Switzerland Offers Counterpoint on Deflation’s Ills
wsj.com
wsj.com
As the article briefly mentions, the Swiss Franc is now worth about 10% more vis-a-vis the Euro than it was a year ago. Many things in Switzerland are actually inflating if you care about EUR value, which many Swiss people and businesses do: prices and wages have decreased 2% in nominal CHF values, while the CHF has simultaneously appreciated 10%. Many Swiss employees therefore in practice have a salary that represents more European buying power than it did a year ago. That could be expected to have some effects more similar to inflation rather than deflation, in this context.
I think the same would probably happen with any small European country. If Denmark broke the DKK/EUR peg and let the DKK appreciate by ~10%, many things would deflate in DKK terms to compensate.
I've been saying this theory is bunk for years, so it's nice to finally see the view start to surface in mainstream publications. You only have to review the data to discover that there's no empirical link between deflation and depression. For instance, take this paper, written by economists at the Minneapolis Fed:
https://www.minneapolisfed.org/research/sr/sr331.pdf
Abstract:
Are deflation and depression empirically linked? No, concludes a broad historical study of inflation and real output growth rates. Deflation and depression do seem to have been linked during the 1930s. But in the rest of the data for 17 countries and more than 100 years, there is virtually no evidence of such a link.
But you don't really need data to convince yourself that the 2%-inflation-is-best theory is nonsense. Basic common sense should be good enough. The entire thing rests on the assumption that there's a class of investments that people would refuse to invest in if left to their own devices, but which suddenly become attractive only if their savings are shrivelled by a few percent a year. Such a class of investments certainly does exist: they're called bad investments!
But having an economy that uses currency X, but does much of its trade in currency Y, changes the dynamic compared to considering an economy in isolation, doesn't it?
> But you don't really need data to convince yourself that the 2%-inflation-is-best theory is nonsense. Basic common sense should be good enough. The entire thing rests on the assumption that there's a class of investments that people would refuse to invest in if left to their own devices, but which suddenly become attractive only if their savings are shrivelled by a few percent a year. Such a class of investments certainly does exist: they're called bad investments!
I think you're missing the basis for the 2%-inflation-is-best theory. Let's start with this: When is deflation bad? Deflation is bad when it's sustained enough that your salary goes down, and you owe money. And if there are enough people in that circumstance, it's bad for the economy as a whole, because a bunch of people default on their debts, which tends to cause a depression. A mild deflation that doesn't lead to lower wages, on the other hand, is probably good for the economy as a whole.
But here's the thing: When deflation is bad for the economy, it tends to be really bad. The central bank would prefer to avoid that situation. 2% inflation leaves them a bit of room before they run into that circumstance, so that they can try to maneuver to avoid it.
- you earn a rate of return on simply sitting on money. Doing nothing competes with investing. If deflation is 5%, why bother making an investment that could return 5%? Why does a rich person deserve to earn a rate of return on their wealth for nothing?
- deflation incentivizes non-spending. People will delay purchases if they expect prices to decrease in the future.
- deflation necessitates nominal pay cuts. People are psychologically unwilling to accept pay cuts. This leads to layoffs, strikes, labor unrest.
- deflation necessitates a decrease in nominal aggregate income. Your savings growing by 2% sounds nice, but most people's cash savings is a tiny fraction of their future income. Your income will go down. Own any stocks? Those could decrease in value every year.
- deflation increases the cost of debt. How would you like it if your credit card debt or student loan debt grew by 2% every year?
- A 5% return on an investment coupled with 5% deflation is equivalent to about a 10.5% return. Economically ideal rational actors will continue to invest.
- The majority of purchases people make are not delayable: utility fees need to be paid if you wish to continue receiving them, food must be purchased, renting is money thrown in the garbage as is. Everything else that people have to save for, they will normally purchase the minute they are able because they feel the vacuum.
- Necessity of pay cuts doesn't follow from deflation but rather from depression. Unlike the other points you don't attempt to defend this premise.
- Repeat of prior point.
- The debt won't grow. The normal argument should be that your salary will decrease by 2% each year so effectively the original principle grows, but this is an effect of depression, not deflation.
The idea that deflation leads to depression is because people argue that it will lead to non-spending. However, my experience with real people, as opposed to theoretically idealized "rational" actors tells me that the minute they can afford to spend more, they will. The evidence on people winning the lottery is similar: most people do not invest, but rather spend quickly and emphatically.
- nerfhammer probably meant a nominal return of 5%, which when combined with 5% deflation is 0. But it seems more likely to me that the real return of any particular investment opportunity would remain relatively constant rather than the nominal return. I'm not too sure about this one
- I think that a majority of investment decisions (in dollar terms) are made by people not living paycheck-to-paycheck. I think you still might be right in practice, though
- If there's deflation of 2%, then to pay your employees the same amount in real terms, you have to cut their nominal pay by 2%, which people really dislike
- This point of nerfhammer I think is wrong. If the value of your stock holdings goes down by 2% every year, but keeps the same purchasing power, the only difference to you is that you don't pay any capital gains taxes
- Debts are usually measured in nominal terms, so if you have a loan that says $100 but that $100 is now worth 2% more than it was before, your debt has increased in real terms
The difference is you would be better off holding cash. The stock's value is constant in real terms, the value of cash increases.
What nerfhammer meant was that a 5% deflation is EQUIVALENT to a 5% nominal rate of return in a 0% inflation market.
In other words, during deflation, sitting on cash makes the cash more valuable. Deflation is a dis-incentive to invest, share money, start projects, or seek profits.
You need a 10% real return in order to make the equivalent of a 5% non-deflation real return. It might seem like it's just adding the the amount of deflation, but it's not: income must drop over time. Your investment vehicle will pay out less in nominal terms. You start a muffin shop - they need to charge lower prices than when the investment was made, and will need to repay their investors less. You invest in a startup - it takes five years for the buyout to happen, but now money is worth more so the nominal price they get sold for is lower. Because there is always a time component to investing, investments need to compete with deflation, they don't automatically just add returns on top of it.
> The majority of purchases people make are not delayable...
There is plenty of empirical evidence that people do delay purchases during deflation, e.g. https://ideas.repec.org/p/hst/hstdps/d05-98.html
Even assuming it's not a majority of purchases, if people cut spending by only 15-25% that's still enough to be quite deleterious for the economy.
> Necessity of pay cuts doesn't follow from deflation but rather from depression.
Yes it does. Under deflation in order to pay people the same in real terms you have to pay them less in nominal terms. The whole point of deflation is that everyone cuts prices. This means that companies will end up with less income, and have to pass that on to their employees. People absolutely hate pay cuts, and often layoffs end up being used instead.
> The debt won't grow.
Yes it will. The real value of $1 increases. If you debt is denominated in dollars, the value of your debt increases. The equivalent amount of work you will have to do to pay off the debt increases.
I think there's a much simpler approach: abolish central banks entirely. They're relics of the past, an ode to centrally planned economies. Yellen can raise an eyebrow and the markets move in response, behaviour which is helpful to nobody.
I suspect if we did this (and possibly moved towards full reserve banking) what we'd end up with is a state of very mild deflation equal to GDP growth, as in a growing economy you'd get more goods and services mapped to the same quantity of money i.e. each unit would be worth slightly more. But this cannot cause a downward spiral by definition, because if the economy stopped growing then the deflation would go away as well.
This would result in an economy where technological and social progress over time would result in falling prices; which is what we'd intuitively expect.
Absolutely.
> by arbitrarily defining one as better than another you're merely siding with debtors over creditors.
Not quite. Inflation expectations are built into the price of lending money; if inflation increases more than expected, lenders get hurt, but they're charging enough interest that they think it fairly compensates them for the risk.
On the other hand, deflation risks are typically not built into loans. For example, many adjustible-rate loans have a minimum interest rate; if the rate of inflation goes below zero, the interest rate will stop at, say, positive 4%. This asymmetry makes deflation worse.
Salaries are the deciding factor. Are swiss employment contracts set mainly in Francs or Euros?
I'm not sure where that leaves us in terms of conclusions, though...
Please cite an economist saying that.
[1] http://krugman.blogs.nytimes.com/2010/08/02/why-is-deflation...
There's your condition; there can be others that don't fit into a single blog post aimed at American readers. Various deflationary measures are also recommended by orthodox economists in cases of hyperinflation.
What is your new demand? That I prove a negative? That I have to quote an economist who says "deflation is bad, no matter the size of the economy"? The post you responded to said: "The theory that deflation is bad for an economy doesn't say "but only when that economy is over a certain size". It is an absolute theory that claims to apply everywhere.", not that deflation hawks said economy size doesn't matter (it is implied through omission).
Please accept that your curt and dismissive comment was falsified by a random commenter on HN who spent literally 30 seconds on Google, and typed in "Krugman deflation<CR>".
By the way, I have not been insulting to you, and I would appreciate the same consideration.
Is their deflation different, to borrow a phrase, or is CH's deflation a bit unique?
I'd love to see a contrast btwn CH and JP in this regard. Or, how could Japan stop worrying and love deflation, Swiss style.
In order to stabilize the collapse of the asset bubble, they have been playing loosey-goosey with interest rates for two decades now. But in order to stabilize the fall in asset prices using monetary policy (a blunt instrument if there ever was one), they essentially have been inflating everything else. So while they have nominally had deflation in aggregate, they have had inflation levels in consumables (which is about 70% of the cost of living) that are bordering, if not surpassed, what most economists would call HyperInflation.
There's a simple explanation for that. The very best developed economies struggle in these times to grow even at 2%, with most managing more like 1%. Since the start of the 90's the UK, for example, has managed only 1%. That's not totally surprising: GDP growth is cumulative. Each year repeating a 2% growth gets harder and harder because you have to add even more than you did last year to sustain it in percentage terms.
But Japan is in no way the very best of economies. Instead it has an economy seriously constrained by multiple factors, like an almost total lack of immigration (no new ideas) and a job-for-life culture that makes it practically impossible to fire people. Read up on "banishment rooms" to see how extreme that can really get. When was the last time Japan had a brand new, breakout product that the world swooned over? Since Nintendo lost their mojo I'm struggling to think of any. It's very rare that I interact with any company from Japan or hear "I went to Japan on a business trip".
Japan's economic woes have multiple causes: I think a far simpler explanation than "zomg deflation" is that when even the best struggle to manage 1% compounding growth Japan has no chance.
Immigration is one solution to their problem, but not _the_ solution if were looking at the domestic demand side. Immigrants don't magically bring innovation, unless you're talking about very educated immigrants which typically are a tiny fraction of any immigrant group.
There are lots of immigrants to Turkey and Bahrain even Mexico (though net looks different due to their outflows) but, no, I think Japan's issues are structural. They have a perverse system of incentives which plough too much into useless infrastructure and also their workplace culture. That's not to say they aren't innovating, they continue to innovate, it's just that they have not adapted well to globalization, and internal consumption hasn't compensated for the slack. That said, in this liberal economic context of today, deflation is not a good thing. Or ask Japanese how they feel about their economy.
There's no One True Solution to Japan's problems. Skilled immigration can help, by bringing outside experience and ideas into the mix. Look at how many successful American companies were either founded or are now run by immigrants (e.g. Google, Microsoft). But Japan barely even has that.
Your last sentences are a bit puzzling to me: you seem to agree that deflation has not led to depression and that Japan's economic issues are more structural than currency related. But then you just repeat the claim that deflation is not a good thing and point to Japan as an example!
The way I see it is any sudden change in the money supply is bad news because business likes predictability. The ideal monetary policy therefore would in fact target price stability (0% inflation) or mild deflation (as progress should mean things get cheaper over time). But you can't just say "deflation is bad" and then point to one country as an example, given that this entire thread is about the counterexample of Switzerland!
When we get there growth will cease to be essential. In the meantime, growth and thus inflation, will be indicators of robust economies.
Pervasive automation population decline and resource constraints (environmental stewardship) will have effects in the future whereby growth will not be an expression.
But Japan, at the moment, has a population in decline, a lousy job market, stagnant wages, graduates taking lousy offers, more temp workers (not their parents' job security) all things most people would typically want to avoid in their economies.
See if you can sell Russia, China, Mexico or Indonesia on deflationary economics.
Stability means no innovation. Likely prices didn't change much for a pair of shoes between the fifth and sixth centuries. Great price stability. Is that something to look forward to? Little in the way of innovation, manufacturing, technique, sourcing, etc?
That makes so much sense. The main argument against inflation is that if people see the value of their money increase, they will stop spending it and instead hold onto with the expectation that the value will rise further. That's certainly true of investors, who tend to panic sell anything that fails to outperform the dollar. But most people don't see their money as a commodity - they will only notice that the price of consumer goods is falling, and use that as a justification to spend more. So deflation is only really bad for Wall Street. Inflation subsidizes the stock market.
It's not called a deflationary spiral for nothing.
There are many reasons why inflation is a good thing - wages go up (people like that), the value of investments goes up (people like that), and while it doesn't always correlate to inflation, the money supply needs to increase over time as the population increases, otherwise you'll have some major demographic issues...
Will wages come down, over time in a purely deflationary economy probably yes. But unlike most inflationary economies where it is usual to have a x% salary growth y/y, I think the barrier to sign a contract that says: "your salary is X, and will decrease by z% per year" is a lot higher. So, if a country has only mild deflation - like Switzerland - the real value is actually likely to go up.
> wages go up (people like that)
That's also not a given, its likely to have a raise in contracts, but if I promise you a 2% yearly raise with inflation of 3% you are not really getting a great deal, are you?
> [..] major demographic issues
True, I see inflation as a great way to equally tax 'old money', and in a way that is almost impossible to escape.
In the end inflation is good for those with debt (governments/corporations are first in line), deflation is great for those with cash (but not necessarily other assets, those will probably adjust to the new price level).
Switzerland isn't there, the price of domestic goods has actually gone up slightly, only the price of imported goods has gone down drastically.
And you're also right about the stickiness of wages - generally firms don't reduce wages, but lay off workers then re-hire at lower wages. Either way the effect at the macro level is the same.
In practice, Switzerland shows that you can have zero percent inflation for many years (Swiss deflation is recent but lack of inflation isn't) and yet still have sky high wages. Obviously the theory is wrong, as reality contradicts it.
this is the main argument against DEflation, is it not?
That's backwards wrt prices (the article spoke more about prices deflating, not wages). Deflation of prices increases purchasing power.
I live in Zurich, read my story here: "Eight reasons why I moved to Switzerland (to work in IT)": https://medium.com/@iwaninzurich/eight-reasons-why-i-moved-t...
If you are interested in coming to Switzerland, just shoot me a mail.
A big part of the reason that economists think that deflation is bad is that people are very resistant to cuts in their nominal wages (much more than to cuts in real wages, like getting no raise with positive inflation). If the price of everything else suddenly dropped 10%, then cutting everyone's wages 10% would make them exactly as well off as they were previously, but the more likely outcome is that wages would drop by less than 10% and unemployment would increase.
If nominal wages are still increasing in Switzerland, maybe that's part of the reason there haven't been many adverse consequences.
Only if they had no debt.
For example, if you are poor and are spending 80% of your income on living expenses, and 10% increase in prices drops your margin of survival from 20% to 12%, which is a 40% hit. If you are wealthy and spending 20% of your income, then your margin goes from 80% to 78% which is a 5% hit. If you were in the 'poor' case, would you rather have the 10% devaluation of your debt or would you rather have a 40% hit to your livable margin?
The converse is true in a system of deflation. If you are spending 80% of your income on living expenses, a 10% DECREASE in prices increases your margin of survival from 20% to 28%, which is a 40% increase, which you would almost certainly take over a 10% increase in real value of your debt.
Moreover the notion that the rich are not in debt is rediculous. A lot of things that the rich are able to partake in more easily (e.g. playing shorts on the short markets, options trade, margin trading, all currency FX trading) are debt-based instruments, so basically having secular inflation helps the rich play with money in innumerable ways.
True.
> Compared to this the amount of debt held is basically trifling.
False.
Let's say you're middle class. You have a house, for which you have a mortgage. You have a car loan. You have credit card debt. You have a steady income, but your debt consumes 40% of your income. Your (non-debt) living expenses consume another 55%. (Your example of the poor person understates your case. Poor people don't have 20% survival margins to start with, so the impact of inflation on the poor is worse than you said.)
Now deflation happens. Your non-debt expenses drop 10%, and so does your salary. But your debt expenses don't drop at all. Now where are you? Labeling your previous income as 100%, your debt still takes 40%. Your non-debt living expenses now takes 55% * 90% = 49.5%. Your total expenses are now 89.5%, and your income is 90%. Your margin went from 5% to 0.5%.
Now, in fairness, as a middle class person, you have much more room than the poor person does to cut your expenses before you hit the edge of survival. Never the less, this shows how bad deflation can be if you're in debt. (Note well, though: The deflation has to be sustained enough to affect your income. If prices drop but your income stays the same, deflation is wonderful even if you are in debt.)
P.S., I found this discussion (http://www.wsj.com/articles/john-cochrane-whos-afraid-of-a-l...) to be pretty convincing. His guess is that sudden, dramatic, Depression-style deflation will have effects that are a lot different from slow, predictable, Swiss-style deflation.
Depends on prior evidence. Current thinking on inflation/deflation did not drop into economists' heads from space yesterday. It was developed by analyzing hundreds of years of real experience in real economies. Before we alter our beliefs too much today, we should at least be aware of the full scope of evidence on the topic.
Current thinking is almost entirely based on extrapolating the Great Depression out to all economies everywhere, even when actual empirical studies show that the extrapolation isn't valid (see the paper I posted above).
Whatever mathematical names you bring on can not change this.
Now, if you came up with examples of countries with decreasing nominal salaries and a growing economy, you could make a point. There's a paper with a few in another thread.
https://www.tagesschau.de/wirtschaft/schweiz-mehrarbeit-101....
http://www.swissinfo.ch/eng/strong-franc-woes_workers-to-be-...
Its hard to get real data at this time.
I'm simplifying a bit. The traditional theories that warn against deflation are concerned about consumers delaying spending in the hope of waiting for even cheaper prices. This delay theoretically forces the economy to grind to a halt. I think most people accept now that this is an unlikely outcome.
Now when Central Banks worry about deflation they are concerned that it might trigger a fall in real incomes, while debt remains at the same level, meaning people aren't able to pay back their debts. In our debt addicted economies, this is a real risk.
Those are two absolutely different things. One stems from production, transportation, and financial improvements across the board, the other comes because fewer people want to buy anything.
> The traditional theories that warn against deflation are concerned about consumers delaying spending in the hope of waiting for even cheaper prices. This delay theoretically forces the economy to grind to a halt.
It's not so much about consumers delaying spending. It's what happens further up the chain. If the holders of wealth that seed the economy figure out that it's better for them to hold on to their assets rather than invest them, then people lose jobs. We need them to keep investing their money.
Deflation also penalizes debt holders. The dollars you spend to pay back your mortgage are worth more than the dollars you make now. Since most Americans hold more debt than assets, deflation hurts common people more than it helps.
That's the theory, but I'm skeptical. If the economy is healthy they'll have investment opportunities that compensate adequately for risk and they'll still invest.
Conversely, in an inflationary environment people with savings may invest their money, but they may also buy fixed assets like gold or real estate. That doesn't help the economy very much.
>Deflation also penalizes debt holders.
And inflation hurts savers. I don't see a benefit to prioritizing the interests of debtors over savers.
A healthy economy will, in most cases, exhibit inflation. For most economies, it would take a concerted act by a central bank to force deflation in a normal, growing economy. People are making more, spending more. The government has to print more money to keep up, otherwise it will fall short of people's needs. Only in special circumstances does this not hold up.
> I don't see a benefit to prioritizing the interests of debtors over savers.
There's a huge benefit. We want to encourage economic activity over inactivity. Money in circulation is the very definition of economic activity. Money saved is the very definition of economic inactivity. Nobody borrows money unless they want to spend it, it makes no sense to borrow it just so you can keep it in the bank or under a mattress. Money borrowed is money invested.
A healthy economy will exhibit monetary inflation as it grows. But there's no reason for it to exhibit price inflation.
>The government has to print more money to keep up, otherwise it will fall short of people's needs.
That's a circular argument. It's not like people in a deflationary environment don't have any money - they have less money, but that money is worth more.
>There's a huge benefit. We want to encourage economic activity over inactivity.
Sure. I'm just not convinced getting people to go into debt really does that. Oh, it does in the short run. But once your debts start to pile up not only do you have to pay for the things you've already purchased, but you have to pay interest. If, instead of borrowing money, you'd just bought things as you could afford them, you would end up spending more.
>Money borrowed is money invested.
No, money borrowed is money spent. Sometimes that's investment. Sometimes it's not. If I borrow money to buy a bed made in China, that's not helping the US economy very much.
The idea deflation is bad for an economy doesn't hold up to historical scrutiny. The US grew strongly in the 19th century (far more strongly than today), and during that time it experienced long periods of growth accompanied by low deflation. People still have to buy food, pay the rent, buy clothes, etc even when the currency is deflating.
When people save money, do you really think they put it under a mattress? No, they put it in a financial institution like a bank, who can then use it as capital to loan out further funds. By increasing the amount of saving you should naturally reduce interest rates. Saved money doesn't just drop out of the economy.
Even if someone did put money under their mattress, they are risking having inflation eat away as its value. Also, if they never spend their money, all they have done is increase the value of everyone else's money. Prices have to fall to the point that markets will clear.
That's true, but they are measured the same way: through the nominal value of goods and services. The people that the economists are worried about, consumers, only have the price of goods to guide them, they have no information as to whether the falling price is due to improvements in efficiency or lack of demand.
>It's not so much about consumers delaying spending. It's what happens further up the chain. If the holders of wealth that seed the economy figure out that it's better for them to hold on to their >assets rather than invest them, then people lose jobs. We need them to keep investing their money.
I'm not sure I've read this as being the main driver of the theory previously. To me, it doesn't really make sense since theories concerning deflation don't make any predictions concerning the return on investment. If deflation is uniform, then the return should stay the same since the cost of inputs should fall as well. If deflation isn't uniform, then you'd see changes in the allocation of resources as some industries make large profits due to falling input costs, while other industries might go bust due to their input costs staying the same even while their sell prices fall.
Personally, I think that that productivity growth is far more important than deflation and will compensate for any short term negative effects that deflation might or might not bring.
Why does the Fed see a 2% yearly inflation target as good?
The Committee judges that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve's statutory mandate. Communicating this inflation goal clearly to the public helps keep longer-term inflation expectations firmly anchored, thereby fostering price stability and moderate long-term interest rates and enhancing the Committee’s ability to promote maximum employment in the face of significant economic disturbances.
Very vague and hand-wavey, but basically just saying that they like to have a 2% cushion between expected inflation and the traditional 0% floor, beyond which lies the spooooooky land of deflation. This 2% gives them room to raise and lower the federal funds rate (short term interest rate) to their heart's content without setting off any deflationary fire alarms in the economy. If you're really interested, here's a good overview from Bernanke (2003) on how and why the practice got started in the 1970s. [2]
Ok, let's see what our favorite Austrian economist, Friedrich von Hayek has to say about inflation targeting: "any form of inflation, even mild inflations, ultimately produce the recurring depressions and unemployment which have been a justified grievance against the free enterprise system and must be prevented if a free society is to survive." [1]
He argues that inflation distorts signals such as price and profit. This leads to the misallocation of resources to firms that look good on paper, but that could actually be failing to produce meaningful and sustainable economic returns:
The initial general stimulus which an increase of the quantity of money provides is chiefly due to the fact that prices and therefore profits turn out to be higher than expected. Every venture succeeds, including even some which ought to fail. But this can last only so long as the continuous rise of prices is not generally expected. Once people learn to count on it, even a continued rise of prices at the same rate will no longer exert the stimulus that it gave at first.
One might argue that we are seeing QE inflation, not in the direct economy, but in the investment market - property, stocks, bonds, anything traded not for short-term consumption, but for capital gains. I don't have the data, so I don't know.
Ultimately, it doesn't matter if we have small amounts of inflation or deflation, or if we have no change in the money supply at all. Expectations are what matters - if the markets know that inflation will be 10% next year with 100% certainty, they will plan accordingly and prices/wages will rise accordingly (not perfectly as there will be some friction/lag, but better than if nobody knows what to expect inflation-wise). The problem occurs when nobody knows what the hell is going on in the market, and they keep waiting for the Fed to raise interest rates to get back to 2%, but are losing faith because the Fed has kept rates at 0% for 6 years (!) now. It's all about unexpected shocks and how quickly the economy can adjust to new information.
Deflation is not to be feared if it is expected, announced, and executed by a central bank. It is to be feared when the central bank is fighting valiantly to bring about a favorable economic background in which they can raise interest rates without slowing down the recovery/growth of the economy. That's when you know they've lost control, that everything is not ok in the financial markets, and when panic takes over.
[1] https://mises.org/library/denationalisation-money-argument-r...
[2] http://www.federalreserve.gov/Boarddocs/speeches/2003/200303...
[1] http://www.econtalk.org/archives/2012/01/fama_on_finance.htm...
hyperbole == most things which contain the word 'trivially'.
I'd bet a dollar most of us have better things to do than find a way around a paywall.
These comments help make the poster aware. If the poster is aware and still doesn't use the non-paywall link, then that's wasting everyone's time.
Assuming Google will fix it all is an incorrect assumption. Assuming 3 seconds is an incorrect assumption. But let's roll with that:
3600 / 3 = 1200 viewers.
So it takes 1200 viewers to waste 1 hour of time assuming all other resource consumption is zero cost.
> far less than it takes to write incessant complaints about people charging for content.
Bitching about efficiency in this case is the height of irony. Bitching about bitching has always been an exercise in futility. Do it right the first time.
Any else notice how harsh the language is yet there is not one actual case of it occurring in the wild?
Looks to me like the powerful are doing a good job at keeping inflation above 0%
Even 0.1% (tenth of a percent) is disastrous for a currency over 500 years.
You know why we're told ( and we are told, since there are no actual experiments performed on this matter)... it's because the system of extracting value from the unsuspecting consumer/middle-class/non-investor is based on the assumption that having money means you should automatically get more of it in the form of interest.
People still have to eat, cloth their children and get a roof over their heads. Many people are not in a situation to "hoard": they are struggling to merely stay afloat.
The target should be 0% ( or very close to 0% like 0.01%) inflation. But that would mean investors would actually have to provide greater and greater value to the world.
I've seen the opposite argument much more often: the rich and powerful are pressuring central banks to keep inflation too low to help with unemployment, because higher inflation hurts savers and helps borrowers. I don't buy the conspiracy theory in either direction, but the pro-inflation direction especially doesn't make sense to me.
It should come as no surprise that banks spend so much to influence public opinion and the political process.
It's very much like that, actually, except it's more like the new dollars are worth $1.00 and the old ones are now worth $0.98. The important factor is time. Suppose we live on an island and have a currency we'll call a "foo". There are 100 foos in circulation. Tax collection isn't what it should be, so the president of the island borrows ten foos from the central bank (which, like the fed, just updates the computer to create them) and uses them to pay the presidential guard.
When he spends those ten extra foos, the president is getting the current purchasing power of the foo. It will take some time for the value of each foo to adjust down to take into account there are now 110 foos instead of just 100. Two weeks from now everything priced in foos will have risen 10%, but since the economy didn't "know" about the extra foos the president was able to spend them at full value.
>The first-order effect is: banks are owed an amount of money denominated in nominal terms, and inflation will decrease the value of those debts.
That's true, but the bank isn't going to loan you money without taking inflation into account. That's why loan interest rates go up when inflation goes up.
Also, the bank is borrowing the money they're loaning to you, and after they make the loan they're going to sell it off to a GSE or market investors. So someone else is ultimately holding the bag if there's inflation.
>And even if this theory was true, inflation has been historically low (and below central-bank targets) for quite a few years, so whoever is pushing for higher inflation isn't very good at it.
Well, yes. The problem is two-fold. The first part is in a fractional reserve system the money supply depends on qualified candidates willing to borrow. In the midst of a recession there just aren't as many of them - people without jobs aren't buying houses, and businesses aren't expanding. So less new money is created.
The second part is loan defaults destroy money. If you get enough defaults you're going to get deflation.
It's not like the banks didn't get their money's worth, though, as the government used every trick in the book to add money to the economy. At one point in time the government was borrowing forty cents of every dollar it spent, and the Fed was injecting more directly though QE.