31–40 of 47 posts
As a gross generalization:
Higher Growth -> Higher Employment -> Higher Inflation
High Inflation -> Negative Income Growth (for those on low wages and fixed incomes) -> Risk of Recession and/or Social Disruption
Lower Growth -> High Unemployment -> Risk of Recession and/or Social Disruption
Put those parameters in and the "game" gets interesting. At the moment it's just pointless.
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Despite that, companies like Apple have hundreds of billions in revenues. Which is to say, the falling prices aren't a real problem. After all, the same person could say they could get the same thing for even cheaper in 2 years, 3 years, 5 years or 10 years.
True. And yet, it still means there is some pushing of demand into the future due to the deflating prices. Which means that your argument in the GGP post is false. The fact that, despite the pushing of some demand into the future, Apple makes tons of revenue does not change the fact that demand is still being pushed into the future. That is, your reply, while true, is irrelevant.
This is one thing I've never understood about this whole "inflation incentivizes people into spending now rather than later". If we're simply pushing the demand into the future, aren't there already people from the past whose "future time to spend" is the current moment?
From my perspective, all that I see inflation doing is artificially forcing people to put more money into the stock market and investing than they should be.
Perhaps I am economically naive, but why does there need to be any inflation? Why isn't 0 a target?
People with money just sitting on cash (instead of investing) is a nightmare scenario - it's the shape of global economic meltdown. Capitalism requires that people with capital invest it. In theory, capital gets something worth more than what they spent, a business is created, it pays employees who pay other businesses who pay employees, etc. and you get a self-sustaining cycle of prosperity. Everybody is better off…
Economists discount deflation as being dangerous with just one sentence (it encourages hoarding). Are there any examples of deflation actually being harmful in an economy? There are plenty of examples of inflation being dangerous [0]. Technology is an example where deflation does not encourage hoarding.
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True. And yet, it still means there is some pushing of demand into the future due to the deflating prices. Which means that your argument in the GGP post is false. The fact that, despite the pushing of some demand into the future, Apple makes tons of revenue does not change the fact that demand is still being pushed into the future. That is, your reply, while true, is irrelevant.
Does the cumulative "push" of "demand" into the "future" not have the systemic effect that in the future, there will be "current" demand? This is one thing I've never understood about this whole "inflation incentivizes people into spending now rather than later". If we're simply pushing the demand into the future, aren't there already people from the past whose "future time to spend" is the current moment? From my pe…
Perhaps I am economically naive, but why does there need to be any inflation? Why isn't 0 a target?
Basically, it's because people want to see their wages go up, and a central bank loses the power to set short term interest rates when inflation is 0%, as we've witnessed in the US over the past 6 years.
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People with money just sitting on cash (instead of investing) is a nightmare scenario - it's the shape of global economic meltdown. Capitalism requires that people with capital invest it. In theory, capital gets something worth more than what they spent, a business is created, it pays employees who pay other businesses who pay employees, etc. and you get a self-sustaining cycle of prosperity. Everybody is better off…
If deflation encourages hoarding, why don't we see that in items that are well understood to be deflationary? An example is technology. Everyone knows that the value of their smartphone will decrease by ~25-50% a year, but we still purchase them. Economists discount deflation as being dangerous with just one sentence (it encourages hoarding). Are there any examples of deflation actually being harmful in an economy? T…
If I bought a computer for $600 in 1980, it's not going to be traded for $600 today. But if I got a $600 check in 1980, I could cash it today for $600. Inflation is what makes this a reasonable thing to do. If money deflated, I wouldn't cash my check, I'd want to hold it for as long as possible. Deflation basically means you collect interest on any cash you have.
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If deflation encourages hoarding, why don't we see that in items that are well understood to be deflationary? An example is technology. Everyone knows that the value of their smartphone will decrease by ~25-50% a year, but we still purchase them. Economists discount deflation as being dangerous with just one sentence (it encourages hoarding). Are there any examples of deflation actually being harmful in an economy? T…
Money works differently from technology. You can trade old cash for an amount of new cash with the same face value whenever you want. If I bought a computer for $600 in 1980, it's not going to be traded for $600 today. But if I got a $600 check in 1980, I could cash it today for $600. Inflation is what makes this a reasonable thing to do. If money deflated, I wouldn't cash my check, I'd want to hold it for as long as…
I don't see how that's different from choosing not to spend $600 for a computer today knowing that it'll be only cost $500 a year from now. You buy it today because it has a higher value to you now rather than a year from now (we still prefer things sooner as opposed to later, despite deflation). You would also may choose to cash in the $600 knowing well that it will be worth more if you wait because you want to spend it on something now.
Even with deflation, people would still spend money as we prefer to consume now rather than later. If cash had a positive return, I'd imagine riskier assets would have an even greater return so you wouldn't necessarily be all tied in cash. I know cash has a negative return (due to inflation) but I still hold it.
Perhaps I am economically naive, but why does there need to be any inflation? Why isn't 0 a target?
A popular modern economic theory is that if prices rise slowly over time, people will tend to purchase today instead of saving money to purchase tomorrow, since they believe the price of what they want will be higher tomorrow. If prices drop slowly over time, people will tend to save as long as possible before purchasing, since they believe the price of what they want will be lower tomorrow. Since simple economic pro…
This is even more true for some things than others... few people are going to say "Hey, deflation is on, let me wait until next week to eat" when they're hungry today.
I'm not saying deflation is good or anything, but an awful lot of economic theory is rooted in some pretty shaky foundations.
Earlier quoted context omitted.
People with money just sitting on cash (instead of investing) is a nightmare scenario - it's the shape of global economic meltdown. Capitalism requires that people with capital invest it. In theory, capital gets something worth more than what they spent, a business is created, it pays employees who pay other businesses who pay employees, etc. and you get a self-sustaining cycle of prosperity. Everybody is better off…
If deflation encourages hoarding, why don't we see that in items that are well understood to be deflationary? An example is technology. Everyone knows that the value of their smartphone will decrease by ~25-50% a year, but we still purchase them. Economists discount deflation as being dangerous with just one sentence (it encourages hoarding). Are there any examples of deflation actually being harmful in an economy? T…
Earlier quoted context omitted.
People with money just sitting on cash (instead of investing) is a nightmare scenario - it's the shape of global economic meltdown. Capitalism requires that people with capital invest it. In theory, capital gets something worth more than what they spent, a business is created, it pays employees who pay other businesses who pay employees, etc. and you get a self-sustaining cycle of prosperity. Everybody is better off…
If deflation encourages hoarding, why don't we see that in items that are well understood to be deflationary? An example is technology. Everyone knows that the value of their smartphone will decrease by ~25-50% a year, but we still purchase them. Economists discount deflation as being dangerous with just one sentence (it encourages hoarding). Are there any examples of deflation actually being harmful in an economy? T…