Should we abolish the RBA (2 Viewers)

[volition]

It depends what the definition of 'is' is, right?

I asked you that because afaik gold standards don't fail "because the population grew". If you mean falling prices when you say deflation, why is that even a problem?

 

[Riet]

Interest rates should reflect the risk of investments, having them set artificially low achieves nothing.

 

[volition]

I trust I don't have to explain what 'deflation' means since you seem to have pretty strong opinions about inflation which one would hope had some sort of minimal logical basis.

Don't try to frame this as "you teaching me what deflation is", note that I asked what you mean by deflation, not what deflation means. Some people call falling prices deflation, and others call the decrease in the money supply deflation (the more classical usage of the term).

DEFLATION AND THE GOLD STANDARD

 

[S.H.O.D.A.N.]

I asked you that because afaik gold standards don't fail "because the population grew". If you mean falling prices when you say deflation, why is that even a problem?

See edit.

And you're kidding me, right? You have this notion of inflation as some sort of evil yet completely fail to understand why deflation, the opposite, is even worse?

Deflation is a sustained fall in prices. Persistent deflation (as would occur with a gold standard and no mining to keep up with population growth) means goods and services prices persistently falling for an extended period of time. People stop investing and spending. A good example of what happens when such a deflationary spiral occurs is the Great Depression of the 1930's (whose cause I'm sure you Libbos have your own theories about, but the symptoms were clear).

Wikipedia puts the situation succinctly:

Since deflation discourages investment and spending, because there is no reason to risk on future profits when the expectation of profits may be negative and the expectation of future prices is lower, it generally leads to, or is associated with a collapse in aggregate demand. Without the "hidden risk of inflation", it becomes more prudent just to hold on to money, and not to spend or invest it.

 

[volition]

Shodan, don't believe everything you read on wikipedia.

The notion of inflation is not necessarily evil, libertarians say it is evil when the government robs people of the purchasing power in their dollar by effectively defrauding them by permitting certain institutions to 'legally counterfeit' money, and not other people. (inflation here is meant in the classical sense, as in, expansion in the currency)

Now when you're talking about deflation as the fall in prices (not the classical meaning of deflation), you'd be insane to suggest that everybody would stop buying things and the sky would fall. People still have to eat and still have to live under a roof and still desire things for consumption. This is one of those things where 'common wisdom' or whatever you want to call it goes horribly wrong and you see so many economic commentators/financial advisors all make this mistake. The reality of it is that falling prices (because of increased productivity) is a good thing for consumers and it is a good for the economy overall.

Ask yourself whether during economic downturns, you want your money to grow or shrink in value? If your future job security is in doubt, do you want to pay more or less for goods? If your savings are meager, do you want them to have more or less purchasing power in the future? If you answer these questions rationally, you can see that deflation is wonderful for everyone, and the saving grace of a period of economic contraction. Throughout the nineteenth century, prices fell in periods of economic growth, which is precisely what one might expect. This is all to the good.

Deflation: Hurrah!

It is indicative of an increased standard of living for everyone.

 

[S.H.O.D.A.N.]

It is never prudent to hoard money. Sure with deflation you can gain by simply leaving your money "idle." But you can get a much higher return by investing it, since you get interest, as well as the benefit of being repaid with money that will have more purchasing power in the future.

Also, people don't stop consuming either. After all, the only reason people save and invest is to enable consumption at some point. The idea that everyone will become misers if prices are perpetually falling is absurd. Look at computers and technological goods, their prices are constantly and sharply falling, it doesn't stop people buying these goods.

Oh, sorry, I thought we were talking about the real world, not the magical land of Libertopia where the financial system runs on the engine of contradiction rather than according to inviolate mathematics. My bad.

Either both these are true or neither is true. Pick which you believe please, instead of trying to pretend you can have your cake and eat it:
a) Peoples's money is worth more, and
b) Peoples's investments and goods are worth less

Just for the record, because you obviously didn't know this: the prices of technological goods are generally NOT falling, we are simply getting better products for the same price. Whenever the prices do end up falling, it's not a SUSTAINED fall (as deflation implies), and it's due to increases in efficiency. 'Deflation' in this sense affects only that specific industry and only insofar as the price fall can be sustained (which they aren't for obvious reasons).

The dangers of deflation are every bit as chaotic, unpredictable, and horrible for the economy as inflation ever could be that it's wonderfully ludicrous to see Libertarians espousing it just to fend off bruised egos that would occur over admitting the fact that independent intervention (government or not) in the money supply is a necessary evil.

Anyway, fuck this, I'm not going to sit here listening to Libertarians quote blogs at me trying to claim that deflation is wonderful a.k.a. 2+2=5 when anybody with half a brain should be able to understand the reasons economists give as to why it's not (that includes Milton Friedman, who I thought you guys were supposed to worship).

 

[ComingUpForAir]

S.H.O.D.A.N you are correct in your anaylsis, albiet reductio ad absurdum. In the short-median term your assumption that a gold standard would lead to rampant deflantion is rather capricious. Gold/silver reserves have by no means been exhausted, and the increasing population (coupled with gold standard) would of course provide incentives for mining companies to expand their gold/silver operations, i.e deflation would be a distant problem, and one must conceed that under a gold standard prices would be far more stable (which provides a better outcome than the current fiat system, but there are of course other problems associated with the gold standard).

 

[S.H.O.D.A.N.]

Hahahahaha, yep. I think this pretty much captures what a mongoloid you are.

Thanks for the ad hominem, zimmerman, not that I expect much rational from you, but for all intents and purposes, when a company produces product x one year for $200, and product y two years later for $200 that's twice as fast but discontinues product x, it's an illusion to say that the price of product x has fallen.

When milk costs $2 one year and $1 a year later, but it's the same milk and the same quanity, THAT is falling price.

 

[S.H.O.D.A.N.]

S.H.O.D.A.N you are correct in your anaylsis, albiet reductio ad absurdum. In the short-median term your assumption that a gold standard would lead to rampant deflantion is rather capricious. Gold/silver reserves have by no means been exhausted, and the increasing population (coupled with gold standard) would of course provide incentives for mining companies to expand their gold/silver operations, i.e deflation would be a distant problem, and one must conceed that under a gold standard prices would be far more stable (which provides a better outcome than the current fiat system, but there are of course other problems associated with the gold standard).

So the money supply would be controlled by mining corporations. Who would control how much they mined each year to ensure inflation was 0%? I agree with you otherwise.

 

[ComingUpForAir]

So the money supply would be controlled by mining corporations. Who would control how much they mined each year to ensure inflation was 0%? I agree with you otherwise.

Well provided there is suffiecent competition, the market would (its like asking how does any firm no how much to produce).
It would be fairly hard (probably impossible, atleast in the short-medium term) to form a monopoly, but i agree that eventually, as resources diminish, collusion and deliberately restricted output could cause major problems

 

[S.H.O.D.A.N.]

But if the milk still costs $2, but you get twice as much for that $2, there's something totally different in play right?

If there was no cheaper unit of milk on offer to give you the same amount as before, then it would be further away from 'falling prices', but you could effectively still call it a fall in prices since you can be guaranteed to drink milk all your life and hence just by twice as much for $2 instead of buy it at $1 twice.

However, you can't divide an electronic device up into units like that, and it's a shame you don't recognise that.

Another, different example: If Apple decides to sell 2 iPods for $200 where they previously sold one for $200, yet you only need 1, but you can not buy 1 for $100, is that a fall in prices? Please say yes. I need a good laugh.

I certainly don't care how you want to define a fall in prices, though, as long as you recognise that prices don't fall forever in new growth industries. They start high, then fall over time until they reach an equilibrium point and then their price largely stays static from then, on, barring new increases in the efficiency of manufacture that allow them or their competitors to get ahead, creating a new price equilibrium point. That is quite clearly not sustained deflation.

 

[volition]

No, I don't worship Milton Friedman. He got a lot of things wrong, especially about currency. I think in the end he ended up working against the cause for freedom by choosing to work with the government and ended up misguiding people. He guided them away from the correct solution : zero government.

Also, iirc the idea to take taxes out of people's pay throughout the year (aka PAYG) rather than take it as a lump sum at the end, was his idea. Imagine if people actually had to pay their taxes in one big lump sum, they would have a much better idea of the massive burden that government represents and there might be some more resistance to the idea of government as being necessary.

 

[S.H.O.D.A.N.]

Well provided there is suffiecent competition, the market would (its like asking how does any firm no how much to produce).
It would be fairly hard (probably impossible, atleast in the short-medium term) to form a monopoly, but i agree that eventually, as resources diminish, collusion and deliberately restricted output could cause major problems

I'm not sure I agree with that because mining corps aren't banks, nor do they have the best interests of the economy at heart (seeking gold levels and hence deflation/inflation levels that suit their current needs), but it's the best defence of the gold standard I've read in a long time.

Edit: Actually, it wasn't really a defence and I just effectively repeated what you said.

 

[S.H.O.D.A.N.]

CCPU Computers - Professional Systems

check out this "basic" computer package for $390.

A system with the same processing power would have cost thousands of dollars a few years ago.

The older computer may not have had the exact same components, but their usefulness to the consumer could still be considered equivalent.

Prices do fall all the time. Even with your very example of ipods, there price has actually fallen.

I never denied this. I simply pointed out that in the tech industry more often than not companies produce better products for the same price rather than lower prices (it's arguable whether prices fall more often than better products are produced I suppose). The original post you griped at did contain the qualifier "even when prices do fall...".

 

[ComingUpForAir]

I'm not sure I agree with that because mining corps aren't banks, nor do they have the best interests of the economy at heart (seeking gold levels and hence deflation/inflation levels that suit their current needs), but it's the best defence of the gold standard I've read in a long time.

Edit: Actually, it wasn't really a defence and I just effectively repeated what you said.

Sorry but i think you misunderstand the nature of 'the market', the whole point is that no individual agent has 'the best interests of the economy at heart', each is motivated by self interest, 'the market' merely aggregates this information and a price is set that reflects a goods true value (read adam smith for more in depth analysis, you will see how/why markets allocate resources effeiciently). Again I'm not sure what you mean by 'not like banks'.

 

[S.H.O.D.A.N.]

Sorry but i think you misunderstand the nature of 'the market', the whole point is that no individual agent has 'the best interests of the economy at heart', each is motivated by self interest, 'the market' merely aggregates this information and a price is set that reflects a goods true value (read adam smith for more in depth analysis, you will see how/why markets allocate resources effeiciently). Again I'm not sure what you mean by 'not like banks'.

I do understand the free market, but I obviously don't place the same faith in it as you. If the free market were perfect, we would not need banking regulations or anti-trust laws. If the free market were perfect we would not need laws to ensure sick people could access health insurance. If the free market were perfect every actor would have perfect knowledge of said market and make perfectly rational decisions (clearly not true). And even then there would be nothing to change the fact that the free market is a chaotic system (in the stochastic sense) with attractors, local optima, and spontaneous order. It's guaranteed to find a solution, and it's liable to be a pretty good one most of the time, but does that make it the best solution for every problem, let alone the best solution for any arbitrary problem?

The 'not like banks' comment was a reference to central banks, who are (generally) liable to the people to keep the money supply balanced. This is unlike mining corporations who are liable to their shareholders to make a profit in whatever way possible. And thus we're back to relying on the intrinsic good of the free market, which is IMHO untenable as described above.

 

[ComingUpForAir]

I do understand the free market, but I obviously don't place the same faith in it as you. If the free market were perfect, we would not need banking regulations or anti-trust laws. If the free market were perfect we would not need laws to ensure sick people could access health insurance. If the free market were perfect every actor would have perfect knowledge of said market and make perfectly rational decisions (clearly not true). And even then there would be nothing to change the fact that the free market is a chaotic system (in the stochastic sense) with attractors, local optima, and spontaneous order. It's guaranteed to find a solution, and it's liable to be a pretty good one most of the time, but does that make it the best solution for every problem, let alone the best solution for any arbitrary problem?

Uh I understand market failure (i.e when externalities are associated with the production of a certain good, leading to a socially ineffienct quantity output), and never claimed that it 'has the best solution for every problem' (i.e it underprovides public goods), and nowhere do my arguements require 'faith' (i.e unjustified beliefs, or beliefs that contradict the evidence). Again, no offence, but i seriously question ur training in microeconomics when u claim that the market hypothesis assumes 'every actor would have perfect knowledge of said market', it actually states the precise opposite, that is, each agent is only aware of his/her circumstances. Again even if i were somekind of 'free market fundamentalist' (which i'm not), i dont see how that pardons you from responding to my questions about why gold mining is different to banks etc.

 

[S.H.O.D.A.N.]

Uh I understand market failure (i.e when externalities are associated with the production of a certain good, leading to a socially ineffienct quantity output), and never claimed that it 'has the best solution for every problem' (i.e it underprovides public goods)

OK, my bad.

and nowhere do my arguements require 'faith' (i.e unjustified beliefs, or beliefs that contradict the evidence).

A lot of what people (especially the free market fundamentalists you refer to below) say about the free market is faith-based. Obviously given what you said about it underproviding public goods I've mis-judged you.

Again, no offence, but i seriously question ur training in microeconomics when u claim that the market hypothesis assumes 'every actor would have perfect knowledge of said market' it actually states the precise opposite, that is, each agent is only aware of his/her circumstances.

Uh, no, I never said that. I said that if the market were perfect every actor would require perfect knowledge. The crux of this is not that I believe people (or you) see the free market as perfect, but something almost opposite: it obviously isn't perfect, and thus recommending it as a replacement for imperfect humans is somewhat unjustifiable.

Again even if i were somekind of 'free market fundamentalist' (which i'm not), i dont see how that pardons you from responding to my questions about why gold mining is different to banks etc.

You missed my edit, then. How can you be certain that the free market would optimise the money supply better than a central bank? And if you're not certain, then isn't your claim faith-based?

 

[nicko1990]

you guys wanna get rid of our central bank?

one word: crazy.

it's so ridiculous i cbb to substantiate it.

 

[ComingUpForAir]

Uh, no, I never said that. I said that if the market were perfect every actor would require perfect knowledge. The crux of this is not that I believe people (or you) see the free market as perfect, but something almost opposite: it obviously isn't perfect, and thus recommending it as a replacement for imperfect humans is somewhat unjustifiable.


You missed my edit, then. How can you be certain that the free market would optimise the money supply better than a central bank? And if you're not certain, then isn't your claim faith-based?

Oh sorry, on the second point you raise, I thought you where talking about retail banks (i.e NAB) and suggesting that gold mines are more prone to monopolist behaviour.

On ur first point, what do you mean by the word perfect when you say 'perfect markets would require every actor to have perfect knowledge'?

You can't be serious when you state 'it obviously isn't perfect, and thus recommending it as a replacement for imperfect humans is somewhat unjustifiable', its a false dicotomy to think that because something isnt perfect it should be discarded. Markets will, for the vast majority of goods, allocate capital far more effeicently than conscious direction, they intergrate the circumstancial knowledge of millions of independant agents, while price setting relies on the conscious direction of a small group of (as u assert) imperfect humans with limited data.

The interest rates on bonds/money market securities are set by the market, so for the most part the central banks play a minor day-to-day role is setting 'the price' on money.