magickal megabucks in return for some resource, presto that resource can be purported to be worth those megabucks, whoever has that resource however desperately their survival might depend on it and however totally lacking in money they might be possibly due to previous magickal flourishes of such magickal pens, that "unfortunate" holder of the resource suddenly is liable for the tax on those megabucks their crumb of bread uh I mean desired resource has magickally been fiat-ed to be "worth" as a lever for coercing its holder, and .... this seems to be particularly cruel .... if the banker then decides instead to purchase his cousin's room-mate's cousin's crumb instead, the poor sucker stuck with the crumb that wasn't actually bought owes taxes on the totally "didn't actually happen" imaginary "value" of that crumb!

Given such weirdness, if the terrabucks say let there be investment, how many people having to die to enable it would even matter? Aren't they merely collateral damage compared to the grand schemes of the terrabuck-pen-wielders?

(Back when controversy over Lindens and WoW gold and large value ebay auctioned magick swords one could conjure up 32767 of as easily as one could conjure up 257 of was quite heated some politicians actually seemed to figure if I had MAXLONGINT such swords their value for tax purposes presumably should be MAXLONGINT times whatever one somehow sold on e-bay for! Imagine my tax liability then! How long an int's max of such "goods" would have to go up for auction to demonstrate to such thinking that it might not quite have it's estimate of the value of unsold and potentially unselleable goods quite right?)

-MarkM- (s/botcoin/bitcoin/ left unexecuted as the typo seems nicely fortuitous.)


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February 02, 2011, 08:52:18 AM
 #51

You are not answering to my questions,

@hugolp: cellphone and computer are necessities for my job. I could not compete in the economy without them.

That is exactly my point and proves what you said before wrong. When prices go down people keep buying.

Quote
re. brazil: I mean, Brazil benefits by chopping down the Amazon.  Brazil (one member) benefits, world (society) suffers.  In the long run, I daresay Brazil will suffer too.

Again, you deflect the issue. Brazil is a clear example of the violation of individual rights (in this case mainly property of the natives) by a collective organization (the brazillian governement). If individualism* was respected in Brazil the Amazon would be a lot better.

*Individualism in politics mean respecting individual rights, NOT going along in live. Individualism is a set of rules for cooperation between people.

Quote
govt. spending: it helps the economy because all those civil servants buy stuff with their salaries - bread, mobile phones, everything. Giving jobs to loads of other people, who spend in turn etc etc.  Right now it would be a disaster for the govt to significantly cut spending.  It would be like putting a choke on the economy.  Now, that's a discussion of the status quo.  I'm not intending a discussion on whether Big Govt versus Small Govt, just how things are now.

This is totally false. It seems to me you think gov spending comes from nowhere like magic, and also that gov spending is as efficient and looks towards people needs as the private sector.
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February 02, 2011, 11:12:38 AM
 #52

You are not answering to my questions,
Sorry, I must have missed exactly the questions.  I thought I was answering, but maybe I didn't fully understand.  Could you repeat the specific questions I didn't answer please?

Quote
@hugolp: cellphone and computer are necessities for my job. I could not compete in the economy without them.
That is exactly my point and proves what you said before wrong. When prices go down people keep buying.
I disagree.  When my phone breaks I will get a new one, but not before then (I have a crappy phone, I hate it, but refuse to buy another because this one still works).  A phone and computer, for me, are necessities, like bread and water (not *exactly* like them, just similar).  If I didn't have them, I'd lose my job.  People will *always* buy bread (assuming they can) irrespective of the price, just like me and my phone.  However, I will not buy any unnecessary phone or bread.  In an economy undergoing monetary deflation, people will minimize unnecessary purchases.  Price deflation (e.g. tech products) due to reduced production costs does not have this effect.

Quote
Again, you deflect the issue. Brazil is a clear example of the violation of individual rights (in this case mainly property of the natives) by a collective organization (the Brazilian government). If individualism* was respected in Brazil the Amazon would be a lot better. *Individualism in politics mean respecting individual rights, NOT going along in live. Individualism is a set of rules for cooperation between people.
There are levels of collectivism, I'm referring to a community of nations.  The world, at present, is respecting Brazil's right to do what it wants with its own land.  Is that a good thing?  Do you think that the Forces-Of-The-West should invade Brazil in order to install a better western style democracy with greater respect for individual rights?  And, how can you be so sure that individual farmers, in the Amazon basin, wouldn't do even worse?  Lovely fertile land, all you need is to chop down some irritating trees first.  I'm not being sarcastic - I'm really asking how you can be so sure.  It's not clear to me.

Quote
This is totally false. It seems to me you think gov spending comes from nowhere like magic, and also that gov spending is as efficient and looks towards people needs as the private sector.
Part of govt. spending comes from tax, the rest from debt .  Right?  And if you watch money-as-debt, then I guess debt spending /is/ a bit like magic, yeah?  Money-from-nothing?  Like I said, I'm trying to discuss the present situation in which there is a Big Govt, NOT whether there should be a Big Govt or not.  If Big Govt significantly reduced spending now, there would be an economic disaster even ignoring all the extra unemployed.  There will probably be an economic disaster anyway, and the longer it's put off, the worse it will be.  But, right now, politicians don't want any economic disasters so they keep spending up.  The best path might be to slowly change from Big Govt to Small Govt (slowly, like over 20 years), and then private spending could make up, perhaps more efficiently, the loss of all that govt spending.  Personally I'd be worried about corporate irresponsibility in an unregulated world, but that's just me.

@kiba: self-employed people that can reduce their own price are a minority. And I'm guessing even you won't reduce your prices below how much it costs you to produce.  If it gets that bad you'll stop producing, and the economy will shrink just that little bit more.
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February 02, 2011, 01:15:54 PM
 #53

Again, you deflect the issue. Brazil is a clear example of the violation of individual rights (in this case mainly property of the natives) by a collective organization (the Brazilian government). If individualism* was respected in Brazil the Amazon would be a lot better. *Individualism in politics mean respecting individual rights, NOT going along in live. Individualism is a set of rules for cooperation between people.
There are levels of collectivism, I'm referring to a community of nations.  The world, at present, is respecting Brazil's right to do what it wants with its own land.  Is that a good thing?  Do you think that the Forces-Of-The-West should invade Brazil in order to install a better western style democracy with greater respect for individual rights?  And, how can you be so sure that individual farmers, in the Amazon basin, wouldn't do even worse?  Lovely fertile land, all you need is to chop down some irritating trees first.  I'm not being sarcastic - I'm really asking how you can be so sure.  It's not clear to me.

Just a post about this particular subject. It seems both of you are mislead in your arguing. It's the same kind of mistake I see often when people talk about smoke-free environments. The pro-market people try to argue how a free market would create all sort of smoke-free and non-smoke-free environments for all tastes, and the other side remains skeptical. Same thing here with "how would the free market preserve the Amazon".

The first thing that is important to remember is: the free market pushes towards the best resource allocation humanly possible. That's what it does, always. The definition of what is the best allocation is where you both might be mistaken there. Who says the Amazon has to be preserved in the first place?

The free market "criterion" is utility to mankind. We have to remember that everything has a cost. Maybe having lots of smoke-free environments is not the best resource allocation due to high costs and reduced benefits.
Same thing for the amazon. I strongly doubt that preserving that huge forest as is is the best resource allocation to mankind. It's really a huge amount of land that could be much better used than just let it there for monkeys and snakes. Of course, in a true free market, some would acquire land in the amazon to preserve it, either for tourism, or for science researches, or whatever reason these owners decide to give to their land. But I bet that most of the forest would be destroyed to give place to something more useful to human beings, like agriculture and livestock for example.
Am I wrong? Maybe. The only way to really know is to let people free and see what they prefer to do.

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February 02, 2011, 02:20:33 PM
 #54

I disagree.

You said people dont buy stuff when prices go down. I said they do. Now you say that you buy stuff you need even when prices go down. You are disagreeing with yourself. This is getting a bit ridiculous. Either people buy stuff (for whatever reasons) when prices go down or they dont.

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When my phone breaks I will get a new one, but not before then (I have a crappy phone, I hate it, but refuse to buy another because this one still works).  A phone and computer, for me, are necessities, like bread and water (not *exactly* like them, just similar).  If I didn't have them, I'd lose my job.  People will *always* buy bread (assuming they can) irrespective of the price, just like me and my phone.  However, I will not buy any unnecessary phone or bread.  In an economy undergoing monetary deflation, people will minimize unnecessary purchases.  Price deflation (e.g. tech products) due to reduced production costs does not have this effect.

We have been talking of prices going down all the time. If you realize I have been trying to avoid the word "deflation" and always used the expression "prices going down" to avoid confusion. Again you are agreeing with me, people buy stuff when prices go down.

Nobody here is advocating persistent monetary deflation as monetary system (at least not me). Anyways, I am glad we came to an agreement.

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There are levels of collectivism, I'm referring to a community of nations.  The world, at present, is respecting Brazil's right to do what it wants with its own land.  Is that a good thing?  Do you think that the Forces-Of-The-West should invade Brazil in order to install a better western style democracy with greater respect for individual rights?

Expreading democracy around the world... Is there anyone that stills believes this bullshit? Havent we seen enough damage and deads in the name of expreading democracy? In case you are interested the expression was coined by the early progressive movement that was a creation of big companies, specially the Rockefeller and the Morgans to create a moral justification to regulate the market and gain competitive advantage through political means. This has been extremely well documented. In fact, the first meeting towards creating the progressive party was full of Rockefeller and Morgan men.

There is a saying, that I never remember who said it, but its brilliant and it goes something like this: The more beautiful and utopic the promises from a politician are, the more darker his intentions. This really describes well the idea of "Expreading democracy around the world" that is nothing more than USA imperialism. In fact, its funny because the early progressive economists justified invading other countries by saying that business in the USA was too developed (late XIX century) and the USA government needed to invade other countries to guarantee new markets for the USA industries.

About the question, no, I would not justify invading a foreign country to impose any system. We should have learnt by now that the reasons for war are never charitable. The charitable part are just excuses for the mases.

Btw, I understand if you dont take my word for all this historic points I made and you can ask for references if you are interested in knowing the origins of the USA progressive movement.

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And, how can you be so sure that individual farmers, in the Amazon basin, wouldn't do even worse?  Lovely fertile land, all you need is to chop down some irritating trees first.  I'm not being sarcastic - I'm really asking how you can be so sure.  It's not clear to me.

The fact that the Amazon was there and its owners did not cut it down should tell you something about it. It took an organized government to do it.

I understand you have been educated to believe government cares for you and the environment. I was educated the same way (socialdemocrat parents and socialdemocrat myself until I was 27). Its not that way. Men get together and organize a monopolistic entity only to have control and profit violating other peoples rights.

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Part of govt. spending comes from tax, the rest from debt .  Right?  And if you watch money-as-debt, then I guess debt spending /is/ a bit like magic, yeah?  Money-from-nothing?  Like I said, I'm trying to discuss the present situation in which there is a Big Govt, NOT whether there should be a Big Govt or not.  If Big Govt significantly reduced spending now, there would be an economic disaster even ignoring all the extra unemployed.  There will probably be an economic disaster anyway, and the longer it's put off, the worse it will be.  But, right now, politicians don't want any economic disasters so they keep spending up.  The best path might be to slowly change from Big Govt to Small Govt (slowly, like over 20 years), and then private spending could make up, perhaps more efficiently, the loss of all that govt spending.  Personally I'd be worried about corporate irresponsibility in an unregulated world, but that's just me.

Ok. I understand what you say. Let me make some points.

1. Money as debt is not the best source of economic theory. They explain very well how the fractional system works under a central bank, but they never mention the incentives the central bank creates to provoque that behaviour in banks, and they dont explain that without a central bank fractional reserve is very different.

2. Now to the point. Government spending can keep the GDP numbers going up. That does not mean economic growth. If you go on debt and start paying people to dig a whole and then cover it back the GDP will go up, but you have not improved the economic situation, in fact you are worse, because you have the same goods (filling and covering wholes produced nothing) and you have more debt.

So yes, government spending can create a statistic boom in the economic indicators, but, as I explained before, the government does not know how to satisfy the people, mainly because it does not operate under the price mechanism, so the government spending its just mainly waste (and you can litterally check that with the Obama stimulus and how it was used). It does not lead to recovery. Just for the record, right now its not the time to reduce basic welfare spending like food stamps and stuff like that. The poor people has been hit enough by government regulations, and there is no need to make them pay. There are a lot of places to reduce first. But as government are always an agent for the big interests the reductions are always towards the people.

As an example, you have the crisis at the beginning of the 1920's, caused when the bubble created by the Fed to pay for IWW went bust. The president then reduced taxes, reduced spending and the Fed did not had power to inflate until 1922 (it got special powers during the war that were removed when it ended). The crisis started worst than the Great Depression, but it was over in year and a half. Why? Because government reducing taxes and spending allowed room for the market to coordinate itself again. Entrepeneurs created the industries that produced what people wanted (not just government silly spending) and real wealth appeared.

The macroeconomic mentallity that any spending is good is totally wrong. You can not pretend that just spending in anything is going to produce real wealth. If you spend in useless stuff in fact you are squandering wealth, and becoming poorer. Yes, spending a lot boosts economic indicators but its not a real recovery, its not sustainable. It will prolong the depression. Yes, reducing government spending will make the economic indicators go down a lot more, but it will lead to a quick recovery.
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February 03, 2011, 08:34:31 AM
 #55

You said people dont buy stuff when prices go down. I said they do. Now you say that you buy stuff you need even when prices go down. You are disagreeing with yourself. This is getting a bit ridiculous. Either people buy stuff (for whatever reasons) when prices go down or they dont.
Please differentiate between NECESSITIES and LUXURIES.  I never said people don't buy stuff when prices go down, I said people don't buy UNNECCESSARY stuff during periods of MONETARY DEFLATION - and everyone has a different idea of what's "necessary" (I might not have been clear about the "monetary deflation" bit in my first posts, confusing it with price deflation).  If my phone breaks, then I'll buy a new one regardless of whether prices are going up or down, because I NEED one.  But if there is monetary deflation, then I definitely won't buy that new computer game, because I DON'T NEED it.  What about you?  If your money is deflating, would you concentrate your purchases more on necessities, or would you splash out on a new pair of $250 shoes (for you, or your GF) just because they're nice, or would you wait until next month when you can buy the same shoes AND a burger&fries for $250?  What if you lost your job at the same time?  What then?  Now think about people who are investing $millions.  Even low deflation could mean they can afford to buy a new luxury car for their children if they just wait one month before investing.

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Anyways, I am glad we came to an agreement.
We did?  Good, I'm glad too.

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The fact that the Amazon was there and its owners did not cut it down should tell you something about it. It took an organized government to do it.
I'm sure you realised I was being sarcastic when I wrote about invading Brazil??? I didn't know some of those things you wrote, but they wouldn't be so surprising.  I'll bet the amazon was never destroyed for many years because the population density (of humans) was simply too low.  A few hundred tribes living in and around it would never do more damage than regrowth - you'd need big, terrible, fast machines to do significant damage, and that didn't come about until, how long ago, maybe 40 or 60 years ago? (see youtube)

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I understand you have been educated to believe government cares for you and the environment.
More than private enterprise cares for me, I think (see below).  I'm a big skeptic of modern government though - I have the feeling that once upon a time, politicians were driven by ideals, not greed and personal gain.  I'll tell you what, if I could only live 1000 years to collect, I'd bet that having no govt would eventually reduce mankind to Hobbes' "solitary, poor, nasty, brutish, and short" life.  And by "govt" I mean any persistent authority, even e.g. tribal chiefs.  My opinion, therefore, is that it's more important to have some set of laws by which all people can expect some guaranteed living standard, than that the set of laws be "the right ones", whatever that might be.  It's like driving, yeah?  Who knows, maybe driving on the left /is/ better than driving on the right, but it's much more important that everybody agrees which side to drive on, than that their choice be the "correct" one.

govt spending: what you say is right.  In short, those that perform services do not increase overall wealth.  Only the production of goods can do that.  And most of govt's work is services.  However, services do help money to circulate, allowing more people to demand produced goods.  I feel like we're almost coming to an agreement here too...Huh

Quote from: caveden
But I bet that most of the forest would be destroyed to give place to something more useful to human beings, like agriculture and livestock for example.  Am I wrong? Maybe. The only way to really know is to let people free and see what they prefer to do.
This, for me, is the biggest drawback to pure capitalism.  It's shortsighted.  Destroying the amazon rainforest would bring great benefits to human society for a while.  Then, after many years, it would be clear that the amazon had a crucial role to play in keeping the atmosphere oxygenated (the lungs of the planet, anyone?), keeping floods under control, maintaining biodiversity, heck, I don't know what else.  Now I may well be wrong, and an oxygen-depleted atmosphere might well improve humanity's state somehow.  It just seems a bit risky to me, that's all.
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February 03, 2011, 09:43:26 AM
 #56

I dont understand why you started discussing about monetary deflation when nobody supports a system based on monetary deflation. But hey, at least we agree. Btw, the fact that people dont buy what they dont need is a good thing.

I'm sure you realised I was being sarcastic when I wrote about invading Brazil???

No. Really no. The internet does not transmit all the information a voice conversation does, and I have heard heavy facists stuff coming from interventionist, so I am not surprised anymore. Im glad you were joking though.

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I didn't know some of those things you wrote, but they wouldn't be so surprising.  I'll bet the amazon was never destroyed for many years because the population density (of humans) was simply too low.  A few hundred tribes living in and around it would never do more damage than regrowth - you'd need big, terrible, fast machines to do significant damage, and that didn't come about until, how long ago, maybe 40 or 60 years ago? (see youtube)

Yep, all true. Still dodging the question. The collectivist system, the government, is violating individual rights (the property of the natives) to destroy the amazon. Collectivism always promises the moon and delivers destruction and poverty.

So many misconceptions in this (and I couldnt but to smile while reading because I use to belive most of it):

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More than private enterprise cares for me, I think (see below).

Its not that a person in charge of a company cares more for you. The same person can be in government and in a private company during his/her live, and he cares for you the same. Its not that the people in government care more or the people in the private companies care more. Its stupid to believe any of those. That is not the point. The important point is that the private sector is designed to focus the incentives towards pleasing the consumer because it can not use violence, it has to get the agreement of the buyer, while the government is a monopoly that uses force to acomplish its goals. Even if a good person gets to be dictator it would probably fuck up big time because there is no way anyone can know the necessities and desires of so many people. This is why voluntary exchange works and violence does not.

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I'm a big skeptic of modern government though - I have the feeling that once upon a time, politicians were driven by ideals, not greed and personal gain.

"Old times were always better"... There is a psycological study somewhere proving that the mind tends to focus on the good memories and tries to forget the bad ones, which is why people tend to think that the past is always better.

In the past people died everyday, there was rampant malnutrition, slavery, rape, etc... and the leaders did not give a fuck. This idea that old times were better is just fictional. I am glad I dont live in the past seriously, specially because the lower classes had it really tough compared to this days.

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I'll tell you what, if I could only live 1000 years to collect, I'd bet that having no govt would eventually reduce mankind to Hobbes' "solitary, poor, nasty, brutish, and short" life.  And by "govt" I mean any persistent authority, even e.g. tribal chiefs.

"If you all dont obey ME there will be caos"... Mubarak just used that line in Egypt. When it has been proven again and again that self-organization and spontaneous order always beats central planing, people still believe in the old idea. You know, Im fine with it as long as I get to be in power. Wink Leaders will always attribute themselves the achievements of a society (and blame the faults on others), when in reality is the people working and cooperating that makes anything possible.

Anarchy is order, government is chaos. If it was possible for the government to take control of every aspect there would be caos. Absolute caos and discordination. People would starve. This society only works because there are still some sort of self-organization and spontaneous order in the middle of all the government meddling.

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My opinion, therefore, is that it's more important to have some set of laws by which all people can expect some guaranteed living standard, than that the set of laws be "the right ones", whatever that might be.  It's like driving, yeah?  Who knows, maybe driving on the left /is/ better than driving on the right, but it's much more important that everybody agrees which side to drive on, than that their choice be the "correct" one.

Anarchy is not lawless. In fact, laws are respected more in an anarchic system than when there is a centralized system. Everything you said is possible under a non-government system.

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govt spending: what you say is right.  In short, those that perform services do not increase overall wealth.  Only the production of goods can do that.  And most of govt's work is services.  However, services do help money to circulate, allowing more people to demand produced goods.  I feel like we're almost coming to an agreement here too...Huh

Yes, definitevely government spending will create a statistical boom. Its just that it wont be a real recovery because the capital created wont be the addecuate to satisfiy the consumer needs and will collapse again.

Quote from: caveden
This, for me, is the biggest drawback to pure capitalism.  It's shortsighted.  Destroying the amazon rainforest would bring great benefits to human society for a while.  Then, after many years, it would be clear that the amazon had a crucial role to play in keeping the atmosphere oxygenated (the lungs of the planet, anyone?), keeping floods under control, maintaining biodiversity, heck, I don't know what else.  Now I may well be wrong, and an oxygen-depleted atmosphere might well improve humanity's state somehow.  It just seems a bit risky to me, that's all.

Im not a capitalist, at least not in the popular sense. Im a market anarchists and I share some ideas with some self-proclaimed socialists and some other with some self-proclaimed capitalists. I really think the distinction is bullshit.

You seem to imply again that without the government there would be destruction or caos, and therefore anyone that wants to get rid of government is short sighed and crazy. What if what it is short sighted and crazy is believing that without government there would be destruction and caos?. You know, its funny because you see governments helping and enabling the destruction of nature, yet you keep hoping government will do something to stop it. Tell me this: if the majority of the people really wanted to destroy the Amazon to create agricultural land, how is a democratic government going to do anything else than destroying the Amazon?
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February 03, 2011, 10:37:14 AM
 #57

This, for me, is the biggest drawback to pure capitalism.  It's shortsighted. 

hehehe, right, and governments are very longterm oriented... They plan everything they can for the next election! Cheesy

Only by respecting private property rights you'll get people to worry about the future consequences of their acts, as the rightful owners will care about what happens to their property. Currently most of the amazon is owned by the Brazilian government. What do they care?
Had you understood what I tried to explain about how governments stimulate consumption, producing short term booms at the expense of long term recessions, you'd understand who's really shortsighted...

Destroying the amazon rainforest would bring great benefits to human society for a while.  Then, after many years, it would be clear that the amazon had a crucial role to play in keeping the atmosphere oxygenated (the lungs of the planet, anyone?),

Seriously, the "world lung" hoax?? You still fall for it??
Try to remember the basic chemistry behind photosynthesis and you might realize how this is nonsense... the Amazon doesn't provide oxygen to the world.

keeping floods under control, maintaining biodiversity, heck, I don't know what else.

I bet all these things can be done much more cheaply than the cost of not using such precious resource as all that land.

About biodiversity, what's the point, preserving just to preserve? Useful species will be preserved, you bet. Soon we'll even be inventing new species, DNA synthesis is a reality already.
You should watch this George Carlin video: http://www.youtube.com/watch?v=xjfiIow-eW0

I insist that it's probably useless to preserve such a huge jungle just for the sake of preserving it. It's pointless. Preserving small parts of it might be interesting, but not all.

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February 03, 2011, 10:42:47 AM
 #58

I insist that it's probably useless to preserve such a huge jungle just for the sake of preserving it. It's pointless. Preserving small parts of it might be interesting, but not all.

I have to agree with caveden, although I'm not that extreme.

In any way, what we should do about tropical forests, is not for a bunch of ecolocrats to decide.
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February 03, 2011, 11:16:23 AM
 #59

... it's probably useless to preserve such a huge jungle just for the sake of preserving it. It's pointless. Preserving small parts of it might be interesting, but not all.

As you correctly said earlier, the market leads towards the optimum solution.

I would like to preserve the Amazon for aesthetic reasons, and I would contribute plenty of money towards that, as would some other people. I have no doubt that the optimum amount of jungle would end up being preserved.

Undeveloped land is actually really cheap to buy. Even in the United Kingdom, you can buy farmland for £5000 per acre. If you want land that comes with permission to build, that will cost you a hundred times as much (due to the government monopoly on approving building), but if you just want to preserve land it's cheap. I'm sure the prices in Brazil will be much lower than those in the UK.
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February 03, 2011, 11:20:36 AM
 #60

http://www.therainforestsite.com/

-MarkM- ( have you eaten today? http://www.thehungersite.com/ )

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