Why is deflation bad? NYTimes link

[cindylove]

Krugman's "Nobel" prize isn't even a real Nobel prize.  The Economics prize has NOTHING to do with the organization that awards the other Nobel prizes.  It's awarded by the Central Bank of Sweden.

Seriously? I did not know that! No wonder why such an incompetent "economist" won it then...

haha, the "economy Nobel prize" is given by a central bank.. how ironic...

Wow, I didn't know that either. From the horse's mouth:

The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel

In 1968, Sveriges Riksbank (Sweden's central bank) established the Prize in Economic Sciences in Memory of Alfred Nobel, founder of the Nobel Prize. The Prize is based on a donation received by the Foundation in 1968 from Sveriges Riksbank on the occasion of the Bank's 300th anniversary. The first Prize in Economic Sciences was awarded to Ragnar Frisch and Jan Tinbergen in 1969.

The Prize in Economic Sciences in Memory of Alfred Nobel is awarded by the Royal Swedish Academy of Sciences according to the same principles as for the Nobel Prizes that have been awarded since 1901.

edit... Unless there are some shenanigans happening, it appears that it is as legitimate as the rest of the Nobel prizes (see bold above, also below)

The Royal Swedish Academy of Sciences is responsible for selecting the Laureates in Economic Sciences. The Academy has 350 Swedish and 164 foreign members. Membership in the Academy constitutes exclusive recognition of successful research achievements. Its working body is the Prize Committee, elected from among its membes for a three-year term.

It's presented by the same group.  It has some association, but it's completely separate.  It's like how the Paralympics has a loose affiliation with the Olympics, occur in the same city, but are different awards.

Haha...So the Nobel Prize in Economics is the paralympics of the Nobel Prizes. No wonder why a retard like Krugman won. Stiglitz too.

[tomcollins]

Krugman's "Nobel" prize isn't even a real Nobel prize.  The Economics prize has NOTHING to do with the organization that awards the other Nobel prizes.  It's awarded by the Central Bank of Sweden.

Seriously? I did not know that! No wonder why such an incompetent "economist" won it then...

haha, the "economy Nobel prize" is given by a central bank.. how ironic...

Wow, I didn't know that either. From the horse's mouth:

The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel

In 1968, Sveriges Riksbank (Sweden's central bank) established the Prize in Economic Sciences in Memory of Alfred Nobel, founder of the Nobel Prize. The Prize is based on a donation received by the Foundation in 1968 from Sveriges Riksbank on the occasion of the Bank's 300th anniversary. The first Prize in Economic Sciences was awarded to Ragnar Frisch and Jan Tinbergen in 1969.

The Prize in Economic Sciences in Memory of Alfred Nobel is awarded by the Royal Swedish Academy of Sciences according to the same principles as for the Nobel Prizes that have been awarded since 1901.

edit... Unless there are some shenanigans happening, it appears that it is as legitimate as the rest of the Nobel prizes (see bold above, also below)

The Royal Swedish Academy of Sciences is responsible for selecting the Laureates in Economic Sciences. The Academy has 350 Swedish and 164 foreign members. Membership in the Academy constitutes exclusive recognition of successful research achievements. Its working body is the Prize Committee, elected from among its membes for a three-year term.

It's presented by the same group.  It has some association, but it's completely separate.  It's like how the Paralympics has a loose affiliation with the Olympics, occur in the same city, but are different awards.

Haha...So the Nobel Prize in Economics is the paralympics of the Nobel Prizes. No wonder why a retard like Krugman won. Stiglitz too.

Paralympics, not Special Olympics.  You just angered Mark Zupan.

[TradersEdgeDice]

That would have been off the wall hilarious if the original comparison had been the Special Olympics.  :-)

" and tonight, in what is considered to be the Special Olympics of the Nobel Peace Prize, New York Times writer Paul Krugman wins for his understanding of economics."

[tomcollins]

That would have been off the wall hilarious if the original comparison had been the Special Olympics.  :-)

" and tonight, in what is considered to be the Special Olympics of the Nobel Peace Prize, New York Times writer Paul Krugman wins for his understanding of economics."

He's not retarded, just crippled.

[berlin]

And... Keynesian economists should be ignored.

Your rebuttal was interesting until this statement. A lot of people don't really understand Keynes, you can tell who they are by their sneers.

[berlin]

This. Deflation would be a catastrophe with a debt-base currency... which is a catastrophe to begin with.

I for one do think a debt-based currency has its uses. It's very useful in a rapidly growing economy, since it strongly encourages lending and thus makes credit (liquidity) very easily available.

In a steady-state or a contracting economy, I would say a debt-based currency has systemic issues that have never been solved adequately.

In my view the timing of abandoning precious metals as the primary vehicle of trade has not been an accident. Precious metals themselves are very useful as a currency as long as the economy does not grow much more rapidly than the money base grows (via mining). During a period of rapid expansion (which, in turn, has historically stemmed from the increased availability of primary energy in the society), using only precious metals would constrain the availability of liquidity, so people will naturally make various kinds of contracts on paper, backed by the institutional violence of the state where contract laws exist, or straightforward threat of violent action by participants where they do not exist. As the largest bully of the playground the state then obviously wants to issue its own contracts, paper money, and everyone will accept it just because everyone else does.

I think Bitcoin or a similar electronic currency could be beneficial in a contracting economy. We need something else during rapid expansion.

I agree with this. I think the Depression was caused by a booming industrialized world trying desperately to hold onto a gold standard that was no longer fit for purpose. A golden straight-jacket as it were, and deflationary atrophy followed.

That is not to say deflation cannot be a good thing, life has different modes for different times. Ideologues usually fail to grasp the basics of multivalent truth as they tend to preffer a simpler manichean world view.

[benjamindees]

Your rebuttal was interesting until this statement. A lot of people don't really understand Keynes, you can tell who they are by their sneers.

A lot of people don't understand Marx either.  But it's not a problem because they aren't on the news or in government advising politicians that we should all live in communes.  The problem is that Keynesians who don't understand Keynes have a lot of undue influence these days, since misunderstanding Keynes is an easy way to advocate bloated government in a not-yet-totally-discredited way.

[berlin]

Your rebuttal was interesting until this statement. A lot of people don't really understand Keynes, you can tell who they are by their sneers.

A lot of people don't understand Marx either.  But it's not a problem because they aren't on the news or in government advising politicians that we should all live in communes.  The problem is that Keynesians who don't understand Keynes have a lot of undue influence these days, since misunderstanding Keynes is an easy way to advocate bloated government in a not-yet-totally-discredited way.

A most agreeable comment.

[shane]

Krugman et al pick and choose which parts of Keynesian economics they want to follow.  Keynes said that Government spending during a downturn is definitely a good thing, but only if the Government is spending the surpluses that it has built up during the good times. They choose to ignore the second part but still call it Keynesian. A little unfair on the guy.

Structural deflation has existed for much of the U.S economic history,and certainly I have seen 20 years of it in Japan. There is nothing wrong with deflation per se, it just favors savers rather than borrowers. It also lowers the velocity of money. Governments like the U.S govt want inflation so that they can borrow massively and pay it off in a devalued currency.

The problem it will have in Bitcoin is that it causes hoarding.

[Washingtron]

Good evening, everyone, a genuine constructivist here.
In my eyes, this debate is misleading, in fact occurs in the first place due to a lack of reflectivism on the liberal paradigm both Krugman and you implicitly employ.
What the proponents of deflation do not consider and the apologists of inflation may have stopped to point out is that the basic issue at hand is not financial regulation, prudent economic policy or the liberal axiom of constant growth in the first place, but the very same problem most other fields in social science face: (constructed) moral hazard in an anarchic international system.
Hence, inflation will always exist - whether you think it's good or not - as long as there are countries with autonomous monetary and fiscal policy that do not only trade with each other (liberal view), but actually try to gain an edge over each other by seeking rents on costs of other economies (realist view). This trend has become well apparent in the era of European absolutism and the collapse of the gold standard in the last century is a paragon of reminding us that free trade is just as much an illusion as free markets or communist economies alike.

In short, instead of discussing what impact inflation and deflation have on a domestic economy, we should become aware that this is no policy governments could deliberately decide about but the domestic impact of anarchic competition of rent-seeking economic systems in times of globalisation.

In this view, the Bitcoin economy may well face pressure to initiate policies towards inflation if the founders (or a yet to form powerful organisation) comes to face pressure from specific interest groups to develop an edge over other currencies. The simplest scenario would be the good suppliers (which grant value to the currency in the first place) would pick up other, cheaper electronic currencies and force Bitcoin to devalue.

[BitterTea]

How would they do so? In order for the block subsidy to stay 50 BTC forever (the simplest way of making Bitcoin permanently inflationary), a majority of users must adopt the client with the updated rules. There's easy way for a single or small group of individuals to change the rules at their discretion. In the future, this might be possible with the prevalence of headers only or even thinner client software, but I believe such drastic unilateral changes can be guarded against.

[Washingtron]

Guarded by whom and what measures?
My point is that you are debating on whether inflation is worth for quick boosts of ailing economies or whether it undermines long-term growth prospect without including the larger context of a world economy with many different policy-makers and their instruments. You do not have any level-playing field and Bitcoin users may well not have the field (mostly) for themselves. Competition does not only affect the players' strategies but the rules of the (policy-ruled) system as well.

[evoorhees]

I assume this question is hypothetical, because Bitcoin will never be in deflation. It's programmed to continually increase in an asymptotic pattern. Unless someone destroys a vast amount of Bitcoins by dropping their wallet file in the ocean, Bitcoins will increase in quantity each day.

No decrease in the money supply = no deflation. And people saving or "hoarding" as some like to call it does not reduce the money supply, the money is still available to the market it's merely a question of at what interest rate holders of the money will be willing to part with it. The price of money changes, but it isn't "deflating."

Our society has been trained that deflation=prices falling, but that is confusing a cause and a symptom. One symptom of a decrease in money supply is falling prices, but that does not mean falling prices = deflation.

And yes we can thank Krugman for perpetuating such absurd notion... for goodness sake I read one of his pieces arguing against the privatization of airports because planes would be crashing into each other without Government oversight. The man is a fool with a very loud microphone.

[Andris]

It's deflationary if the rate of currency increase is less than the rate of increase in productivity which makes use of that currency.

That's basically why bitcoin is in a deflationary period now. There are millions of libertarians in the world, plus non-libertarians who consider libertarian money to be just as green and will happily relieve them of some of it if they are so eager to do so. Bitcoin has barely reached 1% of its potential market.

[goatpig]

Guarded by whom and what measures?
My point is that you are debating on whether inflation is worth for quick boosts of ailing economies or whether it undermines long-term growth prospect without including the larger context of a world economy with many different policy-makers and their instruments. You do not have any level-playing field and Bitcoin users may well not have the field (mostly) for themselves. Competition does not only affect the players' strategies but the rules of the (policy-ruled) system as well.

Anyone can modify the code, but no one has the guaranty that the user base will update to their modified code. And what concurrence does Bitcoin have? A rule cannot exist without force to apply it. Policy makers hold that authority over their respective currency and economy because they have the full force of their government to back their decisions. Bitcoin is impervious to these forces, so how are they to be considered exactly?

It's programmed to continually increase in an asymptotic pattern

That pattern is finite. At 21 million coins, no more minting.

[evoorhees]

It's programmed to continually increase in an asymptotic pattern

That pattern is finite. At 21 million coins, no more minting.

That's what asymptotic means... the increase decreases over time down to zero.

[goatpig]

It's programmed to continually increase in an asymptotic pattern

That pattern is finite. At 21 million coins, no more minting.

That's what asymptotic means... the increase decreases over time down to zero.

Slight nuance. Asymptotic means tends towards the asymptote. It doesn't mean it will achieve asymptote value.