Inflation urges us to buy now rather than later. Objects of desire will cost more in the future, and inflation means your money's purchacing power is being reduced, so in inflationary times goods are a better store of wealth than money. So we spend. Debts disappear with inflation. A £3000 debt today becomes something you can pay with a weeks wages next week.
I don't agree though. Inflation is not what we need. What we need is deflation, and along with it, less consumption and for everyone to get genuinely poorer. That is the only long term solution. Forcing inflation could well end with a Zimbabwei situation were we are all running round with wheel barrows.....
Jim
For every complex problem, there is a simple answer, and it's wrong.
"Heaven and earth are ruthless, and treat the myriad creatures as straw dogs" (Lao Tzu V.i).
SunnyJim wrote:I don't agree though. Inflation is not what we need. What we need is deflation, and along with it, less consumption and for everyone to get genuinely poorer. That is the only long term solution. Forcing inflation could well end with a Zimbabwei situation were we are all running round with wheel barrows.....
It's an interesting question, what's better inflation or deflation? Inflation is more equitable as after a few thousand percent everyone is approximately as broke as everyone else. Large debts as well as large savings vanish. People who took on large debts to buy property win (relatively).
Deflation makes the rich (relatively) richer and the poor (in debt) poorer.
clv101 wrote:It's an interesting question, what's better inflation or deflation?
Neither?
I experience pleasure and pains, and pursue goals in service of them, so I cannot reasonably deny the right of other sentient agents to do the same - Steven Pinker
SunnyJim wrote:I don't agree though. Inflation is not what we need. What we need is deflation, and along with it, less consumption and for everyone to get genuinely poorer. That is the only long term solution. Forcing inflation could well end with a Zimbabwei situation were we are all running round with wheel barrows.....
It's an interesting question, what's better inflation or deflation? Inflation is more equitable as after a few thousand percent everyone is approximately as broke as everyone else. Large debts as well as large savings vanish. People who took on large debts to buy property win (relatively).
Deflation makes the rich (relatively) richer and the poor (in debt) poorer.
Monetary supply should match the 'real economy' if the real economy is slowing then the monetary supply should deflate to match. Any other solution is exacerbating the problem. If inequality of wealth is a problem then that will have to be tackled by other means. To inflate when the 'real economy' is deflating is to push in the wrong way. It is to push towards a breakdown of trust in money.
Last edited by SunnyJim on 17 Sep 2008, 14:53, edited 1 time in total.
Jim
For every complex problem, there is a simple answer, and it's wrong.
"Heaven and earth are ruthless, and treat the myriad creatures as straw dogs" (Lao Tzu V.i).
clv101 wrote:It's an interesting question, what's better inflation or deflation?
Neither?
Precisely. A choice between vanishing money or worthless money isn't much of a choice.
However more people are likely to be caught out by deflation than inflation - after all, everyone has been working under the assumption that house price inflation would continue to expand faster than their compounding debt. Ditto graduates with £30,000 millstones anticipating ever better earnings.
clv101 wrote:It's an interesting question, what's better inflation or deflation?
Neither?
I don't think BAU (growth and inflation being approximately equal) is an option.
So much for growth, then! SJ sums it up well.
It has to be a different business.
I experience pleasure and pains, and pursue goals in service of them, so I cannot reasonably deny the right of other sentient agents to do the same - Steven Pinker
SunnyJim wrote:Inflation urges us to buy now rather than later. Objects of desire will cost more in the future, and inflation means your money's purchacing power is being reduced, so in inflationary times goods are a better store of wealth than money. So we spend. Debts disappear with inflation. A £3000 debt today becomes something you can pay with a weeks wages next week.
I don't agree though. Inflation is not what we need. What we need is deflation, and along with it, less consumption and for everyone to get genuinely poorer. That is the only long term solution. Forcing inflation could well end with a Zimbabwei situation were we are all running round with wheel barrows.....
I don't think it makes a ha'p'worth of difference. The situation is unredeemable. Anything done is done simply for the sake of saying something's being done.
"We're just waiting, looking skyward as the days go down / Someone promised there'd be answers if we stayed around."
Why do you keep saying that? What do you mean? What do you think is going to happen?
We're all going to get poorer. We all know that. Managed deflation can achieve that without any fuss, until people start starving. Then there will be trouble, but that is a long way off and people are incredible beings. Our will to survive is incredible, and in many ways we are like a colony of bees. We all work together to maximise our survivability. We are not like a purely complex system. We are actually the adaptive part of an adaptive compex system. Mankind can adapt to living with less, as long as we don't kill the planet in the process.
I don't see what you mean when you say we're beyond hope. I think we will relish the challenge of knuckling down and doing some real work for a change.
n.b my views on this change regularly. I could see no way out for the financial system before this nationalisation of the whole lot started happening.
Jim
For every complex problem, there is a simple answer, and it's wrong.
"Heaven and earth are ruthless, and treat the myriad creatures as straw dogs" (Lao Tzu V.i).
I think that inflation is a pretty safe bet. Its kind of built into the system and it is extremely difficult to see how it could be avoided.
The prime source of true inflation is that the government issue more and more bonds to cover running expenses, like paying salaries and paying for heat and electricity. The government has unlimited ability to issue new bonds.
No government has been able to abstain from "deficit spending" when tax incomes dry up and costs increase. They act just like addicts and make utterances like "just this time, its an emergency - we will take care of the structural problems later when things have settled down".
By going into "deficit spending", the government issue new money which dilute the existing pool of money, causing classic inflation.
In the initial stages we will probably only see inflation in costs, and not in salaries, and that is rather painful. We actually see it right now.
MacG wrote:I think that inflation is a pretty safe bet. Its kind of built into the system and it is extremely difficult to see how it could be avoided.
The prime source of true inflation is that the government issue more and more bonds to cover running expenses, like paying salaries and paying for heat and electricity. The government has unlimited ability to issue new bonds.
No government has been able to abstain from "deficit spending" when tax incomes dry up and costs increase. They act just like addicts and make utterances like "just this time, its an emergency - we will take care of the structural problems later when things have settled down".
By going into "deficit spending", the government issue new money which dilute the existing pool of money, causing classic inflation.
In the initial stages we will probably only see inflation in costs, and not in salaries, and that is rather painful. We actually see it right now.
That starts a terrible feedback mechanism though, where defecit must be paid for by future tax payers, who are made poorer, but have more deficit to service. So more money must be pumped into the system and you end up like our friends in Zim. We must deflate unless we want the very concept of money and state to fail.
It's like forcing an unstable system too far off centre.... once it starts falling the rate at which it falls increases. Until trust in money is gone and your state relies on a foreign currency.
Jim
For every complex problem, there is a simple answer, and it's wrong.
"Heaven and earth are ruthless, and treat the myriad creatures as straw dogs" (Lao Tzu V.i).
