The real problem behind inflation

[markm]

What about anti-monopoly laws? Is it bad to prevent monopolisation or merely that only a monopoly on the disallowing of monopolies can prevent monopolies from forming?

-MarkM-

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[grondilu]

What about anti-monopoly laws? Is it bad to prevent monopolisation or merely that only a monopoly on the disallowing of monopolies can prevent monopolies from forming?

There is nothing wrong about monopolies, as long as it is not coerced.

A monopolistic company is just a company that fullfills whole market demands by itself.  We should congratulate, not blame it.


Google for instance has almost a monopoly on web research.  They are just that good about that.  But anyone who think they can do a better job, are free to try.

[kiba]

What about anti-monopoly laws? Is it bad to prevent monopolisation or merely that only a monopoly on the disallowing of monopolies can prevent monopolies from forming?

-MarkM-

Those "anti-trust" law are often used to persecute smaller companies not large trusts.

Of course, monopolies often happen because of government regulations.

[hugolp]

And why do you think private corporations will respect private property rights?  In a corporate world, people are rewarded with money and power. That means the people who come to power are the ones that like to have money - greedy self-obsessed people (not much different from politicians of today).  Even hugolp agrees that politicians and corporate leaders are often one and the same.  Your politicians will just become your corporate leaders, and tell me this: why should they suddenly become "nice" in an anarchist society?  I'm not saying the present political leadership is any good, or that the regulations they impose are just and correct.  I just don't think corporate anarchy will do better.

Why do you keep bringing the present corporate system like if it is something we defend or support? In  general libertarians oppose the present system as interventionist and government ruled, included the corporate world. For starters, a corporation is a entity that receives government privileges (it changes from country to country, but it usually involves things like limited liability) and libertarians are opposed to those. Corporations as we know them today are only possible because of government intervention. So please, I know there is a lot of bullshit around the internet with libertarians supporting corporations and stuff, but dont fall for it. Libertarians are not pro-business, libertarians are pro-free market.

And answering your concern, its because they would have no other option. Look all the example of unregulated markets (and I mean real unregulated markets, not hyper-regulated markets that are called deregulated for political propaganda). What do corporations do when business goes done? They lower the price, offer a better product or close. Its not that they have many more options. What else can they do if they can not lobby for government violence?

The telecomunications sector was usually an example of a sector that the market could not handle because of high natural barriers of entrace (expensive infrastructure). A lot of "economists" (for lack of a better word to describe them) said that only government could provide telecomunications efficently and respecting the poor (the poor is the preferred excuse of statists, like if they really care). Well, Somalia since it became anarchic developed a telecomunications industry that offers the cheapests rates in all Africa... And we are talking about an industry that supposedly the market could not handle. I bring this example, because it shows your misconceptions on how the market dynamics work. Without a government "to protect" the somalies from the private telecomunications companies, why are they getting the cheapest rates? Have the company owners suddenly become good people? Doubtful. Its just that they have no other option than to lower prices to not be eaten by the competition. If you had a government "to protect you", they would have used it to protect the already stablished companies from the competition and keep prices high, with some good sounding and caring excuse. But that wasnt an option, so they lowered prices. This is how things work in real live, not the wacko theories about government protecting people.

Again, its not that some person is going to be good or bad because of a different system. Its that the incentives and possibilities are different.

I understand the Austrian theory of debt spending causing boom-n-bust business cycles.  I just don't think it's that simple.  The latest crisis, for example, is far more complex - not least because of the rising price of energy immediately prior to the crisis.  This limited growth for reasons *external* to the economy, which is something economic theories don't consider (as far as I can tell).  Furthermore, my understanding is that the Austrian boom-bust cycle is caused by a debt-inflated economy, thanks to fractional reserve banking, controlled (in the US) by the Federal Reserve.  Guess what?  A corporation specifically designed to safeguard the interests of privately owned member banks, largely independent of the government.  http://www.federalreserve.gov/generalinfo/faq/faqfrs.htm#5

Austrian theory does not really talk about debt fuelled bubbles, it talks about inflation fuelled bubbles. It just happens that in the present system the way to inflate is mainly (but not only) through debt, so some people focus on the debt. But there could be other ways. The problem its inflation distorting the natural interest rates.

Also, the Fed can say what they want. The Fed also says its there to take care of the value of the dollar. The Fed is not independent. The board of governors is a federal government agency and its members are selected by the president and ratified by congress. You can check the Nixon Tapes to see how a president influences the Fed actions. But even if it was independent, whats your point? That it benefits private companies? Obviously, its a government intervention in the market. We have been telling you that government intervines in the market to benefit a few big companies and this is one of the best examples. Again, libertarians are not pro-business, libertarians are pro-free market. The fact that something is private does not make it libertarian. It has to be free of government intervention.

Btw, if people that supposedly cares about the environment started using their money to buy property with natural places they like to conserve, instead of using it for propaganda and government lobbying it would be much more efficiently use for the cause. The problem is that a lot of people that supposedly care about the environment in reality only care about politics.

[kiba]

The telecomunications sector was usually an example of a sector that the market could not handle because of high natural barriers of entrace (expensive infrastructure). A lot of "economists" (for lack of a better word to describe them) said that only government could provide telecomunications efficently and respecting the poor (the poor is the preferred excuse of statists, like if they really care). Well, Somalia since it became anarchic developed a telecomunications industry that offers the cheapests rates in all Africa... And we are talking about an industry that supposedly the market could not handle. I bring this example, because it shows your misconceptions on how the market dynamics work. Without a government "to protect" the somalies from the private telecomunications companies, why are they getting the cheapest rates? Have the company owners suddenly become good people? Doubtful. Its just that they have no other option than to lower prices to not be eaten by the competition. If you had a government "to protect you", they would have used it to protect the already stablished companies from the competition and keep prices high, with some good sounding and caring excuse. But that wasnt an option, so they lowered prices. This is how things work in real live, not the wacko theories about government protecting people.

Competition had occurred in telecom oligopolies to a certain extent that it is now ineffective to resist the tidal waves orchestrated by Google.  Telcom are now being reduced to bit haulers.
 
http://gigaom.com/mobile/cheap-android-smartphones/

It's an example that every agorist on the planet should aspire to, even if the example involve a multinational corporation whom privileges are granted by the state.

[markm]

Quote: "What else can they do if they can not lobby for government violence?"

What happened to the private police / private army "solutions"? Not cost-effective even with (even your victims having cheap easy access to) modern weapons systems?

-MarkM- (Oh yeah, sure, cheap easy smratbombs. Pigeon powered guidance systems or hologram-brightspot car-counter parts or what?)

[hugolp]

Quote: "What else can they do if they can not lobby for government violence?"

What happened to the private police / private army "solutions"? Not cost-effective even with (even your victims having cheap easy access to) modern weapons systems?

-MarkM- (Oh yeah, sure, cheap easy smratbombs. Pigeon powered guidance systems or hologram-brightspot car-counter parts or what?)

I am still researching the security part myself. I discovered libertarianism 4 years ago and it has been quite a intellectual travel, since I was a socialdemocrat, raised by socialdemocrat parents. What catched my eye was economics and I have focus in that part (and I have ended up writtign weekly in a national media of my country which I never expected to) but I am not so knowledgeable in other areas.

But for example, I have read about a nordic society in the middle ages that was basically voluntarely. It worked as a sort of "clans" but not clans as we understand them now. They were voluntary clans, where you could join and leave them freely. It was obviously a problem to not be in one of this organization since you had no protection or legal system, but competition worked. The society lasted 200-300 years. As an example, while in mainland Europe the literature heroes were all warriors, in this area the literature heroes were lawyers... Tell me which one do you think was a most violent and underdeveloped society.

[fergalish]

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

Well, whaddya know.  I know it's not clear proof of my point, but it sure as hell puts in question the forum's majority opinion (i.e. that people will always buy tech products despite strong price deflation).

http://news.slashdot.org/story/11/02/26/2332243/Consumers-Buy-Less-Tech-Stuff-Keep-It-Longer

[grondilu]

Well, whaddya know.  I know it's not clear proof of my point, but it sure as hell puts in question the forum's majority opinion (i.e. that people will always buy tech products despite strong price deflation).

http://news.slashdot.org/story/11/02/26/2332243/Consumers-Buy-Less-Tech-Stuff-Keep-It-Longer

Yeah right, and you hink the solution to this is to increase the price?

"Oh my god, people don't buy my stuffs.  I know:  I'll just increase the price!"

What a weird conception of economics.

[ribuck]

Well, whaddya know.  I know it's not clear proof of my point, but it sure as hell puts in question the forum's majority opinion (i.e. that people will always buy tech products despite strong price deflation).

I'm not sure what point you think is being made by the Slashdot article.

Consumers are being squeezed because their food costs more than a year ago, their heating costs more than a year ago, their transport costs more than a year ago, their taxes are higher than a year ago, and their incomes have not kept pace. So of course they will prioritize essential purchases at the expense of discretionary purchases.

The amount of tech products they are buying now is higher than the amount they would be buying if the products hadn't dropped in price over the past few years.

[fergalish]

Yeah right, and you hink the solution to this is to increase the price?
"Oh my god, people don't buy my stuffs.  I know:  I'll just increase the price!"
What a weird conception of economics.

I think you've forgotten what this thread was discussing, I'll try to summarize but if I get it wrong, please correct me (and I'll edit this post for serious errors):

[forum] Inflation is a nasty evil tax perpetrated by nasty evil governments.
[me] You may well be right, but inflation allows you to plan your economy better and possibly helps you avoid extremely destructive system-wide deflationary spirals, AS LONG as you can avoid hyperinflation [which seems to be the other side of deflation - someone else posted this link: http://www.humanaction.co.za/2010/09/hyper-inflation-and-deflation-are-two-sides-of-the-same-coin/ ].
[forum] Deflation isn't that bad, just 'cos prices go down doesn't mean people won't buy stuff.
[me] Actually, I think it does, check out the Great Depression.
[forum] Pah, check out tech goods: constant price deflation, people still buy.
[me] (today) Ok, let's check out tech goods so: slashdot sez people are reducing their tech spending.

But, you know, you're almost right anyway.  Inflation causes money to decrease in value, this will cause people to spend.  As far as I understand it, that's exactly the idea.  Check out the Wörgl experiment http://en.wikipedia.org/wiki/Local_currency#Historical_local_currencies - there was a local currency which, by design, decreased in value at a constant rate.  The experiment was very successful but, as you can imagine, it encroached on the central bank's turf and the central bank wasn't best pleased about that.

Next questions: if tech company revenues significantly fall, what are they going to do?  Will they increase R&D spending, or decrease it?  If they decrease it, what will happen to tech prices - will they increase, remain constant, or continue decreasing (assume zero monetary inflation).

[grondilu]

I don't know what *would* happen.  I don't pretend to know and I don't care.  Moreover, I don't believe in central economic planification anyway.

I don't think prices would fall until the end of times, though.  At some point, an equilibrium should appear.  And if it doesn't:  be it!


Pro-inflation economists say that a bit of inflation is good because it prevents people from hoarding, and it makes them spend in shops before their money lose its value.

I have an other great tool to make people spend their money.  I think in english it's called the "whip".

Basically all you have to do is to hire cops to whip people if they refuse to enter shops and to buy stuffs.  Isn't that a great idea?

What about slavery?  I think slavery was pretty good for the economy.  It provided stable wages (zero is pretty much a constant number), so it was good for the companies which then could make predictable economic decisions.  So I guess whipping customers and enslaving workers would be a nice way to ensure economic stability and prosperity.

[Steve]

I'm getting tired of these Keynesian "deflation is bad and scary" thought police.  If I come up with a basket of essential goods (lets say what the average person needs to eat each day to survive) and publish a price index based on it, people could use it as a reference point when pricing goods and services in order to get a desirable and stable accounting unit...people could base loans and contracts on this index.  People could even choose to view all prices and bitcoin balances in terms of this index (given the necessary software infrastructure).  I don't need to invent any new currency or digital commodity to accomplish this feat.  Bitcoin is a commodity that acts as an anonymous, irrevocable medium of exchange on top of which all sorts of derived capabilities can be based.  Its value will rise as the infrastructure evolves and more people transact in it, but this rising value is not going to bring about any great economic calamity.

The real difference between inflationary fiat currency and a deflationary digital commodity like bitcoin is who benefits from the changing value.  In the case of bitcoin, deflation (loss of coins) dissipates wealth to all the current holders of bitcoin.  In the case of fiat, printing more money (inflation) transfers wealth from current holders of the currency to those with privileged access to the central bank.

[grondilu]

The real difference between inflationary fiat currency and a deflationary digital commodity like bitcoin is who benefits from the changing value.  In the case of bitcoin, deflation (loss of coins) dissipates wealth to all the current holders of bitcoin.  In the case of fiat, printing more money (inflation) transfers wealth from current holders of the currency to those with privileged access to the central bank.

Agreed.

[Grinder]

If I come up with a basket of essential goods (lets say what the average person needs to eat each day to survive) and publish a price index based on it, people could use it as a reference point when pricing goods and services in order to get a desirable and stable accounting unit...people could base loans and contracts on this index.

They could, but if the people who have the limited resource (the currency) were smart, they wouldn't. They know that productivity and population will only increase, but the amount of money will stay the same, so unless you come up with some unusually good way to produce something more efficiently, keeping all your wealth in currency will be the best way to get richer. Of course, people seeing this will make them over invest in currency, creating bubbles. At some point it will burst when somebody starts selling, the price falls and everybody panics. Then the same will happen all over again. We see this cycle in the gold price, and it will also happen to bitcoins.

[Steve]

If I come up with a basket of essential goods (lets say what the average person needs to eat each day to survive) and publish a price index based on it, people could use it as a reference point when pricing goods and services in order to get a desirable and stable accounting unit...people could base loans and contracts on this index.

They could, but if the people who have the limited resource (the currency) were smart, they wouldn't. They know that productivity and population will only increase, but the amount of money will stay the same, so unless you come up with some unusually good way to produce something more efficiently, keeping all your wealth in currency will be the best way to get richer. Of course, people seeing this will make them over invest in currency, creating bubbles. At some point it will burst when somebody starts selling, the price falls and everybody panics. Then the same will happen all over again. We see this cycle in the gold price, and it will also happen to bitcoins.

"keeping all your wealth in currency" ...well, that would be a really, really dumb idea.  Keeping all of your wealth in any one thing is a never a good thing.  Any financial planner preaches diversification.  What you describe is no different than keeping some of your wealth in land, gold, silver or just about anything else of value with intrinsic scarcity (something almost everyone does).

If bitcoin was widely used, then the wealth that you did store in bitcoin is effectively an investment in the overall economy.  It's a bit like investing in the S&P 500 (though it would be an even better proxy for the overall economy).  However, it's unlikely bitcoin will reach that great of a penetration any time soon (nor is that necessary for bitcoin to become very successful), in which case holding btc is like investing in the bitcoin oriented subset of the overall economy.  To the extent that the bitcoin economy is growing, such an investment would do well...to the extent it isn't growing, it would not do well.  Eventually, the bitcoin economy would stop growing as it reached a certain level of penetration, at which time bitcoin value would stabilize and not be a very attractive investment relative to other investment opportunities.  One shouldn't confuse the use of a commodity as a store of value with its utility as a medium of exchange.

[Grinder]

"keeping all your wealth in currency" ...well, that would be a really, really dumb idea.  Keeping all of your wealth in any one thing is a never a good thing.  Any financial planner preaches diversification.  What you describe is no different than keeping some of your wealth in land, gold, silver or just about anything else of value with intrinsic scarcity (something almost everyone does).

The reason why people preach diversification is that you can't really know for sure what will be valuable in the future. If you do, diversification is stupid. Of course, in any economy you would diversify a little, but if you expect the currency to increase more than everything else in value, the rational thing is to keep as much exposure to it as you can afford, and not trade it away unless you have to.

[ribuck]

Well said, grinder.

With Bitcoin, I would add one more reason to diversify, and that is because the absolute security of wallet.dat file cannot be 100% guaranteed.

[Steve]

"keeping all your wealth in currency" ...well, that would be a really, really dumb idea.  Keeping all of your wealth in any one thing is a never a good thing.  Any financial planner preaches diversification.  What you describe is no different than keeping some of your wealth in land, gold, silver or just about anything else of value with intrinsic scarcity (something almost everyone does).

The reason why people preach diversification is that you can't really know for sure what will be valuable in the future. If you do, diversification is stupid. Of course, in any economy you would diversify a little, but if you expect the currency to increase more than everything else in value, the rational thing is to keep as much exposure to it as you can afford, and not trade it away unless you have to.

But, you are completely ignoring the question of how much it is expected to increase.  With bitcoin, once all coins are mined (which won't be for a long while) and once it has reached a point of saturation (note: that may not mean everyone uses it or even a very large percentage of people use it), it is expected that it will experience deflation due to coin loss and/or continued adoption.  I'd argue that the returns you could expect from such deflation would fall far short of other investment opportunities that would be available to you.  Holding it would be viewed more as a savings activity than an investment activity (much like gold and silver holdings are savings, not investments).

[Grinder]

I'd argue that the returns you could expect from such deflation would fall far short of other investment opportunities that would be available to you.

The amount of currency will be the same, but the amount of available goods will increase with (increase in productivity) * (increase in population). This will most likely make the value of currency increase more than you could expect in return from an average investment in production.