Is deflation truly that bad for an economy?

[thaaanos]

How does this lead you to say social systems cant work?

I never said that social systems can't work.  The confusion comes maybe because I said that most social engineering is based upon that misunderstanding.  Social engineering.  Wanting to transform the social relationships of humans, like communism or the like.  Wanting people to want other things than their own interest.

I'm not a Socialist or Communist so don't mistake what I post as a proponent for Socialism or Communism.  But I don't think you understand what Socialist means.  Doesn't mean to transform social relationship of humans or making them want things other than their own interest.

It means the ownership is socialized (owned by the workers) as opposed to owned by capital (owners).  If applied to macro like the Communist experiments of the 20th Cent., then clearly they all failed (with the exception of China)

But it can be applied to micro as well.  I.e. co-ops vs corporations.  Socialized healthcare (in Sweden, Canada, Uk, etc..).  Social Security in USA.  And so on

come to think of it internal corporate structure is centrally planed (he board) in capitalist countries while in socialists more free as if the required randomness is pushed inside.

so shouldn't in the free market all companies operate as Steam does? how do you explain it?

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[thaaanos]

It means the ownership is socialized (owned by the workers) as opposed to owned by capital (owners).  If applied to macro like the Communist experiments of the 20th Cent., then clearly they all failed (with the exception of China)

China got where it got today after they essentially allowed private capital ownership in the late '70s when Deng Xiaoping took power and began carrying out significant economic reforms. They switched from a planned economy to a mixed economy with an open market. In short, "Communist" China is as Communist as any other Capitalist country out there...

Ask yourself, would you rather China had not turn "communist"? could the world handle 2 billion Americans more?

[deisik]

It means the ownership is socialized (owned by the workers) as opposed to owned by capital (owners).  If applied to macro like the Communist experiments of the 20th Cent., then clearly they all failed (with the exception of China)

China got where it got today after they essentially allowed private capital ownership in the late '70s when Deng Xiaoping took power and began carrying out significant economic reforms. They switched from a planned economy to a mixed economy with an open market. In short, "Communist" China is as Communist as any other Capitalist country out there...

Ask yourself, would you rather China had not turn "communist"? could the world handle 2 billion Americans more?

Chinese mentality is very far from the Western one. Unlike Americans, they are not much interested in bringing their moral values ("democracy") unto the rest of the world. If they didn't try to conquer the world in the five millenia of their previous history, why should they now?

[dinofelis]

Re:  Ethics.

Clearly paying a starving person a bowl of rice to work 16 hrs a day is unethical.

Then don't give him a bowl of rice

[dinofelis]

Ask yourself, would you rather China had not turn "communist"? could the world handle 2 billion Americans more?

If the world can't handle 2 billion Americans more, then this will not happen.  If it cannot happen, it won't happen.

[dinofelis]

If you want break it down to economics.  If you exploit labor like this where will you get consumers?  When people have decent wages they can become consumers so in the long run the producers will enjoy more wealth.  

This is also such a crazy statement that comes back very often: one should pay its employees a lot of money, so that they can pay a lot of money for your products

The secret is that you don't want MONEY from your consumers, you want to get *goods and services* from others.  Money is just an intermediate thing.  You produce, because you want to get production from others, not money.  If you can get the production from your labourers for less, then by all means, that's what you should do.  

Imagine: I have material costs of 100.-, I pay 100.- wages, and I have then produced 100 products which I sell for 3.- each, so I make 100.- benefit.

What advantage would I have, by paying 160.- wages, and sell now 20 products more (namely, the 20 products that my employees can buy with their extra salary) ?  Because now, in fact, I have a cost also of 120.

In the end, I will now sell 120 products at 3 each, have a material cost of 120, and pay 160 wages.  My benefit is now 360 - 160 - 120 = 80.

I LOWERED my profit from 100 earlier on to only 80, by paying my workers more so that they come and consume my products and by selling more.

There is nothing to be won by increasing wages for people to consume more.  Because you have to pay the other production factors too (in our case, the "material costs")

[dinofelis]

But I don't think you understand what Socialist means.  Doesn't mean to transform social relationship of humans or making them want things other than their own interest.

Then what was the purpose of all that internal communist propaganda concerning the common good ?

[polarhei]

It depends cases. Normally in order to encourage people, inflation should be required, but what is the most suitable annual rate? Currently there is no right answer, i'm afraid.

In my place, 5% is a typical rate, however with other schemes, it possibly not be the case.

[thaaanos]

If you want break it down to economics.  If you exploit labor like this where will you get consumers?  When people have decent wages they can become consumers so in the long run the producers will enjoy more wealth.  

This is also such a crazy statement that comes back very often: one should pay its employees a lot of money, so that they can pay a lot of money for your products

The secret is that you don't want MONEY from your consumers, you want to get *goods and services* from others.  Money is just an intermediate thing.  You produce, because you want to get production from others, not money.  If you can get the production from your labourers for less, then by all means, that's what you should do.  

Imagine: I have material costs of 100.-, I pay 100.- wages, and I have then produced 100 products which I sell for 3.- each, so I make 100.- benefit.

What advantage would I have, by paying 160.- wages, and sell now 20 products more (namely, the 20 products that my employees can buy with their extra salary) ?  Because now, in fact, I have a cost also of 120.

In the end, I will now sell 120 products at 3 each, have a material cost of 120, and pay 160 wages.  My benefit is now 360 - 160 - 120 = 80.

I LOWERED my profit from 100 earlier on to only 80, by paying my workers more so that they come and consume my products and by selling more.

There is nothing to be won by increasing wages for people to consume more.  Because you have to pay the other production factors too (in our case, the "material costs")

the benefit is that you have increased output.

[twiifm]

If you want break it down to economics.  If you exploit labor like this where will you get consumers?  When people have decent wages they can become consumers so in the long run the producers will enjoy more wealth.  

This is also such a crazy statement that comes back very often: one should pay its employees a lot of money, so that they can pay a lot of money for your products

The secret is that you don't want MONEY from your consumers, you want to get *goods and services* from others.  Money is just an intermediate thing.  You produce, because you want to get production from others, not money.  If you can get the production from your labourers for less, then by all means, that's what you should do.  

Imagine: I have material costs of 100.-, I pay 100.- wages, and I have then produced 100 products which I sell for 3.- each, so I make 100.- benefit.

What advantage would I have, by paying 160.- wages, and sell now 20 products more (namely, the 20 products that my employees can buy with their extra salary) ?  Because now, in fact, I have a cost also of 120.

In the end, I will now sell 120 products at 3 each, have a material cost of 120, and pay 160 wages.  My benefit is now 360 - 160 - 120 = 80.

I LOWERED my profit from 100 earlier on to only 80, by paying my workers more so that they come and consume my products and by selling more.

There is nothing to be won by increasing wages for people to consume more.  Because you have to pay the other production factors too (in our case, the "material costs")

Thats' what the empirics show.  Just look at the postwar times nothing unusual about this idea

[twiifm]

But I don't think you understand what Socialist means.  Doesn't mean to transform social relationship of humans or making them want things other than their own interest.

Then what was the purpose of all that internal communist propaganda concerning the common good ?

What does that have to do with the meaning of Socialism?  All propaganda including free market ones is for the common good

[dinofelis]

the benefit is that you have increased output.

I can now use the same strategy towards a worker.  I can say that in order for my products to become cheaper so that he can buy more of them, I propose that he works 20% more time for a slightly lower wage.  As such, my labor cost will be lower, and I can lower the price of my products more, so that he can  The logic is the same.  If the guy tells me: "hey, you propose me to work more and earn less ?" I will answer him: "but my dear, your benefit is that you have increased your output"

[twiifm]

the benefit is that you have increased output.

I can now use the same strategy towards a worker.  I can say that in order for my products to become cheaper so that he can buy more of them, I propose that he works 20% more time for a slightly lower wage.  The logic is the same.  If the guy tells me: "hey, you propose me to work more and earn less ?" I will answer him: "but my dear, your benefit is that you have increased your output"

Its a macro concept not micro

[dinofelis]

the benefit is that you have increased output.

I can now use the same strategy towards a worker.  I can say that in order for my products to become cheaper so that he can buy more of them, I propose that he works 20% more time for a slightly lower wage.  The logic is the same.  If the guy tells me: "hey, you propose me to work more and earn less ?" I will answer him: "but my dear, your benefit is that you have increased your output"

Its a macro concept not micro

I will tell him that too


Seriously, the argument is totally flawed, because it goes against Say's law.  Say's law says that all beneficiaries of all the production factors of a product make exactly the amount of money necessary to buy up all of the production, if they want to.

Consider an extreme case, where industry is totally automatized and labor is worth zilch, because there is no labor needed any more.  According to your argument, in such a case, that industry wouldn't find any customers, because labor wage (macro) is zero.

Nothing is less true.  In fact, all the sales go in the pockets of the share holders, so THEY can buy the products.

In a totally automated industry, the industry will make products for the share holders, which will be their sole customers, and which will be totally served by all the fully automated  production.  Without one single dollar of wages.

[twiifm]

the benefit is that you have increased output.

I can now use the same strategy towards a worker.  I can say that in order for my products to become cheaper so that he can buy more of them, I propose that he works 20% more time for a slightly lower wage.  The logic is the same.  If the guy tells me: "hey, you propose me to work more and earn less ?" I will answer him: "but my dear, your benefit is that you have increased your output"

Its a macro concept not micro

I will tell him that too


Seriously, the argument is totally flawed, because it goes against Say's law.  Say's law says that all beneficiaries of all the production factors of a product make exactly the amount of money necessary to buy up all of the production, if they want to.

Consider an extreme case, where industry is totally automatized and labor is worth zilch, because there is no labor needed any more.  According to your argument, in such a case, that industry wouldn't find any customers, because labor wage (macro) is zero.

Nothing is less true.  In fact, all the sales go in the pockets of the share holders, so THEY can buy the products.

In a totally automated industry, the industry will make products for the share holders, which will be their sole customers, and which will be totally served by all the fully automated  production.  Without one single dollar of wages.

Who cares about Say's Law?  Its not correct and outdated

[thaaanos]

the benefit is that you have increased output.

I can now use the same strategy towards a worker.  I can say that in order for my products to become cheaper so that he can buy more of them, I propose that he works 20% more time for a slightly lower wage.  The logic is the same.  If the guy tells me: "hey, you propose me to work more and earn less ?" I will answer him: "but my dear, your benefit is that you have increased your output"

Its a macro concept not micro

As long as output scales with extra work time you are correct, but generally workers operate at top capacity, and lack the ability to grow to meet higher demands.
Companies on the other can scale better, and with growth, comes efficiency, this is why output matters.

[dinofelis]

Who cares about Say's Law?  Its not correct and outdated

 

It is obviously correct, because it is simple accountancy.  The entire sales of any enterprise goes exactly to all of the production factors: wages (paying labor), dividends (paying capital and entrepreneurship), and the buying of other materials and services (ground), which are, themselves then, again inputs to other enterprises.

In the end, every penny that is earned in selling the goods, comes in the hands of someone, directly or indirectly involved in its production.  All those pennies together are, obviously, exactly equal to the sum of the prices of the sold goods.  So all those receivers of those pennies can buy exactly the sold goods.

Never ever can goods be sold that cannot be bought by the income generated by that sale.  Of course, it is not because those goods can be bought, that they WILL be bought, because the receivers of those sales incomes might want OTHER things.  But every penny that is an income from a sales, will end up in SOMEONE's pockets, and can hence in principle be spend to buy that product.  That's the essence of the contents of Say's law.  It is simple, mathematical, bookkeeping.

The only way in which Say's law could be wrong, is if somebody were to burry some money received from the sales, to never dig it up again.  Then, the sum of all the prices of the sold goods, minus the amount of money burried, would of course not be sufficient to buy all those goods.  But that is because there would be a "leak" in the money fluxes.

[dinofelis]

the benefit is that you have increased output.

I can now use the same strategy towards a worker.  I can say that in order for my products to become cheaper so that he can buy more of them, I propose that he works 20% more time for a slightly lower wage.  The logic is the same.  If the guy tells me: "hey, you propose me to work more and earn less ?" I will answer him: "but my dear, your benefit is that you have increased your output"

Its a macro concept not micro

As long as output scales with extra work time you are correct, but generally workers operate at top capacity, and lack the ability to grow to meet higher demands.
Companies on the other can scale better, and with growth, comes efficiency, this is why output matters.

The law of diminishing returns...

[RaginglikeaBoss]

Re:  Ethics.

Clearly paying a starving person a bowl of rice to work 16 hrs a day is unethical.  If you want break it down to economics.  If you exploit labor like this where will you get consumers?  When people have decent wages they can become consumers so in the long run the producers will enjoy more wealth. 

It's more ethical than not paying a starving person in food after they've worked for 16 hours.   

[twiifm]

Who cares about Say's Law?  Its not correct and outdated

 

It is obviously correct, because it is simple accountancy.  The entire sales of any enterprise goes exactly to all of the production factors: wages (paying labor), dividends (paying capital and entrepreneurship), and the buying of other materials and services (ground), which are, themselves then, again inputs to other enterprises.

In the end, every penny that is earned in selling the goods, comes in the hands of someone, directly or indirectly involved in its production.  All those pennies together are, obviously, exactly equal to the sum of the prices of the sold goods.  So all those receivers of those pennies can buy exactly the sold goods.

Never ever can goods be sold that cannot be bought by the income generated by that sale.  Of course, it is not because those goods can be bought, that they WILL be bought, because the receivers of those sales incomes might want OTHER things.  But every penny that is an income from a sales, will end up in SOMEONE's pockets, and can hence in principle be spend to buy that product.  That's the essence of the contents of Say's law.  It is simple, mathematical, bookkeeping.

The only way in which Say's law could be wrong, is if somebody were to burry some money received from the sales, to never dig it up again.  Then, the sum of all the prices of the sold goods, minus the amount of money burried, would of course not be sufficient to buy all those goods.  But that is because there would be a "leak" in the money fluxes.

Uh no.  If Say's Law is correct then we shouldn't see things like The Great Depression or deflationary spirals.

Virtually all of mainstream economics accept Keynes rejection of Say's Law