Where can we see deflation being more contributive than inflation ?

[painlord2k]

Inflation is redistribution of wealth.
It redistribute wealth held in currency from the people holding the currency to people holding the newly printed currency.
A "mild inflation" like 2% year will destroy 80% of your saving in 40 year (you know, your eggs nest for the retirement).
Inflation favor people borrowing and consuming and damage people saving and lending.
Good investors are punished by inflation in favor of bad investors investing too much, too early.

With 0 inflation, the investors making the right prediction of the future will be rewarded.
With mild deflation the investors too much prudent (investing less than optimal) will be rewarded.
With mild inflation the investors too much reckless (investing too much than optimal) will be rewarded.

Actually inflation is worse than deflation because too much prudent investors will not invest and don't take loans. They just increase their savings level before starting their enterprises.
If things go wrong, they have a bigger and stronger safety net.
Inflation, on the other ends, reward malinvestments, consuming more savings and locking them in configurations that are difficult or impossible to undo. Like building houses no one need or use or is able to payback in the long term. At some time, people discover there is no more resources saved to complete their projects and are forced to stop them and start liquidate them at a loss.

[1714949774]

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[beatljuice]

the reason the economy needs reviving in the first place is because the economy demands constant consumption.

The earth is not made for constant exponential increase in demand. We are already past the limit the earth can sustainably provide in resources, the current way the economy works will make the earth unsuitable to sustain life, and it's already causing unnecessary spread of epidemics and famine.

great to know the economy is working for the 0.01%, but it doesn't work for the other 99.99%

I hate bull shit like this. This planet can sustain MANY more people than it currently does (here is a reference only arguing for 10 billion, but you can find others that will argue higher http://www.livescience.com/16493-people-planet-earth-support.html). The reason people are hungry has nothing to do with how much food there is. We currently produce more food than the world can stuff in its face ("The world produces enough food to feed everyone. World agriculture produces 17 percent more calories per person today than it did 30 years ago, despite a 70 percent population increase." http://www.worldhunger.org/articles/Learn/world%20hunger%20facts%202002.htm)

Yes, some of the things we do are unsustainable looking toward the future, such as burning fossil fuels, but we have MORE than enough right now, and will for a long time.

Do you know any history at all? There are less epidemics and famine than there ever have been in world history . Sure, some things go a bit higher for brief periods, but the long term trend is for a healthier world. (Sorry, couldn't find an easy info link on this, but I'm pretty sure it's true. I would sure rather live now than any other time in history as far as disease goes.)

If you still believe the FUD you're spreading give us some references.

[Nicolas Dorier]

the reason the economy needs reviving in the first place is because the economy demands constant consumption.

The earth is not made for constant exponential increase in demand. We are already past the limit the earth can sustainably provide in resources, the current way the economy works will make the earth unsuitable to sustain life, and it's already causing unnecessary spread of epidemics and famine.

great to know the economy is working for the 0.01%, but it doesn't work for the other 99.99%

I hate bull shit like this. This planet can sustain MANY more people than it currently does (here is a reference only arguing for 10 billion, but you can find others that will argue higher http://www.livescience.com/16493-people-planet-earth-support.html). The reason people are hungry has nothing to do with how much food there is. We currently produce more food than the world can stuff in its face ("The world produces enough food to feed everyone. World agriculture produces 17 percent more calories per person today than it did 30 years ago, despite a 70 percent population increase." http://www.worldhunger.org/articles/Learn/world%20hunger%20facts%202002.htm)

Yes, some of the things we do are unsustainable looking toward the future, such as burning fossil fuels, but we have MORE than enough right now, and will for a long time.

Do you know any history at all? There are less epidemics and famine than there ever have been in world history . Sure, some things go a bit higher for brief periods, but the long term trend is for a healthier world. (Sorry, couldn't find an easy info link on this, but I'm pretty sure it's true. I would sure rather live now than any other time in history as far as disease goes.)

If you still believe the FUD you're spreading give us some references.

Remind me what Milton Friedman said to a student asking a question, it was something along these lines :
-"M Friedman, resources of the planet are exhausting"
-"This is false, you start with the wrong premise"
-"What ?"
-"From an economic perspective, we never had so much petrol as now.
You can't say that the petrol nobody discovered 20 years ago under surface was existing. From an economic perspective, it existed only when we discovered it and had tools and capital to exploit it. Science discovers petrol faster than we consume it, so for an economic perspective, the resources are not exhausting, it is exploding. Why are you paying more ? it is certainly not because it becomes rare, maybe you can ask to your regulators."

[zimmah]

the reason the economy needs reviving in the first place is because the economy demands constant consumption.

The earth is not made for constant exponential increase in demand. We are already past the limit the earth can sustainably provide in resources, the current way the economy works will make the earth unsuitable to sustain life, and it's already causing unnecessary spread of epidemics and famine.

great to know the economy is working for the 0.01%, but it doesn't work for the other 99.99%

I hate bull shit like this. This planet can sustain MANY more people than it currently does (here is a reference only arguing for 10 billion, but you can find others that will argue higher http://www.livescience.com/16493-people-planet-earth-support.html). The reason people are hungry has nothing to do with how much food there is. We currently produce more food than the world can stuff in its face ("The world produces enough food to feed everyone. World agriculture produces 17 percent more calories per person today than it did 30 years ago, despite a 70 percent population increase." http://www.worldhunger.org/articles/Learn/world%20hunger%20facts%202002.htm)

Yes, some of the things we do are unsustainable looking toward the future, such as burning fossil fuels, but we have MORE than enough right now, and will for a long time.

Do you know any history at all? There are less epidemics and famine than there ever have been in world history . Sure, some things go a bit higher for brief periods, but the long term trend is for a healthier world. (Sorry, couldn't find an easy info link on this, but I'm pretty sure it's true. I would sure rather live now than any other time in history as far as disease goes.)

If you still believe the FUD you're spreading give us some references.

it can sustain the NEEDS of many more but not the WANTS of many more.

Inflationary economics make people want more and more, and keep consuming even if they don't need, because their money will be worth less and less each day.

But we can't have more and more for everyone, someone is going to suffer, and the more profit the extremely rich want, the more people will have to suffer to fulfill the greed of the few.

Until at a point there's not even enough left for even the 1 person who has all wealth, because by the time that happens the world will be so polluted life s no longer possible.


I know, but it's unequally spread, i'm not sure if this will happen with a deflationary and limited currency, but i doubt it will be worse than the current system anyway

Easy to talk from a 1st world country, try living in a 3rd world country and see if you still like it so much

you seem to be pretty happy with the direction humankind is taking, are you a bankster by any chance?

[Erdogan]

So, basically Bitcoin is going against the widely believed principal that a small amount of inflation is required to expedite economic growth ?

Can somebody give me more reasons , or give me a decent reading list to why a deflationary system is superior ?
I can already see negative effects of it , as most people already don't spend much of their Bitcoin due to their perception of it primarily as an investment.

The Keynesians mistakenly believe that the economy has some potential output level, and that we currentlty are below that. They think that creating more money, both treasury notes, central bank debt and private debt, will force production up to the potential. The new money goes to public spending, banks (supposedly to lend to businesses), corporate welfare and wars.

This kind of thinking leads to a planned economy, massive malinvestments, loss of freedom, poverty, a general feeling of being reliant on government doles, huge differences in wealth, social division and strain, and war.

They count and measure, but change the yardstick every month. GM supposedly increased output the previous period, but half of the increase went into the channel and was not sold to consumers. The other half was a result of subprime lending. GM is a crony company. Stalin did the same accounting tricks.

But in reality, there is no mystical maximum economic output level. It depends on the capital structure, the number of workers, the savings rate, the investment rate, and other things. The prices, including the market based interest rate will make sure that the capital structure is diversified, right sized and adapted to consumer demand. Saving rate, investment rate, consumption level should be decided by the market actors guided by prices, including interest rate. The money supply should be fixed, and governments should not take up loans.

If you get a $1000 new dole from the government, and simultaneously had taxes increased by $2000, you would ask yourself: What is the point, and where is the other $1000 going. Using the Keynesian method, you get the $1000, the government takes up a loan of $2000 in stead, but the collateral for that loan is your future income. The other $1000 is gone, consumed by the dominators.

[AZwarel]

You ask the wrong question OP. Do not misunderstood me, it is not about offending you 

First: Define "mild". As stated above, a "mild" 2% inflation destroys the purchasing power of your savings by 80% by the time you retire (given you save the same amount every year in your pillow in cash!)

Second: inflation also needs a definition. Speaking in general, people define it as the rising of prices of consumer goods compared in a given time/space period (example: price of 1 liter of milk in 1st of jan 2009, and 1st of jan. 2010). Also count in market changes, like: disease in cows, number of cows increased/decreased, producers of milk changed, demand for it has changed etc. etc. So, it might be that the value of 1 dollar has not have changed, but the market price of milk did. See http://en.wikipedia.org/wiki/Market_basket for more info.

Eco 101:

Let say, the whole amount of currency (which plays the money function) is a 100, and the whole amount of goods/services which can be bought/sold by that currency is also 100.
If the government - issuer of the currency - prints (QE by FED), for example, another 10 units of currency that year, the amount of goods/services is still 100.
Now, we have 110 currency for 100 wares. This will generate an increase of prices equals to the increase of new currency in the rotation, ~ 10%.
So, no, inflationary policy will not make people to spend more and increase the consumption, create new jobs, since the resources/labor/capital in the REAL PHYSICAL world did not have changed, we only had more colorful paper. Yes, by numerical count, people spent more, because prices went up, but the sum of the goods did not rise.

Some may argue, that new "money" fuels new investment. There is a basic fallacy here. For any investment to be economical, you have to earn more than you spend. Means: you have to make profit. But, if the money inflates for example, 2%, your profit rate has to be n+2% of the usual n profit to reach just the same amount of return, given no inflation!
Also, if you can not find an investment, your money gets less and less, year by year. (hence the loss of purchase value).
Actually, that is why the stock exchange is pumping up, the newly created money tries to find a way to not lose value (compound interest).

Of course, the newly printed money first gets into government's pocket (infinite budget!), whom them sell it to the banking system for interest rates controlled by the same government(!), then the banks can lend it out to the real actors of economy for a significantly higher rate than the inflation rate, hence the only participants who win out with inflation are governments and "friendly" banks tied to them. That is why every single state in the world is in ever increasing debt year by year (the real economy can not produce that many goods/services as newly created money produced/year).

In this system, inflation makes money a "proof of debt".
That is why Keynesian policy is a nonsense...

Now, let us examine the definition of deflation in a free market economy setup (like Bitcoin).
It means, that the same laptop you would have bought in 2004 for 500$ now you can buy for 50$, or you can buy a 10 times faster laptop for the same 500$. The purchasing power of your dollar increased for the same technological level, or you can get a 10 times better technological product for the same price!

This does not mean you wont spend your money. It only means, that the wealth of the world (product/services) increases, and you either need less and less unit of money to get the same product, or the same amount to get a better product! Actually, this increases the incentive to invest and save, because, now you have a vested interest to create better products, which you will also be able to pay, since your money does not depreciate, so you do not "have to spend it" because the rate of inflation is faster than the rate of product improvement.

This makes the Bitcoin money system, a money where it is a "proof of value".



 

[twiifm]

So many wrong economic theories here.   

OP I suggest you take a coursera course instead of asking here about economics

These guys probably never even read an economics book in their life.

I'll give you a hint - inflation has nothing to do with Keynes

[AZwarel]

So many wrong economic theories here.  

OP I suggest you take a coursera course instead of asking here about economics

These guys probably never even read an economics book in their life.

I'll give you a hint - inflation has nothing to do with Keynes

I agree on the second. Well, i rather say, i expand on that.
And i disagree on the first. The OP can have meaningful answers here as well :-), but yes, go read something, like Human Action (952 pages) (https://mises.org/Books/humanaction.pdf).

Keynes was all about government spending, to "fuel" the economy. Inflation of the money supply - because we are talking about THAT - turned out to be a way to do it, and
at the same time tax the people, while they do not know they are taxed. Governments hit "likes" button.

Or watch Jeffrey Tucker's short video about the 20th century monetary policy failure http://youtu.be/SSWvwBug19M?t=15m30s .

And yes, inflation itself is not Keynesian, because a Keynesian can not even define it in a sensible way. I mean, demand-pull inflation is so laughably wrong...private and government spending as a cause of it; in the same sentence we have private - a free market actor-, and government spend - by definition is the opposite of market. The Keynesian view on inflation is just fairy dust hocus pocus, the cost push inflation (yes, resource got more expansive due to sudden events, gasp!) view of them has nothing to do with the available money supply, it is just a typical example of unkown-knowns (and it is only in a given industry, NOT the whole economy).

The theories around it, and how governments acted in the 1906-70's, everything is wrong and history proved it. Hayek "won".
http://mises.org/daily/6716/Why-Keynesian-Economists-Dont-Understand-Inflation

[twiifm]

Keynes only prescribed that for recessions to avoid spiral into depression.   If inflation was rampant he would suggest raising interest rates.  And taking money out of circulation

Keynesian believe in gov't intervention. 

[AZwarel]

Keynes only prescribed that for recessions to avoid spiral into depression.   If inflation was rampant he would suggest raising interest rates.  And taking money out of circulation

Keynesian believe in gov't intervention.  

Yes, that is correct.
Unless, we examine the fact that recessions are caused by government interventions. And their proposed solution is government intervention. The irony.
Also, interest rate increase does not takeout money out of circulation. It creates the need for MORE money in the future! (100*2%=102 money needed to payback. 100*10%=110 money needed to pay back.)

My (well, reality's) problem with government intervention is that, at the end of the day, there is one guy sitting in his bureau, signing a paper, how the 100 millions of people
should act (interest rate basically modifies the action of millions). That 1 guy can not have the slightest clue about the values/actions of 100 millions of people (=the market).

Central point of failure. Also, he does not have a stake in the outcome, he is playing with tax payer money, not his own.
These two adds up to total failure, as shown in the last hundred(?) years (since the creation of FED in 1913).

Now, there is this project called Bitcoin, to decentralize (=free market) the money, while at the same time make people to risk their own assets, when "signing the paper".
I can not think of a better incentive+resource allocation system to create a medium of exchange!

[twiifm]

Thats not historically correct.   Bank runs were more commonplace before creation of the Fed.

Keynes was less about monetary policies and more about fiscal policies.   His breakthrough was "aggregate demand".  It wasnt until Friedman that we have "monetarism"

I dont believe Govt cause recessions or inflations.   Economies respond to market forces.   Govt try to influence economies using policy and sometimes it helps and sometimes it makes things worse or does nothing.

Bitcoin is Satoshis influence coming from Rothbard.   Who,  IMO is a not to be taken seriously as an economist. 

[CoinsCoinsEverywhere]

In a normal economy, it's pretty much impossible to have no inflation or deflation, unless you're constantly mucking with the currency supply for that economy.  So that basically leaves you with a choice between inflation, which theoretically leads to an upward spiral in prices and spending (if xyz is going to cost more tomorrow, I should buy it today while it's cheaper), or deflation, which leads to a downward spiral in prices and spending (if xyz is going to cost less tomorrow, I'll wait until later to buy it).  A little deflation now and then can be ok, but it's easy for it to get out of control.

people will buy things when they need it, which is much better because it prevents buying for 'wants' and encourages buying for 'needs'

which is much better for the environment in the end, and it might reduce greed.

A consumption driven society like we have now is very bad for many reasons. Ever heard of planned obsolescence? That certainly won't happen in an deflationary system.

Inflation encourages wasteful behavior.

I don't disagree that inflation may lead to wasteful behavior and feeds the whole instant gratification mentality.  But what's a better alternative?  Out-of-control deflation (which is often what happens with deflation) leads to depressions--market crashes, very high unemployment, etc.

[CoinsCoinsEverywhere]

Eco 101:

Let say, the whole amount of currency (which plays the money function) is a 100, and the whole amount of goods/services which can be bought/sold by that currency is also 100.
If the government - issuer of the currency - prints (QE by FED), for example, another 10 units of currency that year, the amount of goods/services is still 100.
Now, we have 110 currency for 100 wares. This will generate an increase of prices equals to the increase of new currency in the rotation, ~ 10%.
So, no, inflationary policy will not make people to spend more and increase the consumption, create new jobs, since the resources/labor/capital in the REAL PHYSICAL world did not have changed, we only had more colorful paper. Yes, by numerical count, people spent more, because prices went up, but the sum of the goods did not rise.

I think this is too simplistic.  Consumer psychology does matter.  Have you ever driven by a string of gas stations, seen that one of them has raised their price by 30 cents (which, from experience, indicates that the rest will likely be higher soon, too), and then stopped at the next station with the cheaper price to fill up?  I've certainly done that.

Also, remember that inflation and deflation generally affect wages as well as prices.  If we're in a deflationary environment, on average, I can expect to be paid less next year than this year (which could also come in the form of losing my job).  If I believe that to be the case, I'm going to save money as much as I can--only buy the essentials, etc.  If everyone does that, the economy will tank.

[twiifm]

I don't disagree that inflation may lead to wasteful behavior and feeds the whole instant gratification mentality.  But what's a better alternative?  Out-of-control deflation (which is often what happens with deflation) leads to depressions--market crashes, very high unemployment, etc.

Most sane people would rather lose 3% of their savings, than be unemployed or have to downsize their business due to hoarders spending less money.   We need money to be inspire entreprenueral

[jjdub7]

Eco 101:

Let say, the whole amount of currency (which plays the money function) is a 100, and the whole amount of goods/services which can be bought/sold by that currency is also 100.
If the government - issuer of the currency - prints (QE by FED), for example, another 10 units of currency that year, the amount of goods/services is still 100.
Now, we have 110 currency for 100 wares. This will generate an increase of prices equals to the increase of new currency in the rotation, ~ 10%.
So, no, inflationary policy will not make people to spend more and increase the consumption, create new jobs, since the resources/labor/capital in the REAL PHYSICAL world did not have changed, we only had more colorful paper. Yes, by numerical count, people spent more, because prices went up, but the sum of the goods did not rise.

I think this is too simplistic.  Consumer psychology does matter.  Have you ever driven by a string of gas stations, seen that one of them has raised their price by 30 cents (which, from experience, indicates that the rest will likely be higher soon, too), and then stopped at the next station with the cheaper price to fill up?  I've certainly done that.

Also, remember that inflation and deflation generally affect wages as well as prices.  If we're in a deflationary environment, on average, I can expect to be paid less next year than this year (which could also come in the form of losing my job).  If I believe that to be the case, I'm going to save money as much as I can--only buy the essentials, etc.  If everyone does that, the economy will tank.

You're right, entirely too simplistic, but it does satisfy the Econ 101 perspective (Econ 102 actually - Econ 101 is quite broadly a Microeconomics course at most schools, whereas Econ 102 is Macro, but I digress).

What matters the most (at least mostly from a Keynesian perspective) is the time scale over which the new money is introduced relative to the amount of employment (who's getting the money and the degree of centralization of wealth).  If the government instantly prints that 10 extra dollars and hands it out to the population via the banking system, then yes, prices will explode 10%.  But think about the response of prices from the perspective of a step-input vs. ramp-input - a step-input will obviously cause a greater reaction, whether the response is prices in a money model or the deflection of a spring in a physical model with an initial push.  The math is the same.

[jambola2]

You're right, entirely too simplistic, but it does satisfy the Econ 101 perspective (Econ 102 actually - Econ 101 is quite broadly a Microeconomics course at most schools, whereas Econ 102 is Macro, but I digress).

Yeah , I didn't mean 101 literally , just in the sense that 101 implies the most initial course of study in that field.

The first question I had asked has been answered well and repeatedly ('Why is mild inflation needed ?')

To my second question , I'm still looking for more answers.
The best comparison where despite being deflationary , growth still occurs in that field is computing power :-

It means, that the same laptop you would have bought in 2004 for 500$ now you can buy for 50$, or you can buy a 10 times faster laptop for the same 500$. The purchasing power of your dollar increased for the same technological level, or you can get a 10 times better technological product for the same price!

[Erdogan]

So many wrong economic theories here.   

OP I suggest you take a coursera course instead of asking here about economics

These guys probably never even read an economics book in their life.

I'll give you a hint - inflation has nothing to do with Keynes

So you have read some books, we have not. Trust you. Well. You may call it neo-keynesianism, ok. Inflation is central, nothing can be discussed without it.

[Erdogan]

I don't disagree that inflation may lead to wasteful behavior and feeds the whole instant gratification mentality.  But what's a better alternative?  Out-of-control deflation (which is often what happens with deflation) leads to depressions--market crashes, very high unemployment, etc.

Most sane people would rather lose 3% of their savings, than be unemployed or have to downsize their business due to hoarders spending less money.   We need money to be inspire entreprenueral

But there is no such causality. This was definitely disproved with the stagflation of the eighties.

[jjdub7]

You're right, entirely too simplistic, but it does satisfy the Econ 101 perspective (Econ 102 actually - Econ 101 is quite broadly a Microeconomics course at most schools, whereas Econ 102 is Macro, but I digress).

Yeah , I didn't mean 101 literally , just in the sense that 101 implies the most initial course of study in that field.

The first question I had asked has been answered well and repeatedly ('Why is mild inflation needed ?')

To my second question , I'm still looking for more answers.
The best comparison where despite being deflationary , growth still occurs in that field is computing power :-

It means, that the same laptop you would have bought in 2004 for 500$ now you can buy for 50$, or you can buy a 10 times faster laptop for the same 500$. The purchasing power of your dollar increased for the same technological level, or you can get a 10 times better technological product for the same price!

Well considering that computers are still a relatively new invention, we see a lot of economies of scale in play in the field of computer engineering (not the least of which is that computers themselves help us design computers).  Its not so much deflationary per se, but rather that the field was initially very profitable (and not very competitive), but has since become more distributed in terms of market power.

The problem here is that you can't speak of markets for goods and services as inflationary or deflationary, only as monopolized or price-taking.  While in terms of coin-mining hardware, you'd consider the computer an asset, to the rest of the world its just a computer (outside the market). 

Inflation and deflation refer to macroeconomic prices as a whole (i.e. how a decrease in computer costs and costs of other enabling technologies might lower prices across the entire economy).  Its not just the effect of prices in a single market, but rather how these prices then have a reverberating effect across the entire ecosystem.

Was that what you were getting at or did I miss your query?  (cool discussion btw - haven't had one of these since undergrad)

[zimmah]

Can someone explain to me :-
1- Why mild inflation (2.5%) is beneficial to an economy ? Has been answered repeatedly
2- If mild inflation is beneficial , shouldn't Bitcoin , as a deflationary currency , be counter-intuitive ? I'm looking for more current examples where despite deflation in a field (The same amount of fiat buying more goods), consumer spending is high.

One case submitted is :-

It means, that the same laptop you would have bought in 2004 for 500$ now you can buy for 50$, or you can buy a 10 times faster laptop for the same 500$. The purchasing power of your dollar increased for the same technological level, or you can get a 10 times better technological product for the same price!

Who doesn't need a laptop immediatly will wait for a better one (or cheaper one), who needs a laptop right now will buy it anyway.

What's so bad about people onl buying what they need?

Also, in fact, is a $50 laptop in 2024 really cheaper than a $500 laptop now, if we consider the same $50 can buy you 500 pieces of bread in 2024 compared to 50 pieces of bread now? (Considereing deflation)