Deflationary national currency, pros and cons

[Hyena]

Just watched this: http://www.youtube.com/watch?v=yjWNhUVaJts

The guy keeps saying that big governments fear deflation because it makes taxing a lot harder.

Is this really a problem and a main reason why we have inflationary currencies instead of deflationary? In my opinion this fear of deflation is bullshit because what they really are afraid of is hyper-deflation. I'd say hyper-deflation cannot last for decades anyway as it's rather a one time event. Thus a deflationary currency would work pretty well as long as the deflation is small enough to make it pretty much useless to hold back spending in hopes of better prices tomorrow.

Coming back to the video --- how is it possible that taxing gets harder if a currency is a bit deflationary?

Why shouldn't people get richer with the money they hold? Why is this bad thing anyway? If the government holds the very same deflationary currency then all taxes it ever gathered will also gain value, thus there is no reason to tax the additional wealth people get thanks to deflation.

offtopic:
I think we no longer have taxes by the original meaning of the word because tax should be a one-time event. Instead, we have wealth-transfer friction and "tax" collectors are the source of that friction. That is because same money gets taxed multiple times as it changes hands. If I give 1 000 000 euros as a gift to someone, the government takes 20% and the receiver will get 800 000 EUR. Now if the receiver gives away that money to a third person as a gift, that third person also gets income taxed, so the government takes away another 20%. The third person ends up holding 640 000 EUR. Repeating the procedure a couple of times, the government ends up getting all the money. How is this logical?

[polynesia]

Coming back to the video --- how is it possible that taxing gets harder if a currency is a bit deflationary?

Why shouldn't people get richer with the money they hold? Why is this bad thing anyway? If the government holds the very same deflationary currency then all taxes it ever gathered will also gain value, thus there is no reason to tax the additional wealth people get thanks to deflation.

We just have to remember that there are other taxes apart from income tax.
In a deflationary scenario, even if the rich are getting richer, wealth taxes can make tax collection look simple.

And of course, you could have inheritance tax so that after a few generations, there is nothing left in the hands of the original descendants.

[Hyena]

And of course, you could have inheritance tax so that after a few generations, there is nothing left in the hands of the original descendants.

Wealth should be kept in secret and only the wealth you need to spend in front of the society should be declared as income at the spot. Why? Because there is no way to enforce the opposite. Laws that cannot be enforced reliably should not exist at all. I'm pretty god damn sure the Rothchilds family won't pay shit to the government as inheritance taxes. Why should average Joes do that if the elites do not?

The fact that we have inflationary monetary system is simply to keep the poor in poverty. The poor will have to constantly beg for higher wages as inflation eats their income year after year. If the system was deflationary then wages should be lowered periodically and the employers (high-rank slaves) would become those beggars. Deflation flips the pyramid upside down. In my opinion, that's the main reason why deflationary monetary system is propagated as the greater evil. The latter, of course, is a conspiracy.

[CoinsCoinsEverywhere]

And of course, you could have inheritance tax so that after a few generations, there is nothing left in the hands of the original descendants.

Wealth should be kept in secret and only the wealth you need to spend in front of the society should be declared as income at the spot. Why? Because there is no way to enforce the opposite. Laws that cannot be enforced reliably should not exist at all. I'm pretty god damn sure the Rothchilds family won't pay shit to the government as inheritance taxes. Why should average Joes do that if the elites do not?

Which country or countries are you talking about?  In the US, I think the estate tax exemption is over $5M.  So unless you own more than $5M in assets when you die, you don't have to worry about it anyway.  Afaik, the point of such a tax is to keep "dynastic" wealth in check.

[Hyena]

And of course, you could have inheritance tax so that after a few generations, there is nothing left in the hands of the original descendants.

Wealth should be kept in secret and only the wealth you need to spend in front of the society should be declared as income at the spot. Why? Because there is no way to enforce the opposite. Laws that cannot be enforced reliably should not exist at all. I'm pretty god damn sure the Rothchilds family won't pay shit to the government as inheritance taxes. Why should average Joes do that if the elites do not?

Which country or countries are you talking about?  In the US, I think the estate tax exemption is over $5M.  So unless you own more than $5M in assets when you die, you don't have to worry about it anyway.  Afaik, the point of such a tax is to keep "dynastic" wealth in check.

Hmm, I don't know about such specifics but it's good to hear that.

[Rocket Launcher]

And of course, you could have inheritance tax so that after a few generations, there is nothing left in the hands of the original descendants.

Wealth should be kept in secret and only the wealth you need to spend in front of the society should be declared as income at the spot. Why? Because there is no way to enforce the opposite. Laws that cannot be enforced reliably should not exist at all. I'm pretty god damn sure the Rothchilds family won't pay shit to the government as inheritance taxes. Why should average Joes do that if the elites do not?

Which country or countries are you talking about?  In the US, I think the estate tax exemption is over $5M.  So unless you own more than $5M in assets when you die, you don't have to worry about it anyway.  Afaik, the point of such a tax is to keep "dynastic" wealth in check.

seriously touch $5m ? not worthy for it but its not resolve anything budd.

[lihuajkl]

I don't think any country welcome deflation, like Japan who is always trying to get away from deflation. http://www.economonitor.com/edwardhugh/2014/06/20/will-japan-re-enter-deflation-in-april-2015/   the GDP of deflationary nation is growing less than others. People tends to keep fiat to wait the value to increase rather to paying out for products or services. The commercial activities is decreasing.

[Hyena]

I don't think any country welcome deflation, like Japan who is always trying to get away from deflation. http://www.economonitor.com/edwardhugh/2014/06/20/will-japan-re-enter-deflation-in-april-2015/   the GDP of deflationary nation is growing less than others. People tends to keep fiat to wait the value to increase rather to paying out for products or services. The commercial activities is decreasing.

So they say indeed. However, less consumption means less wasting the Earth's resources. Who gives a shit about GDP. Anyone can invent their 3-letter economic evaluation indicator. I can suck one out from my finger right now if needed. If it is so god damn important then why not develop a 3-letter variable that is especially designed for deflation?

edit:
can't believe GDP is recognized by the Firefox spell checker and DMT is not. CONSPIRACY!!! They want us to be obsessed by GDP.

[wachtwoord]

Wealth should be kept in secret and only the wealth you need to spend in front of the society should be declared as income at the spot. Why? Because there is no way to enforce the opposite. Laws that cannot be enforced reliably should not exist at all.

This so much. Coming up with nonenforceable laws is one of the major causes of unfairness in the world when using my definition of fair.

[CoinsCoinsEverywhere]

I don't think any country welcome deflation, like Japan who is always trying to get away from deflation. http://www.economonitor.com/edwardhugh/2014/06/20/will-japan-re-enter-deflation-in-april-2015/   the GDP of deflationary nation is growing less than others. People tends to keep fiat to wait the value to increase rather to paying out for products or services. The commercial activities is decreasing.

So they say indeed. However, less consumption means less wasting the Earth's resources. Who gives a shit about GDP. Anyone can invent their 3-letter economic evaluation indicator. I can suck one out from my finger right now if needed. If it is so god damn important then why not develop a 3-letter variable that is especially designed for deflation?

edit:
can't believe GDP is recognized by the Firefox spell checker and DMT is not. CONSPIRACY!!! They want us to be obsessed by GDP.

Assuming the population of a country isn't decreasing, another way of saying negative GDP is decreased standard of living.  That's why people care.  And I agree that there's too much waste, but I don't think that economic catastrophe is the way to solve that problem.

[polynesia]

I don't think any country welcome deflation, like Japan who is always trying to get away from deflation. http://www.economonitor.com/edwardhugh/2014/06/20/will-japan-re-enter-deflation-in-april-2015/   the GDP of deflationary nation is growing less than others. People tends to keep fiat to wait the value to increase rather to paying out for products or services. The commercial activities is decreasing.

An excellent article which talks about deflation and debt-based currencies (fiat) vs asset-based currencies (bitcoin)

https://www.opendemocracy.net/ourkingdom/nozomi-hayase/blockchain-revolution-open-source-democracy-for-99

Excerpt.

He argued how we only have ever seen deflation during a catastrophic collapse of demand, as in Japan 20 years ago. He explained how this is a situation where interest rates go down to zero and you can print as much money as you want; money is flowing out of the central bank, but nobody wants it because everyone knows that the economy is dead. This collapse of demand is the primary fear behind the deflation phenomenon that economists talk about, where people stop buying and it effects the overall economy in a trend of stagnation.

Antonopoulos described how this deflation was a particular experience created primarily within fiat systems and especially debt-based currency. He pointed to how the Bitcoin ecosystem creates a very different experience of deflation. In the world of a currency that is based on debt, deflation is a bad thing because it only happens when there is catastrophic collapse of demand and this tends to bankrupt the government, which is followed with the phenomena of the state’s crazed printing to mitigate the situation. Antonopoulos noted how when a currency is asset-based like Bitcoin, there is never a spiral of infinite printing and within the Bitcoin ecosystem, ‘deflation’ means we gain purchasing power and all nodes effectively become wealthier.

[Razick]

I support neither inflation or deflation, because both have harmful effects. Both redistribute wealth and lead to market distortion. A stable currency is preferable in my book.

[leopard2]

Of course. Hidden taxation via inflation is much easier. Only smart people know how it works and most people aren't smart. Maybe 10% are smart enough to understand this (natural IQ distribution). With a gold based monetary base, taxation would have to be direct - and even the biggest idiot would not want to pay 70% income tax to finance a thing like the war on Iraq and alike.

Politicians just LOVE paper currencies 

[Razick]

Of course. Hidden taxation via inflation is much easier. Only smart people know how it works and most people aren't smart. Maybe 10% are smart enough to understand this (natural IQ distribution). With a gold based monetary base, taxation would have to be direct - and even the biggest idiot would not want to pay 70% income tax to finance a thing like the war on Iraq and alike.

Politicians just LOVE paper currencies 

I bet you more people could understand it if they thought about it.

[galbros]

When there was a gold standard it was not uncommon for consumer prices to move down as well as up.  

However, deflation is generally regarded as a very bad thing.  First, it greatly reduces consumption - why would you pay for something today if you KNEW the price would be lower tomorrow?  Second, it hurts investment as it serves as an additional cost to borrowers (assuming you can't really have negative interest rates - something that kind of happened during the financial crisis).

So generally, very modest amounts of inflation, 1 to 2% are generally regarded as good for economies.

Obviously, there is a problem, even rates that low quickly destroy the store of value aspect of the money used.  At 2% prices will double, then double again over a person's expected lifetime.

Interestingly, the USA did have very high marginal income tax rates, 90% at one point.  Kennedy dropped the highest rate to 70% and Ronald Reagan's big 1981 cut dropped it to 50%, so I'm not sure about the monetary system dictating tax rates.

[polynesia]

However, deflation is generally regarded as a very bad thing.  First, it greatly reduces consumption - why would you pay for something today if you KNEW the price would be lower tomorrow?

An exception - electronic goods.
People are rushing out to buy the latest iphones, even though they know prices will drop in the future. 

[Razick]

However, deflation is generally regarded as a very bad thing.  First, it greatly reduces consumption - why would you pay for something today if you KNEW the price would be lower tomorrow?

An exception - electronic goods.
People are rushing out to buy the latest iphones, even though they know prices will drop in the future. 

Ah, but there is where you are wrong. If we knew that computers would never get better or cheaper, I suspect sales would spike. People delay purchases to wait for prices to drop and upgrades to be made, or at least I do.

[charlieSeen]

However, deflation is generally regarded as a very bad thing.  First, it greatly reduces consumption - why would you pay for something today if you KNEW the price would be lower tomorrow?

An exception - electronic goods.
People are rushing out to buy the latest iphones, even though they know prices will drop in the future. 

This is only true if the goods are "hot" and sought after.

IMO the reason that iPhones sell like this is because people expect for Apple to sell out of them, so if they don't buy early they will have to pay more on the secondary market.

[Hyena]

However, deflation is generally regarded as a very bad thing.  First, it greatly reduces consumption - why would you pay for something today if you KNEW the price would be lower tomorrow?  Second, it hurts investment as it serves as an additional cost to borrowers (assuming you can't really have negative interest rates - something that kind of happened during the financial crisis).

First, this is only the case with hyperdeflation. If the deflation is small enough, no one would care to wait 5 years to buy something with noticeable discount.
Second, loans are evil to begin with. They were invented by people who were lazy to do physical work

Deflation does not necessarily destroy investing into businesses. It just adds some additional risk that the business generates less money than it was initially given. However, I'd call it diversification. Even though gold gives me much less returns than Bitcoin, I would still hold some gold too for the sake of not holding all my eggs in the same basket.

[polynesia]

However, deflation is generally regarded as a very bad thing.  First, it greatly reduces consumption - why would you pay for something today if you KNEW the price would be lower tomorrow?

An exception - electronic goods.
People are rushing out to buy the latest iphones, even though they know prices will drop in the future. 

Ah, but there is where you are wrong. If we knew that computers would never get better or cheaper, I suspect sales would spike. People delay purchases to wait for prices to drop and upgrades to be made, or at least I do.

I guess it is a function of utility value and the time it takes for the price to drop.
If I need a phone now, I am not going to wait 6 months just because it may become 10% cheaper.