Will old-fashioned scrip make a comeback?
economist.com
economist.com
Passing around funny money doesn't seem like a good idea, but hey, not much of what the gov't has done or is trying to do seems like a good idea.
Money is just a tool - if somehow it does not do the job people want it to do, they will switch to alternative schemes anyway. If money decays, maybe they will trade in "stuff" instead. I don't see how artificially lowering a tools effectiveness could help, in general.
It would be easy to create jobs for everyone by just outlawing all machines, so everybody would have to work on the potato farms to pick potatoes. Everybody would have a job, but overall the economy would be worse off...
You have to guarantee inflation>=0 for an economy to work. Gold bugs would opt for inflation=0, and that's very good. But if you don't happen to have a gold backed currency, than inflation>0 needs to be your goal, since targeting inflation=0 is too easy to screw-up and go negative.
Why do you need inflation>=0? So people are willing to spend. Otherwise, they'll shut down and wait till tomorrow to buy. Tomorrow, they'll do the same thing. Nobody buys anything, and the whole thing just dies.
Sure, people will trade in "stuff", as you put it, but the efficiencies of that are very low, which is why money was invented in the first place.
So, in theory, it is good to somehow devalue a currency based on time. We just have to be really careful we don't hurt too many generations in the process.
I also don't think people wouldn't spend anymore. They need things, so they have to spend. If they don't need things, they shouldn't spend. I don't think making people buy stuff they don't need is really helpful in the long run.
You say that if somebody doesn't need something, they shouldn't buy it. Well, they don't buy it, in a deflationary environment. But, we really don't NEED all that much. As more and more people decide they don't need new cars, new houses, new clothes, clean water, electricity, etc., the society spirals back in time to the caveman days. That's an exaggeration, obviously, but you get my point.
This is how consumer electronics works, and yes, people buy plenty.
> As more and more people decide they don't need new cars, new houses, new clothes
New cars and clothes? Well, they probably don't need these things. Overproduction is not a good thing - excess clothes sit unused in a closet, and a frivolous new car means an old car goes to the junkyard (circuitously).
> clean water, electricity, etc
One can do without these just as easily regardless of inflation (especially since you can't really store them), and yet people still buy them. Demand comes from widespread wealth, when the benefits of these things outweigh the relative cost. This independent wealth (and thus true progress) are encouraged by a monetary policy which rewards savings, not by one which induces spending for the illusion of temporary wealth.
I'm only responding at all, because I have a cool analogy that I want to use.
Positive feedback. If you're not aware of what that is, since this is a digitally oriented site, it's not a good thing. It means that the more something happens, the more something happens. The less something happens, the less something happens.
Economies tend to have this quality because of people's emotions. There's also negative feedback, which is capitalism, where supply and demand form a beautiful analog computer that is almost magical in it's ability to allow goods to appear where they're needed most, when they're needed most. But, on top of this wonderful capitalist negative feedback system, we have the evil positive feedback system of human greed and fear.
With positive feedback caused by our greed and fear, in this case, fear, we end up in a deflationary spiral, where everything just shuts down, and the more it shuts down, the more people lose their jobs, and the more they hoard money and goods, and things shut down even tighter.
This is not an especially difficult or non-intuitive point, and I only make it, since you didn't seem to grasp it, and I wanted to talk about feedback.
Now, it's very nice to talk about savings. I quit my job two years ago to spend time on my start-up, and I could do it because I was a good saver. That said, what is good for a person, is not good for a people. A society that hoards, will soon be hoarding crumbs and dirt.
Are there real world examples of such deflationary spirals getting out of control? Would be interested to read about them.
I am still not really buying it, to be honest. People can't ignore their needs forever. And what if the deflation is just the correction of the previous inflation? I suppose the housing bubble is an example, while the prices for houses where rising it was inflation, and now it is deflation?
The article also omits the fact that the value of a scrip would change as it gets closer to its expiry date. Simply put, you wouldn't want to accept scrip that expires tomorrow as payment. This would call for some funky mathematics at the checkout counter.
It's also one of the most frightening ideas I've heard proposed, and you're not the first to propose it, it's been proposed by congressmen.
Just as there was a strong backlash against the patriot act, with many feeling that extra security was not worth losing rights for, so too, must you seriously examine whether you really think it's worth sacrificing your children's ability to save, to end this business cycle's downturn six months early.
These times disturb me greatly, and it's not the problems that scare me, it's the solutions that are proposed to them.
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