Topic: Positive aspects of deflation... - page 2. (Read 6741 times)

I think the main reason why cheap disposable goods could flood the market is because they are produced in very large quantities - often exceeding the "real" demand for a product of that type.
People often buy things they do not really need just because they think they make a bargain.

In a deflationary economy people would probably think twice before buying, thus making mass production of goods less cost-effective.

Also I'm under the impression, that with production costs increasingly having to take into account secondary costs (like recycling the product after its lifespan, the environmental impact of the resources and the production process, future supply of limited resources,...), the real cost for a product would shift the balance even more towards longer lasting products of higher quality. This has nothing to do with inflation/deflation but with cost transparency.

It all depends on the price/quality ratios.  When I can get a product that's twice as good for 50% more cost, I'll take it every time.  The trouble is it's often not nearly so clear-cut.

http://www.amazon.com/Ingersoll-Rand-2135TiMAX-2-Inch-Impact-Wrench/dp/B000WMN2GU
http://www.amazon.com/Campbell-Hausfeld-TL1302-2-Inch-Impact/dp/B000TA4BDI

I've used both.  The Ingersoll is a quality tool, clearly made to last a lifetime, and it's a real pleasure to use.  The C-H is disposable; it performs as promised, but I'd expect to replace it frequently since it's not nearly as well made and it's too cheap to bother fixing.

The environmental impact (materials and energy) that go into each are comparable.  The difference is in the extra manufacturing costs to produce the finer-quality, better-engineered product.  It's basically all labor.

Is the Ingersoll worth 10x more?  Is it worth 20x more with the time-value considered?  Is it worth 30x once you start adding deflation?  Deflation's encouraging us to buy the disposable one.

If you price in the externalities (environmental damage from metals mining, carbon remediation costs for the power generation) into the materials (eg, make the metal more expensive), it will drive up the cost of each by, say, $25.  That's negligible for the Ingersoll, but suddenly the C-H becomes a lot less appealing at twice the cost.  That creates a market incentive to allocate those resources efficiently instead of just telling us to buy less stuff.

http://www.amazon.com/HP-Deskjet-Printer-C8970A-B1H/dp/B000CO9ZMI
http://www.amazon.com/HP-CP3525N-Color-LaserJet-Printer/dp/B001FWG8DU

Pretty similar performance:  around 30PPM, color, networked...  Is the latter worth 6x more?  Even its toner cartridges are worth several times the purchase price of the cheap one!  The operating costs are much lower, and the latter will last 20 years in a home office while the former will get tossed out every couple years.  The overall price/quality tradeoff is OK: pay 6x for something that lasts 10x longer and saves you money on refills in the future.  Once you add deflation in, you start having a really big incentive to buy the one that only costs 1/6th.

I wish it was just a 50% premium to get the good stuff, but cheap disposable goods have flooded the market because they're dramatically cheaper.  Making people reluctant to spend their money will encourage that trend.

Prosperity comes from people growing useful things, making useful things, or providing useful services. Contrary to what bankers and politicians will tell you, prosperity doesn't come from increasing the money supply.

The higher the rate of inflation, the more of the prosperity goes to people who borrowed their capital, and are in debt. The higher the rate of deflation, the more of the prosperity goes to people who have saved, and are providing the capital for others.

In ideal circumstances, there is no inflation or deflation. Savers can obtain a small premium in return for temporarily foregoing use of their money, and borrowers can pay a small premium in return for using other people's capital for productive purposes.

While I agree that deflation isn't always positive and think that most of your points are very relevant I do think that the idea of buying cheaper rather than better goods can be argued. Consider that the consumer has a choice of a cheaper product (for $20) and a better quality one (for $30) and that the quality one will outlast the cheaper one by a factor of two (say 2 years rather than 1).

Consider then the following:

Cheaper $20 - lasts 1 year
Quality $30 - lasts 2 years

lets just assume that the "price" of both of these goods remains the same (so getting more expensive in real terms each year due to perhaps increased scarcity of resources required for manufacturing) then we would see the following spending occur over 5 years

        Cheaper  Quality
Year 1    20.0    30.0
Year 2  +20.0   +0.0
Year 3  +20.0   +30.0
Year 4  +20.0   +0.0
Year 5  +20.0   +30.0

Total   100.0     90.0

In this example by buying the quality product we have actually saved money.

Whilst this is a contrived example I've generally found that quality products will last much more time than their proportional cost (YMMV) so I do think that deflation can assist in favoring the choice of quality over the cheapest price (as I think the real problem is that a lot of people just don't bother to consider how long something will last these days).

Cheers,

Ian.

I certainly agree that economic growth is not good when it's at the expense of resource depletion and environmental damage.  I am absolutely in favor of economic incentives to produce durable, long-life goods, and discouraging the use of disposable products and wasting resources.

Limiting economic growth to achieve those goals has several problems:

While it encourages you to continue using an old product for as long as possible, when a replacement becomes necessary it doesn't provide a strong incentive to replace it with a high-quality one.  Because deflation increases the time-value of money, you have an economic incentive to spend as little as possible now even if it means buying a second replacement sooner.  Since your money will be worth more in the future, that second replacement will cost you less.

Not all economic activity has nonrenewable resource costs.  Paying for telephone service, food, sex, etc, does not directly deplete resources.  There may be secondary effects (oil for mechanized farming, coal to power the telephone company), but economy-wide deflation doesn't create an incentive to buy your food from a more efficient farm; it just encourages eating less.

It also discourages investments that conserve resources: rooftop solar that would have paid off in 10 years now becomes much less rewarding if spending that money now hurts more and buying coal-power for the next ten years becomes effectively cheaper to you.

Economic incentives that are targeted directly at the externalities are much more effective and have far fewer unintended consequences.  I don't mind slowing economic growth when it's driven by those incentives, but limiting economic growth to try to achieve those goals is backwards and often counterproductive.

Sorry but I don't quite see how I "blamed money for consumerism" - consumerism is tied to inflation/deflation in that we see behavior such as "keeping up with the latest" vs. "keeping what I've got working" being fairly related to economic cycles but money itself causes neither.

I have no idea why my post would suggest anything to do with lords and fiefdoms either - care to explain?

Cheers,

Ian.

"just think, if we have deflation, our tools will last longer!"

quite a stretch to blame money for consumerism, bro. perhaps we should go back to lords and fiefdoms?

Just a few things I've mentioned when having to "defend" the deflationary aspect of Bitcoin to people who are new to the idea.

1) We live in a world that is rapidly running out of resources (such as oil now and later coal) due to consumption.

The idea of the necessity to have "ever expanding" economies must surely have a lot to do with this issue. A deflationary economy might well be of great benefit in helping the world to reduce the problems of over consumption.

2) We live in a world that is badly polluted by the very consumption our "growing economies" have so heavily promoted.

Slowing demand down (and especially the demand for "throw away" goods) surely is a good way to help the environment (and therefore all life living on planet Earth).

3) Goods these days are never made to last (I think most people even only just over 30yo would agree that many modern tools and devices are inferior compared to products that were being made by previous generations).

If your money was becoming more valuable by you not spending it then you are going to buy a replacement widget when you absolutely need it (and you would want that widget to last as long as possible so you are not losing even more by constant replacement).

Tie in the above with a bit about the greed of modern banks (which as a store for your savings in order to earn interest would be unnecessary with deflation) and you start to put forward a more convincing argument in favour of deflation for those that although perhaps schooled in Keynesian economics do understand the problems of the modern world (assuming they are not bankers).

Cheers,

Ian.